WATERS CORP /DE/ - Quarter Report: 2023 July (Form 10-Q)

Large accelerated filer

Accelerated filer

Non-accelerated
filer

Smaller reporting company

Emerging growth company

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 July 1, 2023

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

For the transition period from

Commission File Number:

01-14010

Waters Corporation

(Exact name of registrant as specified in its charter)


Delaware		13-3668640
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

34 Maple Street

Milford, Massachusetts 01757

(Address, including zip code, of principal executive offices)

(

508

)

478-2000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	WAT	New York Stock Exchange, Inc.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation

S-T

(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a

non-accelerated

filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in

Rule 12b-2

of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in

Rule 12b-2

of the Act). Yes ☐ No ☒

Indicate the number of shares outstanding of the registrant’s common stock as of July 28, 2023: 59,102,922

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 July 1, 2023 and December 31, 2022		3
	Consolidated Statements of Operations (unaudited) for the three months ended July 1, 2023 and July 2, 2022		4
	Consolidated Statements of Operations (unaudited) for the six months ended July 1, 2023 and July 2, 2022		5
	Consolidated Statements of Comprehensive Income (unaudited) for the three and six months ended July 1, 2023 and July 2, 2022		6
	Consolidated Statements of Cash Flows (unaudited) for the six months ended July 1, 2023 and July 2, 2022		7
	Consolidated Statements of Stockholders’ Equity (unaudited) for the three months ended July 1, 2023 and July 2, 2022		8
	Consolidated Statements of Stockholders’ Equity (unaudited) for the six months ended July 1, 2023 and July 2, 2022		9
	Condensed Notes to Consolidated Financial Statements (unaudited)		10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		37
Item 4.	Controls and Procedures		37

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

Item 1: Financial Statements

WATERS CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(unaudited)


	July 1, 2023			December 31, 2022

	(In thousands, except per share data)
ASSETS
Current assets:
Cash and cash equivalents	$	329,693		$	480,529
Investments		885			862
Accounts receivable, net		693,436			722,892
Inventories		536,828			455,710
Other current assets		120,342			103,910

Total current assets		1,681,184			1,763,903
Property, plant and equipment, net		615,211			582,217
Intangible assets, net		649,731			227,399
Goodwill		1,313,501			430,328
Operating lease assets		92,412			86,506
Other assets		196,157			191,100

Total assets	$	4,548,196		$	3,281,453

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Notes payable and debt	$	50,000		$	50,000
Accounts payable		81,918			93,302
Accrued employee compensation		35,522			103,300
Deferred revenue and customer advances		324,665			227,908
Current operating lease liabilities		25,908			26,429
Accrued income taxes		121,294			132,545
Accrued warranty		12,409			11,949
Other current liabilities		157,671			140,304

Total current liabilities		809,387			785,737
Long-term liabilities:
Long-term debt		2,580,198			1,524,878
Long-term portion of retirement benefits		43,565			38,203
Long-term income tax liabilities		154,376			248,496
Long-term operating lease liabilities		66,856			62,108
Other long-term liabilities		122,585			117,543

Total long-term liabilities		2,967,580			1,991,228

Total liabilities		3,776,967			2,776,965
Commitments and contingencies (Notes 7 , 8 and 9 )
Stockholders’ equity:
Preferred stock, par value $0.01 per share, 5,000 shares authorized, none issued at July 1, 2023 and December 31, 2022		—			—
Common stock, par value $0.01 per share, 400,000 shares authorized, 162,576 and 162,425 shares issued, 59,046 and 59,104 shares outstanding at July 1, 2023 and December 31, 2022, respectively		1,626			1,624
Additional paid-in capital		2,232,055			2,199,824
Retained earnings		8,800,064			8,508,587
Treasury stock, at cost, 103,530 and 103,321 shares at July 1, 2023 and December 31, 2022, respectively		(10,133,716	)		(10,063,975	)
Accumulated other comprehensive loss		(128,800	)		(141,572	)

Total stockholders’ equity		771,229			504,488

Total liabilities and stockholders’ equity	$	4,548,196		$	3,281,453

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

Table of Contents

WATERS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)


	Three Months Ended

	July 1, 2023			July 2, 2022

	(In thousands, except per share data)
Revenues:
Product sales	$	477,926		$	469,630
Service sales		262,650			244,689

Total net sales		740,576			714,319
Costs and operating expenses:
Cost of product sales		194,354			202,356
Cost of service sales		106,722			104,850
Selling and administrative expenses		186,953			161,877
Research and development expenses		45,873			44,006
Purchased intangibles amortization		6,815			1,598

Total costs and operating expenses		540,717			514,687

Operating income		199,859			199,632
Other (expense) income, net		(352	)		1,535
Interest expense		(23,272	)		(11,419	)
Interest income		4,040			2,526

Income before income taxes		180,275			192,274
Provision for income taxes		29,721			27,410

Net income	$	150,554		$	164,864

Net income per basic common share	$	2.56		$	2.74
Weighted-average number of basic common shares		58,857			60,206
Net income per diluted common share	$	2.55		$	2.72
Weighted-average number of diluted common shares and equivalents		59,010			60,510

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

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WATERS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)


	Six Months Ended

	July 1, 2023			July 2, 2022

	(In thousands, except per share data)
Revenues:
Product sales	$	914,383		$	920,470
Service sales		510,867			484,421

Total net sales		1,425,250			1,404,891
Costs and operating expenses:
Cost of product sales		374,708			393,966
Cost of service sales		210,748			198,925
Selling and administrative expenses		368,909			319,352
Research and development expenses		88,564			84,478
Purchased intangibles amortization		8,294			3,271
Acquired in-process research and development		—			9,797

Total costs and operating expenses		1,051,223			1,009,789

Operating income		374,027			395,102
Other income, net		1,036			1,705
Interest expense		(37,716	)		(22,478	)
Interest income		8,101			4,640

Income before income taxes		345,448			378,969
Provision for income taxes		53,971			54,274

Net income	$	291,477		$	324,695

Net income per basic common share	$	4.97		$	5.38
Weighted-average number of basic common shares		58,703			60,399
Net income per diluted common share	$	4.95		$	5.35
Weighted-average number of diluted common shares and equivalents		58,909			60,744

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

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WATERS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)


	Three Months Ended						Six Months Ended

	July 1, 2023			July 2, 2022			July 1, 2023			July 2, 2022

	(In thousands)						(In thousands)
Net income	$	150,554		$	164,864		$	291,477		$	324,695
Other comprehensive income (loss):
Foreign currency translation		3,984			(24,307	)		12,767			(30,476	)
Unrealized gains on investments before income taxes		—			11			—			26
Income tax expense		—			(2	)		—			(6	)

Unrealized gains on investments, net of tax		—			9			—			20
Retirement liability adjustment before reclassifications		91			720			171			988
Amounts reclassified to other income, net		(84	)		120			(167	)		247

Retirement liability adjustment before income taxes		7			840			4			1,235
Income tax benefit (expense)		5			(206	)		1			(303	)

Retirement liability adjustment, net of tax		12			634			5			932
Other comprehensive income (loss)		3,996			(23,664	)		12,772			(29,524	)

Comprehensive income	$	154,550		$	141,200		$	304,249		$	295,171

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

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WATERS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


	Six Months Ended

	July 1, 2023			July 2, 2022

	(In thousands)
Cash flows from operating activities:
Net income	$	291,477		$	324,695
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation		23,734			20,722
Deferred income taxes		(6,435	)		(12,523	)
Depreciation		40,172			36,956
Amortization of intangibles		29,866			29,935
Acquired in-process research and development and other non-cash items		—			7,903
Change in operating assets and liabilities:
Decrease (increase) in accounts receivable		50,273			(57,377	)
Increase in inventories		(63,607	)		(65,070	)
Increase in other current assets		(19,044	)		(9,199	)
Decrease in other assets		12			4,658
Decrease in accounts payable and other current liabilities		(122,836	)		(32,197	)
Increase in deferred revenue and customer advances		81,659			70,027
Decrease in other liabilities		(90,402	)		(63,667	)

Net cash provided by operating activities		214,869			254,863
Cash flows from investing activities:
Additions to property, plant, equipment and software capitalization		(80,997	)		(74,746	)
Business acquisitions, net of cash acquired		(1,285,907	)		—
Proceeds from equity investments, net		—			5,646
Payments for intellectual property licenses		—			(4,897	)
Purchases of investments		(893	)		(10,959	)
Maturities and sales of investments		877			77,553

Net cash used in investing activities		(1,366,920	)		(7,403	)
Cash flows from financing activities:
Proceeds from debt issuances		1,450,040			105,000
Payments on debt		(395,040	)		(135,000	)
Payments of debt issuance costs		(218	)		—
Proceeds from stock plans		8,628			30,914
Purchases of treasury shares		(69,741	)		(321,944	)
Proceeds from derivative contracts		5,294			10,849

Net cash provided by (used in) financing activities		998,963			(310,181	)
Effect of exchange rate changes on cash and cash equivalents		2,252			(19,616	)

Decrease in cash and cash equivalents		(150,836	)		(82,337	)
Cash and cash equivalents at beginning of period		480,529			501,234

Cash and cash equivalents at end of period	$	329,693		$	418,897

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

Table of Contents

WATERS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited, in thousands)


	Number of Common Shares		Common Stock		Additional Paid-In Capital		Retained Earnings		Treasury Stock			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity
Balance April 2, 2022		162,252	$	1,623	$	2,138,426	$	7,960,663	$	(9,608,050	)	$	(117,725	)	$	374,937
Net income		—		—		—		164,864		—			—			164,864
Other comprehensive loss		—		—		—		—		—			(23,664	)		(23,664	)
Issuance of common stock for employees:
Employee Stock Purchase Plan		11		—		3,559		—		—			—			3,559
Stock options exercised		81		—		14,523		—		—			—			14,523
Treasury stock		—		—		—		—		(151,808	)		—			(151,808	)
Stock-based compensation		4		—		9,713		—		—			—			9,713

Balance July 2, 2022		162,348	$	1,623	$	2,166,221	$	8,125,527	$	(9,759,858	)	$	(141,389	)	$	392,124


	Number of Common Shares		Common Stock		Additional Paid-In Capital		Retained Earnings		Treasury Stock			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity
Balance April 1, 2023		162,550	$	1,626	$	2,214,963	$	8,649,510	$	(10,133,480	)	$	(132,796	)	$	599,823
Net income		—		—		—		150,554		—			—			150,554
Other comprehensive income		—		—		—		—		—			3,996			3,996
Issuance of common stock for employees:
Employee Stock Purchase Plan		13		—		3,933		—		—			—			3,933
Stock options exercised		11		—		2,316		—		—			—			2,316
Treasury stock		—		—		—		—		(236	)		—			(236	)
Stock-based compensation		2		—		10,843		—		—			—			10,843

Balance July 1, 2023		162,576	$	1,626	$	2,232,055	$	8,800,064	$	(10,133,716	)	$	(128,800	)	$	771,229

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

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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, 2021		162,084	$	1,621	$	2,114,880	$	7,800,832	$	(9,437,914	)	$	(111,865	)	$	367,554
Net income		—		—		—		324,695		—			—			324,695
Other comprehensive loss		—		—		—		—		—			(29,524	)		(29,524	)
Issuance of common stock for employees:
Employee Stock Purchase Plan		19		—		5,886		—		—			—			5,886
Stock options exercised		150		1		25,614		—		—			—			25,615
Treasury stock		—		—		—		—		(321,944	)		—			(321,944	)
Stock-based compensation		95		1		19,841		—		—			—			19,842

Balance July 2, 2022		162,348	$	1,623	$	2,166,221	$	8,125,527	$	(9,759,858	)	$	(141,389	)	$	392,124


	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		—		—		—		291,477		—			—			291,477
Other comprehensive income		—		—		—		—		—			12,772			12,772
Issuance of common stock for employees:
Employee Stock Purchase Plan		21		—		5,933		—		—			—			5,933
Stock options exercised		17		—		3,285		—		—			—			3,285
Treasury stock		—		—		—		—		(69,741	)		—			(69,741	)
Stock-based compensation		113		2		23,013		—		—			—			23,015

Balance July 1, 2023		162,576	$	1,626	$	2,232,055	$	8,800,064	$	(10,133,716	)	$	(128,800	)	$	771,229

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

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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1 Basis of Presentation and Summary of Significant Accounting Policies

Waters Corporation (the “Company,” “we,” “our,” or “us”) is a specialty measurement company that operates with a fundamental underlying purpose to advance the science that enables our customers to enhance human health and well-being. The Company has pioneered analytical workflow solutions involving liquid chromatography, mass spectrometry and thermal analysis innovations serving the life, materials and food sciences for more than 60 years. The Company primarily designs, manufactures, sells and services high-performance liquid chromatography (“HPLC”), ultra-performance liquid chromatography (“UPLC

” 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

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 revolving credit facility. The Company’s interim consolidated financial statements for the three and six months ended July 1, 2023 include Wyatt’s operating results from May 16, 2023 to July 1, 2023.

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 second fiscal quarters for 2023 and 2022 ended on July 1, 2023 and July 2, 2022, respectively.

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with the instructions to the Quarterly Report on Form

10-Q

and do not include all of the information and footnote disclosures required for annual financial statements prepared in accordance with generally accepted accounting principles (“U.S. GAAP”) in the United States of America. The consolidated financial statements include the accounts of the Company and its subsidiaries, which are wholly owned. All inter-company balances and transactions have been eliminated.

The preparation of consolidated financial statements in conformity with U.S. GAAP requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities at the dates of the financial statements. Actual amounts may differ from these estimates under different assumptions or conditions.

It is management’s opinion that the accompanying interim consolidated financial statements reflect all adjustments (which are normal and recurring) that are necessary for a fair statement of the results for the interim periods. The interim consolidated financial statements should be read in conjunction with the consolidated financial statements included in the Company’s Annual Report on Form

10-K

for the year ended December 31, 2022, as filed with the U.S. Securities and Exchange Commission (“SEC”) on February 27, 2023.

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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Risks and Uncertainties

The Company is subject to risks common to companies in the analytical instrument industry, including, but not limited to, global economic and financial market conditions, fluctuations in foreign currency exchange rates, fluctuations in customer demand, development by its competitors of new technological innovations, costs of developing new technologies, levels of debt and debt service requirements, risk of disruption, dependence on key personnel, protection and litigation of proprietary technology, shifts in taxable income between tax jurisdictions and compliance with regulations of the U.S. Food and Drug Administration and similar foreign regulatory authorities and agencies.

Through the date of the issuance of these financial statements, the Company’s consolidated financial position, results of operations and cash flows have not been materially impacted and, thus, the Company concluded that no interim goodwill or long-lived asset impairment analyses were required. Further, there have been no violations of debt covenants. Any prolonged material disruption to the Company’s employees, suppliers, manufacturing, or customers could result in a material impact to its consolidated financial position, results of operations or cash flows in the future.

Translation of Foreign Currencies

The functional currency of each of the Company’s foreign operating subsidiaries is the local currency of its country of domicile, except for the Company’s subsidiaries in Hong Kong, Singapore and the Cayman Islands, where the underlying transactional cash flows are denominated in currencies other than the respective local currency of domicile. The functional currency of the Hong Kong, Singapore and Cayman Islands subsidiaries is the U.S. dollar, based on the respective entity’s cash flows.

For 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 July 1, 2023 and December 31, 2022, $272 million out of $331 million and $472 million out of $481 million, respectively, of the Company’s total cash, cash equivalents and investments were held by foreign subsidiaries. In addition, $184 million out of $331 million and $336 million out of $481 million of cash, cash equivalents and investments were held in currencies other than the U.S. dollar at July 1, 2023 and December 31, 2022, respectively.

Accounts Receivable and Allowance for Credit Losses

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The Company has very limited use of rebates and other cash considerations payable to customers and, as a result, the transaction price determination does not have any material variable consideration. The Company does not consider there to be significant concentrations of credit risk with respect to trade receivables due to the short-term nature of the balances, the Company having a large and diverse customer base, and the Company having a strong historical experience of collecting receivables with minimal defaults. As a result, credit risk is considered low across territories and trade receivables are considered to be a single class of financial asset. The allowance for credit losses is based on a number of factors and is calculated by applying a historical loss rate to trade receivable aging balances to estimate a general reserve balance along with an additional adjustment for any specific receivables with known or anticipated issues affecting the likelihood of recovery. Past due balances with a probability of default based on historical data as well as relevant available forward-looking information are included in the specific adjustment. The historical loss rate is reviewed on at least an annual basis and the allowance for credit losses is reviewed quarterly for any required adjustments. The Company does not have any

off-balance

sheet credit exposure related to its customers.

Trade receivables related to instrument sales are collateralized by the instrument that is sold. If there is a risk of default related to a receivable that is collateralized, then the fair value of the collateral is calculated and adjusted for the cost to

re-possess,

refurbish and

re-sell

the instrument. This adjusted fair value is compared to the receivable balance and the difference would be recorded as the expected credit loss.

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

The following is a summary of the activity of the Company’s allowance for credit losses for the six months ended July 1, 2023 and July 2, 2022 (in thousands):


	Balance at Beginning							Balance at End of
	of Period		Additions		Deductions			Period
Allowance for Credit Losses
July 1, 2023	$	14,311	$	3,075	$	(2,432	)	$	14,954
July 2, 2022	$	13,228	$	3,690	$	(3,571	)	$	13,347

Other Investments

During the six months ended July 1, 2023, the Company did not have any other investment activity. During the six months ended July 2, 2022, the Company recorded a realized gain of $4 million in other income, net in the consolidated statement of operations due to the sale of an equity investment as well as incurring $4 million in impairment losses on an equity investment.

Business Combinations

The Company accounts for business combinations under the acquisition method of accounting. Accordingly, at the date of each acquisition, the Company measures the fair value of all identifiable assets acquired (including intangible assets) and liabilities assumed and allocates the amounts paid to all items measured. The fair value of identifiable intangible assets acquired is based on valuations that use information and assumptions determined by management and which consider management’s best estimates of inputs and assumptions that a market participant would use. Any excess of the fair value consideration transferred over the estimated fair values of the net assets acquired is recognized as goodwill.

Goodwill and Other Intangible Assets

The Company evaluates goodwill for impairment on an annual basis, or on an interim basis when events or changes in circumstances indicate that the carrying value may not be recoverable. Goodwill is tested for impairment at the reporting unit level, which is the operating segment or one level below an operating segment. The Company has the option of performing a qualitative assessment to determine whether further impairment testing is necessary before performing the quantitative assessment. If, as a result of the qualitative assessment, it is

more-likely-than-not

that the fair value of a reporting unit is less than its carrying amount, a quantitative impairment test will be required. Otherwise, no further testing will be required. If a quantitative impairment test is performed, the Company compares the fair values of the applicable reporting units with their aggregate carrying values, including goodwill. The fair value of reporting units is estimated using a discounted cash flows technique, which includes certain management assumptions, such as estimated future cash flows, estimated growth rates and discount rates. Estimating the fair value of the reporting units requires significant judgment by management. If the carrying amount of a reporting unit exceeds the fair value of the reporting unit, an impairment charge is recognized for the amount by which the carrying value amount exceeds the reporting unit’s fair value up to the total amount of goodwill allocated to the reporting unit. The Company performs an annual goodwill impairment assessment for its reporting units as of December 31 each year. The Company has two reporting units: Waters

and TA

. Goodwill is allocated to the reporting units at the time of acquisition.

The Company’s intangible assets include purchased technology; capitalized software; costs associated with acquiring Company patents, trademarks and intellectual properties, such as licenses; and acquired IPR&D. Purchased intangibles are recorded at their fair market values as of the acquisition date and amortized over their estimated useful lives, ranging from one to fifteen years. Other intangibles are amortized over a period ranging from one to ten years. Acquired IPR&D is amortized from the date of completion of the acquired program over its estimated useful life. IPR&D and indefinite-lived intangibles are tested annually for impairment.

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 July 1, 2023 and December 31, 2022. 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.

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

The following table represents the Company’s assets and liabilities measured at fair value on a recurring basis at July 1, 2023 (in thousands):


	Total at July 1, 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	$	885	$	—	$	885	$	—
Waters 401(k) Restoration Plan assets		28,485		28,485		—		—
Foreign currency exchange contracts		53		—		53		—
Interest rate cross-currency swap agreements		11,889		—		11,889		—

Total	$	41,312	$	28,485	$	12,827	$	—

Liabilities:
Foreign currency exchange contracts	$	211	$	—	$	211	$	—
Interest rate cross-currency swap agreements		6,164		—		6,164		—

Total	$	6,375	$	—	$	6,375	$	—

The following table represents the Company’s assets and liabilities measured at fair value on a recurring basis at December 31, 2022 (in thousands):


	Total at December 31, 2022		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Time deposits	$	862	$	—	$	862	$	—
Waters 401(k) Restoration Plan assets		25,532		25,532		—		—
Foreign currency exchange contracts		231		—		231		—
Interest rate cross-currency swap agreements		19,163		—		19,163		—

Total	$	45,788	$	25,532	$	20,256	$	—

Liabilities:
Contingent consideration	$	1,509	$	—	$	—	$	1,509
Foreign currency exchange contracts		98		—		98		—
Interest rate cross-currency swap agreements		4,783		—		4,783		—

Total	$	6,390	$	—	$	4,881	$	1,509

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.

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

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

The fair values of the Company’s cash equivalents, investments, foreign currency exchange contracts and interest rate cross-currency swap agreements 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 July 1, 2023 and December 31, 2022. 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 and $1.1 billion at July 1, 2023 and December 31, 2022, respectively, using Level 2 inputs.

Derivative Transactions

The Company is a global company that operates in over 35 countries and, as a result, the Company’s net sales, cost of sales, operating expenses and balance sheet amounts are significantly impacted by fluctuations in foreign currency exchange rates. The Company is exposed to currency price risk on foreign currency exchange rate fluctuations when it translates its

non-U.S.

dollar foreign subsidiaries’ financial statements into U.S. dollars and when any of the Company’s subsidiaries purchase or sell products or services in a currency other than its own currency.

The Company’s principal strategies in managing exposures to changes in foreign currency exchange rates are to (1) naturally hedge the foreign-currency-denominated liabilities on the Company’s balance sheet against corresponding assets of the same currency, such that any changes in liabilities due to fluctuations in foreign currency exchange rates are typically offset by corresponding changes in assets and (2) mitigate foreign exchange risk exposure of international operations by hedging the variability in the movement of foreign currency exchange rates on a portion of its euro-denominated 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.

Interest Rate Cross-Currency Swap Agreements

As of July 1, 2023, the Company had three-year interest rate cross-currency swap derivative agreements with an aggregate notional value of $625 million to hedge the variability in the movement of foreign currency exchange rates on a portion of its euro-denominated and

yen-denominated

net asset investments. Under hedge accounting, the change in fair value of the derivative that relates to changes in the foreign currency spot rate are recorded in the currency translation adjustment in other comprehensive income and remain in accumulated other comprehensive loss in stockholders’ equity until the sale or substantial liquidation of the foreign operation. The difference between the interest rate received and paid under the interest rate cross-currency swap derivative agreement is recorded in interest income in the statement of operations.

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

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


	July 1, 2023				December 31, 2022
	Notional Value		Fair Value		Notional Value		Fair Value
Foreign currency exchange contracts:
Other current assets	$	14,000	$	53	$	42,047	$	231
Other current liabilities	$	34,226	$	211	$	13,450	$	98
Interest rate cross-currency swap agreements:
Other assets	$	425,000	$	11,889	$	400,000	$	19,163
Other liabilities	$	200,000	$	6,164	$	185,000	$	4,783
Accumulated other comprehensive income			$	1,370			$	10,026

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 and interest rate cross-currency swap agreements (in thousands):


	Financial	Three Months Ended						Six Months Ended
	Statement	July 1, 2023			July 2, 2022			July 1, 2023			July 2, 2022
	Classification	July 1, 2023			July 2, 2022			July 1, 2023			July 2, 2022
Foreign currency exchange contracts:
Realized gains ( losses ) on closed contracts	Cost of sales	$	675		$	(1,292	)	$	705		$	(2,791	)
Unrealized losses on open contracts	Cost of sales		(213	)		(66	)		(291	)		(555	)

Cumulative net pre-tax gains (losses)	Cost of sales	$	462		$	(1,358	)	$	414		$	(3,346	)

Interest rate cross-currency swap agreements:
Interest earned	Interest income	$	2,673		$	2,077		$	5,328		$	3,852
Unrealized (losses) gains on open contracts	Other comprehensive income	$	(1,400	)	$	30,516		$	(8,656	)	$	42,704

Stockholders’ Equity

In January 2019, the Company’s Board of Directors authorized the Company to repurchase up to $4 billion of its outstanding common stock over a

two-year

period. This program replaced the remaining amounts available from the

pre-existing

program. In December 2020, the Company’s Board of Directors authorized the extension of the share repurchase program through January 21, 2023. In December 2022, the Company’s Board of Directors amended and extended this repurchase program’s term by one year such that it shall now expire on January 21, 2024 and increased the total authorization level to $4.8 billion, an increase of $750 million. During the six months ended July 1, 2023 and July 2, 2022, the Company repurchased 0.2 million and 1.0 million shares of the Company’s outstanding common stock at a cost of $58 million and $312 million, respectively, under the January 2019 authorization and other previously announced programs. In addition, the Company repurchased $11 million and $10 million of common stock related to the vesting of restricted stock units during the six months ended July 1, 2023 and July 2, 2022, respectively. As of July 1, 2023, the Company had repurchased an aggregate of 15.2 million shares at a cost of $3.8 billion under the January 2019 repurchase program and had a total of $1.0 billion authorized for future repurchases.

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

Product Warranty Costs

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

The following is a summary of the activity of the Company’s accrued warranty liability for the six months ended July 1, 2023 and July 2, 2022 (in thousands):


	Balance at							Balance at
	Beginning		Accruals for		Settlements			End of
	of Period		Warranties		Made			Period
Accrued warranty liability:
July 1, 2023	$	11,949	$	3,983	$	(3,523	)	$	12,409
July 2, 2022	$	10,718	$	4,084	$	(4,646	)	$	10,156

Subsequent Event

In July 2023, the Company made organizational changes to better align its resources with its growth and innovation strategies, resulting in a worldwide workforce reduction that has impacted

approximately

5% of the Company’s employees. The Company expects to incur approximately $30 million of severance related costs relating to this reduction in the third quarter of 2023.

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 six months ended July 1, 2023 and July 2, 2022 (in thousands):


	July 1, 2023			July 2, 2022
Balance at the beginning of the period	$	285,175		$	273,598
Recognition of revenue included in balance at beginning of the period		(176,508	)		(173,606	)
Revenue deferred during the period, net of revenue recognized		284,863			240,928

Balance at the end of the period	$	393,530		$	340,920

The Company classified $69 million and $57 million of deferred revenue and customer advances in other long-term liabilities at July 1, 2023 and December 31, 2022, respectively.

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):


	July 1, 2023
Deferred revenue and customer advances expected to be recognized in:
One year or less	$	324,665
13-24 months		42,196
25 months and beyond		26,669

Total	$	393,530

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

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 July 1, 2023 and December 31, 2022.

4 Inventories

Inventories are classified as follows (in thousands):


	July 1, 2023		December 31, 2022
Raw materials	$	238,392	$	205,760
Work in progress		26,941		19,899
Finished goods		271,495		230,051

Total inventories	$	536,828	$	455,710

5 Acquisitions

On May 16, 2023, the Company acquired all of the issued and outstanding equity interests of Wyatt for $1.3 billion, net of cash acquired. 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. As a result of the acquisition, the results of Wyatt are included in the Company’s consolidated financial statements from the acquisition date.

The Company preliminarily allocated the purchase price of the acquisition to identifiable assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. The purchase price allocation was based upon preliminary information and is subject to change if additional information about the facts and circumstances that existed at the acquisition date becomes available. The Company is in the ongoing process of conducting a valuation of the assets acquired and liabilities assumed related to the acquisition. The final fair value of the net assets acquired may result in adjustments to these assets and liabilities, including goodwill.

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

The intangible assets were valued with input from valuation specialists. The Company used variations of the income approach, which uses Level 3 inputs, in determining the fair value of intangible assets acquired in the Wyatt acquisition. Specifically, the customer relationships were valued using the multi-period excess earnings method under the income approach. The Company utilized the relief from royalty method to determine the fair value of the tradename and the developed technology. The following table presents the preliminary allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed on the closing date of May 16, 2023 (in thousands):


Purchase Price
Cash p aid	$	1,311,531
Less: c ash acquired		(25,624	)

Net cash consideration		1,285,907

Identifiable Net Assets (Liabilities) Acquired
Accounts receivable		20,099
Inventory		14,706
Prepaid and other assets		1,327
Property, plant and equipment		9,056
Operating lease assets		5,204
Intangible assets		418,100
Accounts payable and accrued expenses		(31,664	)
Operating lease liabilities		(5,204	)
Tax liabilities		(3,871	)
Deferred revenue		(15,219	)
Other liabilities		(5,728	)

Total identifiable net assets acquired		406,806
Goodwill		879,101

Net cash consideration	$	1,285,907

The details of the purchase price allocated to the intangible assets acquired and the estimated useful lives are as follows (dollars in thousands):


	Amount		Weighted-Average Life
Developed technology	$	80,000		10 years
Customer relationships		330,600		10 years
Trade name		7,500		5 years

Total	$	418,100

The Company allocated $879 million of the purchase price to goodwill which is deductible for tax purposes and has been allocated to the Waters Division operating segment. The goodwill arising from the acquisition consists largely of the value of intangible assets that do not qualify for separate recognition such as workforce in place and cash flows from the integration of acquired technology, distribution channels and products with the Company’s products, which are higher than if the acquired companies’ technology, customer access or products were utilized on a stand-alone basis.

During the three and six months ended July 1, 2023, the Company’s consolidated results included net sales of $16 million and a net operating loss of $3 million since the acquisition closed on May 16, 2023. The Company also incurred transaction related costs of $4 million and $12 million during the three and six months ended July 1, 2023, respectively.

The pro forma effect on the ongoing operations of the Company as though this acquisition had occurred on January 1, 2022 was considered immaterial to the consolidated financial statements.

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

In conjunction with the Wyatt acquisition, the Company entered into retention agreements with certain employees, in which the Company agreed to pay a total of $40 million, in two equal installments upon the first and second anniversary of the acquisition date. As these employees are earning their individual cash award by providing service over the

two-year

period that benefit the Company, the $40 million will be recognized within total costs and operating expenses in the consolidated statements of operations over the

two-year

service period. The Company has recorded $4 million of expense in the consolidated statement of operations for the three and six months ended July 1, 2023.

6 Goodwill and Other Intangibles

The carrying amount of goodwill was $1.3 billion and $430 million at July 1, 2023 and December 31, 2022, respectively. The acquisition of Wyatt increased goodwill by $879 million, while the effect of foreign currency translation increased goodwill by $4 million.

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


	July 1, 2023						December 31, 2022
					Weighted-						Weighted-
	Gross				Average		Gross				Average
	Carrying		Accumulated		Amortization		Carrying		Accumulated		Amortization
	Amount		Amortization		Period		Amount		Amortization		Period
Capitalized software	$	627,965	$	467,233		5 years	$	589,604	$	441,414		5 years
Purchased intangibles		612,946		171,959		10 years		197,805		166,735		11 years
Trademarks		9,680		—		—		9,680		—		—
Licenses		14,682		7,691		7 years		14,070		6,729		6 years
Patents and other intangibles		108,687		77,346		8 years		104,139		73,021		8 years

Total	$	1,373,960	$	724,229		7 years	$	915,298	$	687,899		7 years

The Company capitalized intangible assets in the amounts of $431 million and $12 million in the three months ended July 1, 2023 and July 2, 2022, respectively, and $445 million and $24 million in the six months ended July 1, 2023 and July 2, 2022, respectively. The increases in intangible assets are a result of the Wyatt acquisition.

The gross carrying value of intangible assets and accumulated amortization for intangible assets increased by $18 million and $11 million, respectively, in the six months ended July 1, 2023 due to the effects of foreign currency translation.

Amortization expense for intangible assets was $18 million and $15 million for the three months ended July 1, 2023 and July 2, 2022. Amortization expense for intangible assets was $30 million for both the six months ended July 1, 2023 and July 2, 2022. Amortization expense for intangible assets is estimated to be $92 million per year for each of the next five years.

7 Debt

On May 16, 2023, the Company financed the Wyatt acquisition with a combination of cash on its balance sheet and borrowings under its revolving credit facility. As a result of the Wyatt transaction, the Company’s outstanding debt on July 2, 2023 was $2.6 billion, a change of $1.2 billion from the end of the first quarter of 2023.

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

On May 11, 2023, the Company issued the following senior unsecured notes:


						Face Value
Senior Unsecured Notes	Term		Interest Rate			(in millions)		Maturity Date
Series P		5 years		4.91	%	$	50		May 2028
Series Q		7 years		4.91	%	$	50		May 2030

The Company used the proceeds from the issuance of these senior unsecured notes to repay other outstanding debt and for general corporate purposes. Interest on the Series P and Q Senior Notes is payable semi-annually in arrears. The Company may prepay some or all of the Senior Notes, at any time and from time to time, in an amount not less than 10% of the aggregate principal amount of the Senior Notes then outstanding, plus the applicable make-whole amount for Series P and Q Senior Notes, in each case, upon no more than 60 nor less than 20 days’ written notice to the holders of the Senior Notes. In the event of a change in control (as defined in the note purchase agreement) of the Company, the Company may be required to prepay the Senior Notes at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest. Other provisions for these senior unsecured notes are similar to the existing senior unsecured notes, as described below.

The Company has a five-year, $1.8 billion revolving facility (the “Credit Facility”) that expires in September 2026. On March 3, 2023, the Company amended the Credit Facility to increase the borrowing capacity by $200 million to an aggregate total borrowing capacity of $2.0 billion, which did not affect the maturity date of September 17, 2026. The amendment also replaced all references in the Credit Facility to LIBOR with Term SOFR as the benchmark rate. As of July 1, 2023 and December 31, 2022, the Credit Facility had a total of $1.3 billion and $270 million 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 July 1, 2023 and December 31, 2022, the Company had a total of $1.3 billion of outstanding senior unsecured notes. Interest on the fixed rate senior unsecured notes is payable semi-annually each year. Interest on the floating rate senior unsecured notes is payable quarterly. The Company may prepay all or some of the senior unsecured notes at any time in an amount not less than 10% of the aggregate principal amount outstanding. In the event of a change in control of the Company (as defined in the note purchase agreement), the Company may be required to prepay the senior unsecured notes at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest. These senior unsecured notes require that the Company comply with an interest coverage ratio test of not less than 3.50:1 for any period of four consecutive fiscal quarters and a leverage ratio test of not more than 3.50:1 as of the end of any fiscal quarter. In addition, these senior unsecured notes include customary negative covenants, affirmative covenants, representations and warranties and events of default.

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

The Company had the following outstanding debt at July 1, 2023 and December 31, 2022 (in thousands):


	July 1, 2023			December 31, 2022
Senior unsecured notes - Series I - 3.13%, due May 2023		—			50,000
Senior unsecured notes - Series G - 3.92%, due June 2024		50,000			—

Total notes payable and debt, current		50,000			50,000
Senior unsecured notes - Series G - 3.92%, due June 2024		—			50,000
Senior unsecured notes - Series H - floating rate*, due June 2024		—			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			—
Senior unsecured notes - Series Q - 4.91%, due May 2030		50,000			—
Credit agreement		1,325,000			270,000
Unamortized debt issuance costs		(4,802	)		(5,122	)

Total long-term debt		2,580,198			1,524,878

Total debt	$	2,630,198		$	1,574,878

*	Series H senior unsecured notes bear interest at a 3-month LIBOR for that floating rate interest period plus 1.25%.

As of July 1, 2023 and December 31, 2022, the Company had a total amount available to borrow under the Credit Facility of $0.7 billion and $1.5 billion, respectively, after outstanding letters of credit. The weighted-average interest rates applicable to the senior unsecured notes and credit agreement borrowings collectively were 4.68% and 3.54% at July 1, 2023 and December 31, 2022, respectively. As of July 1, 2023, the Company was in compliance with all debt covenants.

The Company and its foreign subsidiaries also had available short-term lines of credit totaling $113 million at both July 1, 2023 and December 31, 2022, 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 July 1, 2023 or December 31, 2022.

As of July 1, 2023, the Company had entered into three-year interest rate cross-currency swap derivative agreements 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.

8 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 July 1, 2023. 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 rates rather than the statutory tax rate to income arising from qualifying activities in Singapore increased the Company’s net income for the six months ended July 1, 2023 and July 2, 2022 by $7 million and $10 million, respectively, and increased the Company’s net income per diluted share by $0.11 and $0.16, respectively.

The Company’s effective tax rate for the three months ended July 1, 2023 and July 2, 2022 was 16.5% and 14.3%, respectively. The increase in the effective income tax rate can be primarily attributed to the impact of discrete tax benefits in the prior year and differences in the proportionate amounts of

pre-tax

income recognized in jurisdictions with different effective tax rates.

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

The Company’s effective tax rate for the six months ended July 1, 2023 and July 2, 2022 was 15.6% and 14.3%, respectively. The differences between the effective tax rates can primarily be attributed to 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 July 1, 2023 and July 2, 2022 were $30 million and $29 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, 2017. 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. As of July 1, 2023, the Company expects to record reductions in the measurement of its unrecognized tax benefits and related net interest and penalties of $18 million within the next twelve months due to potential tax audit settlements and the lapsing of statutes of limitations on potential tax assessments. The Company does not expect to record any other material reductions in the measurement of its unrecognized tax benefits within the next twelve months.

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 July 1, 2023 are immaterial for the years ended December 31, 2023 and thereafter.

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 July 1, 2023
	Net Income		Weighted- Average Shares		Per Share
	(Numerator)		(Denominator)		Amount
Net income per basic common share	$	150,554		58,857	$	2.56
Effect of dilutive stock option, restricted stock, performance stock unit and restricted stock unit securities		—		153		(0.01	)

Net income per diluted common share	$	150,554		59,010	$	2.55

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


	Three Months Ended July 2, 2022
	Net Income		Weighted- Average Shares		Per Share
	(Numerator)		(Denominator)		Amount
Net income per basic common share	$	164,864		60,206	$	2.74
Effect of dilutive stock option, restricted stock, performance stock unit and restricted stock unit securities		—		304		(0.02	)

Net income per diluted common share	$	164,864		60,510	$	2.72


	Six Months Ended July 1, 2023
	Net Income		Weighted- Average Shares		Per Share
	(Numerator)		(Denominator)		Amount
Net income per basic common share	$	291,477		58,703	$	4.97
Effect of dilutive stock option, restricted stock, performance stock unit and restricted stock unit securities		—		206		(0.02	)

Net income per diluted common share	$	291,477		58,909	$	4.95


	Six Months Ended July 2, 2022
	Net Income		Weighted- Average Shares		Per Share
	(Numerator)		(Denominator)		Amount
Net income per basic common share	$	324,695		60,399	$	5.38
Effect of dilutive stock option, restricted stock, performance stock unit and restricted stock unit securities		—		345		(0.03	)

Net income per diluted common share	$	324,695		60,744	$	5.35

For the three and six months ended July 1, 2023 and July 2, 2022, the Company had fewer than one million stock options that were antidilutive 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.

11 Accumulated Other Comprehensive Income (Loss)

The components of accumulated other comprehensive income (loss) are detailed as follows (in thousands):


	Currency Translation			Unrealized Gain (Loss) on Retirement Plans		Accumulated Other Comprehensive Loss
Balance at December 31, 2022	$	(146,120	)	$	4,548	$	(141,572	)
Other comprehensive (loss) income, net of tax		12,767			5		12,772

Balance at July 1, 2023	$	(133,353	)	$	4,553	$	(128,800	)

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

and TA

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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. 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 and six months ended July 1, 2023 and July 2, 2022 (in thousands):


	Three Months Ended				Six Months Ended
	July 1, 2023		July 2, 2022		July 1, 2023		July 2, 2022
Product net sales:
Waters instrument systems	$	279,940	$	280,846	$	524,151	$	550,808
Chemistry consumables		135,919		131,947		269,434		257,565
TA instrument systems		62,067		56,837		120,798		112,097

Total product sales		477,926		469,630		914,383		920,470
Service net sales:
Waters service		237,376		222,359		461,725		439,935
TA service		25,274		22,330		49,142		44,486

Total service sales		262,650		244,689		510,867		484,421

Total net sales	$	740,576	$	714,319	$	1,425,250	$	1,404,891

Net sales are attributable to geographic areas based on the region of destination. Geographic sales information is presented below for the three and six months ended July 1, 2023 and July 2, 2022 (in thousands):


	Three Months Ended				Six Months Ended
	July 1, 2023		July 2, 2022		July 1, 2023		July 2, 2022
Net Sales:
Asia:
China	$	114,981	$	138,740	$	231,046	$	259,772
Japan		37,380		37,504		83,874		86,127
Asia Other		102,262		101,766		192,784		186,445

Total Asia		254,623		278,010		507,704		532,344
Americas:
United States		238,955		213,815		441,260		422,528
Americas Other		43,972		43,456		88,088		83,580

Total Americas		282,927		257,271		529,348		506,108
Europe		203,026		179,038		388,198		366,439

Total net sales	$	740,576	$	714,319	$	1,425,250	$	1,404,891

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

Net sales by customer class are as follows for the three and six months ended July 1, 2023 and July 2, 2022 (in thousands):


	Three Months Ended				Six Months Ended
	July 1, 2023		July 2, 2022		July 1, 2023		July 2, 2022
Pharmaceutical	$	426,744	$	437,171	$	811,642	$	852,943
Industrial		229,655		208,517		439,305		417,914
Academic and government		84,177		68,631		174,303		134,034

Total net sales	$	740,576	$	714,319	$	1,425,250	$	1,404,891

Net sales for the Company recognized at a point in time versus over time are as follows for the three and six months ended July 1, 2023 and July 2, 2022 (in thousands):


	Three Months Ended				Six Months Ended
	July 1, 2023		July 2, 2022		July 1, 2023		July 2, 2022
Net sales recognized at a point in time:
Instrument systems	$	342,007	$	337,683	$	644,949	$	662,905
Chemistry consumables		135,919		131,947		269,434		257,565
Service sales recognized at a point in time (time & materials)		92,711		91,571		180,918		177,350

Total net sales recognized at a point in time		570,637		561,201		1,095,301		1,097,820
Net sales recognized over time:
Service and software maintenance sales recognized over time (contracts)		169,939		153,118		329,949		307,071

Total net sales	$	740,576	$	714,319	$	1,425,250	$	1,404,891

13 Recent Accounting Standard Changes and Developments

Recently Adopted Accounting Standards

In October 2021, accounting guidance was issued that requires acquirers in a business combination to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. The new guidance requires that at the acquisition date, the acquirer should account for the related revenue contracts in accordance with 606 as if it had originated the contracts. This guidance differs from current GAAP which requires an acquirer to recognize assets acquired and liabilities assumed in a business combination, including contract assets and contract liabilities arising from revenue contracts with customers and other similar contracts that are accounted for in accordance with 606, at fair value on the acquisition date. This guidance is effective for public business entities for fiscal years beginning after December 15, 2022, including interim periods within those years. The Company adopted this standard on January 1, 2023. The adoption of this standard did not have a material impact on the Company’s financial position, results of operations and cash flows.

Recently Issued Accounting Standards

In March 2020, accounting guidance was issued that facilitates the effects of reference rate reform on financial reporting. The amendments in the update provide optional guidance for a limited period of time to ease the potential burden in accounting for or recognizing the effects of reference rate reform on financial reporting and apply to all entities, subject to meeting certain criteria, that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. In January of 2021, an update was issued to clarify that certain optional expedients and exceptions under the reference rate reform guidance for contract modifications and hedge accounting apply to derivatives that are affected by the discounting

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

transition. Specifically, certain provisions in the reference rate reform guidance, if elected by an entity, apply to derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. This temporary guidance is effective for all entities as of March 12, 2020, through December 31, 2022. In December 2022, an update was issued because the cessation date for overnight LIBOR rates being published was extended to June 30, 2023, which was beyond the current expiration date of this guidance. The update extended the sunset date to December 31, 2024. The Company may elect to apply this guidance for all contract modifications or eligible hedging relationships during that time period subject to certain criteria. The Company does not believe that it has material reference rate exposure which would require utilizing the guidance under this accounting pronouncement and if adopted does not believe that this standard would have a material impact on the Company’s financial position, results of operations and cash flows.

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

Business Overview

The Company has two operating segments: Waters^TM and TA^TM. Waters products and services primarily consist of high-performance liquid chromatography (“HPLC”), ultra-performance liquid chromatography (“UPLC^TM” and, together with HPLC, referred to as “LC”), mass spectrometry (“MS”) 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.

Financial Overview

The Company’s operating results are as follows for the three and six months ended July 1, 2023 and July 2, 2022 (dollars in thousands, except per share data):


	Three Months Ended									Six Months Ended
	July 1, 2023			July 2, 2022			% change			July 1, 2023			July 2, 2022			% change
Revenues:
Product sales	$	477,926		$	469,630			2	%	$	914,383		$	920,470			(1	%)
Service sales		262,650			244,689			7	%		510,867			484,421			5	%

Total net sales		740,576			714,319			4	%		1,425,250			1,404,891			1	%
Costs and operating expenses:
Cost of sales		301,076			307,206			(2	%)		585,456			592,891			(1	%)
Selling and administrative expenses		186,953			161,877			15	%		368,909			319,352			16	%
Research and development expenses		45,873			44,006			4	%		88,564			84,478			5	%
Purchased intangibles amortization		6,815			1,598			326	%		8,294			3,271			154	%
Acquired in-process research and development (Note 1)		—			—			—			—			9,797			(100	%)

Operating income		199,859			199,632			—			374,027			395,102			(5	%)
Operating income as a % of sales		27.0	%		27.9	%					26.2	%		28.1	%
Other income, net		(352	)		1,535			(123	%)		1,036			1,705			(39	%)
Interest expense, net		(19,232	)		(8,893	)		116	%		(29,615	)		(17,838	)		66	%

Income before income taxes		180,275			192,274			(6	%)		345,448			378,969			(9	%)
Provision for income taxes		29,721			27,410			8	%		53,971			54,274			(1	%)

Net income	$	150,554		$	164,864			(9	%)	$	291,477		$	324,695			(10	%)

Net income per diluted common share	$	2.55		$	2.72			(6	%)	$	4.95		$	5.35			(7	%)

The Company’s net sales increased 4% in the second quarter of 2023, as compared to the second quarter of 2022, with the effect of foreign currency translation decreasing sales growth by 1%. For the first half of 2023, the Company’s net sales increased 1% with the effect of foreign currency translation decreasing sales growth by 3% as compared to the first half of 2022. The Wyatt acquisition increased sales growth by 2% and 1% for the second quarter and first half of 2023, respectively. The analysis in the remainder of this section compares the Company’s net sales for the second quarter and first half of 2023 with the Company’s net sales for the second quarter and first half of 2022 and includes the effect of the Wyatt acquisition.

In addition, the Company’s first half of 2023 included one less calendar day than the first half of 2022. At current foreign currency exchange rates, the Company expects that foreign currency translation would be neutral to sales for the remainder of 2023. Over the two-year period comparing the first half of 2023 to the first half of 2021, the Company’s net sales grew 5% annually.

Instrument system sales increased 1% for the second quarter of 2023, as the strength in the U.S. and Europe was offset by weaker customer demand in China from our pharmaceutical customers. Excluding China, the Company’s instrument system sales increased 12% for the second quarter of 2023, which was broad-based across all existing and newly introduced LC, LC-MS and thermal analysis instrument systems. Foreign currency translation decreased instrument system sales growth by 1% and 2% in the second quarter and first half of 2023, respectively. Recurring revenues (combined sales of precision chemistry consumables and services) increased 6% and 5% for the second quarter and first half of 2023, respectively, with foreign currency translation decreasing sales growth by 2% and 3% for the second quarter and first half of 2023, respectively.

Operating income was flat and decreased 5% for the second quarter and first half of 2023, respectively, primarily driven by higher salary expenses related to merit compensation and additional headcount increases, and Wyatt acquisition due diligence and integration costs of $4 million and $12 million for the second quarter and first half of 2023, respectively. The negative effect of foreign currency translation was minimal for the second quarter and lowered operating income by approximately $16 million for the first half of 2023.

The Company generated $215 million and $255 million of net cash from operating activities in the first half of 2023 and 2022, respectively. Net cash used in investing activities included $1.3 billion for the Wyatt acquisition in the first half of 2023 and capital expenditures related to property, plant, equipment and software capitalization of $81 million and $75 million in the first half of 2023 and 2022, respectively.

The Company funded the Wyatt acquisition with a combination of cash on hand and borrowings under our revolving credit facility. The Company’s outstanding debt on July 1, 2023 was $2.6 billion, a change of $1.2 billion from the end of the first quarter of 2023. The Company estimates that its interest expense for the full year 2023 will be approximately $80 million. As a result of the Wyatt acquisition, the Company temporarily suspended its share buyback program in the first quarter 2023.

On March 3, 2023, in anticipation of closing of the Wyatt acquisition, the Company entered into an agreement to amend the credit agreement governing its revolving credit facility (the “2023 Amendment”). The 2023 Amendment increases the borrowing capacity by $200 million to an aggregate total borrowing capacity of $2.0 billion.

In May 2023, the Company entered into a note purchase and private shelf agreement with an aggregate amount of up to $400 million. In May 2023, the Company issued senior unsecured notes with an aggregate principal amount of $100 million. The Series P $50 million notes have a five-year term and a fixed interest rate of 4.91%. The Series Q $50 million notes have a seven-year term and a fixed interest rate of 4.91%.

In July 2023, the Company made organizational changes to better align its resources with its growth and innovation strategies, resulting in a worldwide workforce reduction, that has impacted approximately 5% of the Company’s employees. The Company expects to incur approximately $30 million of severance related costs relating to this reduction in the third quarter of 2023. The Company estimates that the savings from this reduction in workforce will be approximately $45 million on an annual basis.

Results of Operations

Sales by Geography

Geographic sales information is presented below for the three and six months ended July 1, 2023 and July 2, 2022 (dollars in thousands):


	Three Months Ended							Six Months Ended
	July 1, 2023		July 2, 2022		% change			July 1, 2023		July 2, 2022		% change
Net Sales:
Asia:
China	$	114,981	$	138,740		(17	%)	$	231,046	$	259,772		(11	%)
Japan		37,380		37,504		—			83,874		86,127		(3	%)
Asia Other		102,262		101,766		—			192,784		186,445		3	%

Total Asia		254,623		278,010		(8	%)		507,704		532,344		(5	%)
Americas:
United States		238,955		213,815		12	%		441,260		422,528		4	%
Americas Other		43,972		43,456		1	%		88,088		83,580		5	%

Total Americas		282,927		257,271		10	%		529,348		506,108		5	%
Europe		203,026		179,038		13	%		388,198		366,439		6	%

Total net sales	$	740,576	$	714,319		4	%	$	1,425,250	$	1,404,891		1	%

Geographically, the Company’s sales growth in the second quarter and first half of 2023 was broad-based across all regions, with the exception of China which declined 17% and 11%, respectively. The decline in China was primarily driven by lower demand for our instrument systems by China’s pharmaceutical customers. Excluding China, the Company’s net sales would have increased 9% and 4% for the second quarter and first half of 2023, respectively. Foreign currency translation decreased total sales growth by 1% and 3% in the second quarter and first half of 2023, respectively. The significant impact of foreign currency translation in the first half of 2023 can be attributed to the significant U.S. dollar strengthening that started late in the first quarter of 2022 and has now annualized.

During the second quarter of 2023, sales increased 12% in the U.S. and 13% in Europe, while decreasing 8% in Asia driven by weakness in China. Foreign currency translation increased sales growth in Europe by 1% and decreased sales growth in Asia by 3% in the second quarter of 2023. During the first half of 2023, sales increased 4% in the U.S. and 6% in Europe and decreased 5% in Asia driven by weakness in China, with the effect of foreign currency translation decreasing sales growth in Europe and Asia by 2% and 5%, respectively.

Sales by Trade Class

Net sales by customer class are presented below for the three and six months ended July 1, 2023 and July 2, 2022 (dollars in thousands):


	Three Months Ended							Six Months Ended
	July 1, 2023		July 2, 2022		% change			July 1, 2023		July 2, 2022		% change
Pharmaceutical	$	426,744	$	437,171		(2	%)	$	811,642	$	852,943		(5	%)
Industrial		229,655		208,517		10	%		439,305		417,914		5	%
Academic and government		84,177		68,631		23	%		174,303		134,034		30	%

Total net sales	$	740,576	$	714,319		4	%	$	1,425,250	$	1,404,891		1	%

During the second quarter of 2023, sales to pharmaceutical customers decreased 2%, as double-digit growth in the U.S. and Europe was offset by weakness in China, with foreign currency translation decreasing pharmaceutical sales growth by 1%. Combined sales to industrial customers, which include material characterization, food, environmental and fine chemical markets, increased 10% in the second quarter of 2023, with foreign currency translation decreasing sales growth by 1%. Combined sales to academic and government customers increased 23% in the second quarter of 2023, with foreign currency translation decreasing sales growth by 1%. 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.

During the first half of 2023, sales to pharmaceutical customers decreased 5%, primarily driven by slower release of capital budgets by our customers, weakness in customer demand in China, and foreign currency translation which decreased pharmaceutical sales growth by 3%. Combined sales to industrial customers increased 5%, with the effect of foreign currency translation decreasing sales growth by 2%. Combined sales to academic and government customers increased 30%, with foreign currency translation decreasing sales growth by 4%.

Waters Products and Services Net Sales

Net sales for Waters products and services were as follows for the three and six months ended July 1, 2023 and July 2, 2022 (dollars in thousands):


	Three Months Ended

	July 1, 2023		% of Total			July 2, 2022		% of Total			% change

Waters instrument systems	$	279,940		43	%	$	280,846		44	%		—
Chemistry consumables		135,919		21	%		131,947		21	%		3	%

Total Waters product sales		415,859		64	%		412,793		65	%		1	%
Waters service		237,376		36	%		222,359		35	%		7	%

Total Waters net sales	$	653,235		100	%	$	635,152		100	%		3	%


	Six Months Ended

	July 1, 2023		% of Total			July 2, 2022		% of Total			% change

Waters instrument systems	$	524,151		42	%	$	550,808		44	%		(5	%)
Chemistry consumables		269,434		21	%		257,565		21	%		5	%

Total Waters product sales		793,585		63	%		808,373		65	%		(2	%)
Waters service		461,725		37	%		439,935		35	%		5	%

Total Waters net sales	$	1,255,310		100	%	$	1,248,308		100	%		1	%

Waters products and service sales increased 3% and 1% in the second quarter and first half of 2023, respectively, with the effect of foreign currency translation decreasing Waters sales growth by 1% and 2% in the second quarter and first half of 2023, respectively. Waters instrument system sales were flat and decreased 5% for the second quarter and first half of 2023, respectively, due to weaker customer demand in China from pharmaceutical customers. Foreign currency translation decreased Waters instrument system sales growth by 2% for the first half of 2023. The increase in Waters chemistry consumables sales was primarily due to the continued strong demand in most major geographies, driven by the uptake in columns and application-specific testing kits to pharmaceutical customers, partially offset by the negative impact from foreign currency translation which decreased sales growth by 2% in both the second quarter and first half of 2023. Waters service sales increased in the second quarter and first half of 2023 due to higher service demand billing, particularly in China and Europe, partially offset by the negative impact from foreign currency translation which decreased service sales growth by 2% and 3% in the second quarter and first half of 2023, respectively. The Wyatt acquisition increased Waters products and service sales by approximately 2% and 1% for the second quarter and first half of 2023, respectively, as compared to the corresponding prior year periods.

TA Product and Services Net Sales

Net sales for TA products and services were as follows for the three and six months ended July 1, 2023 and July 2, 2022 (dollars in thousands):


	Three Months Ended

	July 1, 2023		% of Total			July 2, 2022		% of Total			% change

TA instrument systems	$	62,067		71	%	$	56,837		72	%		9	%
TA service		25,274		29	%		22,330		28	%		13	%

Total TA net sales	$	87,341		100	%	$	79,167		100	%		10	%


	Six Months Ended

	July 1, 2023		% of Total			July 2, 2022		% of Total			% change

TA instrument systems	$	120,798		71	%	$	112,097		72	%		8	%
TA service		49,142		29	%		44,486		28	%		10	%

Total TA net sales	$	169,940		100	%	$	156,583		100	%		9	%

TA instrument system and service sales growth in the second quarter and first half of 2023 was broad-based across most major geographies, increasing 10% and 9% in the second quarter and first half of 2023, respectively. Foreign currency translation decreased sales by 1% for both the second quarter and first half of 2023. The sales growth was primarily driven by strong customer demand for our thermal analysis instruments and services, particularly in the U.S. and Europe.

Cost of Sales

Cost of sales decreased by 2% and 1% in the second quarter and first half of 2023, respectively. The decrease in cost of sales in these periods is primarily due to the change in sales mix and the lower material and freight costs for both the second quarter and first half of 2023. Cost of sales is affected by many factors, including, but not limited to, foreign currency translation, product mix, product costs of instrument systems and amortization of software platforms. At current foreign currency exchange rates, the Company expects foreign currency translation to be neutral to gross profit during 2023.

Selling and Administrative Expenses

Selling and administrative expenses increased 15% and 16% in the second quarter and first half of 2023, respectively. The increases in these periods include the Wyatt acquisition due diligence and integration costs, which increased expenses by 2% and 4% for the second quarter and first half of 2023, respectively. The remaining increase is attributed to investment in headcount to support higher-growth adjacencies, annual merit compensation increases, normalization of travel expenses to pre-COVID levels and timing of investments associated with product launch. The effect of foreign currency translation decreased selling and administrative expenses by 1% and 2% in the second quarter and first half of 2023, respectively.

As a percentage of net sales, selling and administrative expenses were 25.2% and 25.9% for the second quarter and first half of 2023, respectively, and 22.7% for both the second quarter and first half of 2022.

Research and Development Expenses

Research and development expenses increased 4% and 5% in the second quarter and first half of 2023, respectively. The increases in research and development expenses in these periods were impacted by additional headcount, higher salary expenses attributable to merit compensation increases and costs associated with new products and the development of new technology initiatives. The impact of foreign currency exchange decreased expenses by 2% and 3% in the second quarter and first half of 2023, respectively.

Acquired In-Process Research & Development

In 2022, the Company completed an asset acquisition in which the CDMS technology assets of Megadalton were acquired for approximately $10 million in total purchase price, of which $5 million was paid at closing and the remaining $4 million will be paid in the future at various dates through 2029.

Other Income, net

During the first half of 2022, the Company sold an equity investment for $7 million in cash and recorded a gain on the sale of approximately $4 million in other income, net on the statement of operations. The Company also incurred $4 million in losses on an equity investment within other income, net on the statement of operations.

Interest Expense, net

The increase in interest expense for both the second quarter and first half of can be primarily attributed to the additional borrowings to fund the Wyatt acquisition. The Company estimates that its interest expense for the full year 2023 will be approximately $80 million.

Provision for 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 July 1, 2023. 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 from qualifying activities in Singapore increased the Company’s net income by $7 million and $10 million and increased the Company’s net income per diluted share by $0.11 and $0.16 for the second quarter of 2023 and 2022, respectively.

The Company’s effective tax rate for the second quarter of 2023 and 2022 was 16.5% and 14.3%, respectively. The increase in the effective tax rate can be primarily attributed to the impact of discrete tax benefits in the prior year and differences in the proportionate amounts of pre-tax income recognized in jurisdictions with different effective tax rates.

The Company’s effective tax rate for the first half of 2023 and 2022 was 15.6% and 14.3%, respectively. The differences between the effective tax rates can primarily be attributed to differences in the proportionate amounts of pre-tax income recognized in jurisdictions with different effective tax rates.

Liquidity and Capital Resources

Condensed Consolidated Statements of Cash Flows (in thousands):


	Six Months Ended
	July 1, 2023			July 2, 2022
Net income	$	291,477		$	324,695
Depreciation and amortization		70,038			66,891
Stock-based compensation		23,734			20,722
Deferred income taxes		(6,435	)		(12,523	)
Acquired in-process research and development and other non-cash items		—			7,903
Change in accounts receivable		50,273			(57,377	)
Change in inventories		(63,607	)		(65,070	)
Change in accounts payable and other current liabilities		(122,836	)		(32,197	)
Change in deferred revenue and customer advances		81,659			70,027
Other changes		(109,434	)		(68,208	)

Net cash provided by operating activities		214,869			254,863
Net cash used in investing activities		(1,366,920	)		(7,403	)
Net cash provided by (used in) financing activities		998,963			(310,181	)
Effect of exchange rate changes on cash and cash equivalents		2,252			(19,616	)

Decrease in cash and cash equivalents	$	(150,836	)	$	(82,337	)

Cash Flow from Operating Activities

Net cash provided by operating activities was $215 million and $255 million during the first half of 2023 and 2022, respectively. The decrease in 2023 operating cash flow was primarily a result of lower net income, higher inventory levels, higher income tax payments and the payment of acquired Wyatt liabilities, offset by higher cash collections in 2023 compared to 2022. The changes within net cash provided by operating activities include the following significant changes in the sources and uses of net cash provided by operating activities, aside from the changes in net income:

•

The changes in accounts receivable were primarily attributable to the timing of payments made by customers and timing of sales. Days sales outstanding was 85 days at July 1, 2023 and 81 days at July 2, 2022.

•

The increase in inventory can primarily be attributed to higher material costs as well as an increase in safety stock levels to help mitigate any future supply chain issues.

•

Net cash provided from deferred revenue and customer advances results from annual increases in new service contracts as a higher installed base of customers renew annual service contracts.

•

An increase in income tax payments of $81 million as compared to the prior year and the payment of $26 million in Wyatt acquired liabilities.

•

Other changes were attributable to variation in the timing of various provisions, expenditures, prepaid income taxes and accruals in other current assets, other assets and other liabilities.

Cash Flow from Investing Activities

Net cash used in investing activities totaled $1.4 billion and $7 million during the first half of 2023 and 2022, respectively. Additions to fixed assets and capitalized software were $81 million and $75 million in the first half of 2023 and 2022, respectively. The cash flows from investing activities in 2023 and 2022 include $9 million and $17 million, respectively, of capital expenditures related to the major expansion of the Company’s precision chemistry consumable operations in the United States. The Company has incurred costs of $241 million on this facility through the end of the first half of 2023 and anticipates spending approximately $11 million to complete this new state-of-the-art facility for the remainder of 2023.

During the first half of 2023 and 2022, the Company purchased $1 million and $11 million of investments, respectively, while $1 million and $78 million of investments matured, respectively, and were used for financing activities described below.

During the first half of 2022, the Company paid $5 million for the CDMS technology and intellectual property right asset from Megadalton, and the Company is required to make an additional $4 million of guaranteed payments at various dates in the future through 2029. The total purchase price of approximately $10 million was accounted for as Acquired In-Process Research and Development and expensed as part of costs and operating expenses in the statement of operations in 2022.

On May 16, 2023, the Company completed the acquisition of 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.

Cash Flow from Financing Activities

In June 2023, the Company issued senior unsecured notes with an aggregate principal amount of $100 million. The Series P $50 million notes have a five-year term and a fixed interest rate of 4.91%. The Series Q $50 million notes have a seven-year term and a fixed interest rate of 4.91%. The Company used the proceeds from the issuance of these senior unsecured notes to repay other outstanding debt and for general corporate purposes.

The Company had entered into a credit agreement in September 2021 governing the Company’s five-year, $1.8 billion revolving facility that matures in September 2026. On March 3, 2023 the Company entered into an agreement to amend such credit agreement. The 2023 Amendment increases the borrowing capacity by $200 million to an aggregate borrowing capacity of $2.0 billion. As of July 1, 2023, the Company had a total of $2.6 billion in outstanding debt, which consisted of $1.3 billion in outstanding senior unsecured notes and $1,325 million borrowed under its credit agreement. The Company’s net debt borrowings increased by $1.1 billion and $30 million during the first half of 2023 and 2022, respectively, primarily to fund the Wyatt acquisition.

As of July 1, 2023, the Company has entered into three-year interest rate cross-currency swap derivative agreements 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. As a result of entering into these agreements, the Company lowered net interest expense by approximately $5 million and $4 million in the during the first half of 2023 and 2022, respectively. The Company anticipates that these swap agreements will lower net interest expense by approximately $10 million in 2023.

In January 2019, the Company’s Board of Directors authorized the Company to repurchase up to $4 billion of its outstanding common stock over a two-year period. This new program replaced the remaining amounts available from the pre-existing program. In December 2020, the Company’s Board of Directors authorized the extension of the share repurchase program through January 21, 2023. In December 2022, the Company’s Board of Directors amended and extended this repurchase program’s term by one year such that it shall now expire on January 21, 2024 and increased the total authorization level to $4.8 billion, an increase of $750 million. During the first half of July 1, 2023 and July 2, 2022, the Company repurchased $58 million and $312 million of the Company’s outstanding common stock, respectively, under the share repurchase program. In addition, the Company repurchased $11 million and $10 million of common stock related to the vesting of restricted stock units during the first half of July 1, 2023 and July 2, 2022, respectively. While the Company believes that it has the financial flexibility to fund these share repurchases, as well as to invest in research, technology and business acquisitions, given current cash levels and debt borrowing capacity, it has temporarily suspended its share repurchases due to its acquisition of Wyatt.

The Company received $9 million and $31 million of proceeds from the exercise of stock options and the purchase of shares pursuant to the Company’s employee stock purchase plan during the first half of 2023 and 2022, respectively.

The Company had cash, cash equivalents and investments of $331 million as of July 1, 2023. The majority of the Company’s cash and cash equivalents are generated from foreign operations, with $272 million held by foreign subsidiaries at July 1, 2023, of which $184 million was held in currencies other than U.S. dollars.

Contractual Obligations, Commercial Commitments, Contingent Liabilities and Dividends

A summary of the Company’s contractual obligations and commercial commitments is included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on February 27, 2023. The Company reviewed its contractual obligations and commercial commitments as of July 1, 2023 and determined that there were no material changes outside the ordinary course of business from the information set forth in the Annual Report on Form 10-K.

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 that it has meritorious arguments in its current litigation matters and that any outcome, either individually or in the aggregate, will not be material to the Company’s financial position or results of operations.

During fiscal year 2023, the Company expects to contribute a total of approximately $3 million to $6 million to its defined benefit plans.

The Company has not paid any dividends and has no plans, at this time, to pay any dividends in the future.

Off-Balance Sheet Arrangements

The Company has not created, and is not party to, any special-purpose or off-balance sheet entities for the purpose of raising capital, incurring debt or operating parts of its business that are not consolidated (to the extent of the Company’s ownership interest therein) into the consolidated financial statements. The Company has not entered into any transactions with unconsolidated entities whereby it has subordinated retained interests, derivative instruments or other contingent arrangements that expose the Company to material continuing risks, contingent liabilities or any other obligation under a variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to the Company.

Critical Accounting Policies and Estimates

In the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on February 27, 2023, the Company’s most critical accounting policies and estimates upon which its financial status depends were identified as those relating to revenue recognition, valuation of long-lived assets, intangible assets and goodwill, income taxes, uncertain tax positions, litigation and business combinations and asset acquisitions. The Company reviewed its policies and determined that those policies remain the Company’s most critical accounting policies for the six months ended July 1, 2023. The Company did not make any changes in those policies during the six months ended July 1, 2023.

New Accounting Pronouncements

Please refer to Note 13, Recent Accounting Standard Changes and Developments, in the Condensed Notes to Consolidated Financial Statements.

Special Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q, including the information incorporated by reference herein, may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Statements that are not statements of historical fact may be deemed forward-looking statements. You can identify these forward-looking statements by the use of the words “feels”, “believes”, “anticipates”, “plans”, “expects”, “may”, “will”, “would”, “intends”, “suggests”, “appears”, “estimates”, “projects”, “should” and similar expressions, whether in the negative or affirmative. These forward-looking statements are subject to various risks and uncertainties, many of which are outside the control of the Company, including, and without limitation:

•

foreign currency exchange rate fluctuations potentially affecting translation of the Company’s future non-U.S. operating results, particularly when a foreign currency weakens against the U.S. dollar;

•

current global economic, sovereign and political conditions and uncertainties, including the effect of new or proposed tariff or trade regulations, changes in inflation and interest rates, the impacts and costs of war, in particular as a result of the ongoing conflict between Russia and Ukraine, and the possibility of further escalation resulting in new geopolitical and regulatory instability, the United Kingdom’s exit from the European Union and the Chinese government’s ongoing tightening of restrictions on procurement by government-funded customers;

•

the Company’s ability to access capital, maintain liquidity and service the Company’s debt in volatile market conditions;

•

risks related to the effects of the ongoing COVID-19 pandemic on our business, financial condition, results of operations and prospects;

•

changes in timing and demand for the Company’s products among the Company’s customers and various market sectors, particularly as a result of fluctuations in their expenditures or ability to obtain funding, as in the cases of academic, governmental and research institutions;

•

the introduction of competing products by other companies and loss of market share, as well as pressures on prices from customers and/or competitors;

•

changes in the competitive landscape as a result of changes in ownership, mergers and continued consolidation among the Company’s competitors;

•

regulatory, economic and competitive obstacles to new product introductions, lack of acceptance of new products and inability to grow organically through innovation;

•

rapidly changing technology and product obsolescence;

•

risks associated with previous or future acquisitions, strategic investments, joint ventures and divestitures, including risks associated with contingent purchase price payments and expansion of our business into new or developing markets;

•

risks associated with unexpected disruptions in operations;

•

failure to adequately protect the Company’s intellectual property, infringement of intellectual property rights of third parties and inability to obtain licenses on commercially reasonable terms;

•

the Company’s ability to acquire adequate sources of supply and its reliance on outside contractors for certain components and modules, as well as disruptions to its supply chain;

•

risks associated with third-party sales intermediaries and resellers;

•

the impact and costs in connection with shifts in taxable income in jurisdictions with different effective tax rates, the outcome of ongoing and future tax examinations and changes in legislation affecting the Company’s effective tax rate;

•

the Company’s ability to attract and retain qualified employees and management personnel;

•

the ability to realize the expected benefits related to the Company’s various cost-saving initiatives;

•

risks associated with cybersecurity and technology, including attempts by third parties to defeat the security measures of the Company and its third-party partners;

•

increased regulatory burdens as the Company’s business evolves, especially with respect to the U.S. Food and Drug Administration and U.S. Environmental Protection Agency, among others, and in connection with government contracts;

•

regulatory, environmental and logistical obstacles affecting the distribution of the Company’s products, completion of purchase order documentation and the ability of customers to obtain letters of credit or other financing alternatives;

•

risks associated with litigation and other legal and regulatory proceedings; and

•

the impact and costs incurred from changes in accounting principles and practices; the impact and costs of changes in statutory or contractual tax rates in jurisdictions in which the Company operates, specifically as it relates to the Tax Cuts and Jobs Act in the U.S.; and shifts in taxable income among jurisdictions with different effective tax rates.

Certain of these and other factors are discussed under the heading “Risk Factors” under Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on February 27, 2023. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements, whether because of these factors or for other reasons. All forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are expressly qualified in their entirety by the cautionary statements included in this report. Except as required by law, the Company does not assume any obligation to update any forward-looking statements.

Item 3: Quantitative and Qualitative Disclosures About Market Risk

The Company is exposed to the risk of interest rate fluctuations from the investments of cash generated from operations. Investments with maturities greater than 90 days are classified as investments and are held primarily in U.S. dollar-denominated treasury bills and commercial paper, bank deposits and corporate debt securities. As of July 1, 2023, the Company estimates that a hypothetical adverse change of 100 basis points across all maturities would not have a material effect on the fair market value of its portfolio.

The Company is also exposed to the risk of exchange rate fluctuations. 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 July 1, 2023 and December 31, 2022, $272 million out of $331 million and $472 million out of $481 million, respectively, of the Company’s total cash, cash equivalents and investments were held by foreign subsidiaries. In addition, $184 million out of $331 million and $336 million out of $481 million of cash, cash equivalents and investments were held in currencies other than the U.S. dollar at July 1, 2023 and December 31, 2022, respectively. As of July 1, 2023, the Company had no holdings in auction rate securities or commercial paper issued by structured investment vehicles.

Assuming a hypothetical adverse change of 10% in year-end exchange rates (a strengthening of the U.S. dollar), the fair market value of the Company’s cash, cash equivalents and investments held in currencies other than the U.S. dollar as of July 1, 2023 would decrease by approximately $19 million, of which the majority would be recorded to foreign currency translation in other comprehensive income within stockholders’ equity.

There have been no other material changes in the Company’s market risk during the six months ended July 1, 2023. For information regarding the Company’s market risk, refer to Item 7A of Part II of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on February 27, 2023.

Item 4: Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company’s chief executive officer and chief financial officer (principal executive officer and principal financial officer), with the participation of management, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, the Company’s chief executive officer and chief financial officer concluded that the Company’s disclosure controls and procedures were effective as of July 1, 2023 (1) to ensure that information required to be disclosed by the Company, including its consolidated subsidiaries, in the

reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its chief executive officer and chief financial officer, to allow timely decisions regarding the required disclosure and (2) to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Changes in Internal Control Over Financial Reporting

No change was identified in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended July 1, 2023 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II: Other Information

Item 1: Legal Proceedings

There have been no material changes in the Company’s legal proceedings during the six months ended July 1, 2023 as described in Item 3 of Part I of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on February 27, 2023.

Item 1A: Risk Factors

Information regarding risk factors of the Company is set forth under the heading “Risk Factors” under Part I, Item 1A in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on February 27, 2023. The Company reviewed its risk factors as of July 1, 2023 and determined that there were no material changes from the ones set forth in the Form 10-K. Note, however, the discussion of certain factors under the subheading “Special Note Regarding Forward-Looking Statements” in Part I, Item 2 of this Quarterly Report on Form 10-Q. These risks are not the only ones facing the Company. Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial may have a material adverse effect on the Company’s business, financial condition and operating results.

Item 2: Unregistered Sales of Equity Securities and Use of Proceeds

Purchases of Equity Securities by the Issuer

During the three months ended July 1, 2023, the Company purchased 204, 491 and 149 shares at a cost of $62 thousand, $137 thousand and $38 thousand with average prices paid of $302.66, $278.06 and $256.45 during fiscal April, May and June, respectively, of equity securities registered by the Company under the Exchange Act.

In January 2019, the Company’s Board of Directors authorized the Company to repurchase up to $4 billion of its outstanding common stock in open market or private transactions over a two-year period. This program replaced the remaining amounts available under the pre-existing authorization. In December 2020, the Company’s Board of Directors authorized the extension of the share repurchase program through January 21, 2023. In December 2022, the Company’s Board of Directors amended and extended this repurchase program’s term by one year such that it shall now expire on January 21, 2024 and increased the total authorization to $4.8 billion, an increase of $750 million. As of July 1, 2023, the Company had repurchased an aggregate of 15.2 million shares at a cost of $3.8 billion under the January 2019 repurchase program and had a total of $1.0 billion authorized for future repurchases. The size and timing of these purchases, if any, will depend on our stock price and market and business conditions, as well as other factors.

Item 6: Exhibits


Exhibit Number		Description of Document

10.1		Multi-currency Note Purchase and Private Shelf Agreement, dated as of May 11, 2023, by and among the Company, PGIM, Inc. and each of the purchasers listed on Schedules A-1 and A-2 attached thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on May 11, 2023).

31.1		Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.(*)

32.2		Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.(*)

101		The following materials from Waters Corporation’s Quarterly Report on Form 10-Q for the quarter ended July 1, 2023, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets (unaudited), (ii) the Consolidated Statements of Operations (unaudited), (iii) the Consolidated Statements of Comprehensive Income (unaudited), (iv) the Consolidated Statements of Cash Flows (unaudited) and (vi) Condensed Notes to Consolidated Financial Statements (unaudited).

104		Cover Page Interactive Date File (formatted in iXBRL and contained in Exhibit 101).

(*)

This exhibit shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in any filing, except to the extent the Company specifically incorporates it by reference.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

WATERS CORPORATION

/s/ Amol Chaubal

Amol Chaubal

Senior Vice President and Chief Financial Officer

(Principal Financial Officer)

(Principal Accounting Officer)

Date: August 2, 2023