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

Large accelerated filer

Accelerated filer

Non-accelerated
filer

Smaller reporting company

Emerging growth company

10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

For the quarterly period ended September 30, 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

☐

☒

Indicate the number of shares outstanding of the registrant’s common stock as of November 3, 2023: 59,126,977

WATERS CORPORATION AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q

INDEX


		Page
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets (unaudited) as of September 30, 2023 and December 31, 2022		3
	Consolidated Statements of Operations (unaudited) for the three months ended September 30, 2023 and October 1, 2022		4
	Consolidated Statements of Operations (unaudited) for the nine months ended September 30, 2023 and October 1, 2022		5
	Consolidated Statements of Comprehensive Income (unaudited) for the three and nine months ended September 30, 2023 and October 1, 2022		6
	Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2023 and October 1, 2022		7
	Consolidated Statements of Stockholders’ Equity (unaudited) for the three months ended September 30, 2023 and October 1, 2022		8
	Consolidated Statements of Stockholders’ Equity (unaudited) for the nine months ended September 30, 2023 and October 1, 2022		9
	Condensed Notes to Consolidated Financial Statements (unaudited)		10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		28
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		39
Item 4.	Controls and Procedures		40

PART II	OTHER INFORMATION
Item 1.	Legal Proceedings		40
Item 1A.	Risk Factors		40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		40
Item 6.	Exhibits		41
	Signature		42

Item 1: Financial Statements

WATERS CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(unaudited)


	September 30, 2023			December 31, 2022

	(In thousands, except per share data)
ASSETS
Current assets:
Cash and cash equivalents	$	336,414		$	480,529
Investments		898			862
Accounts receivable, net		631,284			722,892
Inventories		544,402			455,710
Other current assets		121,528			103,910

Total current assets		1,634,526			1,763,903
Property, plant and equipment, net		616,846			582,217
Intangible assets, net		631,209			227,399
Goodwill		1,308,027			430,328
Operating lease assets		84,726			86,506
Other assets		221,846			191,100

Total assets	$	4,497,180		$	3,281,453

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Notes payable and debt	$	50,000		$	50,000
Accounts payable		79,834			93,302
Accrued employee compensation		43,481			103,300
Deferred revenue and customer advances		275,941			227,908
Current operating lease liabilities		26,527			26,429
Accrued income taxes		112,681			132,545
Accrued warranty		11,120			11,949
Other current liabilities		145,445			140,304

Total current liabilities		745,029			785,737
Long-term liabilities:
Long-term debt		2,455,265			1,524,878
Long-term portion of retirement benefits		41,529			38,203
Long-term income tax liabilities		155,743			248,496
Long-term operating lease liabilities		60,169			62,108
Other long-term liabilities		133,923			117,543

Total long-term liabilities		2,846,629			1,991,228

Total liabilities		3,591,658			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 September 30, 2023 and December 31, 2022		—			—
Common stock, par value $0.01 per share, 400,000 shares authorized, 162,649 and 162,425 shares issued, 59,116 and 59,104 shares outstanding at September 30, 2023 and December 31, 2022, respectively		1,627			1,624
Additional paid-in capital		2,249,984			2,199,824
Retained earnings		8,934,616			8,508,587
Treasury stock, at cost, 103,533 and 103,321 shares at September 30, 2023 and December 31, 2022, respectively		(10,134,408	)		(10,063,975	)
Accumulated other comprehensive loss		(146,297	)		(141,572	)

Total stockholders’ equity		905,522			504,488

Total liabilities and stockholders’ equity	$	4,497,180		$	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
	September 30, 2023			October 1, 2022

	(In thousands, except per share data)
Revenues:
Product sales	$	448,081		$	464,923
Service sales		263,611			243,632

Total net sales		711,692			708,555
Costs and operating expenses:
Cost of product sales		184,332			199,918
Cost of service sales		107,075			107,183
Selling and administrative expenses		186,748			164,417
Research and development expenses		41,995			43,435
Purchased intangibles amortization		12,116			1,592

Total costs and operating expenses		532,266			516,545

Operating income		179,426			192,010
Other income, net		328			895
Interest expense		(30,442	)		(12,420	)
Interest income		3,883			2,896

Income before income taxes		153,195			183,381
Provision for income taxes		18,643			27,383

Net income	$	134,552		$	155,998

Net income per basic common share	$	2.28		$	2.61
Weighted-average number of basic common shares		59,093			59,801
Net income per diluted common share	$	2.27		$	2.60
Weighted-average number of diluted common shares and equivalents		59,255			60,081

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)


	Nine Months Ended
	September 30, 2023			October 1, 2022

	(In thousands, except per share data)
Revenues:
Product sales	$	1,362,464		$	1,385,393
Service sales		774,478			728,053

Total net sales		2,136,942			2,113,446
Costs and operating expenses:
Cost of product sales		559,040			593,884
Cost of service sales		317,823			306,108
Selling and administrative expenses		555,657			483,769
Research and development expenses		130,559			127,913
Purchased intangibles amortization		20,410			4,863
Acquired in-process research and development		—			9,797

Total costs and operating expenses		1,583,489			1,526,334

Operating income		553,453			587,112
Other income, net		1,364			2,600
Interest expense		(68,158	)		(34,898	)
Interest income		11,984			7,536

Income before income taxes		498,643			562,350
Provision for income taxes		72,614			81,657

Net income	$	426,029		$	480,693

Net income per basic common share	$	7.21		$	7.98
Weighted-average number of basic common shares		59,061			60,200
Net income per diluted common share	$	7.19		$	7.94
Weighted-average number of diluted common shares and equivalents		59,262			60,521

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						Nine Months Ended
	September 30, 2023			October 1, 2022			September 30, 2023			October 1, 2022
	(In thousands)						(In thousands)
Net income	$	134,552		$	155,998		$	426,029		$	480,693
Other comprehensive loss:
Foreign currency translation		(17,676	)		(23,779	)		(4,909	)		(54,255	)
Unrealized gains on derivative instruments before reclassifications		603			—			603			—
Amounts reclassified to other income, net		(93	)		—			(93	)		—

Unrealized gains on derivative instruments before income taxes		510			—			510			—
Income tax expense		(122	)		—			(122	)		—

Unrealized gains on derivative instruments, net of tax		388			—			388			—
Unrealized gains on investments before income taxes		—			—			—			26
Income tax expense		—			—			—			(6	)

Unrealized gains on investments, net of tax		—			—			—			20
Retirement liability adjustment before reclassifications		(200	)		767			(29	)		1,755
Amounts reclassified to other income, net		(75	)		254			(242	)		501

Retirement liability adjustment before income taxes		(275	)		1,021			(271	)		2,256
Income tax benefit (expense)		66			(243	)		67			(546	)

Retirement liability adjustment, net of tax		(209	)		778			(204	)		1,710
Other comprehensive loss		(17,497	)		(23,001	)		(4,725	)		(52,525	)


Comprehensive income	$	117,055		$	132,997		$	421,304		$	428,168

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

Table of Contents

WATERS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


	Nine Months Ended
	September 30, 2023			October 1, 2022

	(In thousands)
Cash flows from operating activities:
Net income	$	426,029		$	480,693
Adjustments to reconcile net income to net cash provided by
operating activities:
Stock-based compensation		32,224			30,929
Deferred income taxes		267			(20,836	)
Depreciation		62,235			54,306
Amortization of intangibles		55,610			44,799
R ealized gain on sale of investment		(651	)		—
Acquired in-process research and development and other non-cash items		—			10,003
Change in operating assets and liabilities:
Decrease (increase) in accounts receivable		100,327			(39,098	)
Increase in inventories		(81,415	)		(113,211	)
Increase in other current assets		(24,066	)		(6,861	)
Increase in other assets		(23,432	)		(3,881	)
Decrease in accounts payable and other current liabilities		(130,065	)		(4,952	)
Increase in deferred revenue and customer advances		38,959			47,060
Decrease in other liabilities		(83,335	)		(65,999	)

Net cash provided by operating activities		372,687			412,952
Cash flows from investing activities:
Additions to property, plant, equipment and software
capitalization		(119,044	)		(113,737	)
Business acquisitions, net of cash acquired		(1,285,907	)		—
Proceeds from equity investments, net		651			8,903
Payments for intellectual property licenses		—			(7,535	)
Purchases of investments		(1,791	)		(11,407	)
Maturities and sales of investments		1,770			77,993

Net cash used in investing activities		(1,404,321	)		(45,783	)
Cash flows from financing activities:
Proceeds from debt issuances		1,450,041			165,000
Payments on debt		(520,040	)		(135,000	)
Payments of debt issuance costs		(400	)		—
Proceeds from stock plans		18,092			36,136
Purchases of treasury shares		(70,433	)		(477,167	)
Proceeds from derivative contracts		8,178			12,844

Net cash provided by (used in) financing activities		885,438			(398,187	)
Effect of exchange rate changes on cash and cash equivalents		2,081			(26,579	)

Decrease in cash and cash equivalents		(144,115	)		(57,597	)
Cash and cash equivalents at beginning of period		480,529			501,234

Cash and cash equivalents at end of period	$	336,414		$	443,637

The accompanying notes are an integral part of the interim 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 July 2, 2022		162,348	$	1,623	$	2,166,221	$	8,125,527	$	(9,759,858	)	$	(141,389	)	$	392,124
Net income		—		—		—		155,998		—			—			155,998
Other comprehensive loss		—		—		—		—		—			(23,001	)		(23,001	)
Issuance of common stock for employees:
Employee Stock Purchase Plan		9		—		2,488		—		—			—			2,488
Stock options exercised		17		—		2,506		—		—			—			2,506
Treasury stock		—		—		—		—		(155,223	)		—			(155,223	)
Stock-based compensation		5		1		10,343		—		—			—			10,344

Balance October 1, 2022		162,379	$	1,624	$	2,181,558	$	8,281,525	$	(9,915,081	)	$	(164,390	)	$	385,236


	Number of Common Shares		Common Stock		Additional Paid-In Capital		Retained Earnings		Treasury Stock			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity
Balance July 1, 2023		162,576	$	1,626	$	2,232,055	$	8,800,064	$	(10,133,716	)	$	(128,800	)	$	771,229
Net income		—		—		—		134,552		—			—			134,552
Other comprehensive loss		—		—		—		—		—			(17,497	)		(17,497	)
Issuance of common stock for employees:
Employee Stock Purchase Plan		10		—		2,758		—		—			—			2,758
Stock options exercised		35		—		5,084		—		—			—			5,084
Treasury stock		—		—		—		—		(692	)		—			(692	)
Stock-based compensation		28		1		10,087		—		—			—			10,088

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

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		—		—		—		480,693		—			—			480,693
Other comprehensive loss		—		—		—		—		—			(52,525	)		(52,525	)
Issuance of common stock for employees:
Employee Stock Purchase Plan		28		—		8,374		—		—			—			8,374
Stock options exercised		167		2		28,121		—		—			—			28,123
Treasury stock		—		—		—		—		(477,167	)		—			(477,167	)
Stock-based compensation		100		1		30,183		—		—			—			30,184

Balance October 1, 2022		162,379	$	1,624	$	2,181,558	$	8,281,525	$	(9,915,081	)	$	(164,390	)	$	385,236


	Number of Common Shares		Common Stock		Additional Paid-In Capital		Retained Earnings		Treasury Stock			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity
Balance December 31, 2022		162,425	$	1,624	$	2,199,824	$	8,508,587	$	(10,063,975	)	$	(141,572	)	$	504,488
Net income		—		—		—		426,029		—			—			426,029
Other comprehensive loss		—		—		—		—		—			(4,725	)		(4,725	)
Issuance of common stock for employees:
Employee Stock Purchase Plan		31		—		8,691		—		—			—			8,691
Stock options exercised		51		1		8,369		—		—			—			8,370
Treasury stock		—		—		—		—		(70,433	)		—			(70,433	)
Stock-based compensation		142		2		33,100		—		—			—			33,102

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

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 fiscal quarter typically ends on the thirteenth Saturday of each quarter. Since the Company’s fiscal year end is December 31, the first and fourth fiscal quarters may have more or less than thirteen complete weeks. The Company’s third fiscal quarters for 2023 and 2022 ended on September 30, 2023 and October 1, 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.

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.

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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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 September 30, 2023 and December 31, 2022, $307 million out of $337 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, $196 million out of $337 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 September 30, 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 nine months ended September 30, 2023 and October 1, 2022 (in thousands):


	Balance at Beginning of Period		Additions		Deductions			Balance at End of Period
Allowance for Credit Losses
September 30, 2023	$	14,311	$	3,727	$	(3,434	)	$	14,604
October 1, 2022	$	13,228	$	4,980	$	(4,973	)	$	13,235

Other Investments

During the nine months ended September 30, 2023, the Company recorded realized gains of approximately $0.7 million. During the nine months ended October 1, 2022, the Company recorded realized gains of approximately $7 million and incurred approximately $6 million in losses. Realized gains and losses on equity investments are recorded within other income, net on the statement of operations.

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 September 30, 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 September 30, 2023 (in thousands):


	Total at September 30, 2023		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Time deposits	$	898	$	—	$	898	$	—
Waters 401(k) Restoration Plan assets		26,460		26,460		—		—
Foreign currency exchange contracts		129		—		129		—
Interest rate cross-currency swap agreements		25,679		—		25,679		—
Interest rate swap cash flow hedge		778		—		778		—

Total	$	53,944	$	26,460	$	27,484	$	—

Liabilities:
Foreign currency exchange contracts	$	119	$	—	$	119	$	—
Interest rate cross-currency swap agreements		1,018		—		1,018		—
Interest rate swap cash flow hedge		175		—		175		—

Total	$	1,312	$	—	$	1,312	$	—

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

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

Fair Value of 401(k) Restoration Plan Assets

The 401(k) Restoration Plan is a nonqualified defined contribution plan and the assets were held in registered mutual funds and have been classified as Level 1. The fair values of the assets in the plan are determined through market and observable sources from daily quoted prices on nationally recognized securities exchanges.

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

The fair values of the Company’s cash equivalents, investments, foreign currency exchange contracts, interest rate cross-currency swap agreements and interest rate swap cash flow hedges are determined through market and observable sources and have been classified as Level 2. These assets and liabilities have been initially valued at the transaction price and subsequently valued, typically utilizing third-party pricing services. The pricing services use many inputs to determine value, including reportable trades, benchmark yields, credit spreads, broker/dealer quotes, current spot rates and other industry and economic events. The Company validates the prices provided by third-party pricing services by reviewing their pricing methods and obtaining market values from other pricing sources.

Fair Value of Other Financial Instruments

The Company’s accounts receivable and accounts payable are recorded at cost, which approximates fair value due to their short-term nature. The carrying value of the Company’s variable interest rate debt approximates fair value due to the variable nature of the interest rate. The carrying value of the Company’s fixed interest rate debt was $1.3 billion at both September 30, 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 $1.1 billion at both September 30, 2023 and December 31, 2022, 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.

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

Cash Flow Hedges

The Company’s Credit Facility is a variable borrowing and has interest payments based on a contractually specified interest rate index. The contractually specified index on the Credit Facility is the 3-month Term SOFR. The variable rate interest payments create interest risk for the Company as interest payments will fluctuate based on changes in the contractually specified interest rate index over the life of the Credit Facility. In order to reduce interest rate risk, the Company enters into interest rate swaps that will effectively lock-in the forecasted interest payments on the variable rate borrowing over its term. The interest rate swaps represent cash flow hedges and are assessed for hedge effectiveness each reporting period. When the hedge relationship is highly effective at achieving offsetting changes in cash flows, the Company will record the entire change in fair value of the interest rate swaps in accumulated other comprehensive loss. The amount in accumulated other comprehensive loss is reclassified to earnings in the period that the underlying transaction impacts consolidated earnings. If it becomes probable that the forecasted transaction will not occur, the hedge relationship will be de-designated and amounts accumulated in other comprehensive loss will be reclassified to earnings in the current period. Interest settlements due to benchmark interest rate changes are recorded in interest income or interest expense. For the three and nine months ended

September

30, 2023, the Company did not have any cash flow hedges that were deemed ineffective.

Interest Rate Cross-Currency Swap Agreements

As of September 30, 2023, the Company had

entered into

interest rate cross-currency swap derivative agreements

with durations up to three years

with an aggregate notional value of $625 million to hedge the variability in the movement of foreign currency exchange rates on a portion of its euro-denominated and

yen-denominated

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

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


	September 30, 2023				December 31, 2022
	Notional		Fair Value		Notional		Fair Value
Foreign currency exchange contracts:
Other current assets	$	16,000	$	129	$	42,047	$	231
Other current liabilities	$	24,790	$	119	$	13,450	$	98
Interest rate cross-currency swap agreements:
Other assets	$	505,000	$	25,679	$	400,000	$	19,163
Other liabilities	$	120,000	$	1,018	$	185,000	$	4,783
Accumulated other comprehensive income			$	20,306			$	10,026
Interest rate swap cash flow hedges:
Other assets	$	50,000	$	778	$	—	$	—
Other liabilities	$	50,000	$	175	$	—	$	—
Accumulated other comprehensive income			$	510			$	—

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

The following is a summary of the activity included in the consolidated statements of operations and statements of comprehensive income related to the foreign currency exchange contracts, interest rate cross-currency swap agreements and interest rate swap agreements designated as cash flow hedges (in thousands):


	Financial Statement Classification		Three Months Ended						Nine Months Ended
			September 30, 2023			October 1, 2022			September 30, 2023			October 1, 2022
			September 30, 2023			October 1, 2022			September 30, 2023			October 1, 2022
Foreign currency exchange contracts:
Realized losses
on closed contracts		Cost of sales	$	(755	)	$	(3,811	)	$	(50	)	$	(6,603	)
Unrealized gains (losses)
on open contracts		Cost of sales		168			461			(123	)		(93	)
Cumulative net pre-tax

losses		Cost of sales	$	(587	)	$	(3,350	)	$	(173	)	$	(6,696	)

Interest rate cross-currency swap agreements:
Interest earned		Interest income	$	2,720		$	2,362		$	8,048		$	6,214
Unrealized gains		Other comprehensive
on open contracts		income	$	18,936		$	31,108		$	10,280		$	73,812
Interest rate swap cash flow hedges:
Interest earned		Interest income	$	93		$	—		$	93		$	—
Unrealized gains		Other comprehensive
on open contracts		income	$	510		$	—		$	510		$	—

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 nine months ended September 30, 2023 and October 1, 2022, the Company repurchased 0.2 million and 1.5 million shares of the Company’s outstanding common stock at a cost of $58 million and $467 million, respectively, under the January 2019 authorization and other previously announced programs. In addition, the Company repurchased $12 million and $11 million of common stock related to the vesting of restricted stock units during the nine months ended September 30, 2023 and October 1, 2022, respectively. As of September 30, 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.

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.

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

The following is a summary of the activity of the Company’s accrued warranty liability for the nine months ended September 30, 2023 and October 1, 2022 (in thousands):


	Balance at Beginning of Period		Accruals for Warranties		Settlements Made			Balance at End of Period
Accrued warranty liability:
September 30, 2023	$	11,949	$	4,813	$	(5,642	)	$	11,120
October 1, 2022	$	10,718	$	6,606	$	(6,663	)	$	10,661

Restructuring

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. During the three and nine months ended September 30, 2023, the Company incurred $23 million and $27 million

, respectively,

of severance-related costs

connection

with this reduction.

During the three and nine months ended September 30, 2023, the Company paid $12 million and $14 million, respectively

of these costs

with the majority of the remaining costs to be paid in the fourth quarter of 2023 and the first half of 2024.

2 Revenue Recognition

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

The following is a summary of the activity of the Company’s deferred revenue and customer advances for the nine months ended September 30, 2023 and October 1, 2022 (in thousands):


	September 30, 2023			October 1, 2022
Balance at the beginning of the period	$	285,175		$	273,598
Recognition of revenue included in balance at beginning of the period		(222,001	)		(213,527	)
Revenue deferred during the period, net of revenue recognized		276,277			243,853

Balance at the end of the period	$	339,451		$	303,924

The Company classified $64 million and $57 million of deferred revenue and customer advances in other long-term liabilities at September 30, 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):


	September 30, 2023
Deferred revenue and customer advances expected to be recognized in:
One year or less	$	275,941
13-24 months		37,373
25 months and beyond		26,137

Total	$	339,451

3 Marketable Securities

The Company’s marketable securities within cash equivalents and investments included in the consolidated balance sheets consist of time deposits that mature in one year or less with an amortized cost and a fair value of $0.9 million at both September 30, 2023 and December 31, 2022.

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

4 Inventories

Inventories are classified as follows (in thousands):


	September 30, 2023		December 31, 2022
Raw materials	$	241,012	$	205,760
Work in progress		25,689		19,899
Finished goods		277,701		230,051

Total inventories	$	544,402	$	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.

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 paid	$	1,311,531
Less: cash 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

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


	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 nine months ended September 30, 2023, the Company’s consolidated results included net sales of $

29 million and $

45 million

, respectively,

and a net operating loss of $

6 million and $

9 million

, respectively,

since the acquisition closed on May 16, 2023. The Company also incurred transaction related costs of $13 million during the nine months

ended

September 30, 2023

, which are recorded in selling and administrative expenses in the consolidated statement of operations.

Unaudited Pro Forma Financial Information

The following unaudited pro forma information is presented for illustrative purposes only. It is not necessarily indicative of the actual results of operations that actually would have been realized had the entities been a single company as of January 1, 2022 or the future operating results of the combined entity. The unaudited pro forma information does not give effect to the potential impact of current financial conditions, regulatory matters or any anticipated synergies that may be associated with the acquisition. The unaudited pro forma information also does not include any integration costs that the Company may incur related to the acquisition as part of combining the operations of the companies.

The following unaudited pro forma information shows the results of the Company’s operations for the nine months ended September 30, 2023 and October 1, 2022, as if the acquisition had occurred on January 1, 2022 (in thousands):


	September 30, 2023		October 1, 2022
Revenue	$	2,174,209	$	2,197,028
Net income		426,238		448,102

The impact of the unaudited pro forma information for the three months ended September 30, 2023 and October 1, 2022 was immaterial to the consolidated financial statements.

To reflect the acquisition of Wyatt as if it had occurred on January 1, 2022, the unaudited pro forma information includes adjustments to reflect, among other things, the incremental intangible asset amortization to be incurred based on the preliminary values of each identifiable intangible asset of Wyatt and the interest expense from debt financings obtained to partially fund the cash consideration transferred. Pro forma adjustments were tax effected at the Company’s historical statutory rates in effect for the respective periods.

Pro forma net income for the nine months ended September 30, 2023, was adjusted to exclude certain

non-recurring

expenses related to transaction costs incurred and the fair value adjustment of inventory. These

non-recurring

expenses were reclassified to the prior period and included in the pro forma net income for the nine months ended October 1, 2022.

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 $8 million and $11 million of expense in the consolidated statement of operations for the three and nine months ended September 30, 2023

, respectively.

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

6 Goodwill and Other Intangibles

The carrying amount of goodwill was $1.3 billion and $430 million at September 30, 2023 and December 31, 2022, respectively. The acquisition of Wyatt increased goodwill by $879 million, while the effect of foreign currency translation decreased goodwill by $1 million.

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


	September 30, 2023							December 31, 2022
					Weighted-							Weighted-
	Gross				Average			Gross				Average
	Carrying		Accumulated		Amortization			Carrying		Accumulated		Amortization
	Amount		Amortization		Period			Amount		Amortization		Period
Capitalized software	$	616,406	$	460,730		5	years	$	589,604	$	441,414		5	years
Purchased intangibles		610,513		182,214		10	years		197,805		166,735		11	years
Trademarks		9,680		—		—			9,680		—		—
Licenses		14,142		7,753		7	years		14,070		6,729		6	years
Patents and other intangibles		109,371		78,206		8	years		104,139		73,021		8	years

Total	$	1,360,112	$	728,903		7	years	$	915,298	$	687,899		7	years

The Company capitalized intangible assets in the amounts of $10 million and $14 million in the three months ended September 30, 2023 and October 1, 2022, respectively, and $455 million and $38 million in the nine months ended September 30, 2023 and October 1, 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 decreased by $6 million and $10 million, respectively, in the nine months ended September 30, 2023 due to the effects of foreign currency translation.

Amortization expense for intangible assets was $26 million and $15 million for the three months ended September 30, 2023 and October 1, 2022. Amortization expense for intangible assets was $56 million and $45 million for the nine months ended September 30, 2023 and October 1, 2022, respectively. Amortization expense for intangible assets is estimated to be $97 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 September 30,

2023

was $2.5 billion, a change of $1.0 billion from the end of the first quarter of 2023.

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


Senior Unsecured Notes	Term		Interest Rate			Face Value (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

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

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 September 30, 2023 and December 31, 2022, the Credit Facility had a total of $1.2 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 September 30, 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.

Table of Contents

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

The Company had the following outstanding debt at September 30, 2023 and December 31, 2022 (in thousands):


	September 30, 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		1,200,000			270,000
Unamortized debt issuance costs		(4,735	)		(5,122	)

Total long-term debt		2,455,265			1,524,878

Total debt	$	2,505,265		$	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 September 30, 2023 and December 31, 2022, the Company had a total amount available to borrow under the Credit Facility of $0.8 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 4.97% and 3.54% at September 30, 2023 and December 31, 2022, respectively. As of September 30, 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 $112 million and $113 million at September 30, 2023 and December 31, 2022, respectively, for the purpose of short-term borrowing and issuance of commercial guarantees. None of the Company’s foreign subsidiaries had outstanding short-term borrowings as of September 30, 2023 or December 31, 2022.

As of September 30, 2023, the Company had entered into interest rate cross-currency swap derivative agreements

with durations up to three-years

with an aggregate notional value of $625 million to hedge the variability in the movement of foreign currency exchange rates on a portion of its euro-denominated and

yen-denominated

net asset investments.

8 Income Taxes

rate

rather than the statutory tax rate to income arising from qualifying activities in Singapore increased the Company’s net income for the nine months ended September 30, 2023 and October 1, 2022 by $11 million and $15 million, respectively, and increased the Company’s net income per diluted share by $0.18 and $0.25, respectively.

The Company’s effective tax rate for the three months ended September 30, 2023 and October 1, 2022 was 12.2% and 14.9%, respectively. The

decrease

in the effective income tax rate can be primarily attributed to the impact of discrete tax benefits in the

current

year and differences in the proportionate amounts of

pre-tax

income recognized in jurisdictions with different effective tax rates.

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

The Company’s effective tax rate for the nine months ended September 30, 2023 and October 1, 2022 was 14.6% and 14.5%, 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 September 30, 2023 and October 1, 2022 were $32 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 September 30, 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 September 30, 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 September 30, 2023
	Net Income (Numerator)		Weighted- Average Shares (Denominator)		Per Share Amount
Net income per basic common share	$	134,552		59,093	$	2.28
Effect of dilutive stock option, restricted stock, performance stock unit and restricted stock unit securities		—		162		(0.01	)

Net income per diluted common share	$	134,552		59,255	$	2.27

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


	Three Months Ended October 1, 2022
	Net Income (Numerator)		Weighted- Average Shares (Denominator)		Per Share Amount
Net income per basic common share	$	155,998		59,801	$	2.61
Effect of dilutive stock option, restricted stock, performance stock unit and restricted stock unit securities		—		280		(0.01	)

Net income per diluted common share	$	155,998		60,081	$	2.60


	Nine Months Ended September 30, 2023
	Net Income (Numerator)		Weighted- Average Shares (Denominator)		Per Share Amount
Net income per basic common share	$	426,029		59,061	$	7.21
Effect of dilutive stock option, restricted stock, performance stock unit and restricted stock unit securities		—		201		(0.02	)

Net income per diluted common share	$	426,029		59,262	$	7.19


	Nine Months Ended October 1, 2022
	Net Income (Numerator)		Weighted- Average Shares (Denominator)		Per Share Amount
Net income per basic common share	$	480,693		60,200	$	7.98
Effect of dilutive stock option, restricted stock, performance stock unit and restricted stock unit securities		—		321		(0.04	)

Net income per diluted common share	$	480,693		60,521	$	7.94

For the three and nine months ended September 30, 2023 and October 1, 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			Unrealized Gain (Loss) on Derivative Instruments		Accumulated Other Comprehensive Loss

Balance at December 31, 2022	$	(146,120	)	$	4,548		$	—	$	(141,572	)
Other comprehensive (loss) income, net of tax		(4,909	)		(204	)		388		(4,725	)

Balance at September 30, 2023	$	(151,029	)	$	4,344		$	388	$	(146,297	)

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

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

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 nine months ended September 30, 2023 and October 1, 2022 (in thousands):


	Three Months Ended				Nine Months Ended
	September 30, 2023		October 1, 2022		September 30, 2023		October 1, 2022
Product net sales:
Waters instrument systems	$	262,142	$	274,869	$	786,293	$	825,677
Chemistry consumables		128,650		128,096		398,084		385,661
TA instrument systems		57,289		61,958		178,087		174,055

Total product sales		448,081		464,923		1,362,464		1,385,393
Service net sales:
Waters service		238,556		220,436		700,281		660,371
TA service		25,055		23,196		74,197		67,682

Total service sales		263,611		243,632		774,478		728,053

Total net sales	$	711,692	$	708,555	$	2,136,942	$	2,113,446

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

Net sales are attributable to geographic areas based on the region of destination. Geographic sales information is presented below for the three and nine months ended September 30, 2023 and October 1, 2022 (in thousands):


	Three Months Ended				Nine Months Ended
	September 30, 2023		October 1, 2022		September 30, 2023		October 1, 2022
Net Sales:
Asia:
China	$	102,081	$	140,080	$	333,127	$	399,852
Japan		40,069		37,095		123,943		123,222
Asia Other		96,078		102,759		288,862		289,204

Total Asia		238,228		279,934		745,932		812,278
Americas:
United States		231,773		216,380		673,033		638,908
Americas Other		43,706		40,029		131,794		123,609

Total Americas		275,479		256,409		804,827		762,517
Europe		197,985		172,212		586,183		538,651

Total net sales	$	711,692	$	708,555	$	2,136,942	$	2,113,446

Net sales by customer class are as follows for the three and nine months ended September 30, 2023 and October 1, 2022 (in thousands):


	Three Months Ended				Nine Months Ended
	September 30, 2023		October 1, 2022		September 30, 2023		October 1, 2022
Pharmaceutical	$	421,535	$	405,959	$	1,233,177	$	1,258,902
Industrial		209,449		223,968		648,754		641,882
Academic and government		80,708		78,628		255,011		212,662

Total net sales	$	711,692	$	708,555	$	2,136,942	$	2,113,446

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

Net sales for the Company recognized at a point in time versus over time are as follows for the three and nine months ended September 30, 2023 and October 1, 2022 (in thousands):


	Three Months Ended				Nine Months Ended
	September 30, 2023		October 1, 2022		September 30, 2023		October 1, 2022
Net sales recognized at a point in time:
Instrument systems	$	319,431	$	336,827	$	964,380	$	999,732
Chemistry consumables		128,650		128,096		398,084		385,661
Service sales recognized at a point in time (time & materials)		88,545		89,724		269,464		267,074

Total net sales recognized at a point in time		536,626		554,647		1,631,928		1,652,467
Net sales recognized over time:
Service and software maintenance sales recognized over time (contracts)		175,066		153,908		505,014		460,979

Total net sales	$	711,692	$	708,555	$	2,136,942	$	2,113,446

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 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. The Company’s financial results for the three and nine months ended September 30, 2023 include the financial results of the Wyatt acquisition from the acquisition date.

Financial Overview

The Company’s operating results are as follows for the three and nine months ended September 30, 2023 and October 1, 2022 (dollars in thousands, except per share data):


	Three Months Ended									Nine Months Ended
	September 30, 2023			October 1, 2022			% change			September 30, 2023			October 1, 2022			% change
Revenues:
Product sales	$	448,081		$	464,923			(4	%)	$	1,362,464		$	1,385,393			(2	%)
Service sales		263,611			243,632			8	%		774,478			728,053			6	%

Total net sales		711,692			708,555			—			2,136,942			2,113,446			1	%
Costs and operating expenses:
Cost of sales		291,407			307,101			(5	%)		876,863			899,992			(3	%)
Selling and administrative expenses		186,748			164,417			14	%		555,657			483,769			15	%
Research and development expenses		41,995			43,435			(3	%)		130,559			127,913			2	%
Purchased intangibles amortization		12,116			1,592			661	%		20,410			4,863			320	%
Acquired in-process research and development		—			—			—			—			9,797			(100	%)

Operating income		179,426			192,010			(7	%)		553,453			587,112			(6	%)
Operating income as a % of sales		25.2	%		27.1	%					25.9	%		27.8	%
Other income, net		328			895			(63	%)		1,364			2,600			(48	%)
Interest expense, net		(26,559	)		(9,524	)		179	%		(56,174	)		(27,362	)		105	%

Income before income taxes		153,195			183,381			(16	%)		498,643			562,350			(11	%)
Provision for income taxes		18,643			27,383			(32	%)		72,614			81,657			(11	%)

Net income	$	134,552		$	155,998			(14	%)	$	426,029		$	480,693			(11	%)

Net income per diluted common share	$	2.27		$	2.60			(13	%)	$	7.19		$	7.94			(9	%)

The Company’s net sales increased less than one percent in the third quarter of 2023, as compared to the third quarter of 2022, with foreign currency translation having an insignificant impact on sales growth. For the first nine months of 2023, the Company’s net sales increased 1% with the effect of foreign currency translation decreasing sales growth by 2% as compared to the first nine months of 2022. In both the third quarter and first nine months of 2023, the Company’s net sales were negatively impacted by a significant reduction in sales in China due to lower customer demand for our products. Excluding China, the Company’s net sales increased 7% and 5% for the third quarter and first nine months of 2023, respectively. The Wyatt acquisition increased sales growth by 4% and 2% for the third quarter and first nine months of 2023, respectively.

For the first nine months of 2023, the Company had the same amount of calendar days when compared to the first nine months of 2022. At current foreign currency exchange rates, the Company expects that foreign currency translation will be negative to sales for the remainder of 2023.

Instrument system sales decreased 5% and 4% for the third quarter and first nine months of 2023, respectively, as sales growth in the U.S., Latin America and Europe was offset by weaker customer demand in Asia (primarily in China). Instrument system sales in China declined 32% and 23% in the third quarter and first nine months of 2023, respectively, due to lower customer demand for our products. Excluding China, the Company’s instrument system sales increased 4% and 3% in the third quarter and first nine months of 2023, respectively. The decline in China’s instrument sales can be attributed to the decline in customer demand. The Wyatt acquisition increased instrument system sales growth by 7% and 3%, for the third quarter and first nine months of 2023, respectively. Foreign currency translation increased instrument system sales growth by 1% in the third quarter of 2023 and decreased instrument system sales growth by 1% in the first nine months of 2023.

Recurring revenues (combined sales of precision chemistry consumables and services) increased 6% and 5% for the third quarter and first nine months of 2023, respectively, with foreign currency translation having a minimal impact on sales growth in the third quarter and decreasing sales growth by 2% for the first nine months of 2023. Service revenues grew 8% and 6% for the third quarter and first nine months of 2023, respectively. Wyatt’s service revenues added 3% and 1% to service revenue growth for the third quarter and first nine months of 2023, respectively. Chemistry sales growth was flat and increased 3% for the third quarter and first nine months of 2023, respectively. Chemistry sales were significantly impacted by the lower customer demand in China for our products. Excluding the impact of China, the Company’s chemistry sales grew 9% and 6%, for the third quarter and first nine months of 2023, respectively.

Operating income decreased 7% and 6% for the third quarter and first nine months of 2023, respectively, primarily due to higher salary expenses related to merit compensation and an increase in severance-related costs associated with a workforce reduction, partially offset by lower incentive compensation costs. 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 incurred approximately $23 million and $27 million of severance-related costs in the third quarter and first nine months of 2023, respectively. The Company paid $12 million and $14 million of severance-related costs in the third quarter and first nine months of 2023, respectively, with the majority of the remaining costs to be paid in the fourth quarter of 2023 and the first half of 2024. The Company estimates that the savings from this reduction in workforce will be approximately $48 million on an annual basis. In addition, the Company’s operating income was impacted by the Wyatt acquisition due diligence and integration costs of $1 million and $13 million for the third quarter and first nine months of 2023, respectively, and the Wyatt acquisition related bonus expense of $8 million and $11 million for the third quarter and first nine months of 2023, respectively. The negative effect of foreign currency translation lowered operating income by approximately $2 million and $18 million for the third quarter and first nine months of 2023, respectively.

The Company generated $373 million and $413 million of net cash from operating activities in the first nine months of 2023 and 2022, respectively. Net cash used in investing activities included $1.3 billion for the Wyatt acquisition in the first nine months of 2023 and capital expenditures related to property, plant, equipment and software capitalization of $119 million and $114 million in the first nine months 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 September 30, 2023 was $2.5 billion, a change of $1.0 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.

Results of Operations

Sales by Geography

Geographic sales information is presented below for the three and nine months ended September 30, 2023 and October 1, 2022 (dollars in thousands):


	Three Months Ended							Nine Months Ended
	September 30, 2023		October 1, 2022		% change			September 30, 2023		October 1, 2022		% change
Net Sales:
Asia:
China	$	102,081	$	140,080		(27	%)	$	333,127	$	399,852		(17	%)
Japan		40,069		37,095		8	%		123,943		123,222		1	%
Asia Other		96,078		102,759		(7	%)		288,862		289,204		—

Total Asia		238,228		279,934		(15	%)		745,932		812,278		(8	%)
Americas:
United States		231,773		216,380		7	%		673,033		638,908		5	%
Americas Other		43,706		40,029		9	%		131,794		123,609		7	%

Total Americas		275,479		256,409		7	%		804,827		762,517		6	%
Europe		197,985		172,212		15	%		586,183		538,651		9	%

Total net sales	$	711,692	$	708,555		—		$	2,136,942	$	2,113,446		1	%

Geographically, the Company’s sales growth in the third quarter and first nine months of 2023 was broad-based across most major regions, with the exception of China, which declined 27% and 17%, respectively. The decline in China was primarily driven by lower demand for our instrument systems and chemistry products. Excluding China, the Company’s net sales increased 7% and 5% for the third quarter and first nine months of 2023, respectively. Foreign currency translation had minimal impact on sales growth in the third quarter and decreased sales growth by 2% in the first nine months of 2023.

During the third quarter of 2023, sales increased 7% in the U.S. and 15% in Europe, while decreasing 15% in Asia driven by weakness in China and the negative effect of currency translation on sales in Japan. In the third quarter of 2023, foreign currency translation increased sales growth in Europe by 7% and decreased sales growth in Asia by 4%. This decline in Asia was primarily driven by the 8% decline in sales in Japan due to foreign currency translation. Wyatt’s sales contributed 9% of sales growth in the U.S. and 5% of sales growth in Europe in the third quarter of 2023. During the first nine months of 2023, sales increased 5% in the U.S. and 9% in Europe, while decreasing 8% in Asia driven by weakness in China, with the effect of foreign currency translation increasing sales growth in Europe by 1% and decreasing sales growth in Asia by 4%, which includes a 9% decrease in sales in Japan resulting from foreign currency translation.

Sales by Trade Class

Net sales by customer class are presented below for the three and nine months ended September 30, 2023 and October 1, 2022 (dollars in thousands):


	Three Months Ended							Nine Months Ended
	September 30, 2023		October 1, 2022		% change			September 30, 2023		October 1, 2022		% change
Pharmaceutical	$	421,535	$	405,959		4	%	$	1,233,177	$	1,258,902		(2	%)
Industrial		209,449		223,968		(6	%)		648,754		641,882		1	%
Academic and government		80,708		78,628		3	%		255,011		212,662		20	%

Total net sales	$	711,692	$	708,555		—		$	2,136,942	$	2,113,446		1	%

During the third quarter of 2023, sales to pharmaceutical customers increased 4%, as growth in the U.S. and Europe was offset by weakness in China, with foreign currency translation increasing pharmaceutical sales growth by 1% and Wyatt contributing 6% to the Company’s pharmaceutical sales growth. Combined sales to industrial customers, which include material characterization, food, environmental and fine chemical markets, decreased 6% in the third quarter of 2023, with foreign currency translation having minimal impact on sales growth and Wyatt contributing 1% to industrial sales growth. Combined sales to academic and government customers increased 3% in the third quarter of 2023, with foreign currency translation having minimal impact on sales growth and Wyatt contributing 5% to the Company’s academic and government sales growth. Sales to our academic and government customers are highly dependent on when institutions receive funding to purchase our instrument systems and, as such, sales can vary significantly from period to period.

During the first nine months of 2023, sales to pharmaceutical customers decreased 2%, primarily driven by weakness in customer demand in China, with foreign currency translation decreasing pharmaceutical sales growth by 2%. Combined sales to industrial customers increased 1%, with foreign currency translation decreasing sales growth by 1%. Combined sales to academic and government customers increased 20%, with foreign currency translation decreasing sales growth by 2%.

Waters Products and Services Net Sales

Net sales for Waters products and services were as follows for the three and nine months ended September 30, 2023 and October 1, 2022 (dollars in thousands):


	Three Months Ended
	September 30, 2023		% of Total			October 1, 2022		% of Total			% change
	September 30, 2023		% of Total			October 1, 2022		% of Total			% change
Waters instrument systems	$	262,142		42	%	$	274,869		44	%		(5	%)
Chemistry consumables		128,650		20	%		128,096		21	%		—

Total Waters product sales		390,792		62	%		402,965		65	%		(3	%)
Waters service		238,556		38	%		220,436		35	%		8	%

Total Waters net sales	$	629,348		100	%	$	623,401		100	%		1	%

	Nine Months Ended
	September 30, 2023		% of Total			October 1, 2022		% of Total			% change
	September 30, 2023		% of Total			October 1, 2022		% of Total			% change
Waters instrument systems	$	786,293		42	%	$	825,677		44	%		(5	%)
Chemistry consumables		398,084		21	%		385,661		21	%		3	%

Total Waters product sales		1,184,377		63	%		1,211,338		65	%		(2	%)
Waters service		700,281		37	%		660,371		35	%		6	%

Total Waters net sales	$	1,884,658		100	%	$	1,871,709		100	%		1	%

Waters products and service sales increased 1% for both the third quarter and first nine months of 2023, with the effect of foreign currency translation having minimal impact on sales growth in the third quarter, while decreasing Waters sales growth by 1% in the first nine months of 2023. The Wyatt acquisition increased Waters products and service sales by approximately 5% and 2% for the third quarter and first nine months of 2023, respectively. Waters instrument system sales decreased by 5% for both the third quarter and first nine months of 2023 due to weaker customer demand in China. Waters instrument system sales in China declined 35% and 25% for the third quarter and first nine months of 2023, respectively. Foreign currency translation had minimal impact on Waters instrument system sales growth in the third quarter while decreasing sales growth by 1% for the first nine months of 2023. Wyatt’s instrument system sales contributed 8% and 4% to Waters instrument system sales growth for the third quarter and first nine months of 2023, respectively.

Waters chemistry consumables sales were significantly impacted by the lower customer demand in China for our products. Excluding the impact of China, the Company’s chemistry sales grew 9% and 6% for the third quarter and first nine months of 2023, respectively. This sales growth 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 chemistry sales growth by 1% and 2% in the third quarter and first nine months of 2023, respectively.

Waters service sales increased in the third quarter and first nine months of 2023 due to higher service demand billing, partially offset by the negative impact from foreign currency translation, which decreased service sales growth by 2% in the first nine months of 2023. Wyatt service revenues added 3% and 2% to Waters service revenue growth for the third quarter and first nine months of 2023, respectively.

TA Product and Services Net Sales

Net sales for TA products and services were as follows for the three and nine months ended September 30, 2023 and October 1, 2022 (dollars in thousands):


	Three Months Ended
	September 30, 2023		% of Total			October 1, 2022		% of Total			% change
	September 30, 2023		% of Total			October 1, 2022		% of Total			% change
TA instrument systems	$	57,289		70	%	$	61,958		73	%		(8	%)
TA service		25,055		30	%		23,196		27	%		8	%

Total TA net sales	$	82,344		100	%	$	85,154		100	%		(3	%)

	Nine Months Ended
	September 30, 2023		% of Total			October 1, 2022		% of Total			% change
	September 30, 2023		% of Total			October 1, 2022		% of Total			% change
TA instrument systems	$	178,087		71	%	$	174,055		72	%		2	%
TA service		74,197		29	%		67,682		28	%		10	%

Total TA net sales	$	252,284		100	%	$	241,737		100	%		4	%

TA sales declined 3% for the third quarter of 2023 due to lower customer demand for TA products and services while TA sales grew 4% for the first nine months of 2023. For the third quarter, TA’s sales geographically were weak in the U.S., China and Asia Other, declining 8%, 5% and 13%, respectively, but were strong in Europe and Japan, which grew 7% and 19%, respectively. Foreign currency translation increased sales by 3% in Asia Other and 9% in Europe, while decreasing sales by 1% in China and 11% in Japan. For the first nine months of 2023, TA sales growth was broad-based across most major geographies, except for China and Asia Other, which declined 11% and 15%, respectively. The sales growth for the first nine months of 2023 was primarily driven by strong customer demand for our thermal analysis instruments and service, particularly in the U.S. and Europe. Foreign currency translation increased sales by 1% for the third quarter and decreased sales by 1% for the first nine months of 2023.

Cost of Sales

Cost of sales decreased by 5% and 3% in the third quarter and first nine months 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 third quarter and first nine months 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 14% and 15% in the third quarter and first nine months of 2023, respectively. The increase in these periods is primarily driven by severance-related costs in connection with a reduction in workforce, which increased expenses by 14% and 5%; the Wyatt acquisition due diligence and integration costs, which increased expenses by 1% and 3%; and the Wyatt acquisition-related bonus expense, which increased expenses by 5% and 2%, in each case, for the third quarter and first nine months of 2023, respectively. These increases were partially offset by lower incentive compensation costs. The effect of foreign currency translation increased selling and administrative expenses by 2% for the third quarter and decreased expenses by 1% for the first nine months of 2023.

As a percentage of net sales, selling and administrative expenses were 26.2% and 26.0% for the third quarter and first nine months of 2023, respectively, and 23.2% and 22.9% for the third quarter and first nine months of 2022, respectively.

Research and Development Expenses

Research and development expenses decreased 3% in the third quarter and increased 2% in the first nine months of 2023. The decrease in third quarter research and development expenses was driven by lower incentive compensation costs, which were offset by annual merit increases and costs associated with the development of new product and technology initiatives. The impact of foreign currency exchange increased expenses by 1% for the third quarter and decreased expenses by 2% for the first nine months of 2023.

Purchased Intangibles Amortization

The increase in purchased intangible amortization of $11 million and $16 million in the third quarter and first nine months of 2023, respectively, can be attributed to the Wyatt acquisition intangible assets.

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 nine months of 2022, the Company sold an equity investment for $10 million in cash and recorded a gain on the sale of approximately $7 million in other income, net on the statement of operations. The Company also incurred $6 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 third quarter and first nine months of 2023 can be primarily attributed to the additional borrowings by the Company 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 September 30, 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 $11 million and $15 million and increased the Company’s net income per diluted share by $0.18 and $0.25 for the third quarter of 2023 and 2022, respectively.

The Company’s effective tax rate for the third quarter of 2023 and 2022 was 12.2% and 14.9%, respectively. The decrease in the effective tax rate can be primarily attributed to the impact of discrete tax benefits in the current year and differences in the proportionate amounts of pre-tax income recognized in jurisdictions with different effective tax rates.

The Company’s effective tax rate for the first nine months of 2023 and 2022 was 14.6% and 14.5%, 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):


	Nine Months Ended
	September 30, 2023			October 1, 2022
Net income	$	426,029		$	480,693
Depreciation and amortization		117,845			99,105
Stock-based compensation		32,224			30,929
Deferred income taxes		267			(20,836	)
Acquired in-process research and development and other non-cash items		—			10,003
Change in accounts receivable		100,327			(39,098	)
Change in inventories		(81,415	)		(113,211	)
Change in accounts payable and other current liabilities		(130,065	)		(4,952	)
Change in deferred revenue and customer advances		38,959			47,060
Other changes		(131,484	)		(76,741	)

Net cash provided by operating activities		372,687			412,952
Net cash used in investing activities		(1,404,321	)		(45,783	)
Net cash provided by (used in) financing activities		885,438			(398,187	)
Effect of exchange rate changes on cash and cash equivalents		2,081			(26,579	)

Decrease in cash and cash equivalents	$	(144,115	)	$	(57,597	)

Cash Flow from Operating Activities

Net cash provided by operating activities was $373 million and $413 million during the first nine months 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 81 days at September 30, 2023 and 77 days at October 1, 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 $79 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 $46 million in the first nine months of 2023 and 2022, respectively. Additions to fixed assets and capitalized software were $119 million and $114 million in the first nine months of 2023 and 2022, respectively. The cash flows from investing activities in 2023 and 2022 include $12 million and $24 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 $245 million on this facility inception-to-date through the end of the first nine months of 2023 and anticipates completing this new state-of-the-art facility in 2023.

During the first nine months of 2023 and 2022, the Company purchased $2 million and $11 million of investments, respectively, while $2 million and $78 million of investments matured, respectively, and were used for financing activities described below.

During the first nine months 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.

During the first nine months of 2022, the Company received $10 million in proceeds from equity investments and made $1 million of investments in equity investments.

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

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, 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. As of September 30, 2023, the Company had a total of $2.5 billion in outstanding debt, which consisted of $1.3 billion in outstanding senior unsecured notes and $1.2 billion borrowed under its credit agreement. The Company’s net debt borrowings increased by $0.9 billion and $30 million during the first nine months of 2023 and 2022, respectively, primarily to fund the Wyatt acquisition.

As of September 30, 2023, the Company had entered into interest rate cross-currency swap derivative agreements with durations up to three years with an aggregate notional value of $625 million to hedge the variability in the movement of foreign currency exchange rates on a portion of its euro-denominated and yen-denominated net asset investments. As a result of entering into these agreements, the Company lowered net interest expense by approximately $8 million and $6 million during the first nine months 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 nine months of September 30, 2023 and October 1, 2022, the Company repurchased $58 million and $467 million of the Company’s outstanding common stock, respectively, under the share repurchase program. In addition, the Company repurchased $12 million and $11 million of common stock related to the vesting of restricted stock units during the first nine months of September 30, 2023 and October 1, 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 $18 million and $36 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 nine months of 2023 and 2022, respectively.

The Company had cash, cash equivalents and investments of $337 million as of September 30, 2023. The majority of the Company’s cash and cash equivalents are generated from foreign operations, with $307 million held by foreign subsidiaries at September 30, 2023, of which $196 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 September 30, 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 nine months ended September 30, 2023. The Company did not make any changes in those policies during the nine months ended September 30, 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 in the Middle East, 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 September 30, 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 September 30, 2023 and December 31, 2022, $307 million out of $337 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, $196 million out of $337 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 September 30, 2023 and December 31, 2022, respectively. As of September 30, 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 September 30, 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 nine months ended September 30, 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 September 30, 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 September 30, 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 nine months ended September 30, 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 September 30, 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 September 30, 2023, the Company purchased 205 and 2,269 shares at a cost of $57 thousand and $634 thousand with average prices paid of $280.25 and $279.44 during fiscal July and September, 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 level to $4.8 billion, an increase of $750 million. As of September 30, 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

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 September 30, 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: November 7, 2023