2019 June 21, 2020: 62,158,045ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 2017TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Delaware 13-3668640 and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation (§and post such files). Yes Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of thisForm 10-K or any amendment to thisForm 10-K. ☑ (Do not check if a smaller reporting company) July 1, 2017: $14,672,588,076.16, 2018: 78,784,46220182020 Annual Meeting of Stockholders are incorporated by reference in Part III.
Item No. | Page | |||||||
PART I | ||||||||
1. | 1 | |||||||
1A. | 12 | |||||||
1B. | 19 | |||||||
2. | 19 | |||||||
3. | 20 | |||||||
4. | 20 | |||||||
20 | ||||||||
PART II | ||||||||
5. | 22 | |||||||
6. | 25 | |||||||
7. | 26 | |||||||
7A. | 43 | |||||||
8. | 46 | |||||||
9. | 96 | |||||||
9A. | 96 | |||||||
9B. | 96 | |||||||
PART III | ||||||||
10. | 97 | |||||||
11. | 97 | |||||||
12. | 97 | |||||||
13. | 98 | |||||||
14. | 98 | |||||||
PART IV | ||||||||
15. | 99 | |||||||
16. | 103 | |||||||
104 |
Item 1: | Business |
“Company”“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. Watersnearlymore than 60 years. The Company primarily designs, manufactures, sells and services high performance liquid chromatography (“HPLC”), ultra performance liquid chromatography (“UPLC®® life science, pharmaceutical, biochemical, industrial, nutritional safety, environmental, academic and governmental customers working in research and development, quality assurance and other laboratory applications. 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.® and TA®.TA. The Waters operating segment is primarily in the business of designing, manufacturing, distributingselling and servicing LC and MS instrument systems, 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, distributingselling 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.1618 in the Notes to the Consolidated Financial Statements, which is incorporated herein by reference.
speed when conducting research on next-generation polymers.
samples up to 40% fasterimprove the consistency and deliver samples that are up to 70% cleaner with fewerLC-MS matrix effects than samples prepared using other extraction techniques.reliability of the overly complex separations of monoclonal antibodies and antibody-drug conjugates. In addition, the ACQUITY UPLC® Glycoprotein BEH Amide columns were introduced in 2015 to help biopharmaceutical companies to better understand where glycan groups (bonded sugars) are located within the therapeutic proteins they are developing and manufacturing. In 2016,2019, the Company continuedintroduced the BioResolv SCX mAb Columns and VanGuardexpand its column chemistry capabilities throughsimplify and improve the introductioncharacterization and monitoring of CORTECS® C8, CORTECS® Phenyl, CORTECS®T3monoclonal antibody (mAb) therapeutics, as well as enable mAb charge-variant analyses as required by the World Health Organization, the FDA and CORTECS® Shield RP18.
the International Conference on Harmonization for confirming the efficacy and safety of biologics and biosimilars with discovery, development and manufacturing applications.
In 2018, the Company introduced the VICAM
In November 2015, the Company acquired all of the outstanding stock of MPE Orbur Group Limited and its sole operating subsidiary, Midland Precision Equipment Company, Ltd. (“MPE”), a manufacturer of MS
instrumentation components, for $12 million, net of cash acquired. MPE is a highly skilled manufacturer and former Waters supplier that produces critical components that support the Company’s MS instrument systems.
LC and MS are typically embodied within an analytical system tailored for either a dedicated class of analyses or as a general purpose analytical device. An increasing percentage of the Company’s customers are purchasing LC and MS components simultaneously and it has become common for LC and MS instrumentation to be used within the same laboratory and operated by the same user. The descriptions of LC and MS above reflect the historical segmentation of these analytical technologies and the historical categorization of their respective practitioners. Increasingly in today’s instrument market, this segmentation and categorization is becoming obsolete as a high percentage of instruments used in the laboratory embody both LC and MS technologies as part of a single device. In response to this development and to further promote the high utilization of these hybrid instruments, the Company has organized its Waters operating segment to develop, manufacture, sell and service integrated
WebMetabase processing software.
In May 2015, the Company acquired the net assets of the ElectroForce® business of the Bose Corporation (“ElectroForce”), a manufacturer of testing systems, for $9 million in cash. ElectroForce’s core business is the manufacturing of dynamic mechanical testing systems used to characterize medical devices, biologic and engineered materials. The ElectroForce test instruments are based on unique motor designs that are quiet, energy-efficient and scalable, while delivering precise performance over a wide range of force and frequency. In 2017, TA introduced the WinTest®
products under repeated loading, significantly accelerating fatigue analysis.
agencies.
Company believes its employee relations are generally good. The Company’s employees are not unionized or affiliated with any internal or external labor organizations. The Company firmly believes that its future success largely depends upon its continued ability to attract and retain highly skilled employees.
The Company is sensitive to the growing global debate with respect to climate change. An internal sustainability working group develops increasingly robust data with respect to the Company’s utilization of carbon producing substances in an effort to continuously reduce the Company’s carbon footprint. In 2014,2019, the Company published a sustainability report identifying the various actions and behaviors the Company has adopted in 2018 concerning its commitment to both the environment and the broader topic of social responsibility. See Item 1A, Risk Factors —–1618 in the Notes to the Consolidated Financial Statements for financial information about geographic areas.
The Company is an electronic filer and the SEC maintains a website that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. The address of the SEC electronic filing website is
“intends” “intends”, “suggests”, “appears”, “estimates”, “projects”, “should” and similar expressions, whether in the negative or affirmative. These statements are subject to various risks and uncertainties, many of which are outside the control of the Company, including, and without limitation:
and biotechnology industries,companies, which may be periodically subject to unfavorable market conditions and consolidations. Unfavorable industry conditions could have a material adverse effect on the Company’s results of operations or financial condition.
In addition, despite testing prior to the release and throughout the lifecycle of a product or service, the
The loss of key members of management and the risks inherent in succession planning could adversely affect the Company’s results of operations or financial condition.
The operation of the Company requires managerial and operational expertise. None of the Company’s key management employees, with the exception of the President and Chief Executive Officer and the Senior Vice President and Chief Financial Officer, have an employment contract with the Company and there can be no assurance that such individuals will remain with the Company. If, for any reason, other such key personnel do not continue to be active in management, the Company’s results of operations or financial condition could be adversely affected.
The Company vigorously protects its intellectual property rights and seeks patent coverage on all developments that it regards as material and patentable. However, there
compliance risks. We may rely on one or a few key distributors for a product or market and the loss of these
On December 22, 2017, the U.S. enacted legislation informally referred to as the Tax Cuts and Jobs Act (the “2017 Tax Act”). The 2017 Tax Act changed the U.S. tax system to a territorial tax system, including base broadening measures onnon-U.S. earnings, whereby historical unremitted, earnings of foreign subsidiaries are deemed to have been repatriated to the U.S. in 2017 regardless of when the assets are actually remitted to the U.S., as well as reducing or eliminating certain domestic deductions and credits and limiting the deductibility of interest expense and executive compensation. Earnings deemed to have been distributed to the U.S. in accordance with the aforementioned 2017 Tax Act deemed distribution rules are subject to a Transition Toll Tax (“Transition Tax”), which is aone-time, mandatory deemed repatriation tax on the accumulated foreign earnings that have not been previously taxed. To the extent those earnings are deemed to have been invested in cash and cash equivalents, they will be taxed at a rate of 15.5%; the remainder of those earnings will be taxed at a rate of 8.0%. As a result, the Company’s historical unremitted foreign earnings were deemed repatriated in 2017 and the Company incurred a $550 million estimated tax provision, which primarily consisted of an estimated Transition
Tax, as well as estimated income tax provisions for state and withholding taxes and a provision associated with the remeasurement of the Company’s deferred tax assets and liabilities from 35% to the new U.S. corporate income tax rate of 21%. The Transition Tax will be paid over an eight-year period, starting in 2018, and will not accrue interest. The final impact of the 2017 Tax Act may differ from these estimates, due to, among other things, changes in interpretations, analysis and assumptions made by the Company, additional guidance that may be issued by the U.S. Department of the Treasury and tax planning actions that the Company may undertake.
The Company continues to be permanently reinvested in relation to the cumulative historical outside basis difference that is not related to the unremitted earnings that were taxed. We will continue to evaluate our assertions, including intentions and plans, on the cumulative historical outside basis differences, not related to the unremitted earnings that were taxed, in our foreign subsidiaries as of December 31, 2017. In accordance with authoritative guidance issued by the SEC, we expect to finalize our analysis and accounting related to the toll charge, deferred tax assets and liabilities and any remaining outside basis differences in our foreign subsidiaries during the measurement period; however, there can be no assurance given that these amounts will not need to be revised in the future, affecting the future financial condition and results of operations of the Company.
Going forward, the Company estimates that its effective tax rate will increase approximately one to three percentage points in the future; however, there can be no assurance given that the estimated future effective income tax rate increase will not be different and there can be no assurances that it will not have a material impact on the Company’s results of operations or financial condition.
cash and revolving credit facility, (3) the ability to expand the Company’s borrowing capacity and (4) other sources of capital obtained at an acceptable cost.
conflict minerals, which may be contained in the Company’s products, are mined from the Democratic Republic of the Congo and adjoining countries. In 2016,2018, the Company was not able to determine with certainty the country of origin of some of the conflict minerals in its manufactured products. However, the Company does not have knowledge that any of its conflict minerals originated from the Democratic Republic of the Congo or adjoining countries. The Company is in the process of evaluating its 20172019 supply chain, and the Company plans to file its 20172019 Form SD with the SEC in May 2018.2020. The results of this and future evaluations may impose additional costs and may introduce new risks related to the Company’s ability to verify the origin of any conflict minerals contained in its products.
The effects of climate change could harm the Company’s business.
The Company’s manufacturing processes for certain of its products involve the use of chemicals and other substances that are regulated under various international, federal, state and local laws governing the environment. In the event that any future climate change legislation would require that stricter standards be imposed by domestic or international environmental regulatory authorities with respect to the use and/or levels of possible emissions from such chemicals and/or other substances, the Company may be required to make certain changes and adaptations to its manufacturing processes. Any such changes could have a material adverse effect on the financial statements of the Company.
Another potential effect of climate change is an increase in the severity of global weather conditions. The Company’s manufacturing facilities are located in the United States, United Kingdom, Ireland and Germany. In addition, the Company manufactures a growing percentage of its HPLC, UPLC and MS products in both Singapore and Ireland. Severe weather and geological conditions or events, including earthquakes, hurricanes and/or tsunamis, could potentially cause significant damage to the Company’s manufacturing facilities in each of
these countries. The effects of such damage and the resulting disruption of manufacturing operations and the impact of lost sales could have a material adverse impact on the financial results of the Company.
Item | 1B: Unresolved Staff Comments |
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Location | Function (1) | Owned/Leased | ||||||
Golden, CO | M, R, S, D, A | Leased | ||||||
New Castle, DE | M, R, S, D, A | |||||||
| Owned | |||||||
Franklin, MA | D | Leased | ||||||
Milford, MA | M, R, S, A | |||||||
| Owned | |||||||
Taunton, MA | ||||||||
M, R | Owned | |||||||
Cambridge, MA | R, S | Leased | ||||||
Wakefield, MA | M, R, S, D, A | Leased | ||||||
Eden Prairie, MN | M, R, S, D, A | |||||||
| Leased | |||||||
Nixa, MO | M, S, D, A | |||||||
| Leased | |||||||
Sharpsburg, PA | M, R, S, D, A | |||||||
| Leased | |||||||
Lindon, UT | M, R, S, D, A | |||||||
| Leased | |||||||
Newcastle, England | R, S, D, A | |||||||
| Leased | |||||||
Solihull, England | ||||||||
M,A | Owned | |||||||
Wilmslow, England | M, R, S, D, A | Owned | ||||||
St. Quentin, France | S, A | |||||||
| Leased | |||||||
Bochum, Germany | R, S, A | Leased | ||||||
Huellhorst, Germany | M, R, S, D, A | |||||||
| Owned | |||||||
Budapest, Hungary | ||||||||
R | Leased | |||||||
Wexford, Ireland | M, R, D, A | |||||||
| Owned | |||||||
Etten-Leur, Netherlands | S, D, A | Owned | ||||||
Brasov, Romania | R, A | Leased | ||||||
Singapore | R, S, D, A | |||||||
| Leased | |||||||
| ||||||||
|
(1) | M = Manufacturing; R = Research; S = Sales and Service; D = Distribution; A = Administration |
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United States | International | |||||
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Costa Mesa, CA | Australia | India | Portugal | |||
Pleasanton, CA | Austria | Ireland | Poland | |||
Wood Dale, IL | Belgium | Israel | Puerto Rico | |||
Carmel, IN | Brazil | Italy | Spain | |||
Columbia, MD | Canada | Japan | Sweden | |||
Beverly, MA | Czech Republic | Korea | Switzerland | |||
Durham, NC | Denmark | Malaysia | Taiwan | |||
Morrisville, NC | Finland | Mexico | United Kingdom | |||
Parsippany, NJ | France | Netherlands | ||||
Plymouth Meeting, PA | Germany | Norway | ||||
Bellaire, TX | Hungary | People’s Republic of China |
(2) | The Company operates more than one field office within certain states and foreign countries. |
Mark T. Beaudouin, 63,
Terrance P. Kelly, 55,
he held several positions during his 20 years at Medtronic plc, including Vice President of Quality, Restorative Therapies Group from May 2015 to November 2016 and Vice President of Quality, Regulatory and Clinical Affairs, Surgical Technologies Division from January 2011 to May 2015. On February 17, 2020, Mr. Kim notified the Company that he will be resigning his position on March 16, 2020.
David A. Terricciano, 62, was appointed Senior Vice President, Global Operations in February 2016. Mr. Terricciano previously served as Vice President
2017.16, 2018,21, 2020, the Company had 9280 common stockholders of record. The Company has not declared or paid any dividends on its common stock in its past three fiscal years.years and does not intend to pay cash dividends in the foreseeable future. Any future determination to pay cash dividends will be made at the discretion of the Board of Directors and will depend on restrictions and other factors the Board of Directors may deem relevant. The Company has not made any sales of unregistered equity securities in the years ended December 31, 2017, 20162019, 2018 or 2015.
2014
LABORATORY ANALYTICAL INSTRUMENTS AND S&P 500 INDEX
AND S&P HEALTH CARE INDEX
2012 | 2013 | 2014 | 2015 | 2016 | 2017 | |||||||||||||||||||
WATERS CORPORATION | $ | 100.00 | $ | 114.78 | $ | 129.38 | $ | 154.48 | $ | 154.26 | $ | 221.75 | ||||||||||||
NYSE MARKET INDEX | $ | 100.00 | $ | 126.28 | $ | 134.81 | $ | 129.29 | $ | 144.73 | $ | 171.83 | ||||||||||||
SIC CODE INDEX | $ | 100.00 | $ | 142.80 | $ | 182.12 | $ | 202.31 | $ | 186.41 | $ | 285.16 | ||||||||||||
S&P 500 INDEX | $ | 100.00 | $ | 132.39 | $ | 150.51 | $ | 152.59 | $ | 170.84 | $ | 208.14 |
Market for Registrant’s Common Equity
The quarterly range
2014 | 2015 | 2016 | 2017 | 2018 | 2019 | ||||||||||||||||||||
WATERS CORPORATION | $ | 100.00 | $ | 119.39 | $ | 119.22 | $ | 171.39 | $ | 167.36 | $ | 207.28 | |||||||||||||
NYSE MARKET INDEX | $ | 100.00 | $ | 95.91 | $ | 107.36 | $ | 127.46 | $ | 116.06 | $ | 145.66 | |||||||||||||
SIC CODE INDEX | $ | 100.00 | $ | 111.14 | $ | 102.42 | $ | 156.71 | $ | 165.13 | $ | 205.80 | |||||||||||||
S&P 500 INDEX | $ | 100.00 | $ | 101.38 | $ | 113.51 | $ | 138.29 | $ | 132.23 | $ | 173.86 |
Period | Total Number of Shares Purchased (1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Programs (2) | Maximum Dollar Value of Shares that May Yet Be Purchased Under the Programs (2) | ||||||||||||
October 1 to October 28, 2017 | — | $ | — | — | $ | 885,182 | ||||||||||
October 28 to November 25, 2017 | 260 | $ | 196.20 | 260 | $ | 834,170 | ||||||||||
November 26 to December 31, 2017 | 182 | $ | 196.65 | 171 | $ | 800,462 | ||||||||||
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Total | 442 | $ | 196.39 | 431 | $ | 800,462 | ||||||||||
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Period | Total Number of Shares Purchased (1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Programs (2) | Maximum Dollar Value of Shares that May Yet Be Purchased Under the Programs (2) | ||||||||||||
September 29, 2019 to October 26, 2019 | 646 | $ | 217.06 | 646 | $ | 2,112,901 | ||||||||||
October 27, 2019 to November 23, 2019 | 797 | $ | 214.93 | 797 | $ | 1,941,602 | ||||||||||
November 24, 2019 to December 31, 2019 | 1,092 | $ | 228.96 | 1,092 | $ | 1,691,643 | ||||||||||
Total | 2,535 | $ | 221.52 | 2,535 | $ | 1,691,643 | ||||||||||
(1) | The |
(2) | In two-year period. This new program replaced the remaining amounts available under thepre-existing authorization. |
Item 6: | Selected Financial Data |
In thousands, except per share and employees data STATEMENT OF OPERATIONS DATA: Net sales Income from operations before income taxes Net income* Net income per basic common share* Weighted-average number of basic common shares Net income per diluted common share* Weighted-average number of diluted common shares and equivalents BALANCE SHEET AND OTHER DATA: Cash, cash equivalents and investments Working capital, including current maturities of debt** Total assets** Long-term debt** Stockholders’ equity Employees2015, 2014 and 2013.2015. The Company’s financial statements as of December 31, 20172019 and 2016,2018, and for each of the three years in the period ended December 31, 20172019 are included in Part II, Item 8, Financial Statements and Supplementary Data, in Part II of this Form 2017 2016 2015 2014 2013 $ 2,309,078 $ 2,167,423 $ 2,042,332 $ 1,989,344 $ 1,904,218 $ 641,097 $ 600,114 $ 541,919 $ 490,740 $ 490,105 $ 20,311 $ 521,503 $ 469,053 $ 431,620 $ 450,003 $ 0.25 $ 6.46 $ 5.70 $ 5.12 $ 5.27 79,793 80,786 82,336 84,358 85,426 $ 0.25 $ 6.41 $ 5.65 $ 5.07 $ 5.20 80,604 81,417 83,087 85,151 86,546 $ 3,393,701 $ 2,813,032 $ 2,399,263 $ 2,055,388 $ 1,803,670 $ 3,663,977 $ 3,115,124 $ 2,649,457 $ 2,236,558 $ 2,038,100 $ 5,324,354 $ 4,662,059 $ 4,268,677 $ 3,874,690 $ 3,580,106 $ 1,897,501 $ 1,701,966 $ 1,493,027 $ 1,237,463 $ 1,188,162 $ 2,233,788 $ 2,301,949 $ 2,058,851 $ 1,894,666 $ 1,763,173 7,020 6,899 6,594 6,161 5,965
and employees data $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ ) $ $ $ $ * The provision for income taxes for 2017 includes a $550 million estimate for the impact of the enactment of the 2017 Tax Act, which was signed into law on December 22, 2017. The $550 million income tax provision reduced net income per share by $6.82. The $550 million income tax provision primarily consists of an estimated Transition Taxtransition tax, as well as estimated income tax provisions for state and withholding taxes and a provision associated with the remeasurement of the Company’s deferred tax assets and liabilities from 35% to the new U.S. corporate income tax rate of 21%.iswas not permitted. In 2019, 2018 and 2017, the Company recognized an excess tax benefit, which decreased income tax expense by $9 million, $9 million and $20 million, respectively, and added $0.14, $0.11 and $0.24, respectively, to net income per diluted share.
** | In right-of-use asset as of December 31, 2019. The adoption of this standard did not have |
Item 7: | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Revenues: Product sales Service sales Total net sales Costs and operating expenses: Cost of sales Selling and administrative expenses Research and development expenses Litigation provisions Purchased intangibles amortization Acquiredin-process research and development Operating income Operating income as a % of sales Interest expense, net Income before income taxes Provision for income taxes Net income Net income per diluted common share®®®2017, 20162019, 2018 and 20152017 (dollars in thousands, except per share data): Year Ended December 31, % change 2017 2016 2015 2017 vs.
2016 2016 vs.
2015 $ 1,552,349 $ 1,460,296 $ 1,385,256 6 % 5 % 756,729 707,127 657,076 7 % 8 % 2,309,078 2,167,423 2,042,332 7 % 6 % 947,067 891,453 842,672 6 % 6 % 544,703 513,031 495,747 6 % 3 % 132,593 125,187 118,545 6 % 6 % 11,114 3,524 3,939 215 % (11 %) 6,743 9,889 10,123 (32 %) (2 %) 5,000 — 3,855 — (100 %) 661,858 624,339 567,451 6 % 10 % 28.7 % 28.8 % 27.8 % (20,761 ) (24,225 ) (25,532 ) (14 %) (5 %) 641,097 600,114 541,919 7 % 11 % 620,786 78,611 72,866 690 % 8 % $ 20,311 $ 521,503 $ 469,053 (96 %) 11 % $ 0.25 $ 6.41 $ 5.65 (96 %) 13 % In 2017, the
2018
2017 $ $ $ %) % % % %) % % % %) % % % ) % %) %) %) % % % % ) ) ) ** ** ) ) ) % %) %) % %) %) $ $ $ ** $ $ $ % **
Recurring revenues were impacted by foreign currency, which decreased sales by 2% in 2019 and increased sales by 2% in 2018.
sales growth in 2017. Asia’s sales growth was a result of the double-digit sales growth in China and India on strong demand for our products and services in those countries and in spite of lower customer demand in IndiaChina for our instrument systems as a result of changes in the second half of 2017 resulting from the implementation of the new Goodsgovernmental policy and Services Tax system.
In 2016, the Company’s sales grew 6% as compared to 2015, with stronglower sales in our pharmaceuticalLatin America. Despite the sales declines in China and industrial markets, including balance across all product classes. The effect of foreign currency translation increased sales by 1% in 2017 and decreased sales by 1% in 2016 across all products and services. Recent acquisitions had a minimal impact on sales growth in both 2017 and 2016.
Sales to pharmaceutical customers grew 7% and 9% in 2017 and 2016, respectively. These increases were driven byLatin America, the increasing need for global access to prescription drugs and the testing of newer and more complex biologic drugs. Geographically,drugs increased in the growth within our pharmaceutical market in 2017 was driven by double-digit growth in China, India and Europe, while sales growth in 2016 was driven by double-digit growth in China and Japan.
rest of the world.
effect of foreign currency translation.
The provision for income taxes for 2017 includes a $550 million estimate for the impact of the enactment of the legislation informally referred to as the Tax Cuts and Jobs Act (the “2017 Tax Act”), which was signed into law on December 22, 2017. The 2017 Tax Act changed the U.S. tax system to a territorial system, including base broadening measures requiring the taxation of the Company’s historical unremitted foreign earnings through a deemed repatriation, which resulted inCompany incurred a $550 million income tax provision that reduced net income per share by $6.82 for the twelve months ended December 31, 2017, as well as eliminating or reducing certain domestic deductions and credits and limiting the deductibility of interest expense and executive compensation. The $550 million income tax provision primarily consists of an estimated Transition Toll Tax (“Transition Tax”) of $490 million, as well as estimated income tax provisions for state and withholding taxes of $40 million and a $20 million provision associated with the remeasurement of the Company’s deferred tax assets and liabilities
from 35%related to the new U.S. corporate income tax rate of 21%. The Transition Tax will be paid over an eight-year period, starting in 2018, and will not accrue interest. As a result of the 2017 Tax Cuts and Jobs Act the Company was able to gain access to its cash and investment balances held outside the U.S. in a tax efficient manner that can be used for any general corporate purposes in the U.S. Going forward, the Company estimates that its effective income tax rate will increase approximately one to three percentage points in the future. The final impact of the (“2017 Tax Act may differ from these estimates due to, among other things, changes in interpretations, analysis and assumptions made byAct”) which reduced the Company, additional guidance that may be issued by the U.S. Department of the Treasury, and tax planning actions that the Company may undertake.
In the first quarter of 2017, the Company adopted a new accounting standard that requires the excess tax benefit or deficiency on stock-based compensation to be included in the statement of operations as a component of the provision for income taxes, whereas previously it was recognized in equity. As a result, the Company recorded a tax benefit on stock-based compensation in 2017 that decreased income tax expense by $20 million and added $0.24 to net income per diluted share respectively. Additionally, this standard requiredby $6.82, and excluding the Company to present2017 Tax Act income tax provision, the Company’s effective tax benefitrate in the consolidated statements of cash flows as an operating activity, whereas in the past this tax benefit was reflected as a financing activity. All prior periods presented in the cash flow2017 would have been adjusted accordingly.
11.0%.
In November 2017, the Company entered into a new credit agreement (the “2017 Credit Agreement”) that provides for a $1.5 billion revolving facility and a $300 million term loan. The revolving facility and term loan both mature on November 30, 2022 and require no scheduled prepayments before that date. The Company used $1.3 billionremaining life of the proceeds from the 2017 Credit Agreementpatent. DESI is a mass spectrometry imaging technique that is used to repay the outstanding amounts under the Company’s existing multi-borrower credit agreement dated June 2013 (the “2013 Credit Agreement”), which was terminated early without penalty. develop medical therapies.
Year Ended December 31, | % change | |||||||||||||||||||
2019 | 2018 | 2017 | 2019 vs. 2018 | 2018 vs. 2017 | ||||||||||||||||
Net Sales: | ||||||||||||||||||||
Asia: | ||||||||||||||||||||
China | $ | 439,557 | $ | 443,321 | $ | 387,059 | (1 | %) | 15 | % | ||||||||||
Japan | 180,707 | 173,357 | 167,258 | 4 | % | 4 | % | |||||||||||||
Asia Other | 318,848 | 305,613 | 308,300 | 4 | % | (1 | %) | |||||||||||||
Total Asia | 939,112 | 922,291 | 862,617 | 2 | % | 7 | % | |||||||||||||
Americas: | ||||||||||||||||||||
United States | 692,277 | 683,596 | 669,274 | 1 | % | 2 | % | |||||||||||||
Americas Other | 137,964 | 151,581 | 140,715 | (9 | %) | 8 | % | |||||||||||||
Total Americas | 830,241 | 835,177 | 809,989 | (1 | %) | 3 | % | |||||||||||||
Europe | 637,243 | 662,461 | 636,472 | (4 | %) | 4 | % | |||||||||||||
Total net sales | $ | 2,406,596 | $ | 2,419,929 | $ | 2,309,078 | (1 | %) | 5 | % | ||||||||||
Year Ended December 31, | % change | |||||||||||||||||||
2017 | 2016 | 2015 | 2017 vs. 2016 | 2016 vs. 2015 | ||||||||||||||||
Net Sales: | ||||||||||||||||||||
United States | $ | 669,274 | $ | 665,280 | $ | 656,361 | 1 | % | 1 | % | ||||||||||
Europe | 636,472 | 577,257 | 555,886 | 10 | % | 4 | % | |||||||||||||
Asia: | ||||||||||||||||||||
China | 387,059 | 331,354 | 278,600 | 17 | % | 19 | % | |||||||||||||
Japan | 167,258 | 167,977 | 145,184 | — | 16 | % | ||||||||||||||
Asia Other | 308,300 | 283,653 | 272,179 | 9 | % | 4 | % | |||||||||||||
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Total Asia | 862,617 | 782,984 | 695,963 | 10 | % | 13 | % | |||||||||||||
Other | 140,715 | 141,902 | 134,122 | (1 | %) | 6 | % | |||||||||||||
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Total net sales | $ | 2,309,078 | $ | 2,167,423 | $ | 2,042,332 | 7 | % | 6 | % | ||||||||||
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In 2017, thepharmaceutical markets. The 4% increase in sales in Japan was driven by instrument systems, primarily to pharmaceutical and academic and governmental customers, as well as foreign currency translation, which increased Japan’s sales by 2% in 2019. Sales growth in Asia Other was due primarily to pharmaceutical and academic and governmental customer classes in 2019. Sales in the U.S. increased by 1% despite large pharmaceutical customers slowing capital spending on our instrument systems. Sales declines in the rest of the Americas and Europe were broad-based across all product and customer classes due to macroeconomic conditions and political instability, except in Europe where sales to academic and governmental customers grew 8%. Sales in Europe were also negatively impacted by the effect of foreign currency translation, which decreased sales 4% in 2019.
In 2016, sales growth in the U.S. was driven by increases in recurring revenues, which were offset by declines in instrument systems sales. U.S. sales increased to pharmaceutical customers but declined tonon-pharmaceuticalend-markets. Europe’s sales in 2016 were also driven by recurring revenues and primarily due to increases to pharmaceutical and industrial customers. China achieved strong sales growth in all product and customer classes in 2016, with double-digit growth inLC-MS instrument systems and precision chemistry consumables as well as double-digit growth to pharmaceutical customers. Japan’s increase in sales in 2016 was largely driven by the benefit of foreign currency translation, which increased sales by 12%. The increase in sales in the rest of Asia in 2016 was driven byLC-MS instrument systems and precision chemistry consumables sales to pharmaceutical and industrial customers. Sales to the rest of Asia decreased 6% due to the negative effect of foreign currency translation.TA instruments. Sales in the rest of the worldAmericas had double-digit sales growth for instrument systems and double-digit sales growth for pharmaceutical customers, which was offset by a decline in 2016sales to industrial customers.
Year Ended December 31, | % change | |||||||||||||||||||
2019 | 2018 | 2017 | 2019 vs. 2018 | 2018 vs. 2017 | ||||||||||||||||
Pharmaceutical | $ | 1,365,275 | $ | 1,365,731 | $ | 1,294,668 | — | 5 | % | |||||||||||
Industrial | 719,377 | 737,144 | 721,088 | (2 | %) | 2 | % | |||||||||||||
Academic and governmental | 321,944 | 317,054 | 293,322 | 2 | % | 8 | % | |||||||||||||
Total net sales | $ | 2,406,596 | $ | 2,419,929 | $ | 2,309,078 | (1 | %) | 5 | % | ||||||||||
Year Ended December 31, | % change | |||||||||||||||||||||||||||||||
2017 | % of Total | 2016 | % of Total | 2015 | % of Total | 2017 vs. 2016 | 2016 vs. 2015 | |||||||||||||||||||||||||
Waters instrument systems | $ | 988,750 | 48 | % | $ | 943,218 | 49 | % | $ | 895,626 | 50 | % | 5 | % | 5 | % | ||||||||||||||||
Chemistry consumables | 372,157 | 18 | % | 345,413 | 18 | % | 317,941 | 17 | % | 8 | % | 9 | % | |||||||||||||||||||
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Total Waters product sales | 1,360,907 | 66 | % | 1,288,631 | 67 | % | 1,213,567 | 67 | % | 6 | % | 6 | % | |||||||||||||||||||
Waters service | 686,656 | 34 | % | 639,432 | 33 | % | 593,301 | 33 | % | 7 | % | 8 | % | |||||||||||||||||||
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Total Waters net sales | $ | 2,047,563 | 100 | % | $ | 1,928,063 | 100 | % | $ | 1,806,868 | 100 | % | 6 | % | 7 | % | ||||||||||||||||
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The increase in Waters instrument system sales (LC and MS technology-based) in both 2017 and 2016 is primarily attributable to higher sales ofLC-MS systems that incorporate the Company’s tandem quadrupole technologies.
Year Ended December 31, | % change | |||||||||||||||||||||||||||||||
2019 | % of Total | 2018 | % of Total | 2017 | % of Total | 2019 vs. 2018 | 2018 vs. 2017 | |||||||||||||||||||||||||
Waters instrument systems | $ | 963,871 | 45 | % | $ | 1,000,625 | 47 | % | $ | 988,750 | 48 | % | (4 | %) | 1 | % | ||||||||||||||||
Chemistry consumables | 412,018 | 19 | % | 400,287 | 18 | % | 372,157 | 18 | % | 3 | % | 8 | % | |||||||||||||||||||
Total Waters product sales | 1,375,889 | 64 | % | 1,400,912 | 65 | % | 1,360,907 | 66 | % | (2 | %) | 3 | % | |||||||||||||||||||
Waters service | 761,594 | 36 | % | 738,433 | 35 | % | 686,656 | 34 | % | 3 | % | 8 | % | |||||||||||||||||||
Total Waters net sales | $ | 2,137,483 | 100 | % | $ | 2,139,345 | 100 | % | $ | 2,047,563 | 100 | % | — | 4 | % | |||||||||||||||||
2018.
In 2016, Waters sales increased 2% in the U.S., 4% in Europe, 14% in Asia and 5% in the rest of the world. Waters sales increased 21% in China and were broad-based across all product and customer classes. Waters sales in Japan increased 15%, primarily due to the benefiteffect of foreign currency translation whichincreasing sales 2%. Sales in Asia Other declined 2% in 2018, primarily due to lower customer demand in India and a negative 2% impact of foreign currency translation. In the Americas, U.S. sales increased sales by 12%. Waters sales1% in the rest of Asia increased 6% and were driven by product sales to pharmaceutical and industrial customers, offset by weakness within governmental and academic markets.
2018.
Year Ended December 31, | % change | |||||||||||||||||||||||||||||||
2017 | % of Total | 2016 | % of Total | 2015 | % of Total | 2017 vs. 2016 | 2016 vs. 2015 | |||||||||||||||||||||||||
TA instrument systems | $ | 191,442 | 73 | % | $ | 171,665 | 72 | % | $ | 171,689 | 73 | % | 12 | % | — | |||||||||||||||||
TA service | 70,073 | 27 | % | 67,695 | 28 | % | 63,775 | 27 | % | 4 | % | 6 | % | |||||||||||||||||||
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Total TA net sales | $ | 261,515 | 100 | % | $ | 239,360 | 100 | % | $ | 235,464 | 100 | % | 9 | % | 2 | % | ||||||||||||||||
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TA
Year Ended December 31, | % change | |||||||||||||||||||||||||||||||
2019 | % of Total | 2018 | % of Total | 2017 | % of Total | 2019 vs. 2018 | 2018 vs. 2017 | |||||||||||||||||||||||||
TA instrument systems | $ | 191,300 | 71 | % | $ | 204,081 | 73 | % | $ | 191,442 | 73 | % | (6 | %) | 7 | % | ||||||||||||||||
TA service | 77,813 | 29 | % | 76,503 | 27 | % | 70,073 | 27 | % | 2 | % | 9 | % | |||||||||||||||||||
Total TA net sales | $ | 269,113 | 100 | % | $ | 280,584 | 100 | % | $ | 261,515 | 100 | % | (4 | %) | 7 | % | ||||||||||||||||
India and 8% sales growth in China, which was offset by declines in Japan.
The increase in cost
operations.
2020.
2018.
costs in 2018.
Litigation Provision
In 2017, the Company incurred a $11 million litigation provision related to the issuance of a verdict in a German patent litigation case. In addition, the Company recorded $4 million of litigation settlement provisions and related costs in both 2016 and 2015.
balances, being somewhat offset by the additional interest income from the
a tax benefit of $9 million on stock-based compensation.
The Company’s effective tax rates were 96.8%, 13.1% and 13.4% in 2017, 2016 and 2015, respectively. The provisionyears, or for income taxes for 2017 includes a $550 million estimate for the impact of the enactment of the 2017 Tax Act. Excluding the $550 million income tax expense for the 2017 Tax Act, the effective tax rate in 2017 would have been 11.0% and this effective income tax rate includes a $20 million or (3.1 percentage point) reduction in the income tax expense as a result of the adoption of new accounting guidance related to stock-based compensation. See Note 2 for further information regarding the adoption of this standard.
The 2017 Tax Act changed the U.S. tax system to a territorial system, including base broadening measures requiring the taxation of the Company’s historical unremitted foreign earnings through a deemed repatriation, which resulted in a $550 million income tax provision that reduced net income per share by $6.82 for the twelve months ended December 31, 2017, as well as eliminating or reducing certain domestic deductions and credits and limiting the deductibility of interest expense and executive compensation. The $550 million income tax provision primarily consists of an estimated Transition Tax of $490 million, as well as estimated income tax provisions for state and withholding taxes of $40 million and a $20 million provision associated with the remeasurement of the Company’s deferred tax assets and liabilities from 35% to the new U.S. corporate income tax rate of 21%. The Transition Tax will be paid over an eight-year period, starting in 2018, and will not accrue interest. The final impact of the 2017 Tax Act may differ from these estimates due to, among other things, changes in interpretations, analysis and assumptions made by the Company, additional guidance that may be issued by the U.S. Department of the Treasury, and tax planning actions that the Company may undertake.
The income tax provision for 2016 included a $3 million tax benefit related to a release of a valuation allowance on certain net operating loss carryforwards. In 2015, the income tax provision included a $3 million tax benefit related to the completion of tax audit examinations. The remaining differences between effective tax rates can primarily be attributed to differences in the proportionate amounts ofpre-tax income recognized in jurisdictions with different effective tax rates.
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Net income | $ | 20,311 | $ | 521,503 | $ | 469,053 | ||||||
Depreciation and amortization | 106,002 | 96,449 | 89,987 | |||||||||
Stock-based compensation | 39,436 | 40,998 | 33,368 | |||||||||
Deferred income taxes | 45,510 | 1,204 | 6,581 | |||||||||
Excess tax benefit related to stock option plans | — | 13,844 | 12,955 | |||||||||
Gain on sale of assets | — | (1,500 | ) | (1,377 | ) | |||||||
In-process research and development and othernon-cash charges | 5,000 | — | 4,638 | |||||||||
Change in accounts receivable | (24,013 | ) | (31,721 | ) | (49,888 | ) | ||||||
Change in inventories | 731 | (20,147 | ) | (19,967 | ) | |||||||
Change in accounts payable and other current liabilities | 3,175 | 6,842 | 27,451 | |||||||||
Change in deferred revenue and customer advances | 10,386 | 9,974 | 16,172 | |||||||||
Effect of the 2017 Tax Act | 530,383 | — | — | |||||||||
Other changes | (39,281 | ) | 5,474 | (15,725 | ) | |||||||
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Net cash provided by operating activities | 697,640 | 642,920 | 573,248 | |||||||||
Net cash used in investing activities | (535,752 | ) | (487,918 | ) | (399,739 | ) | ||||||
Net cash used in financing activities | (63,869 | ) | (115,701 | ) | (82,549 | ) | ||||||
Effect of exchange rate changes on cash and cash equivalents | 38,669 | (21,335 | ) | (25,472 | ) | |||||||
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Increase in cash and cash equivalents | $ | 136,688 | $ | 17,966 | $ | 65,488 | ||||||
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Year Ended December 31, | ||||||||||||
2019 | 2018 | 2017 | ||||||||||
Net income | $ | 592,198 | $ | 593,794 | $ | 20,311 | ||||||
Depreciation and amortization | 105,296 | 108,408 | 106,002 | |||||||||
Stock-based compensation | 38,577 | 37,541 | 39,436 | |||||||||
Deferred income taxes | 9,620 | 2,405 | 45,510 | |||||||||
In-process research and development and othernon-cash charges | — | — | 5,000 | |||||||||
Change in accounts receivable | (22,195 | ) | (47,921 | ) | (24,013 | ) | ||||||
Change in inventories | (31,854 | ) | (25,396 | ) | 731 | |||||||
Change in accounts payable and other current liabilities | 9,784 | (81,663 | ) | 3,175 | ||||||||
Change in deferred revenue and customer advances | 12,189 | 2,721 | 10,386 | |||||||||
Effect of the 2017 Tax Cuts and Jobs Act | (3,229 | ) | (6,059 | ) | 530,383 | |||||||
Other changes | (67,299 | ) | 20,616 | (39,281 | ) | |||||||
Net cash provided by operating activities | 643,087 | 604,446 | 697,640 | |||||||||
Net cash provided by (used in) investing activities | 768,802 | 1,683,302 | (535,752 | ) | ||||||||
Net cash used in financing activities | (1,872,678 | ) | (2,119,522 | ) | (63,869 | ) | ||||||
Effect of exchange rate changes on cash and cash equivalents | 224 | (14,265 | ) | 38,669 | ||||||||
(Decrease) increase in cash and cash equivalents | $ | (460,565 | ) | $ | 153,961 | $ | 136,688 | |||||
In addition, as a result of the adoption of a new accounting standard related to stock-based compensation,in 2018, the Company reclassified $14made $11 million of contributions to certain defined benefit pension plans.
Cash Used in Investing Activities
Netwhile net cash used in investing activities totaled $536 million $488 million and $400 million in 2017, 2016 and 2015, respectively.2017. Additions to fixed assets and capitalized software were $164 million, $96 million and $85 million $95 millionin 2019, 2018 and $100 million in 2017, 2016 and 2015, respectively. In February 2018, the Company’s Board of Directors approved expanding its chemistry synthesis operations.operations in the U.S. The Company anticipates spending an estimated $215 million to build and equip this newinvestments. Thedebt capacity. Through December 31, 2019, the Company does not expect to issue any debt in relation tohas incurred $85 million of costs for this expansion.
facility.
The majority of the proceeds received in 2019 and 2018 were repatriated into the U.S. at lower income tax rates as a result of the 2017 Tax Act and used to reduce the Company’s debt and to repurchase shares.
2020.
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.
During 2017, 2016 and 2015, the
Payments Due by Year (1) | ||||||||||||||||||||||||||||||||
Total | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | After 2023 | |||||||||||||||||||||||||
Notes payable and debt | $ | 100,273 | $ | 100,273 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||
Interest on senior unsecured notes | 112,307 | 22,523 | 21,852 | 17,268 | 13,580 | 11,467 | 10,489 | 15,128 | ||||||||||||||||||||||||
Long-term debt(2) | 1,900,000 | — | — | 100,000 | 150,000 | 1,300,000 | 50,000 | 300,000 | ||||||||||||||||||||||||
2017 Tax Act liability | 530,383 | 80,000 | 40,000 | 40,000 | 40,000 | 40,000 | 74,000 | 216,383 | ||||||||||||||||||||||||
Operating leases | 89,682 | 23,168 | 18,228 | 14,122 | 8,652 | 6,220 | 5,285 | 14,007 | ||||||||||||||||||||||||
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Total | $ | 2,732,645 | $ | 225,964 | $ | 80,080 | $ | 171,390 | $ | 212,232 | $ | 1,357,687 | $ | 139,774 | $ | 545,518 | ||||||||||||||||
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Payments Due by Year (1) | ||||||||||||||||||||||||||||||||
Total | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | After 2025 | |||||||||||||||||||||||||
Notes payable and debt | $ | 100,366 | $ | 100,366 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||
Interest on senior unsecured notes | 214,160 | 33,962 | 30,273 | 28,160 | 27,182 | 24,654 | 22,714 | 47,215 | ||||||||||||||||||||||||
Long-term debt (2) | 1,585,000 | — | 150,000 | 625,000 | 50,000 | 100,000 | — | 660,000 | ||||||||||||||||||||||||
2017 Tax Act liability | 403,768 | 38,454 | 38,454 | 38,454 | 72,101 | 96,135 | 120,170 | — | ||||||||||||||||||||||||
Operating leases | 103,359 | 29,489 | 21,774 | 16,743 | 9,175 | 6,867 | 5,550 | 13,761 | ||||||||||||||||||||||||
Total | $ | 2,406,653 | $ | 202,271 | $ | 240,501 | $ | 708,357 | $ | 158,458 | $ | 227,656 | $ | 148,434 | $ | 720,976 | ||||||||||||||||
(1) | Does not include normal purchases made in the ordinary course of business and uncertain tax positions discussed below. |
(2) | The interest rates applicable to the 2017 Credit Agreement are, at the Company’s option, equal to either the alternate base rate (which is a rate per annum equal to the greatest of (a) the prime rate in effect on such day, (b) the Federal Reserve Bank of New York Rate on such day plus 1/2 of 1% per annum and (c) the adjusted LIBO rate on such day (or if such day is not a business day, the immediately preceding business day) for a deposit in U.S. dollars with a maturity of one month plus 1% per annum) or the applicable 1, 2, 3 or 6 month adjusted LIBO rate 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 LIBO rate or EURIBO rate loans. The facility fee on the 2017 Credit Agreement 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 2017 Credit Agreement 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 2017 Credit Agreement includes negative covenants, affirmative covenants, representations and warranties and events of default that are customary for investment grade credit facilities. As of December 31, |
Amount of Commitments Expiration Per Period | ||||||||||||||||||||||||||||||||
Total | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | After 2023 | |||||||||||||||||||||||||
Letters of credit | $ | 1,733 | $ | 1,733 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — |
Amount of Commitments Expiration Per Period | ||||||||||||||||||||||||||||||||
Total | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | After 2025 | |||||||||||||||||||||||||
Letters of credit | $ | 1,797 | $ | 1,797 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — |
The Company accounts for its uncertain tax return reporting 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 classified interest and penalties related to unrecognized tax benefits as a component of the provision for income taxes. If all of the Company’s unrecognized tax benefits accrued as of December 31, 2017 were to become recognizable in the future, the Company would record a total reduction of approximately $6 million in its income tax provision.
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, 2012. However, carryforward tax attributes that were generated in years beginning on or before January 1, 2013 may still be adjusted upon examination by tax authorities if the attributes are utilized. 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.
During the year ended December 31, 2016, the Company concluded tax audit disputes outside the U.S. that, in part, related to matters for which the Company had recorded net uncertain tax benefits. The resolution of these tax disputes resulted in a $1 million reduction in the measurement of its unrecognized tax benefits for the year ended December 31, 2016.
During the year ended December 31, 2015, the Company concluded U.S. tax audit disputes that, in part, related to matters for which the Company had recorded net uncertain tax benefits. The resolution of these tax disputes resulted in a $2 million reduction in the measurement of its unrecognized tax benefits and a $2 million decrease in its provision for income taxes for the year ended December 31, 2015.
As of December 31, 2017, the Company expects to record additional reductions in the measurement of its unrecognized tax benefits and related net interest and penalties of approximately $1 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.
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.
Sales
Product shipments, including those for demonstration or evaluation, and service contracts are not recorded as revenue until a valid purchase order or master agreement is received, specifying fixed terms and prices. The Company generally recognizes product revenue when legal title has transferred and risk of loss passes to the customer. The Company generally structures its sales arrangements astransfers at shipping point or international equivalent and, accordingly, recognizes revenue uponas a result, the Company determined control transfers at the point of shipment. In somemore limited cases, there are destination-based shipping terms are included in sales arrangements, in which cases revenueand, thus, control is generally recognizeddeemed to transfer when the products arrive at the customer site.
All incremental costs of obtaining a contract are expensed as and when incurred if the expected amortization period of the asset that would have been recognized is one year or less. Shipping and handling costs are included as a component of cost of sales. In situations where the control of the goods transfers prior to the completion of the Company’s obligation to ship the products to its customers, the Company has elected the practical expedient to account for the shipping services as a fulfillment cost. Accordingly, such costs are recognized when control of the related goods is transferred to the customer. In more rare situations, the Company has revenue associated with products that contain specific customer acceptance criteria and the related revenue is not recognized before the customer acceptance criteria are satisfied. The Company elected to exclude from the measurement of the transaction price all taxes assessed by a governmental authority that are both imposed on and concurrent with specific revenue-producing transactions and collected by the Company from a customer.
In developing these estimates, the Company considers past history, competition, billing rates of current services and other factors.
Sales of standalone software are accounted for in accordance with the accounting standards for software revenue recognition. performed.
Returns and customer credits are infrequent and are recorded as a reduction to sales. Rights of return are not included in sales arrangements. Revenue associated with products that contain specific customer acceptance criteria is not recognized before the customer acceptance criteria are satisfied. Discounts from list prices are recorded as a reduction to sales.
service period.
2019.
In addition, as a result of the timing of the new 2017 Tax Act in the U.S., the Company has had to make reasonable estimates on certain amounts related to the deemed repatriation of foreign earnings based on the existing interpretations of the U.S. Department of the Treasury and state and local governments. These processes involveThis process involves the Company estimating its actual current tax exposure,income taxes, taking into account the amount, timing and character of taxable income, tax deductions and credits and assessing changes in tax laws, regulations, agreements treaties and any new interpretations on the taxation of the deemed repatriation of foreign earnings.treaties. Differing treatment of items for tax and accounting purposes, such as depreciation, amortization and inventory reserves, result in deferred tax assets and liabilities, which are included within the consolidated balance sheets. In the event that actual results differ from these estimates, or the Company adjusts these estimates in future periods, such changes could materially impact the Company’s financial position and results of operations.
On December 22, 2017, the U.S. enacted the 2017 Tax Act, which changed the U.S. tax system to a territorial tax system, including base broadening measures onnon-U.S. earnings, whereby foreign earnings are effectively deemed to be repatriated to the U.S., as well as reducing or eliminating certain domestic deductions and credits and limiting the deductibility of interest expense and executive compensation. Included in the 2017 Tax Act is a Transition Tax, which is aone-time, mandatory deemed repatriation tax on the accumulated foreign earnings that have not been previously taxed. Earnings in the form of cash and cash equivalents will be taxed at a rate of 15.5% and all other earnings will be taxed at a rate of 8.0%. As a result, the Company’s historical unremitted foreign earnings were deemed repatriated in 2017 and the Company incurred a $550 million estimated tax provision, which primarily consisted of an estimated Transition Tax, as well as estimated income tax provisions for state and withholding taxes and a provision associated with the remeasurement of the Company’s deferred tax assets and liabilities from 35% to the new U.S. corporate income tax rate of 21%. The Transition Tax will be paid over an eight-year period, starting in 2018, and will not accrue interest. The final
impact of the 2017 Tax Act may differ from these estimates, due to, among other things, changes in interpretations, analysis and assumptions made by the Company, additional guidance that may be issued by the U.S. Department of the Treasury and tax planning actions that the Company may undertake.
In accordance with guidance in SEC Staff Accounting Bulletin No. 118, the final determination of the Transition Tax and the remeasurement of our deferred assets and liabilities will be completed as additional information becomes available, but no later than one year from the date of enactment of the 2017 Tax Act.
option pricing model and Monte Carlo simulation model to determine the fair value of its stock option awards and performance stock unit awards, respectively. Under the fair-value recognition provisions of this statement, share-based compensation cost is measured at the grant date based on the value of the award and is recognized as expense over the vesting period. Determining the fair value of share-based awards at the grant date requires judgment, including estimating stock price volatility and employee stock option exercise behaviors. If actual results differ significantly from these estimates, stock-based compensation expense and the Company’s results of operations could be materially impacted. As stock-based compensation expense recognized in the consolidated statements of operations is based on awards that ultimately are expected to vest, the amount of the expense has been reduced for estimated forfeitures. These accounting standards require forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures are estimated based on historical experience. If factors change and the Company employs different assumptions in the application of these accounting standards, the compensation expense that the Company records in future periods may differ significantly from what the Company has recorded in the current period. The Company recognizes the expense using the straight-line attribution method.
Unrecognized Compensation Costs | Weighted-Average Life in Years | |||||||
Stock options | $ | 43 | 3.5 | |||||
Restricted stock units | 34 | 3.0 | ||||||
Performance stock units | 10 | 2.5 | ||||||
Restricted stock | — | — | ||||||
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| |||||||
Total | $ | 87 | 3.2 | |||||
|
|
Unrecognized Compensation Costs | Weighted-Average Life in Years | |||||||
Stock options | $ | 32 | 3.2 | |||||
Restricted stock units | 36 | 3.3 | ||||||
Performance stock units | 10 | 1.9 | ||||||
Restricted stock | — | — | ||||||
Total | $ | 78 | 3.1 | |||||
Contingent Consideration
In addition to the initial cash consideration paid to acquire Medimass, the Company is obligated to make additional earnout payments based on a royalty due on future sales of products containing the REIMS
technology. In accordance with the accounting standards for business combinations, the Company determines the fair value of the liability for contingent consideration at each reporting date using a probability-weighted discounted cash flow model. Subsequent changes in the fair value of the contingent consideration liability are recorded in the results of operations. The fair value of the contingent consideration liability associated with future earnout payments is based on several factors, including estimated future results and a discount rate reflective of the Company’s creditworthiness. A change in any of these unobservable inputs can significantly change the fair value of the contingent consideration. Although there is no contractual limit, total future undiscounted contingent consideration payments were estimated to be $3 million as of December 31, 2017, based on the Company’s best estimate, as the earnout is based on future sales of certain products through 2034.
Item 7A: Quantitative and Qualitative Disclosures About Market Risk
Item 7A: | Quantitative and Qualitative Disclosures About Market Risk |
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 net asset investments. The Company presents the derivative transactions in financing activities in the statement of cash flows.
Principal hedged currencies include the Euro, Japanese yen, British pound, Mexican peso and Brazilian real. At
remain in accumulated comprehensive income in stockholders’ (deficit) 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.
December 31, 2017 | December 31, 2016 | |||||||
Other current assets | $ | 566 | $ | 60 | ||||
Other current liabilities | $ | 182 | $ | 730 |
December 31, 2019 | December 31, 2018 | |||||||||||||||
Notional Value | Fair Value | Notional Value | Fair Value | |||||||||||||
Foreign currency exchange contracts: | ||||||||||||||||
Other current assets | $ | 119,576 | $ | 16 | $ | 112,212 | $ | 503 | ||||||||
Other current liabilities | $ | 29,495 | $ | 1,028 | $ | 40,175 | $ | 224 | ||||||||
Interest rate cross-currency swap agreements: | ||||||||||||||||
Other assets | $ | 560,000 | $ | 4,485 | $ | 300,000 | $ | 1,093 | ||||||||
Accumulated other comprehensive income | $ | (4,485 | ) | $ | (1,093 | ) |
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Realized gains (losses) on closed contracts | $ | 3,894 | $ | (10,401 | ) | $ | (2,601 | ) | ||||
Unrealized gains (losses) on open contracts | 1,054 | (883 | ) | 742 | ||||||||
|
|
|
|
|
| |||||||
Cumulative netpre-tax gains (losses) | $ | 4,948 | $ | (11,284 | ) | $ | (1,859 | ) | ||||
|
|
|
|
|
|
Financial Statement Classification | ||||||||||||||||
Year Ended December 31, | ||||||||||||||||
2019 | 2018 | 2017 | ||||||||||||||
Foreign currency exchange contracts: | ||||||||||||||||
Realized (losses) gains on closed contracts | Cost of sales | $ | (3,552 | ) | $ | (6,684 | ) | $ | 3,894 | |||||||
Unrealized (losses) gains on open contracts | Cost of sales | (1,292 | ) | (105 | ) | 1,054 | ||||||||||
Cumulative net pre-tax (losses) gains | Cost of sales | $ | (4,844 | ) | $ | (6,789 | ) | $ | 4,948 | |||||||
Interest rate cross-currency swap agreements: | ||||||||||||||||
Interest earned | Interest income | $ | 11,709 | $ | 2,713 | $ | — | |||||||||
Unrealized gains on open contracts | Stockholders’ (deficit) equity | $ | 4,485 | $ | 1,093 | $ | — |
Assuming a hypothetical adverse change of 10% in
Item | 8: Financial Statements and Supplementary Data |
2019.
2019.
/s/ PricewaterhouseCoopers LLP |
Boston, Massachusetts |
February |
December 31, | ||||||||
2017 | 2016 | |||||||
(In thousands, except per share data) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 642,319 | $ | 505,631 | ||||
Investments | 2,751,382 | 2,307,401 | ||||||
Accounts receivable, net | 533,825 | 489,340 | ||||||
Inventories | 270,294 | 262,682 | ||||||
Other current assets | 72,314 | 70,391 | ||||||
|
|
|
| |||||
Total current assets | 4,270,134 | 3,635,445 | ||||||
Property, plant and equipment, net | 349,278 | 337,118 | ||||||
Intangible assets, net | 228,395 | 207,055 | ||||||
Goodwill | 359,819 | 352,080 | ||||||
Other assets | 116,728 | 130,361 | ||||||
|
|
|
| |||||
Total assets | $ | 5,324,354 | $ | 4,662,059 | ||||
|
|
|
| |||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Notes payable and debt | $ | 100,273 | $ | 125,297 | ||||
Accounts payable | 64,537 | 67,740 | ||||||
Accrued employee compensation | 69,024 | 57,465 | ||||||
Deferred revenue and customer advances | 166,840 | 148,837 | ||||||
Accrued income taxes | 73,008 | 15,244 | ||||||
Accrued warranty | 13,026 | 13,391 | ||||||
Other current liabilities | 119,449 | 92,347 | ||||||
|
|
|
| |||||
Total current liabilities | 606,157 | 520,321 | ||||||
Long-term liabilities: | ||||||||
Long-term debt | 1,897,501 | 1,701,966 | ||||||
Long-term portion of retirement benefits | 67,334 | 72,568 | ||||||
Long-term income tax liabilities | 456,949 | 10,458 | ||||||
Other long-term liabilities | 62,625 | 54,797 | ||||||
|
|
|
| |||||
Total long-term liabilities | 2,484,409 | 1,839,789 | ||||||
|
|
|
| |||||
Total liabilities | 3,090,566 | 2,360,110 | ||||||
Commitments and contingencies (Notes 5, 8, 9, 10, 11 and 15) | ||||||||
Stockholders’ equity: | ||||||||
Preferred stock, par value $0.01 per share, 5,000 shares authorized, none issued at December 31, 2017 and December 31, 2016 | — | — | ||||||
Common stock, par value $0.01 per share, 400,000 shares authorized, 159,845 and 158,634 shares issued, 79,337 and 80,023 shares outstanding at December 31, 2017 and December 31, 2016, respectively | 1,598 | 1,586 | ||||||
Additionalpaid-in capital | 1,745,088 | 1,607,241 | ||||||
Retained earnings | 5,405,380 | 5,385,069 | ||||||
Treasury stock, at cost, 80,509 and 78,611 shares at December 31, 2017 and December 31, 2016, respectively | (4,808,211 | ) | (4,475,667 | ) | ||||
Accumulated other comprehensive loss | (110,067 | ) | (216,280 | ) | ||||
|
|
|
| |||||
Total stockholders’ equity | 2,233,788 | 2,301,949 | ||||||
|
|
|
| |||||
Total liabilities and stockholders’ equity | $ | 5,324,354 | $ | 4,662,059 | ||||
|
|
|
|
December 31, | ||||||||
2019 | 2018 | |||||||
(In thousands, except per share data) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 335,715 | $ | 796,280 | ||||
Investments | 1,429 | 938,944 | ||||||
Accounts receivable, net | 587,734 | 568,316 | ||||||
Inventories | 320,551 | 291,569 | ||||||
Other current assets | 67,062 | 68,054 | ||||||
Total current assets | 1,312,491 | 2,663,163 | ||||||
Property, plant and equipment, net | 417,342 | 343,083 | ||||||
Intangible assets, net | 240,203 | 246,902 | ||||||
Goodwill | 356,128 | 355,614 | ||||||
Operating lease assets | 93,358 | — | ||||||
Other assets | 137,533 | 118,664 | ||||||
Total assets | $ | 2,557,055 | $ | 3,727,426 | ||||
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY | ||||||||
Current liabilities: | ||||||||
Notes payable and debt | $ | 100,366 | $ | 178 | ||||
Accounts payable | 49,001 | 68,168 | ||||||
Accrued employee compensation | 43,467 | 64,545 | ||||||
Deferred revenue and customer advances | 176,360 | 164,965 | ||||||
Current operating lease liabilities | 27,125 | — | ||||||
Accrued income taxes | 45,967 | 22,943 | ||||||
Accrued warranty | 11,964 | 12,300 | ||||||
Other current liabilities | 137,084 | 115,832 | ||||||
Total current liabilities | 591,334 | 448,931 | ||||||
Long-term liabilities: | ||||||||
Long-term debt | 1,580,797 | 1,148,172 | ||||||
Long-term portion of retirement benefits | 59,159 | 55,853 | ||||||
Long-term income tax liabilities | 394,562 | 430,866 | ||||||
Long-term operating lease liabilities | 66,881 | — | ||||||
Other long-term liabilities | 80,603 | 76,346 | ||||||
Total long-term liabil ities | 2,182,002 | 1,711,237 | ||||||
Total liabilities | 2,773,336 | 2,160,168 | ||||||
Commitments and contingencies (Notes 6, 9, 10, 11, 12, 13 and 17 ) | ||||||||
Stockholders’ (deficit) equity: | ||||||||
Preferred stock, par value $0.01 per share, 5,000 shares authorized, 0 ne issued at December 31, 2019 and December 31, 2018 | — | — | ||||||
Common stock, par value $0.01 per share, 400,000 shares authorized, 161,030 and 160,472 shares issued, 62,587 and 73,115 shares outstanding at December 31, 2019 and December 31, 2018, respectively | 1,610 | 1,605 | ||||||
Additional paid-in capital | 1,926,753 | 1,834,741 | ||||||
Retained earnings | 6,587,403 | 5,995,205 | ||||||
Treasury stock, at cost, 98,443 and 87,357 shares at December 31, 2019 and December 31, 2018, respectively | (8,612,576 | ) | (6,146,322 | ) | ||||
Accumulated other comprehensive loss | (119,471 | ) | (117,971 | ) | ||||
Total stockholders’ (deficit) equity | (216,281 | ) | 1,567,258 | |||||
Total liabilities and stockholders’ (deficit) equity | $ | 2,557,055 | $ | 3,727,426 | ||||
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
(In thousands, except per share data) | ||||||||||||
Revenues: | ||||||||||||
Product sales | $ | 1,552,349 | $ | 1,460,296 | $ | 1,385,256 | ||||||
Service sales | 756,729 | 707,127 | 657,076 | |||||||||
|
|
|
|
|
| |||||||
Total net sales | 2,309,078 | 2,167,423 | 2,042,332 | |||||||||
Costs and operating expenses: | ||||||||||||
Cost of product sales | 623,214 | 595,796 | 565,630 | |||||||||
Cost of service sales | 323,853 | 295,657 | 277,042 | |||||||||
Selling and administrative expenses | 544,703 | 513,031 | 495,747 | |||||||||
Research and development expenses | 132,593 | 125,187 | 118,545 | |||||||||
Litigation provisions (Note 11) | 11,114 | 3,524 | 3,939 | |||||||||
Purchased intangibles amortization | 6,743 | 9,889 | 10,123 | |||||||||
Acquiredin-process research and development (Note 2) | 5,000 | — | 3,855 | |||||||||
|
|
|
|
|
| |||||||
Total costs and operating expenses | 1,647,220 | 1,543,084 | 1,474,881 | |||||||||
|
|
|
|
|
| |||||||
Operating income | 661,858 | 624,339 | 567,451 | |||||||||
Interest expense | (56,839 | ) | (44,911 | ) | (36,243 | ) | ||||||
Interest income | 36,078 | 20,686 | 10,711 | |||||||||
|
|
|
|
|
| |||||||
Income before income taxes | 641,097 | 600,114 | 541,919 | |||||||||
Provision for income taxes | 620,786 | 78,611 | 72,866 | |||||||||
|
|
|
|
|
| |||||||
Net income | $ | 20,311 | $ | 521,503 | $ | 469,053 | ||||||
|
|
|
|
|
| |||||||
Net income per basic common share | $ | 0.25 | $ | 6.46 | $ | 5.70 | ||||||
Weighted-average number of basic common shares | 79,793 | 80,786 | 82,336 | |||||||||
Net income per diluted common share | $ | 0.25 | $ | 6.41 | $ | 5.65 | ||||||
Weighted-average number of diluted common shares and equivalents | 80,604 | 81,417 | 83,087 |
Year Ended December 31, | ||||||||||||
2019 | 2018 | 2017 | ||||||||||
(In thousands, except per share data) | ||||||||||||
Revenues: | ||||||||||||
Product sales | $ | 1,567,189 | $ | 1,604,993 | $ | 1,552,349 | ||||||
Service sales | 839,407 | 814,936 | 756,729 | |||||||||
Total net sales | 2,406,596 | 2,419,929 | 2,309,078 | |||||||||
Costs and operating expenses: | ||||||||||||
Cost of product sales | 642,706 | 656,275 | 623,214 | |||||||||
Cost of service sales | 367,994 | 336,289 | 323,853 | |||||||||
Selling and administrative expenses | 534,791 | 536,902 | 544,363 | |||||||||
Research and development expenses | 142,955 | 143,403 | 132,593 | |||||||||
Purchased intangibles amortization | 9,693 | 7,712 | 6,743 | |||||||||
Litigation provision (settlement) (Note 11) | — | (426 | ) | 11,114 | ||||||||
Acquired in-process research and development (Note 2) | — | — | 5,000 | |||||||||
Total costs and operating expenses | 1,698,139 | 1,680,155 | 1,646,880 | |||||||||
Operating income | 708,457 | 739,774 | 662,198 | |||||||||
Other expense | (3,586 | ) | (47,794 | ) | (340 | ) | ||||||
Interest expense | (48,690 | ) | (48,641 | ) | (56,839 | ) | ||||||
Interest income | 22,058 | 38,807 | 36,078 | |||||||||
Income before income taxes | 678,239 | 682,146 | 641,097 | |||||||||
Provision for income taxes | 86,041 | 88,352 | 620,786 | |||||||||
Net income | $ | 592,198 | $ | 593,794 | $ | 20,311 | ||||||
Net income per basic common share | $ | 8.76 | $ | 7.71 | $ | 0.25 | ||||||
Weighted-average number of basic common shares | 67,627 | 76,992 | 79,793 | |||||||||
Net income per diluted common share | $ | 8.69 | $ | 7.65 | $ | 0.25 | ||||||
Weighted-average number of diluted common shares and equivalents | 68,166 | 77,618 | 80,604 |
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
(In thousands) | ||||||||||||
Net income | $ | 20,311 | $ | 521,503 | $ | 469,053 | ||||||
Other comprehensive income (loss): | ||||||||||||
Foreign currency translation | 101,148 | (66,996 | ) | (70,481 | ) | |||||||
Unrealized (losses) gains on investments before income taxes | (1,794 | ) | 279 | (1,825 | ) | |||||||
Income tax benefit | 68 | 111 | 31 | |||||||||
|
|
|
|
|
| |||||||
Unrealized (losses) gains on investments, net of tax | (1,726 | ) | 390 | (1,794 | ) | |||||||
Retirement liability adjustment before reclassifications | 7,832 | (6,783 | ) | 191 | ||||||||
Amounts reclassified to selling and administrative expenses | 3,948 | 3,263 | 4,443 | |||||||||
|
|
|
|
|
| |||||||
Retirement liability adjustment before income taxes | 11,780 | (3,520 | ) | 4,634 | ||||||||
Income tax (expense) benefit | (4,989 | ) | 572 | (380 | ) | |||||||
|
|
|
|
|
| |||||||
Retirement liability adjustment, net of tax | 6,791 | (2,948 | ) | 4,254 | ||||||||
Other comprehensive income (loss) | 106,213 | (69,554 | ) | (68,021 | ) | |||||||
|
|
|
|
|
| |||||||
Comprehensive income | $ | 126,524 | $ | 451,949 | $ | 401,032 | ||||||
|
|
|
|
|
|
Year Ended December 31, | ||||||||||||
2019 | 2018 | 2017 | ||||||||||
(In thousands) | ||||||||||||
Net income | $ | 592,198 | $ | 593,794 | $ | 20,311 | ||||||
Other comprehensive (loss) income: | ||||||||||||
Foreign currency translation | 1,631 | (36,279 | ) | 101,148 | ||||||||
Unrealized gains (losses) on investments before income taxes | 3,046 | 698 | (1,794 | ) | ||||||||
Income tax (expense) benefit | (641 | ) | 443 | 68 | ||||||||
Unrealized gains (losses) on investments, net of tax | 2,405 | 1,141 | (1,726 | ) | ||||||||
Retirement liability adjustment before reclassifications | (9,360 | ) | (6,722 | ) | 7,832 | |||||||
Amounts reclassified to other expense | 1,979 | 48,792 | 3,948 | |||||||||
Retirement liability adjustment before income taxes | (7,381 | ) | 42,070 | 11,780 | ||||||||
Income tax benefit (expense) | 1,845 | (14,836 | ) | (4,989 | ) | |||||||
Retirement liability adjustment, net of tax | (5,536 | ) | 27,234 | 6,791 | ||||||||
Other comprehensive (loss) income | (1,500 | ) | (7,904 | ) | 106,213 | |||||||
Comprehensive income | $ | 590,698 | $ | 585,890 | $ | 126,524 | ||||||
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
(In thousands) | ||||||||||||
Cash flows from operating activities: | ||||||||||||
Net income | $ | 20,311 | $ | 521,503 | $ | 469,053 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Stock-based compensation | 39,436 | 40,998 | 33,368 | |||||||||
Deferred income taxes | 45,510 | 1,204 | 6,581 | |||||||||
Depreciation | 61,450 | 51,684 | 45,287 | |||||||||
Amortization of intangibles | 44,552 | 44,765 | 44,700 | |||||||||
Excess tax benefit related to stock option plans | — | 13,844 | 12,955 | |||||||||
Gain on sale of assets | — | (1,500 | ) | (1,377 | ) | |||||||
In-process research and development and othernon-cash charges | 5,000 | — | 4,638 | |||||||||
Change in operating assets and liabilities, net of acquisitions: | ||||||||||||
Increase in accounts receivable | (24,013 | ) | (31,721 | ) | (49,888 | ) | ||||||
Decrease (increase) in inventories | 731 | (20,147 | ) | (19,967 | ) | |||||||
Increase in other current assets | (16,323 | ) | (2,436 | ) | (17,206 | ) | ||||||
Increase in other assets | (24,098 | ) | (1,076 | ) | (9,634 | ) | ||||||
Increase in accounts payable and other current liabilities | 3,175 | 6,842 | 27,451 | |||||||||
Increase in deferred revenue and customer advances | 10,386 | 9,974 | 16,172 | |||||||||
Effect of the 2017 Tax Act | 530,383 | — | — | |||||||||
Increase in other liabilities | 1,140 | 8,986 | 11,115 | |||||||||
|
|
|
|
|
| |||||||
Net cash provided by operating activities | 697,640 | 642,920 | 573,248 | |||||||||
Cash flows from investing activities: | ||||||||||||
Additions to property, plant, equipment and software capitalization | (85,473 | ) | (94,967 | ) | (100,012 | ) | ||||||
Business acquisitions, net of cash acquired | — | (5,609 | ) | (23,494 | ) | |||||||
Investment in unaffiliated company | (7,000 | ) | — | — | ||||||||
Payments for intellectual property licenses | (5,000 | ) | — | (3,000 | ) | |||||||
Purchases of investments | (2,960,379 | ) | (2,396,032 | ) | (2,010,368 | ) | ||||||
Maturities and sales of investments | 2,522,100 | 2,004,690 | 1,731,981 | |||||||||
Proceeds from sale of assets | — | 4,000 | 5,154 | |||||||||
|
|
|
|
|
| |||||||
Net cash used in investing activities | (535,752 | ) | (487,918 | ) | (399,739 | ) | ||||||
Cash flows from financing activities: | ||||||||||||
Proceeds from debt issuances | 1,480,190 | 485,298 | 325,219 | |||||||||
Payments on debt | (1,310,214 | ) | (325,323 | ) | (120,140 | ) | ||||||
Payments of debt issuance costs | (2,984 | ) | (1,705 | ) | (2,382 | ) | ||||||
Proceeds from stock plans | 97,789 | 62,189 | 52,060 | |||||||||
Purchases of treasury shares | (332,544 | ) | (325,759 | ) | (334,705 | ) | ||||||
Proceeds from (payments for) derivative contracts | 3,894 | (10,401 | ) | (2,601 | ) | |||||||
|
|
|
|
|
| |||||||
Net cash used in financing activities | (63,869 | ) | (115,701 | ) | (82,549 | ) | ||||||
Effect of exchange rate changes on cash and cash equivalents | 38,669 | (21,335 | ) | (25,472 | ) | |||||||
|
|
|
|
|
| |||||||
Increase in cash and cash equivalents | 136,688 | 17,966 | 65,488 | |||||||||
Cash and cash equivalents at beginning of period | 505,631 | 487,665 | 422,177 | |||||||||
|
|
|
|
|
| |||||||
Cash and cash equivalents at end of period | $ | 642,319 | $ | 505,631 | $ | 487,665 | ||||||
|
|
|
|
|
| |||||||
Supplemental cash flow information: | ||||||||||||
Income taxes paid | $ | 70,583 | $ | 50,007 | $ | 51,750 | ||||||
Interest paid | $ | 56,503 | $ | 43,595 | $ | 37,396 |
Year Ended December 31, | ||||||||||||
2019 | 2018 | 2017 | ||||||||||
(In thousands) | ||||||||||||
Cash flows from operating activities: | ||||||||||||
Net income | $ | 592,198 | $ | 593,794 | $ | 20,311 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Stock-based compensation | 38,577 | 37,541 | 39,436 | |||||||||
Deferred income taxes | 9,620 | 2,405 | 45,510 | |||||||||
Depreciation | 53,839 | 57,952 | 61,450 | |||||||||
Amortization of intangibles | 51,457 | 50,456 | 44,552 | |||||||||
In-process research and development and othernon-cash charges | — | — | 5,000 | |||||||||
Change in operating assets and liabilities, net of acquisitions: | ||||||||||||
Increase in accounts receivable | (22,195 | ) | (47,921 | ) | (24,013 | ) | ||||||
( Increase) decrease in inventories | (31,854 | ) | (25,396 | ) | 731 | |||||||
Increase in other current assets | (10,918 | ) | (12,446 | ) | (16,323 | ) | ||||||
(Increase) decrease in other assets | (16,470 | ) | 6,047 | (24,098 | ) | |||||||
Increase (decrease) in accounts payable and other current liabilities | 9,784 | (81,663 | ) | 3,175 | ||||||||
I ncrease in deferred revenue and customer advances | 12,189 | 2,721 | 10,386 | |||||||||
Effect of the 2017 Tax Cuts and Jobs Act | (3,229 | ) | (6,059 | ) | 530,383 | |||||||
(Decrease) ncrease in other liabilitiesi | (39,911 | ) | 27,015 | 1,140 | ||||||||
Net cash provided by operating activities | 643,087 | 604,446 | 697,640 | |||||||||
Cash flows from investing activities: | ||||||||||||
Additions to property, plant, equipment and software capitalization | (163,823 | ) | (96,079 | ) | (85,473 | ) | ||||||
Asset and business acquisitions, net of cash acquired | — | (31,486 | ) | — | ||||||||
Investment in unaffiliated company | (8,843 | ) | (7,615 | ) | (7,000 | ) | ||||||
Paym ents for intellectual p roperty licen ses | — | — | (5,000 | ) | ||||||||
P of investmentsurc hases | (36,951 | ) | (1,006,080 | ) | (2,960,379 | ) | ||||||
Maturities and sales of inves tments | 978,419 | 2,824,562 | 2,522,100 | |||||||||
Net cash provided by (used in) investing activities | 768,802 | 1,683,302 | (535,752 | ) | ||||||||
Cash flows from financing activities: | ||||||||||||
Proceeds from debt issuances | 925,670 | 274 | 1,480,190 | |||||||||
Payments on debt | (390,482 | ) | (850,435 | ) | (1,310,214 | ) | ||||||
Payments of debt issuance costs | (2,932 | ) | — | (2,984 | ) | |||||||
Proceeds from stock plans | 53,715 | 52,429 | 97,789 | |||||||||
Purchases of treasury shares | (2,469,258 | ) | (1,315,106 | ) | (332,544 | ) | ||||||
Proceeds from (payments for) derivative contracts | 10,609 | (6,684 | ) | 3,894 | ||||||||
Net cash used in financing activities | (1,872,678 | ) | (2,119,522 | ) | (63,869 | ) | ||||||
Effect of exchange rate changes on cash and cash equivalents | 224 | (14,265 | ) | 38,669 | ||||||||
(Decrease) increase in cash and cash equivalents | (460,565 | ) | 153,961 | 136,688 | ||||||||
Cash and cash equivalents at beginning of period | 796,280 | 642,319 | 505,631 | |||||||||
Cash and cash equivalents at end of period | $ | 335,715 | $ | 796,280 | $ | 642,319 | ||||||
Supplemental cash flow information: | ||||||||||||
Income taxes paid | $ | 87,998 | $ | 159,397 | $ | 70,583 | ||||||
Interest paid | $ | 42,843 | $ | 50,798 | $ | 56,503 |
Number of Common Shares | Common Stock | Additional Paid-In Capital | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Income (Loss) | Total Stockholders’ Equity | ||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||
Balance December 31, 2014 | 156,716 | $ | 1,567 | $ | 1,392,494 | $ | 4,394,513 | $ | (3,815,203 | ) | $ | (78,705 | ) | $ | 1,894,666 | |||||||||||||
Net income | — | — | — | 469,053 | — | — | 469,053 | |||||||||||||||||||||
Other comprehensive loss | — | — | — | — | — | (68,021 | ) | (68,021 | ) | |||||||||||||||||||
Issuance of common stock for employees: | ||||||||||||||||||||||||||||
Employee Stock Purchase Plan | 53 | 1 | 5,495 | — | — | — | 5,496 | |||||||||||||||||||||
Stock options exercised | 727 | 7 | 46,557 | — | — | — | 46,564 | |||||||||||||||||||||
Tax benefit related to stock option plans | — | — | 12,955 | — | — | — | 12,955 | |||||||||||||||||||||
Treasury stock | — | — | — | — | (334,705 | ) | — | (334,705 | ) | |||||||||||||||||||
Stock-based compensation | 181 | 2 | 32,841 | — | — | — | 32,843 | |||||||||||||||||||||
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|
|
|
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|
|
|
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|
|
|
| |||||||||||||||
Balance December 31, 2015 | 157,677 | $ | 1,577 | $ | 1,490,342 | $ | 4,863,566 | $ | (4,149,908 | ) | $ | (146,726 | ) | $ | 2,058,851 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net income | — | — | — | 521,503 | — | — | 521,503 | |||||||||||||||||||||
Other comprehensive loss | — | — | — | — | — | (69,554 | ) | (69,554 | ) | |||||||||||||||||||
Issuance of common stock for employees: | ||||||||||||||||||||||||||||
Employee Stock Purchase Plan | 53 | 1 | 6,277 | — | — | — | 6,278 | |||||||||||||||||||||
Stock options exercised | 730 | 7 | 55,904 | — | — | — | 55,911 | |||||||||||||||||||||
Tax benefit related to stock option plans | — | — | 13,844 | — | — | — | 13,844 | |||||||||||||||||||||
Treasury stock | — | — | — | — | (325,759 | ) | — | (325,759 | ) | |||||||||||||||||||
Stock-based compensation | 174 | 1 | 40,874 | — | — | — | 40,875 | |||||||||||||||||||||
|
|
|
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|
|
|
|
|
|
|
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| |||||||||||||||
Balance December 31, 2016 | 158,634 | $ | 1,586 | $ | 1,607,241 | $ | 5,385,069 | $ | (4,475,667 | ) | $ | (216,280 | ) | $ | 2,301,949 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net income | — | — | — | 20,311 | — | — | 20,311 | |||||||||||||||||||||
Other comprehensive income | — | — | — | — | — | 106,213 | 106,213 | |||||||||||||||||||||
Issuance of common stock for employees: | ||||||||||||||||||||||||||||
Employee Stock Purchase Plan | 50 | 1 | 6,874 | — | — | — | 6,875 | |||||||||||||||||||||
Stock options exercised | 972 | 10 | 90,904 | — | — | — | 90,914 | |||||||||||||||||||||
Treasury stock | — | — | — | — | (332,544 | ) | — | (332,544 | ) | |||||||||||||||||||
Stock-based compensation | 189 | 1 | 40,069 | — | — | — | 40,070 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
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|
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|
| |||||||||||||||
Balance December 31, 2017 | 159,845 | $ | 1,598 | $ | 1,745,088 | $ | 5,405,380 | $ | (4,808,211 | ) | $ | (110,067 | ) | $ | 2,233,788 | |||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Common Shares | Common Stock | Additional Paid-In Capital | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Income (Loss) | Total Stockholders’ Equity ( Defi cit) | ||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||
Balance December 31, 2016 | 158,634 | $ | 1,586 | $ | 1,607,241 | $ | 5,385,069 | $ | (4,475,667 | ) | $ | (216,280 | ) | $ | 2,301,949 | |||||||||||||
Net income | — | — | — | 20,311 | — | — | 20,311 | |||||||||||||||||||||
Other comprehensive income | — | — | — | — | — | 106,213 | 106,213 | |||||||||||||||||||||
Issuance of common stock for employees: | ||||||||||||||||||||||||||||
Employee Stock Purchase Plan | 50 | 1 | 6,874 | — | — | — | 6,875 | |||||||||||||||||||||
Stock options exercised | 972 | 10 | 90,904 | — | — | — | 90,914 | |||||||||||||||||||||
Treasury stock | — | — | — | — | (332,544 | ) | — | (332,544 | ) | |||||||||||||||||||
Stock-based compensation | 189 | 1 | 40,069 | — | — | — | 40,070 | |||||||||||||||||||||
Balance December 31, 2017 | 159,845 | $ | 1,598 | $ | 1,745,088 | $ | 5,405,380 | $ | (4,808,211 | ) | $ | (110,067 | ) | $ | 2,233,788 | |||||||||||||
Adoption of new accounting pronouncement | — | — | — | (3,969 | ) | — | — | (3,969 | ) | |||||||||||||||||||
Net income | — | — | — | 593,794 | — | — | 593,794 | |||||||||||||||||||||
Other comprehensive loss | — | — | — | — | — | (7,904 | ) | (7,904 | ) | |||||||||||||||||||
Issuance of common stock for employees: | ||||||||||||||||||||||||||||
Employee Stock Purchase Plan | 45 | — | 7,874 | — | — | — | 7,874 | |||||||||||||||||||||
Stock options exercised | 438 | 5 | 44,550 | — | — | — | 44,555 | |||||||||||||||||||||
Treasury stock | — | — | — | — | (1,338,111 | ) | — | (1,338,111 | ) | |||||||||||||||||||
Stock-based compensation | 144 | 2 | 37,229 | — | — | — | 37,231 | |||||||||||||||||||||
Balance December 31, 2018 | 160,472 | $ | 1,605 | $ | 1,834,741 | $ | 5,995,205 | $ | (6,146,322 | ) | $ | (117,971 | ) | $ | 1,567,258 | |||||||||||||
Net income | — | — | — | 592,198 | — | — | 592,198 | |||||||||||||||||||||
Other comprehensive loss | — | — | — | — | — | (1,500 | ) | (1,500 | ) | |||||||||||||||||||
Issuance of common stock for employees: | ||||||||||||||||||||||||||||
Employee Stock Purchase Plan | 43 | — | 7,996 | — | — | — | 7,996 | |||||||||||||||||||||
Stock options exercised | 406 | 4 | 45,715 | — | �� | — | — | 45,719 | ||||||||||||||||||||
Treasury stock | — | — | — | — | (2,466,254 | ) | — | (2,466,254 | ) | |||||||||||||||||||
Stock-based compensation | 109 | 1 | 38,301 | — | — | — | 38,302 | |||||||||||||||||||||
Balance December 31, 2019 | 161,030 | $ | 1,610 | $ | 1,926,753 | $ | 6,587,403 | $ | (8,612,576 | ) | $ | (119,471 | ) | $ | (216,281 | ) | ||||||||||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
90 days and over a specified amount are reviewed individually for collectibility.
Company has not experienced significant bad debt losses.
Balance at Beginning of Period | Additions | Deductions | Balance at End of Period | |||||||||||||
Allowance for Doubtful Accounts and Sales Returns: | ||||||||||||||||
2017 | $ | 8,657 | $ | 9,059 | $ | (8,386 | ) | $ | 9,330 | |||||||
2016 | $ | 7,496 | $ | 6,912 | $ | (5,751 | ) | $ | 8,657 | |||||||
2015 | $ | 7,179 | $ | 6,739 | $ | (6,422 | ) | $ | 7,496 |
Balance at Beginning of Period | Additions | Deduction | Balance at End of Period | |||||||||||||
Allowance for Doubtful Accounts | ||||||||||||||||
December 31, 2019 | $ | 7,663 | $ | 4,701 | $ | (2,804 | ) | $ | 9,560 | |||||||
December 31, 2018 | $ | 6,109 | $ | 6,333 | $ | (4,779 | ) | $ | 7,663 | |||||||
December 31, 2017 | $ | 5,141 | $ | 3,752 | $ | (2,784 | ) | $ | 6,109 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
may not be recoverable, the Company evaluates the recoverability of the carrying value of the asset based on the expected future cash flows, relying on a number of factors, including, but not limited to, operating results, business plans, economic projections and anticipated future cash flows. If the asset is deemed not recoverable, it is written down to fair value and the impairment is recorded in the consolidated statements of operations.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
2018, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Total at December 31, 2017 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||
Assets: | ||||||||||||||||
U.S. Treasury securities | $ | 591,988 | $ | — | $ | 591,988 | $ | — | ||||||||
Foreign government securities | 6,952 | — | 6,952 | — | ||||||||||||
Corporate debt securities | 1,975,160 | — | 1,975,160 | — | ||||||||||||
Time deposits | 371,511 | — | 371,511 | — | ||||||||||||
Equity securities | 147 | — | 147 | — | ||||||||||||
Waters 401(k) Restoration Plan assets | 35,645 | 35,645 | — | — | ||||||||||||
Foreign currency exchange contracts | 566 | — | 566 | — | ||||||||||||
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|
|
|
|
|
|
| |||||||||
Total | $ | 2,981,969 | $ | 35,645 | $ | 2,946,324 | $ | — | ||||||||
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|
|
|
|
|
|
| |||||||||
Liabilities: | ||||||||||||||||
Contingent consideration | $ | 3,247 | $ | — | $ | — | $ | 3,247 | ||||||||
Foreign currency exchange contracts | 182 | — | 182 | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 3,429 | $ | — | $ | 182 | $ | 3,247 | ||||||||
|
|
|
|
|
|
|
|
Total at December 31, 2019 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||
Assets: | ||||||||||||||||
Time deposits | $ | 1,642 | $ | — | $ | 1,642 | $ | — | ||||||||
Waters 401(k) Restoration Plan assets | 30,158 | 30,158 | — | — | ||||||||||||
Foreign currency exchange contracts | 16 | — | 16 | — | ||||||||||||
Interest rate cross-currency swap agreements | 4,485 | — | 4,485 | — | ||||||||||||
Total | $ | 36,301 | $ | 30,158 | $ | 6,143 | $ | — | ||||||||
Liabilities: | ||||||||||||||||
Contingent consideration | $ | 2,557 | $ | — | $ | — | $ | 2,557 | ||||||||
Foreign currency exchange contracts | 1,028 | — | 1,028 | — | ||||||||||||
Total | $ | 3,585 | $ | — | $ | 1,028 | $ | 2,557 | ||||||||
Total at December 31, 2016 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||
Assets: | ||||||||||||||||
U.S. Treasury securities | $ | 570,313 | $ | — | $ | 570,313 | $ | — | ||||||||
Foreign government securities | 17,991 | — | 17,991 | — | ||||||||||||
Corporate debt securities | 1,643,838 | — | 1,643,838 | — | ||||||||||||
Time deposits | 199,906 | — | 199,906 | — | ||||||||||||
Equity securities | �� | 147 | — | 147 | — | |||||||||||
Waters 401(k) Restoration Plan assets | 30,954 | 30,954 | — | — | ||||||||||||
Foreign currency exchange contracts | 60 | — | 60 | — | ||||||||||||
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|
|
|
|
|
|
| |||||||||
Total | $ | 2,463,209 | $ | 30,954 | $ | 2,432,255 | $ | — | ||||||||
|
|
|
|
|
|
|
| |||||||||
Liabilities: | ||||||||||||||||
Contingent consideration | $ | 3,007 | $ | — | $ | — | $ | 3,007 | ||||||||
Foreign currency exchange contracts | 730 | — | 730 | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 3,737 | $ | — | $ | 730 | $ | 3,007 | ||||||||
|
|
|
|
|
|
|
|
Total at December 31, 2018 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||
Assets: | ||||||||||||||||
U.S. Treasury securities | $ | 164,315 | $ | — | $ | 164,315 | $ | — | ||||||||
Foreign government securities | 3,463 | — | 3,463 | — | ||||||||||||
Corporate debt securities | 723,059 | — | 723,059 | — | ||||||||||||
Time deposits | 108,638 | — | 108,638 | — | ||||||||||||
Waters 401(k) Restoration Plan assets | 33,104 | 33,104 | — | — | ||||||||||||
Foreign currency exchange contracts | 503 | — | 503 | — | ||||||||||||
Interest rate cross-currency swap agreements | 1,093 | 1,093 | ||||||||||||||
Total | $ | 1,034,175 | $ | 33,104 | $ | 1,001,071 | $ | — | ||||||||
Liabilities: | ||||||||||||||||
Contingent consideration | $ | 2,476 | $ | — | $ | — | $ | 2,476 | ||||||||
Foreign currency exchange contracts | 224 | — | 224 | — | ||||||||||||
Total | $ | 2,700 | $ | — | $ | 224 | $ | 2,476 | ||||||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
and Interest Rate Cross-Currency Swap AgreementsInvestment andInvestments, Foreign Currency Exchange Contracts
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 net asset investments. The Company presents the derivative transactions in financing activities in the statement of cash flows.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
receivable and accounts payable, and the Company’s net worldwide intercompany receivables and payables, which are eliminated in consolidation.
remain in accumulated comprehensive income in stockholders’ (deficit) 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.
December 31, 2017 | December 31, 2016 | |||||||
Other current assets | $ | 566 | $ | 60 | ||||
Other current liabilities | $ | 182 | $ | 730 |
December 31, 2019 | December 31, 2018 | |||||||||||||||
Notional Value | Fair Value | Notional Value | Fair Value | |||||||||||||
Foreign currency exchange contracts: | ||||||||||||||||
Other current assets | $ | 119,576 | $ | 16 | $ | 112,212 | $ | 503 | ||||||||
Other current liabilities | $ | 29,495 | $ | 1,028 | $ | 40,175 | $ | 224 | ||||||||
Interest rate cross-currency swap agreements: | ||||||||||||||||
Other assets | $ | 560,000 | $ | 4,485 | $ | 300,000 | $ | 1,093 | ||||||||
Accumulated other comprehensive income | $ | (4,485 | ) | $ | (1,093 | ) |
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Realized gains (losses) on closed contracts | $ | 3,894 | $ | (10,401 | ) | $ | (2,601 | ) | ||||
Unrealized gains (losses) on open contracts | 1,054 | (883 | ) | 742 | ||||||||
|
|
|
|
|
| |||||||
Cumulative netpre-tax gains (losses) | $ | 4,948 | $ | (11,284 | ) | $ | (1,859 | ) | ||||
|
|
|
|
|
|
Financial Statement Classification | ||||||||||||||||
Year Ended December 31, | ||||||||||||||||
2019 | 2018 | 2017 | ||||||||||||||
Foreign currency exchange contracts: | ||||||||||||||||
Realized (losses) gains on closed contracts | Cost of sales | $ | (3,552 | ) | $ | (6,684 | ) | $ | 3,894 | |||||||
Unrealized (losses) gains on open contracts | Cost of sales | (1,292 | ) | (105 | ) | 1,054 | ||||||||||
Cumulative net pre-tax (losses) gains | Cost of sales | $ | (4,844 | ) | $ | (6,789 | ) | $ | 4,948 | |||||||
Interest rate cross-currency swap agreements: | ||||||||||||||||
Interest earned | Interest income | $ | 11,709 | $ | 2,713 | $ | — | |||||||||
Unrealized gains on open contracts | Stockholders’ ( def i cit equity | $ | 4,485 | $ | 1,093 | $ | — |
Revenue Recognition
Sales of products and services are generally recorded based on product shipment and performance of service, respectively. The Company’s deferred revenue on the consolidated balance sheets consists of the obligation on instrument service contracts and customer payments received in advance, prior to shipment of the instrument. Revenue is recognized when all of the following revenue recognition criteria are met: persuasive evidence of an arrangement exists; delivery or performance has occurred; the vendor’s fee is fixed or determinable; collectibility
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
is reasonably assured and, if applicable, upon acceptance when acceptance criteria with contractual cash holdback are specified. Shipping and handling costs invoiced to the customer are included in net sales, while the costs associated with shipping and handling are included in cost of sales.
Product shipments and service contracts are not recorded as revenue until a valid purchase order or master agreement is received, specifying fixed terms and prices. The Company generally recognizes product revenue when legal title has transferred and risk of loss passes to the customer. The Company generally structures its sales arrangements as shipping point or international equivalent and, accordingly, recognizes revenue upon shipment. In some cases, destination-based shipping terms are included in sales arrangements, in which cases revenue is generally recognized when the products arrive at the customer site.
The Company’s method of revenue recognition for certain products requiring installation is accounted for in accordance with multiple-element revenue recognition accounting standards. With respect to the installation obligations, the larger of the contractual cash holdback or the best estimate of selling price of the installation service is deferred when the product is shipped and revenue is recognized2018, respectively, as a multiple-element arrangement when installation is complete. The Company determines the best estimateresult of selling price of installation based upon a number of factors, including hourly service billing ratestreasury stock purchases that were unsettled. These transactions were settled in January 2020 and estimated installation hours.
Instrument service contracts are typically billed at the beginning of the maintenance period. The amount of the service contract is amortized ratably to revenue over the instrument maintenance period. There are no deferred costs associated with the service contract, as the cost of the service is recorded when the service is performed. No revenue is recognized until all revenue recognition criteria have been met.
Sales of standalone software are accounted for in accordance with the accounting standards for software revenue recognition. The Company’s software arrangements typically include software licenses and maintenance contracts. Software license revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, collection is probable, and there are no significant post-delivery obligations remaining. The revenue associated with the software maintenance contract is recognized ratably over the maintenance term. Unspecified rights to software upgrades are typically sold as part of the maintenance contract on awhen-and-if-available basis. The Company uses the residual method to allocate software revenue when a transaction includes multiple elements and vendor specific objective evidence of fair value of undelivered elements exists. Under the residual method, the fair value of the undelivered element (maintenance) is deferred and the remaining portion of the arrangement fee is allocated to the delivered element (software license) and recognized as revenue.
Returns and customer credits are infrequent and are recorded as a reduction to sales. Rights of return are not included in sales arrangements. Revenue associated with products that contain specific customer acceptance criteria is not recognized before the customer acceptance criteria are satisfied. Discounts from list prices are recorded as a reduction to sales.
2019, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Balance at Beginning of Period | Accruals for Warranties | Settlements Made | Balance at End of Period | |||||||||||||
Accrued warranty liability: | ||||||||||||||||
2017 | $ | 13,391 | $ | 8,746 | $ | (9,111 | ) | $ | 13,026 | |||||||
2016 | $ | 13,349 | $ | 9,755 | $ | (9,713 | ) | $ | 13,391 | |||||||
2015 | $ | 13,266 | $ | 8,390 | $ | (8,307 | ) | $ | 13,349 |
Balance at Beginning of Period | Accruals for Warranties | Settlements Made | Balance at End of Period | |||||||||||||
Accrued warranty liability: | ||||||||||||||||
December 31, 2019 | $ | 12,300 | $ | 7,540 | $ | (7,876 | ) | $ | 11,964 | |||||||
December 31, 2018 | $ | 13,026 | $ | 5,033 | $ | (5,759 | ) | $ | 12,300 | |||||||
December 31, 2017 | $ | 13,391 | $ | 8,746 | $ | (9,111 | ) | $ | 13,026 |
2017, respectively.
In July 2015, accounting guidance was issued which clarifies the measurement of inventory. The new guidance requires inventory to be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. This guidance is effective for annual and interim periods beginning after December 15, 2016. The Company adopted this standard as of January 1, 2017 and this standard did not have a material effect on the Company’s financial position, results of operations and cash flows.
In March 2016, accounting guidance was issued which simplifies the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. This guidance was effective for annual and interim reporting periods beginning after December 15, 2016. The new guidance is required to be adopted on a prospective basis for the statement of operations and the Company has elected to retrospectively apply the cash flow aspects of this new guidance. In addition, the Company has elected to continue to estimate forfeitures at the time of grant and update forfeiture estimates throughout the requisite service period. The Company adopted this standard as of January 1, 2017 and recognized an excess tax benefit related to stock-based compensation which decreased income tax expense for 2017 by $20 million and added $0.24 to net income per diluted share. These excess tax benefits were previously recorded in equity and there were no cumulative-effect adjustments to retained earnings as a result of the adoption of this standard. In addition, the Company reclassified $14 million and $13 million of excess tax benefits related to stock-based compensation from cash flows from financing activities to cash flows from operating activities for 2016 and 2015, respectively.
Recently Issued Accounting Standards
In May 2014, amended accounting guidance was issued regarding the recognition of revenue from contracts with customers. The objective of this guidance is to significantly enhance comparability and clarify principles of revenue recognition practices across entities, industries, jurisdictions and capital markets. This guidance was originally effective for annual and interim reporting periods beginning after December 15, 2016; however, the Financial Accounting Standards Board (“FASB”) amended the standard in August 2015 to delay the effective period date by one year to annual and interim periods beginning after December 15, 2017. Adoption prior to December 15, 2016 was not permitted. In March 2016, the FASB clarified the implementation guidance on principal versus agent considerations and, in April 2016, clarification was made regarding certain aspects of identifying performance obligations and licensing implementation guidance. In May 2016, additional guidance was issued related to disclosure of remaining performance obligations, as well as other amendments to guidance on collectibility,non-cash consideration and the presentation of sales and other similar taxes collected from customers. The Company did not early adopt this accounting standard and will apply the modified-retrospective method. The Company does not expect that the adoption of this standard will have a material impact on the Company’s financial position, results of operations and cash flows.
In January 2016, accounting guidance was issued which primarily affects the classification and measurement of certain financial instruments, principally equity investments and certain financial liabilities. Under the new guidance, there will no longer be anavailable-for-sale classification for equity securities with readily determinable fair values. Changes to the fair value of equity investments will be recognized through earnings. Equity investments carried at cost should be adjusted for changes in observable prices, as applicable, and qualitatively assessed for impairment annually. Changes to the fair value of financial liabilities under the fair value option due to instrument specific credit risk will be recognized separately in other comprehensive income. The new guidance also requires financial assets and financial liabilities to be presented separately and grouped by measurement category in the notes to the financial statements. This guidance is effective for annual and interim reporting periods beginning after December 15, 2017 and early adoption of certain provisions of this guidance is
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
permitted. The Company currently does not expect that the adoption of this standard will have a material effect on the Company’s financial position, results of operations and cash flows.
In February 2016, accounting guidance was issued regarding the accounting for leases. This new comprehensive lease standard amends various aspects of existing accounting guidance for leases. The core principle of the new guidance will requirerequires lessees to present the assets and liabilities that arise from leases on their balance sheets. This guidance iswas effective for annual and interim reporting periods beginning after December 15, 2018 and early adoption is permitted.2018. The Company expects that thehas adopted this standard using a modified retrospective transition approach to be applied to leases existing as of, or entered into after, January 1, 2019. The adoption of this standard willdid have a material effect on the Company’s balance sheet;sheet by recording a
the effect of a change in tax laws or rates with the effect recorded in income from continuing operations, even if the related tax effects were originally recognized in other comprehensive income, the new guidance allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the 2017 Tax Act. This guidance was effective for annual and interim periods beginning after December 15, 2018. The Company adopted this standard as of January 1, 2019 and the adoption of this standard did not have a material impact on the Company’s financial position, results of operations and cash flows.
In August 2016, accounting guidance was issued that clarifies the classification of certain cash flows. The new guidance addresses eight specific areas where current accounting guidance is either unclear or does not specifically address classification issues. This guidance is effective for annual and interim periods beginning after December 15, 2017 and early adoption is permitted. The Company currently does not believe that the adoption of this standard will have a material impact on the Company’s cash flows.
In October 2016, accounting guidance was issued regarding intra-entity transfers of assets other than inventory. The new guidance eliminates the deferral of tax effects on intra-entity transfers other than inventory and requires an entity to recognize the income tax consequences when the transfer occurs. This guidance is effective for annual and interim periods beginning after December 15, 2017 and early adoption is permitted. The Company does not believe that the adoption of this standard will have a material impact on the Company’s financial position, results of operations and cash flows.
In January 2017, accounting guidance was issued that clarifies the definition of a business. The new guidance provides a more robust framework to use in determining when a set of assets and activities is a business, thus narrowing the definition and the amount of transactions accounted for as business combinations. This guidance is effective for annual and interim periods beginning after December 15, 2017 and early application is permitted under certain circumstances. The Company will apply this guidance prospectively to any business combination transactions that take place after adoption of this new guidance.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
allocation. This guidance is effective for annual and interim periods beginning after December 15, 2019 and early adoption is permitted. The Company currently does not expect that the adoption of this standard will have a material effect on the Company’s financial position, results of operations and cash flows.
December 31, | ||||||||||||
2019 | 2018 | 2017 | ||||||||||
Balance at the beginning of the period | $ | 204,257 | $ | 192,589 | $ | 173,780 | ||||||
Recognition of revenue included in balance at beginning of the period | (176,981 | ) | (159,258 | ) | (143,589 | ) | ||||||
Revenue deferred during the period, net of revenue recognized | 186,419 | 170,926 | 162,398 | |||||||||
Balance at the end of the period | $ | 213,695 | $ | 204,257 | $ | 192,589 | ||||||
December 31, 2019 | ||||
Deferred revenue and customer advances expected to be recognized in: | ||||
One year or less | $ | 176,360 | ||
13-24 months | 21,029 | |||
25 months and beyond | 16,306 | |||
Total | $ | 213,695 | ||
December 31, 2017 | ||||||||||||||||
Amortized Cost | Unrealized Gain | Unrealized Loss | Fair Value | |||||||||||||
U.S. Treasury securities | $ | 593,599 | $ | 82 | $ | (1,693 | ) | $ | 591,988 | |||||||
Foreign government securities | 6,982 | — | (30 | ) | 6,952 | |||||||||||
Corporate debt securities | 1,977,329 | 897 | (3,066 | ) | 1,975,160 | |||||||||||
Time deposits | 371,515 | — | (4 | ) | 371,511 | |||||||||||
Equity securities | 77 | 70 | — | 147 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 2,949,502 | $ | 1,049 | $ | (4,793 | ) | $ | 2,945,758 | |||||||
|
|
|
|
|
|
|
| |||||||||
Amounts included in: | ||||||||||||||||
Cash equivalents | $ | 194,377 | $ | — | $ | (1 | ) | $ | 194,376 | |||||||
Investments | 2,755,125 | 1,049 | (4,792 | ) | 2,751,382 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 2,949,502 | $ | 1,049 | $ | (4,793 | ) | $ | 2,945,758 | |||||||
|
|
|
|
|
|
|
|
December 31, 2019 | ||||||||||||||||
Amortized Cost | Unrealized Gain | Unrealized Loss | Fair Value | |||||||||||||
Time deposits | $ | 1,642 | $ | — | $ | — | $ | 1,642 | ||||||||
Total | $ | 1,642 | $ | — | $ | — | $ | 1,642 | ||||||||
Amounts included in: | ||||||||||||||||
Cash equivalents | $ | 213 | $ | — | $ | — | $ | 213 | ||||||||
Investments | 1,429 | — | — | 1,429 | ||||||||||||
Total | $ | 1,642 | $ | — | $ | — | $ | 1,642 | ||||||||
December 31, 2016 | ||||||||||||||||
Amortized Cost | Unrealized Gain | Unrealized Loss | Fair Value | |||||||||||||
U.S. Treasury securities | $ | 570,695 | $ | 253 | $ | (635 | ) | $ | 570,313 | |||||||
Foreign government securities | 17,999 | — | (8 | ) | 17,991 | |||||||||||
Corporate debt securities | 1,645,468 | 496 | (2,126 | ) | 1,643,838 | |||||||||||
Time deposits | 199,906 | — | — | 199,906 | ||||||||||||
Equity securities | 77 | 70 | — | 147 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 2,434,145 | $ | 819 | $ | (2,769 | ) | $ | 2,432,195 | |||||||
|
|
|
|
|
|
|
| |||||||||
Amounts included in: | ||||||||||||||||
Cash equivalents | $ | 124,793 | $ | 1 | $ | — | $ | 124,794 | ||||||||
Investments | 2,309,352 | 818 | (2,769 | ) | 2,307,401 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 2,434,145 | $ | 819 | $ | (2,769 | ) | $ | 2,432,195 | |||||||
|
|
|
|
|
|
|
|
December 31, 2018 | ||||||||||||||||
Amortized Cost | Unrealized Gain | Unrealized Loss | Fair Value | |||||||||||||
U.S. Treasury securities | $ | 164,619 | $ | 16 | $ | (320 | ) | $ | 164,315 | |||||||
Foreign government securities | 3,486 | 1 | (24 | ) | 3,463 | |||||||||||
Corporate debt securities | 725,778 | 41 | (2,760 | ) | 723,059 | |||||||||||
Time deposits | 108,638 | — | — | 108,638 | ||||||||||||
Total | $ | 1,002,521 | $ | 58 | $ | (3,104 | ) | $ | 999,475 | |||||||
Amounts included in: | ||||||||||||||||
Cash equivalents | $ | 60,532 | $ | — | $ | (1 | ) | $ | 60,531 | |||||||
Investments | 941,989 | 58 | (3,103 | ) | 938,944 | |||||||||||
Total | $ | 1,002,521 | $ | 58 | $ | (3,104 | ) | $ | 999,475 | |||||||
December 31, 2017 | December 31, 2016 | |||||||
Due in one year or less | $ | 1,722,553 | $ | 1,388,537 | ||||
Due after one year through three years | 851,547 | 843,605 | ||||||
|
|
|
| |||||
Total | $ | 2,574,100 | $ | 2,232,142 | ||||
|
|
|
|
Realized
December 31, 2019 | December 31, 2018 | |||||||
Due in one year or less | $ | 1,642 | $ | 797,649 | ||||
Due after one year through three years | — | 201,826 | ||||||
Total | $ | 1,642 | $ | 999,475 | ||||
42017.
December 31, | ||||||||
2017 | 2016 | |||||||
Raw materials | $ | 99,033 | $ | 95,430 | ||||
Work in progress | 15,324 | 16,585 | ||||||
Finished goods | 155,937 | 150,667 | ||||||
|
|
|
| |||||
Total inventories | $ | 270,294 | $ | 262,682 | ||||
|
|
|
|
December 31, 2019 | December 31, 2018 | |||||||
Raw materials | $ | 126,850 | $ | 111,641 | ||||
Work in progress | 15,457 | 15,552 | ||||||
Finished goods | 178,244 | 164,376 | ||||||
Total inventories | $ | 320,551 | $ | 291,569 | ||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Land and land improvements Buildings and leasehold improvements Production and other equipment Construction in progress Total property, plant and equipment Less: accumulated depreciation and amortization Property, plant and equipment, net 2017. 12 years. 2018.5 December 31, 2017 2016 $ 37,525 $ 35,720 294,219 274,021 484,475 438,604 22,140 20,204 838,359 768,549 (489,081 ) (431,431 ) $ 349,278 $ 337,118 $ $ (570,319 ) (528,785 ) $ $ 2017, 20162019, 2018 and 2015,2017, the Company retired and disposed of approximately $15 $11million, $15$9 million and $29$15 million of property, plant and equipment, respectively, most of which was fully depreciated and no longer in use. Gains on disposaldisposals were immaterial for the years ended December 31, 20172019, 2018 and 2016.FebruaryJuly 2018, the Company’s Board of Directors approved expanding its chemistry synthesis operations. The Company anticipates spending an estimated $215 million to build and equip this newstate-of-the-art manufacturing facility, which will be paid for with existing cash and investments. The Company does not expect to issue any debt in relation to this expansion.6 AcquisitionsIn September 2016, the Company acquired all of the outstanding stock of Rubotherm GmbH (“Rubotherm”), a manufacturer of gravimetric analysis systems, for approximately $6 million in cash, $5 million of which was paid at closing and an additional $1 million paid after closing to settle certain liabilities. Rubotherm develops and manufactures analytical test instruments for thermogravimetric and sorption measurements that are used in both industrial and academic research laboratories in disciplines that include chemistry, material science and engineering. The Rubotherm acquisition will help support and further expand product offerings within TA’s thermal analysis business.In November 2015, the Company acquired all of the outstanding stock of MPE Orbur Group Limited and its sole operating subsidiary, Midland Precision Equipment Company, Ltd. (“MPE”), a manufacturer of MS instrumentation components, for $12 million, net of cash acquired. MPE is a highly skilled manufacturer and former Waters supplier that produces critical components that support the Company’s MS instrument systems. MPE was acquired to bring this key supplier in house to reduce manufacturing costs in the future and to reduce risk to our supply chain.In the fourth quarter of 2015, the Company acquired certain assets of its Malaysian sales and service distributor for $2 million in cash.In May 2015, the Company acquired the net assetssole intellectual property rights to the Desorption Electrospray Ionization (“DESI”) imaging technology for $30 million in cash and a future contractual obligation to pay a minimum royalty of $3 million over the remaining life of the ElectroForce® business of the Bose Corporation (“ElectroForce”),patent. DESI is a manufacturer of testing systems, for $9 million in cash. ElectroForce’s core businessmass spectrometry imaging technique that is the manufacturing of dynamic mechanical testing systems used to characterizedevelop medical devices, biologic and engineered materials.therapies. The ElectroForce test instruments are based on unique motor designs that are quiet, energy-efficient, scalable and deliver precise performance over a wide range of force and frequency. ElectroForce was acquired to expand TA’s product offering into new markets, while leveraging the technology, infrastructure and customer bases of the combined organizations.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)The principal factor that resulted in recognition of goodwill in these acquisitions is that the purchase price was based, in part, on cash flow projections assuming the integration of any acquired technology, distribution channels and products with the Company’s products, which is of considerably greater value than utilizing each of the acquired companies’ technology, customer access or products on a standalone basis. The goodwill also includes value assigned to assembled workforce, which cannot be recognizedCompany accounted for this transaction as an asset acquisition as it did not meet the definition of a business. The Company allocated $33 million of fair value to a purchased intangible asset. Specifically,asset which will be amortized over the goodwill acquired with MPE consistsuseful life of the value assigned to its workforce and the future incremental sales synergies anticipated.Rubotherm, MPE,and the Malaysian sales and service distributor and ElectroForce,DESI imaging technology, either individually or in the aggregate, as though these acquisitionsthis acquisition had occurred at the beginning of the periods covered by this report was immaterial.7$360 million and $352$356 million at both December 31, 20172019 and 2016, respectively. During the year ended December 31, 2017, the effect of foreign currency translation increased goodwill by $8 million.
December 31, 2017 | December 31, 2016 | |||||||||||||||||||||||
Gross Carrying Amount | Accumulated Amortization | Weighted- Average Amortization Period | Gross Carrying Amount | Accumulated Amortization | Weighted- Average Amortization Period | |||||||||||||||||||
Capitalized software | $ | 438,652 | $ | 285,461 | 5 years | $ | 355,973 | $ | 223,572 | 5 years | ||||||||||||||
Purchased intangibles | 169,870 | 138,750 | 11 years | 162,180 | 127,045 | 11 years | ||||||||||||||||||
Trademarks and IPR&D | 13,923 | — | — | 13,544 | — | — | ||||||||||||||||||
Licenses | 5,840 | 4,628 | 6 years | 4,632 | 3,851 | 6 years | ||||||||||||||||||
Patents and other intangibles | 72,815 | 43,866 | 8 years | 61,646 | 36,452 | 8 years | ||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||
Total | $ | 701,100 | $ | 472,705 | 7 years | $ | 597,975 | $ | 390,920 | 7 years | ||||||||||||||
|
|
|
|
|
|
|
|
December 31, 2019 | December 31, 2018 | |||||||||||||||||||||||
Gross Carrying Amount | Accumulated Amortization | Weighted- Average Amortization Period | Gross Carrying Amount | Accumulated Amortization | Weighted- Average Amortization Period | |||||||||||||||||||
Capitalized software | $ | 481,986 | $ | 333,255 | 5 years | $ | 454,307 | $ | 307,634 | 5 years | ||||||||||||||
Purchased intangibles | 200,523 | 151,722 | 11 years | 201,566 | 144,184 | 11 years | ||||||||||||||||||
Trademarks and IPR&D | 13,782 | — | — | 13,677 | — | — | ||||||||||||||||||
Licenses | 5,669 | 5,298 | 6 years | 5,568 | 4,875 | 6 years | ||||||||||||||||||
Patents and other intangibles | 83,035 | 54,517 | 8 years | 77,753 | 49,276 | 8 years | ||||||||||||||||||
Total | $ | 784,995 | $ | 544,792 | 7 years | $ | 752,871 | $ | 505,969 | 7 years | ||||||||||||||
8
Senior | Face Value | |||||||||||||||
Unsecured Notes | Term | Interest Rate | (in millions) | Maturity Date | ||||||||||||
Series L | 7 years | 3.31 | % | $ | 200 | September 2026 | ||||||||||
Series M | 10 years | 3.53 | % | $ | 300 | September 2029 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
rate on such day (or if such day is not a business day, the immediately preceding business day) for a deposit in U.S. dollars with a maturity of one month plus 1% per annum) or the applicable 1, 2, 3 or 6 month adjusted LIBO rate 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 LIBO rate or EURIBO rate loans. The facility fee on the 2017 Credit Agreement 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 2017 Credit Agreement 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 2017 Credit Agreement includes negative covenants, affirmative covenants, representations and warranties and events of default that are customary for investment grade credit facilities.
December 31, | ||||||||
2017 | 2016 | |||||||
Foreign subsidiary lines of credit | $ | 273 | $ | 297 | ||||
Senior unsecured notes - Series D - 3.22%, due March 2018 | 100,000 | — | ||||||
Credit agreement | — | 125,000 | ||||||
|
|
|
| |||||
Total notes payable and debt, current | 100,273 | 125,297 | ||||||
|
|
|
| |||||
Senior unsecured notes - Series B - 5.00%, due February 2020 | 100,000 | 100,000 | ||||||
Senior unsecured notes - Series D - 3.22%, due March 2018 | — | 100,000 | ||||||
Senior unsecured notes - Series E - 3.97%, due March 2021 | 50,000 | 50,000 | ||||||
Senior unsecured notes - Series F - 3.40%, due June 2021 | 100,000 | 100,000 | ||||||
Senior unsecured notes - Series G - 3.92%, due June 2024 | 50,000 | 50,000 | ||||||
Senior unsecured notes - Series H - floating rate*, due June 2024 | 50,000 | 50,000 | ||||||
Senior unsecured notes - Series I - 3.13%, due May 2023 | 50,000 | 50,000 | ||||||
Senior unsecured notes - Series J - floating rate**, due May 2024 | 40,000 | 40,000 | ||||||
Senior unsecured notes - Series K - 3.44%, due May 2026 | 160,000 | 160,000 | ||||||
Credit agreement | 1,300,000 | 1,005,000 | ||||||
Unamortized debt issuance costs | (2,499 | ) | (3,034 | ) | ||||
|
|
|
| |||||
Total long-term debt | 1,897,501 | 1,701,966 | ||||||
|
|
|
| |||||
Total debt | $ | 1,997,774 | $ | 1,827,263 | ||||
|
|
|
|
December 31, 2019 | December 31, 2018 | |||||||
Foreign subsidiary lines of credit | $ | 366 | $ | 178 | ||||
Senior unsecured notes - Series B - 5.00%, due February 2020 | 100,000 | — | ||||||
Total notes payable and debt, current | 100,366 | 178 | ||||||
Senior unsecured notes - Series B - 5.00%, due February 2020 | — | 100,000 | ||||||
Senior unsecured notes - Series E - 3.97%, due March 2021 | 50,000 | 50,000 | ||||||
Senior unsecured notes - Series F - 3.40%, due June 2021 | 100,000 | 100,000 | ||||||
Senior unsecured notes - Series G - 3.92%, due June 2024 | 50,000 | 50,000 | ||||||
Senior unsecured notes - Series H - floating rate*, due June 2024 | 50,000 | 50,000 | ||||||
Senior unsecured notes - Series I - 3.13%, due May 2023 | 50,000 | 50,000 | ||||||
Senior unsecured notes - Series K - 3.44%, due May 2026 | 160,000 | 160,000 | ||||||
Senior unsecured notes - Series L - 3.31%, due September 2026 | 200,000 | — | ||||||
Senior unsecured notes - Series M - 3.53%, due September 2029 | 300,000 | — | ||||||
Credit agreement | 625,000 | 590,000 | ||||||
Unamortized debt issuance costs | (4,203 | ) | (1,828 | ) | ||||
Total long-term debt | 1,580,797 | 1,148,172 | ||||||
Total debt | $ | 1,681,163 | $ | 1,148,350 | ||||
* Series H senior unsecured notes bear interest at a 3-month LIBOR for that floating rate interest period plus 1.25%. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Total | ||||
2018 | $ | 100,273 | ||
2019 | — | |||
2020 | 100,000 | |||
2021 | 150,000 | |||
2022 | 1,300,000 | |||
Thereafter | 350,000 | |||
|
| |||
Total | $ | 2,000,273 | ||
|
|
9
Total | ||||
2020 | $ | 100,366 | ||
2021 | 150,000 | |||
2022 | 625,000 | |||
2023 | 50,000 | |||
2024 | 100,000 | |||
Thereafter | 660,000 | |||
Total | $ | 1,685,366 | ||
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
The components of income from operations before income taxes are as follows: | ||||||||||||
Domestic | $ | 55,751 | $ | 35,154 | $ | 66,716 | ||||||
Foreign | 585,346 | 564,960 | 475,203 | |||||||||
|
|
|
|
|
| |||||||
Total | $ | 641,097 | $ | 600,114 | $ | 541,919 | ||||||
|
|
|
|
|
|
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
The current and deferred components of the provision for income taxes on operations are as follows: | ||||||||||||
Current | $ | 575,276 | $ | 77,407 | $ | 66,285 | ||||||
Deferred | 45,510 | 1,204 | 6,581 | |||||||||
|
|
|
|
|
| |||||||
Total | $ | 620,786 | $ | 78,611 | $ | 72,866 | ||||||
|
|
|
|
|
| |||||||
The jurisdictional components of the provision for income taxes on operations are as follows: | ||||||||||||
Federal | $ | 535,777 | $ | 19,693 | $ | 20,882 | ||||||
State | 26,561 | 3,090 | 3,389 | |||||||||
Foreign | 58,448 | 55,828 | 48,595 | |||||||||
|
|
|
|
|
| |||||||
Total | $ | 620,786 | $ | 78,611 | $ | 72,866 | ||||||
|
|
|
|
|
|
Year Ended December 31, | ||||||||||||
2019 | 2018 | 2017 | ||||||||||
The components of income from operations before income taxes are as follows: | ||||||||||||
Domestic | $ | 97,325 | $ | 57,822 | $ | 55,751 | ||||||
Foreign | 580,914 | 624,324 | 585,346 | |||||||||
Total | $ | 678,239 | $ | 682,146 | $ | 641,097 | ||||||
Year Ended December 31, | ||||||||||||
2019 | 2018 | 2017 | ||||||||||
The components of the income tax provision from operations were as follows: | ||||||||||||
Federal | $ | 7,009 | $ | 27,277 | $ | 499,828 | ||||||
State | 3,329 | (11,964 | ) | 21,163 | ||||||||
Foreign | 66,083 | 70,634 | 54,285 | |||||||||
Total current tax provision | $ | 76,421 | $ | 85,947 | $ | 575,276 | ||||||
Federal | $ | 6,913 | $ | (3,256 | ) | $ | 35,949 | |||||
Stat e | 1,253 | 2,247 | 5,398 | |||||||||
Foreign | 1,454 | 3,414 | 4,163 | |||||||||
Total deferred tax provision | 9,620 | 2,405 | 45,510 | |||||||||
Total provision | $ | 86,041 | $ | 88,352 | $ | 620,786 | ||||||
The 2017 Tax Act contains several key provisions including, but not limited to the following:
Aone-time tax on the mandatory deemed repatriation ofpre-2018 foreign earnings and profits (“E&P”), referred to as the toll charge;
Reduction in the Corporate tax rate from 35% to 21% for tax years beginning after December 31, 2017;
Introduction of a new U.S. tax on certainoff-shore earnings referred to as Global IntangibleLow-Taxed Income (“GILTI”) at an effective tax rate of 10.5% for tax years beginning after December 31, 2017 (increasing to 13.125% for tax years beginning after December 31, 2025) with a partial offset by foreign tax credits; and
Introduction of a territorial tax system beginning in 2018 by providing a 100% dividends received deduction on certain qualified dividends from foreign subsidiaries.
During the fourth quarter of 2017, we recorded an incremental income tax provision of $550 million, which is comprised of the following:
An estimated income tax provision of $490 million for theone-time deemed repatriation ofpre-2018 E&P. In accordance with the 2017 Tax Act, the toll charge liability may be paid over eight years. As such, we have recorded $450 million and $40 million in long-term income tax liabilities and accrueddifferences between income taxes (current), respectively,computed at the United States statutory rate and the provision for income taxes are summarized as of December 31, 2017;
An estimated net income tax provision of $20 million,follows for the remeasurement of our deferred tax assets and liabilities at the newly enacted tax rate of 21%; and
As a result of the 2017 Tax Act and the Company’s expectations about distributing certain cash balances from its foreign subsidiaries to the U.S., the Company also recorded estimated income tax provisions for estimated state income taxes and foreign withholding taxes of $40 million.
The $550 million income tax provision recorded was based on currently available information and interpretations of applying the provisions of the 2017 Tax Act as of the time of filing this Annual Report on Form10-K. In accordance with authoritative guidance issued by the Securities and Exchange Commission (“SEC”), the income tax effect of the 2017 Tax Act represent provisional amounts for which our accounting is incomplete but for which reasonable estimates were determined and recorded during the fourth quarter of 2017. The guidance provides for a measurement period, up to one year from the Enactment Date, in which provisional amounts may be adjusted when additional information is obtained, prepared and analyzed. Adjustments to provisional amounts identified during the measurement period should be recorded as an income tax provision or benefit in the period the adjustment is determined.
We continue to evaluate the impacts of the 2017 Tax Act and consider the amounts recorded to be provisional. In addition, we are still evaluating the GILTI provisions of the 2017 Tax Act and its impact, if any, on our consolidated financial statements as of December 31, 2017. Companies are allowed to adopt an accounting policy to either recognize deferred taxes for GILTI or treat such as a tax cost in the year incurred. We have not yet determined our accounting policy because determining the impact of the GILTI provisions requires additional analysis. As such, we did not record a deferred income tax expense or benefit related to the GILTI provisions in our consolidated statement of operations for the yearyears ended December 31, 2019, 2018 and 2017 (in thousands):
Year Ended December 31, | ||||||||||||
2019 | 2018 | 2017 | ||||||||||
Federal tax computed at U.S. statutory income tax rate | $ | 142,430 | $ | 143,251 | $ | 224,384 | ||||||
Enactment of the 2017 Tax Cuts and Jobs Act | — | (6,059 | ) | 550,000 | ||||||||
Foreign currency exchange impact on distributed earnings | (3,229 | ) | 7,495 | — | ||||||||
GILTI, net of foreign tax credits | 10,523 | 13,727 | — | |||||||||
Settlement of tax audits | — | — | 706 | |||||||||
State income tax, net of federal income tax benefit | 3,459 | 2,910 | 1,289 | |||||||||
Net effect of foreign operations | (52,727 | ) | (57,003 | ) | (131,694 | ) | ||||||
Effect of stock-based compensation | (9,211 | ) | (9,089 | ) | (19,566 | ) | ||||||
Other, net | (5,204 | ) | (6,880 | ) | (4,333 | ) | ||||||
Provision for income taxes | $ | 86,041 | $ | 88,352 | $ | 620,786 | ||||||
The Company recorded a provisional amount for its toll charge, which represents its reasonable estimate of the liability due96.8% for the mandatory deemed repatriation of its foreign E&P. Determining the provisional toll
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
charge liability required a significant effort based on a number of estimatesyears ended December 31, 2019, 2018 and factors that need to be further analyzed and finalized including, but not limited to, the following:
Analyzing our accumulated foreign E&P and related foreign tax pools, including historical practices and assertions made in determining such; and
Determining the composition, including intercompany receivables and payables of specified foreign corporations, of our foreign E&P that is held in cash or liquid assets and other assets at several measurement dates, as a differentThe Company’s effective income tax rate is applied todiffers from the U.S. federal statutory rate each when determining the toll charge liability.
For the aforementioned factors as well as the proximity of the enactment of the 2017 Tax Act to ouryear-end, we had limited time to analyze the 2017 Tax Act and its various interpretations including any additional guidance issued through the time of filing this Annual Report on Form10-K, to assess how to apply the new law to our specific facts and circumstances and determine the toll charge that we expect to include in our 2017 tax return. We made certain assumptions and estimates in determining the provisional toll charge that may result in adjustments when we finalize our analysis and accounting for the 2017 Tax Act.
Certain income tax effects of the 2017 Tax Act represent provisional amounts for which our analysis is incomplete but for which reasonable estimates were determined and recorded during the fourth quarter of 2017. Our actual results may materially differ from our current estimatesyear due to among other things, further guidance that may be issued by U.S. federal or state tax authorities to interpret the 2017 Tax Act, or guidance from the SEC or FASB regarding income tax accounting matters related to the 2017 Tax Act. We will continue to analyze the 2017 Tax Act and any additional guidance that may be issued so we can finalize the tax effects of the 2017 Tax Act on our financial statementsdifferences in the measurement period.
At December 31, 2017, as a resultproportionate amounts of
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
The differences between income taxes computed at the United States statutory rate and the provision for income taxes are summarized as follows: | ||||||||||||
Federal tax computed at U.S. statutory income tax rate | $ | 224,384 | $ | 210,040 | $ | 189,672 | ||||||
2017 Tax Act | 550,000 | — | — | |||||||||
Settlement of tax audits | 706 | 345 | (3,258 | ) | ||||||||
State income tax, net of federal income tax benefit | 1,289 | 2,008 | 2,601 | |||||||||
Net effect of foreign operations | (134,117 | ) | (133,518 | ) | (112,426 | ) | ||||||
Effect of stock-based compensation | (19,566 | ) | — | — | ||||||||
Other, net | (1,910 | ) | (264 | ) | (3,723 | ) | ||||||
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|
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Provision for income taxes | $ | 620,786 | $ | 78,611 | $ | 72,866 | ||||||
|
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|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company’s effective tax rates for the years ended December 31, 2017, 2016 and 2015 were 96.8%, 13.1% and 13.4%, respectively. The provision for income taxes for 2017 includes a $550 million estimate for the impact of the 2017 Tax Act. In addition, the effective tax rate in 2017 includes the adoption of new accounting guidance related to stock-based compensation, which decreased income tax expense by $20 million and decreased
earnings, a $11 million provision related to the GILTI tax and a tax benefit of $9 million on stock-based compensation.
rate was 11.0% excluding this $550 million provision. During 2017, the Company also had a benefit of $20 million related to stock-based compensation.
December 31, | ||||||||
2017 | 2016 | |||||||
Deferred tax assets: | ||||||||
Net operating losses and credits | $ | 75,630 | $ | 76,027 | ||||
Depreciation | 5,952 | 8,310 | ||||||
Stock-based compensation | 9,815 | 19,609 | ||||||
Deferred compensation | 21,434 | 24,813 | ||||||
Revaluation of equity investments and licenses | 3,465 | 4,707 | ||||||
Inventory | 4,864 | 5,235 | ||||||
Accrued liabilities and reserves | 8,230 | 8,814 | ||||||
Other | 11,873 | 15,948 | ||||||
|
|
|
| |||||
Total deferred tax assets | 141,263 | 163,463 | ||||||
Valuation allowance | (62,098 | ) | (61,225 | ) | ||||
|
|
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| |||||
Deferred tax assets, net of valuation allowance | 79,165 | 102,238 | ||||||
Deferred tax liabilities: | ||||||||
Capitalized software | (19,630 | ) | (15,323 | ) | ||||
Amortization | (3,394 | ) | (5,115 | ) | ||||
Indefinite-lived intangibles | (13,254 | ) | (19,680 | ) | ||||
Deferred tax liability on foreign earnings | (21,000 | ) | — | |||||
|
|
|
| |||||
Total deferred tax liabilities | (57,278 | ) | (40,118 | ) | ||||
|
|
|
| |||||
Net deferred tax assets | $ | 21,887 | $ | 62,120 | ||||
|
|
|
|
December 31, | ||||||||
2019 | 2018 | |||||||
Deferred tax assets: | ||||||||
Net operating losses and credits | $ | 55,939 | $ | 63,052 | ||||
Depreciation | 4,776 | 7,495 | ||||||
Operating leases | 19,849 | — | ||||||
Amortization | 3,738 | 3,633 | ||||||
Stock-based compensation | 9,790 | 9,984 | ||||||
Deferred compensation | 20,077 | 22,058 | ||||||
Unrealized foreign currency gain/loss | 7,955 | 5,881 | ||||||
Deferred revenue | 9,696 | 4,654 | ||||||
Revaluation of equity investments and licenses | 3,424 | 3,148 | ||||||
Inventory | 4,824 | 4,588 | ||||||
Accrued liabilities and reserves | 7,215 | 7,213 | ||||||
Other | 3,839 | 4,073 | ||||||
Total deferred tax assets | 151,122 | 135,779 | ||||||
Valuation allowance | (51,221 | ) | (53,893 | ) | ||||
Deferred tax assets, net of valuation allowance | 99,901 | 81,886 | ||||||
Deferred tax liabilities: | ||||||||
Capitalized software | (21,025 | ) | (19,491 | ) | ||||
Operating leases | (19,553 | ) | — | |||||
Indefinite-lived intangibles | (14,363 | ) | (13,753 | ) | ||||
Deferred tax liability on foreign earning s | (18,027 | ) | (20,443 | ) | ||||
Total deferred tax liabilities | (72,968 | ) | (53,687 | ) | ||||
Net deferred tax assets | $ | 26,933 | $ | 28,199 | ||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
associated with net operating losses and tax credit carryforwards are approximately $17$8 million as of December 31, 2017,2019, which represent the future tax benefit of foreign net operating loss carryforwards that do not expire under current law.
As a result of the adoption of
consolidated balance sheet.
2017 | 2016 | 2015 | ||||||||||
Balance at the beginning of the period | $ | 9,964 | $ | 14,450 | $ | 19,596 | ||||||
Changes resulting from completion of tax examinations | — | (828 | ) | (2,405 | ) | |||||||
Other changes in uncertain tax benefits | (4,121 | ) | (3,658 | ) | (2,741 | ) | ||||||
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| |||||||
Balance at the end of the period | $ | 5,843 | $ | 9,964 | $ | 14,450 | ||||||
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|
2019 | 2018 | 2017 | ||||||||||
Balance at the beginning of the period | $ | 26,108 | $ | 5,843 | $ | 9,964 | ||||||
Net reductions for settlement of tax audits | — | — | (22 | ) | ||||||||
Net reductions for lapse of statutes taken during the period | (261 | ) | (436 | ) | (5,178 | ) | ||||||
Net additions for tax positions taken during the prior period | — | 17,651 | — | |||||||||
Net additions for tax positions taken during the current period | 1,943 | 3,050 | 1,079 | |||||||||
Balance at the end of the period | $ | 27,790 | $ | 26,108 | $ | 5,843 | ||||||
During the year ended December 31, 2016, the Company concluded tax audit disputes outside the U.S. that, in part, related to matters for which the Company had recorded net uncertain tax benefits. The resolution of these tax disputes resulted in a $1 million reduction in the measurement of its unrecognized tax benefits for the year ended December 31, 2016.
During the year ended December 31, 2015, the Company concluded U.S. tax audit disputes that, in part, related to matters for which the Company had recorded net uncertain tax benefits. The resolution of these tax disputes resulted in a $2 million reduction in the measurement of its unrecognized tax benefits and a $2 million decrease in its provision for income taxes for the year ended December 31, 2015.
10
Balance at Beginning of Period | Charged to Provision for Income Taxes* | Other** | Balance at End of Period | |||||||||||||
Valuation allowance for deferred tax assets: | ||||||||||||||||
2019 | $ | 53,893 | $ | (1,242 | ) | $ | (1,430 | ) | $ | 51,221 | ||||||
2018 | $ | 62,098 | $ | (2,128 | ) | $ | (6,077 | ) | $ | 53,893 | ||||||
201 7 | $ | 61,225 | $ | (6,363 | ) | $ | 7,236 | $ | 62,098 |
* | These amounts have been recorded as part of the income statement provision for income taxes. The income statement effects of these amounts have largely been offset by amounts related to changes in other deferred tax balance sheet accounts. |
** | The change in the valuation allowance during the year ended December 31, 2019 is primarily due to the effect of foreign currency translation on a valuation allowance related to a net operating loss carryforward. The change in the valuation allowance during the year ended December 31, 2018 was primarily due to the write-off of a valuation allowance to Retained Earnings for the tax effect related to intra-entity transfers. The change in the valuation allowance during the year ended December 31, 2017 was primarily due to the effect of foreign currency translation on a valuation allowance related to a net operating loss carryforward. |
11 Other Commitments2018.
Lease(3) initial direct costs. Upon adoption, the Company recorded a
Financial Statement Classification | December 31, 2019 | |||||
Assets: | ||||||
Property operating lease assets | Operating lease assets | $ | 64,206 | |||
Automobile operating lease assets | Operating lease assets | 27,197 | ||||
Equipment operating lease assets | Operating lease assets | 1,955 | ||||
Total lease assets | $ | 93,358 | ||||
Liabilities: | ||||||
Current operating lease liabilities | Current operating lease liabilities | $ | 27,125 | |||
Long-term operating lease liabilities | Long-term operating lease liabilities | 66,881 | ||||
Total lease liabilities | $ | 94,006 | ||||
2018 | $ | 23,168 | ||
2019 | 18,228 | |||
2020 | 14,122 | |||
2021 | 8,652 | |||
2022 and thereafter | 25,512 | |||
|
| |||
Total | $ | 89,682 | ||
|
|
2020 | $ | 29,489 | ||
2021 | 21,774 | |||
2022 | 16,743 | |||
2023 | 9,175 | |||
2024 | 6,867 | |||
2025 and thereafter | 19,311 | |||
Total future minimum lease payments | 103,359 | |||
Less: amount of lease payments representing interest | (9,353 | ) | ||
Present value of future minimum lease payments | 94,006 | |||
Less: current operating lease liabilities | (27,125 | ) | ||
Long-term operating lease liabilities | $ | 66,881 | ||
2019 | $ | 28,417 | ||
2020 | 23,424 | |||
2021 | 16,032 | |||
2022 | 11,816 | |||
2023 and thereafter | 23,269 | |||
Total future minimum lease payments | $ | 102,958 | ||
12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Compensation Committee of the Board of Directors and generally vest in equal annual installments over a five-year period. A SAR may be granted alone or in conjunction with an option or other award. Shares of restricted stock, and restricted stock units and performance stock units may be issued under the 2012 Plan for such consideration as is determined by the Compensation Committee of the Board of Directors. As of December 31, 2017,2019, the Company had stock options, restricted stock and restricted and performance stock unit awards outstanding.
2017 | 2016 | 2015 | ||||||||||
Cost of sales | $ | 3,032 | $ | 2,738 | $ | 2,590 | ||||||
Selling and administrative expenses | 33,335 | 34,451 | 26,431 | |||||||||
Research and development expenses | 3,069 | 3,809 | 4,347 | |||||||||
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|
|
|
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| |||||||
Total stock-based compensation | $ | 39,436 | $ | 40,998 | $ | 33,368 | ||||||
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|
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|
|
2019 | 2018 | 2017 | ||||||||||
Cost of sales | $ | 2,271 | $ | 2,212 | $ | 3,032 | ||||||
Selling and administrative expenses | 30,907 | 30,443 | 33,335 | |||||||||
Research and development expenses | 5,399 | 4,886 | 3,069 | |||||||||
Total stock-based compensation | $ | 38,577 | $ | 37,541 | $ | 39,436 | ||||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
was estimated on the date of grant using the Black-Scholes option pricing model. The Company uses implied volatility on its publicly-traded options as the basis for its estimate of expected volatility. The Company believes that implied volatility is the most appropriate indicator of expected volatility because it is generally reflective of historical volatility and expectations of how future volatility will differ from historical volatility. The expected life assumption for grants is based on historical experience for the population of2017, 2016the year ended December 31, 2019, 2018 and 20152017 are as follows:
Options Issued and Significant Assumptions Used to Estimate Option Fair Values | 2017 | 2016 | 2015 | |||||||||
Options issued in thousands | 389 | 324 | 673 | |||||||||
Risk-free interest rate | 2.2 | % | 1.9 | % | 1.8 | % | ||||||
Expected life in years | 6 | 6 | 6 | |||||||||
Expected volatility | 0.227 | 0.247 | 0.257 | |||||||||
Expected dividends | — | — | — | |||||||||
Weighted-Average Exercise Price and Fair Value of Options on the Date of Grant | 2017 | 2016 | 2015 | |||||||||
Exercise price | $ | 170.24 | $ | 135.02 | $ | 127.63 | ||||||
Fair value | $ | 45.73 | $ | 37.44 | $ | 35.84 |
Options Issued and Significant Assumptions Used to Estimate Option Fair Values | 2019 | 2018 | 2017 | |||||||||
Options issued in thousands | 146 | 321 | 389 | |||||||||
Risk-free interest rate | 2.5 | % | 2.7 | % | 2.2 | % | ||||||
Expected life in years | 5 | 6 | 6 | |||||||||
Expected volatility | 24.5 | % | 25.3 | % | 22.7 | % | ||||||
Expected dividends | — | — | — |
Weighted-Average Exercise Price and Fair Value of Options on the Date of Grant | 2019 | 2018 | 2017 | |||||||||
Exercise price | $ | 230.37 | $ | 196.78 | $ | 170.24 | ||||||
Fair value | $ | 61.75 | $ | 59.89 | $ | 45.73 |
Number of Shares | Exercise Price per Share | Weighted- Average Exercise Price | ||||||||||
Outstanding at December 31, 2016 | 2,697 | $ | 38.09 to $139.51 | $ | 106.55 | |||||||
Granted | 389 | $ | 136.43 to $194.26 | $ | 170.24 | |||||||
Exercised | (972 | ) | $ | 41.20 to $139.51 | $ | 93.49 | ||||||
Canceled | (75 | ) | $ | 87.06 to $139.51 | $ | 120.59 | ||||||
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| |||||||||||
Outstanding at December 31, 2017 | 2,039 | $ | 38.09 to $194.26 | $ | 124.41 | |||||||
|
|
Number of Shares | Exercise Price per Share | Weighted- Average Exercise Price per Share | ||||||||||||||||||
Outstanding at December 31, 2018 | 1,790 | $ | 38.09 | to | $ | 208.47 | $ | 142.47 | ||||||||||||
Granted | 146 | $ | 183.41 | to | $ | 238.52 | $ | 230.37 | ||||||||||||
Exercised | (406 | ) | $ | 38.09 | to | $ | 208.47 | $ | 113.06 | |||||||||||
Canceled | (75 | ) | $ | 113.36 | to | $ | 238.52 | $ | 159.67 | |||||||||||
Outstanding at December 31, 2019 | 1,455 | $ | 61.63 | to | $ | 238.52 | $ | 158.61 | ||||||||||||
Exercise Price Range | Number of Shares Outstanding | Weighted- Average Exercise Price | Remaining Contractual Life of Options Outstanding | Number of Shares Exercisable | Weighted- Average Exercise Price | |||||||||||||||
$38.09 to $79.99 | 157 | $ | 67.58 | 2.7 | 157 | $ | 67.58 | |||||||||||||
$80.00 to $113.36 | 642 | $ | 103.01 | 6.2 | 391 | $ | 98.74 | |||||||||||||
$113.37 to $194.26 | 1,240 | $ | 142.69 | 8.6 | 307 | $ | 128.26 | |||||||||||||
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Total | 2,039 | $ | 124.41 | 7.4 | 855 | $ | 103.63 | |||||||||||||
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Exercise Price Range | Number of Shares Outstanding | Weighted- Average Exercise Price | Remaining Contractual Life of Options Outstanding | Number of Shares Exercisable | Weighted- Average Exercise Price | |||||||||||||||
$61.63 to $128.93 | 529 | $ | 117.10 | 5.1 | 430 | $ | 114.85 | |||||||||||||
$128.94 to $192.62 | 520 | $ | 160.06 | 7.7 | 208 | $ | 149.37 | |||||||||||||
$192.63 to $238.52 | 406 | $ | 210.84 | 8.2 | 91 | $ | 196.83 | |||||||||||||
Total | 1,455 | $ | 158.61 | 6.9 | 729 | $ | 134.94 | |||||||||||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
respectively. The weighted-average exercise prices of options exercisable at December 31, 2017, 20162019, 2018 and 2015 2017
2019.
Shares | Weighted-Average Fair Value | |||||||
Unvested at December 31, 2016 | 453 | $ | 110.34 | |||||
Granted | 107 | $ | 154.60 | |||||
Vested | (164 | ) | $ | 105.02 | ||||
Forfeited | (22 | ) | $ | 119.27 | ||||
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| |||||||
Unvested at December 31, 2017 | 374 | $ | 124.81 | |||||
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|
Shares | Weighted-Average Grant Fair Dat e Value per | |||||||
Unvested at December 31, 2018 | 304 | $ | 153.31 | |||||
Granted | 86 | $ | 235.31 | |||||
Vested | (104 | ) | $ | 139.07 | ||||
Forfeited | (26 | ) | $ | 167.60 | ||||
Unvested at December 31, 2019 | 260 | $ | 184.70 | |||||
During year ended December 31, 2017, the Company issued
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
performance stock unit grant was estimated on the date of grant using the Monte Carlo simulation model. The Company uses implied volatility on its publicly-traded options as the basis for its estimate of expected volatility. The Company believes that implied volatility is the most appropriate indicator of expected volatility because it is
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Performance Stock Units Issued and Significant Assumptions Used to Estimate Fair Values | 2019 | 2018 | 2017 | |||||||||
Performance stock units issued in thousands | 13 | 40 | 40 | |||||||||
Risk-free interest rate | 2.4 | % | 2.4 | % | 1.6 | % | ||||||
Expected life in years | 2.8 | 3.0 | 3.0 | |||||||||
Expected volatility | 23.5 | % | 22.0 | % | 20.9 | % | ||||||
Average volatility of peer companies | 26.2 | % | 25.9 | % | 25.6 | % | ||||||
Correlation Coefficient | 34.2 | % | 35.9 | % | 37.8 | % | ||||||
Expected dividends | — | — | — |
Shares | Weighted-Average Fair Value | |||||||
Unvested at December 31, 2016 | 27 | $ | 171.16 | |||||
Granted | 40 | $ | 210.25 | |||||
Forfeited | (3 | ) | $ | 156.25 | ||||
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| |||||||
Unvested at December 31, 2017 | 64 | $ | 196.29 | |||||
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Shares | Weighted-Average Fair Value per Share | |||||||
Unvested at December 31, 2018 | 100 | $ | 212.34 | |||||
Granted | 13 | $ | 372.68 | |||||
Forfeited | (8 | ) | $ | 200.26 | ||||
Unvested at December 31, 2019 | 105 | $ | 233.11 | |||||
13
Year Ended December 31, 2017 | ||||||||||||
Net Income | Weighted-Average Shares | Per Share | ||||||||||
(Numerator) | (Denominator) | Amount | ||||||||||
Net income per basic common share | $ | 20,311 | 79,793 | $ | 0.25 | |||||||
Effect of dilutive stock option, restricted stock, performance stock unit and restricted stock unit securities | — | 811 | — | |||||||||
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Net income per diluted common share | $ | 20,311 | 80,604 | $ | 0.25 | |||||||
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Year Ended December 31, 2019 | ||||||||||||
Net Income | Weighted-Average Shares | Per Share | ||||||||||
(Numerator) | (Denominator) | Amount | ||||||||||
Net income per basic common share | $ | 592,198 | 67,627 | $ | 8.76 | |||||||
Effect of dilutive stock option, restricted stock, performance stock unit and restricted stock unit securities | — | 539 | (0.07 | ) | ||||||||
Net income per diluted common share | $ | 592,198 | 68,166 | $ | 8.69 | |||||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Year Ended December 31, 2016 | ||||||||||||
Net Income | Weighted-Average Shares | Per Share | ||||||||||
(Numerator) | (Denominator) | Amount | ||||||||||
Net income per basic common share | $ | 521,503 | 80,786 | $ | 6.46 | |||||||
Effect of dilutive stock option, restricted stock, performance stock unit and restricted stock unit securities | — | 631 | (0.05 | ) | ||||||||
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Net income per diluted common share | $ | 521,503 | 81,417 | $ | 6.41 | |||||||
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Year Ended December 31, 2015 | ||||||||||||
Net Income | Weighted-Average Shares | Per Share | ||||||||||
(Numerator) | (Denominator) | Amount | ||||||||||
Net income per basic common share | $ | 469,053 | 82,336 | $ | 5.70 | |||||||
Effect of dilutive stock option, restricted stock and restricted stock unit securities | — | 751 | (0.05 | ) | ||||||||
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Net income per diluted common share | $ | 469,053 | 83,087 | $ | 5.65 | |||||||
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Year Ended December 31, 2018 | ||||||||||||
Net Income | Weighted-Average Shares | Per Share | ||||||||||
(Numerator) | (Denominator) | Amount | ||||||||||
Net income per basic common share | $ | 593,794 | 76,992 | $ | 7.71 | |||||||
Effect of dilutive stock option, restricted stock, performance stock unit and restricted stock unit securities | — | 626 | (0.06 | ) | ||||||||
Net income per diluted common share | $ | 593,794 | 77,618 | $ | 7.65 | |||||||
Year Ended December 31, 2017 | ||||||||||||
Net Income | Weighted-Average Shares | Per Share | ||||||||||
(Numerator) | (Denominator) | Amount | ||||||||||
Net income per basic common share | $ | 20,311 | 79,793 | $ | 0.25 | |||||||
Effect of dilutive stock option, restricted stock, performance stock unit and restricted stock unit securities | — | 811 | — | |||||||||
Net income per diluted common share | $ | 20,311 | 80,604 | $ | 0.25 | |||||||
14
Currency Translation | Unrealized Gain (Loss) on Retirement Plans | Unrealized Gain (Loss) on Investments | Accumulated Other Comprehensive Income (Loss) | |||||||||||||
Balance at December 31, 2016 | $ | (170,566 | ) | $ | (43,894 | ) | $ | (1,820 | ) | $ | (216,280 | ) | ||||
Other comprehensive income (loss), net of tax | 101,148 | 6,791 | (1,726 | ) | 106,213 | |||||||||||
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Balance at December 31, 2017 | $ | (69,418 | ) | $ | (37,103 | ) | $ | (3,546 | ) | $ | (110,067 | ) | ||||
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15
Currency Translation | Unrealized Gain (Loss) on Retirement Plans | Unrealized Gain (Loss) on Investments | Accumulated Other Comprehensive Income (Loss) | |||||||||||||
Balance at December 31, 2017 | $ | (69,418 | ) | $ | (37,103 | ) | $ | (3,546 | ) | $ | (110,067 | ) | ||||
Other comprehensive (loss) income, net of tax | (36,279 | ) | 27,234 | 1,141 | (7,904 | ) | ||||||||||
Balance at December 31, 2018 | $ | (105,697 | ) | $ | (9,869 | ) | $ | (2,405 | ) | $ | (117,971 | ) | ||||
Other comprehensive income (loss), net of tax | 1,631 | (5,536 | ) | 2,405 | (1,500 | ) | ||||||||||
Balance at December 31, 2019 | $ | (104,066 | ) | $ | (15,405 | ) | $ | — | $ | (119,471 | ) | |||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
plans outside the United States (both defined benefit and defined contribution plans). Certain
2017 | 2016 | |||||||||||||||||||||||
U.S. Pension Plans | U.S. Retiree Healthcare Plan | Non-U.S. Pension Plans | U.S. Pension Plans | U.S. Retiree Healthcare Plan | Non-U.S. Pension Plans | |||||||||||||||||||
Projected benefit obligation, January 1 | $ | 159,416 | $ | 14,921 | $ | 85,311 | $ | 155,003 | $ | 12,963 | $ | 75,677 | ||||||||||||
Service cost | 450 | 546 | 5,082 | 377 | 473 | 4,954 | ||||||||||||||||||
Employee contributions | — | 1,041 | 605 | — | 987 | 584 | ||||||||||||||||||
Interest cost | 6,829 | 618 | 1,518 | 6,931 | 557 | 1,699 | ||||||||||||||||||
Actuarial losses (gains) | 8,658 | 942 | (2,590 | ) | 2,338 | 586 | 6,510 | |||||||||||||||||
Benefits paid | (5,058 | ) | (947 | ) | (2,078 | ) | (5,233 | ) | (645 | ) | (2,141 | ) | ||||||||||||
Plan amendments | — | — | 636 | — | — | — | ||||||||||||||||||
Plan settlements | (2,231 | ) | — | (1,229 | ) | — | — | — | ||||||||||||||||
Other plans | — | — | 196 | — | — | 1,305 | ||||||||||||||||||
Currency impact | — | — | 8,927 | — | — | (3,277 | ) | |||||||||||||||||
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Projected benefit obligation, December 31 | $ | 168,064 | $ | 17,121 | $ | 96,378 | $ | 159,416 | $ | 14,921 | $ | 85,311 | ||||||||||||
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2019 | 2018 | |||||||||||||||||||||||
U.S. Pension Plans | U.S. Retiree Healthcare Plan | Non-U.S. Pension Plans | U.S. Pension Plans | U.S. Retiree Healthcare Plan | Non-U.S. Pension Plans | |||||||||||||||||||
Projected benefit obligation, January 1 | $ | 972 | $ | 17,724 | $ | 93,722 | $ | 168,064 | $ | 17,121 | $ | 96,378 | ||||||||||||
Service cost | — | 499 | 4,339 | 568 | 566 | 5,368 | ||||||||||||||||||
Employee contributions | — | 1,214 | 499 | — | 1,159 | 622 | ||||||||||||||||||
Interest cost | 29 | 777 | 1,735 | 6,491 | 636 | 1,707 | ||||||||||||||||||
Actuarial (gains) losses | (32 | ) | 2,081 | 13,385 | 6,415 | (621 | ) | (2,274 | ) | |||||||||||||||
Benefits paid | — | (1,109 | ) | (3,281 | ) | (3,416 | ) | (1,007 | ) | (3,277 | ) | |||||||||||||
Plan amendments | — | — | — | — | (130 | ) | (44 | ) | ||||||||||||||||
Plan settlements | (969 | ) | — | (7,407 | ) | (177,150 | ) | — | (2,791 | ) | ||||||||||||||
Other plans | — | — | 1,598 | — | — | 1,063 | ||||||||||||||||||
Currency impact | — | — | (1,224 | ) | — | — | (3,030 | ) | ||||||||||||||||
Projected benefit obligation, December 31 | $ | — | $ | 21,186 | $ | 103,366 | $ | 972 | $ | 17,724 | $ | 93,722 | ||||||||||||
2017 | 2016 | |||||||||||||||||||||||
U.S. Pension Plans | U.S. Healthcare Plan | Non-U.S. Pension Plans | U.S. Pension Plans | U.S. Healthcare Plan | Non-U.S. Pension Plans | |||||||||||||||||||
Accumulated benefit obligation | $ | 168,064 | * | * | $ | 82,615 | $ | 159,416 | * | * | $ | 72,618 |
2019 | 2018 | |||||||||||||||||||||||
U.S. Pension Plans | U.S. Retiree Healthcare Plan | Non-U.S. Pension Plans | U.S. Pension Plans | U.S. Retiree Healthcare Plan | Non-U.S. Pension Plans | |||||||||||||||||||
Accumulated benefit obligation | $ | — | ** | $ | 88,105 | $ | 972 | ** | $ | 82,026 |
** | Not applicable. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
2017 | 2016 | |||||||||||||||||||||||
U.S. Pension Plans | U.S. Healthcare Plan | Non-U.S. Pension Plans | U.S. Pension Plans | U.S. Healthcare Plan | Non-U.S. Pension Plans | |||||||||||||||||||
Fair value of plan assets, January 1 | $ | 144,665 | $ | 9,142 | $ | 65,548 | $ | 136,128 | $ | 8,001 | $ | 60,441 | ||||||||||||
Actual return on plan assets | 27,729 | 1,542 | 390 | 8,621 | 510 | 4,741 | ||||||||||||||||||
Company contributions | 6,162 | 347 | 4,733 | 5,149 | 289 | 4,579 | ||||||||||||||||||
Employee contributions | — | 1,041 | 605 | — | 987 | 584 | ||||||||||||||||||
Plan settlements | (2,125 | ) | — | (915 | ) | — | — | — | ||||||||||||||||
Benefits paid | (5,058 | ) | (947 | ) | (2,078 | ) | (5,233 | ) | (645 | ) | (2,141 | ) | ||||||||||||
Other plans | — | — | (213 | ) | — | — | 262 | |||||||||||||||||
Currency impact | — | — | 6,920 | — | — | (2,918 | ) | |||||||||||||||||
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| |||||||||||||
Fair value of plan assets, December 31 | $ | 171,373 | $ | 11,125 | $ | 74,990 | $ | 144,665 | $ | 9,142 | $ | 65,548 | ||||||||||||
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2019 | 2018 | |||||||||||||||||||||||
U.S. Pension Plans | U.S. Retiree Healthcare Plan | Non-U.S. Pension Plans | U.S. Pension Plans | U.S. Retiree Healthcare Plan | Non-U.S. Pension Plans | |||||||||||||||||||
Fair value of plan assets, January 1 | $ | — | $ | 11,080 | $ | 81,587 | $ | 171,373 | $ | 11,125 | $ | 74,990 | ||||||||||||
Actual return on plan assets | — | 2,140 | 6,237 | 2,555 | (584 | ) | 1,070 | |||||||||||||||||
Company contributions | 969 | 448 | 6,103 | 6,625 | 387 | 10,778 | ||||||||||||||||||
Employee contributions | — | 1,214 | 499 | — | 1,159 | 622 | ||||||||||||||||||
Plan settlements | (969 | ) | — | (7,044 | ) | (177,137 | ) | — | — | |||||||||||||||
Benefits paid | — | (1,109 | ) | (3,281 | ) | (3,416 | ) | (1,007 | ) | (3,277 | ) | |||||||||||||
Other plans | — | — | 82 | — | — | — | ||||||||||||||||||
Currency impact | — | — | (1,172 | ) | — | — | (2,596 | ) | ||||||||||||||||
Fair value of plan assets, December 31 | $ | — | $ | 13,773 | $ | 83,011 | $ | — | $ | 11,080 | $ | 81,587 | ||||||||||||
2017 | 2016 | |||||||||||||||||||||||
U.S. Pension Plans | U.S. Retiree Healthcare Plan | Non-U.S. Pension Plans | U.S. Pension Plans | U.S. Retiree Healthcare Plan | Non-U.S. Pension Plans | |||||||||||||||||||
Projected benefit obligation | $ | (168,064 | ) | $ | (17,121 | ) | $ | (96,378 | ) | $ | (159,416 | ) | $ | (14,921 | ) | $ | (85,311 | ) | ||||||
Fair value of plan assets | 171,373 | 11,125 | 74,990 | 144,665 | 9,142 | 65,548 | ||||||||||||||||||
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Funded status | $ | 3,309 | $ | (5,996 | ) | $ | (21,388 | ) | $ | (14,751 | ) | $ | (5,779 | ) | $ | (19,763 | ) | |||||||
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2019 | 2018 | |||||||||||||||||||||||
U.S. Pension Plans | U.S. Retiree Healthcare Plan | Non-U.S. Pension Plans | U.S. Pension Plans | U.S. Retiree Healthcare Plan | Non-U.S. Pension Plans | |||||||||||||||||||
Projected benefit obligation | $ | — | $ | (21,186 | ) | $ | (103,366 | ) | $ | (972 | ) | $ | (17,724 | ) | $ | (93,722 | ) | |||||||
Fair value of plan assets | — | 13,773 | 83,011 | — | 11,080 | 81,587 | ||||||||||||||||||
Funded status | $ | — | $ | (7,413 | ) | $ | (20,355 | ) | $ | (972 | ) | $ | (6,644 | ) | $ | (12,135 | ) | |||||||
2017 | 2016 | |||||||||||||||||||||||
U.S. Pension Plans | U.S. Retiree Healthcare Plan | Non-U.S. Pension Plans | U.S. Pension Plans | U.S. Retiree Healthcare Plan | Non-U.S. Pension Plans | |||||||||||||||||||
Long-term assets | $ | 4,562 | $ | — | $ | 1,245 | $ | — | $ | — | $ | 1,084 | ||||||||||||
Current liabilities | (76 | ) | (347 | ) | — | (1,343 | ) | (289 | ) | — | ||||||||||||||
Long-term liabilities | (1,177 | ) | (5,649 | ) | (22,633 | ) | (13,408 | ) | (5,490 | ) | (20,847 | ) | ||||||||||||
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| |||||||||||||
Net amount recognized at December 31 | $ | 3,309 | $ | (5,996 | ) | $ | (21,388 | ) | $ | (14,751 | ) | $ | (5,779 | ) | $ | (19,763 | ) | |||||||
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2019 | 2018 | |||||||||||||||||||||||
U.S. Pension Plans | U.S. Retiree Healthcare Plan | Non-U.S. Pension Plans | U.S. Pension Plans | U.S. Retiree Healthcare Plan | Non-U.S. Pension Plans | |||||||||||||||||||
Long-term assets | $ | — | $ | — | $ | 1,466 | $ | — | $ | — | $ | 3,284 | ||||||||||||
Current liabilities | — | (448 | ) | (4 | ) | (972 | ) | (387 | ) | (1 | ) | |||||||||||||
Long-term liabilities | — | (6,965 | ) | (21,817 | ) | — | (6,257 | ) | (15,418 | ) | ||||||||||||||
Net amount recognized at December 31 | $ | — | $ | (7,413 | ) | $ | (20,355 | ) | $ | (972 | ) | $ | (6,644 | ) | $ | (12,135 | ) | |||||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
2019 | 2018 | |||||||
Projected benefit obligation | $ | 81,566 | $ | 60,359 | ||||
Accumulated benefit obligations | $ | 73,644 | $ | 56,029 | ||||
Fair value of plan assets | $ | 60,832 | $ | 44,940 |
2017 | 2016 | 2015 | ||||||||||||||||||||||||||||||||||
U.S. Pension Plans | U.S. Healthcare Plan | Non-U.S. Pension Plans | U.S. Pension Plans | U.S. Healthcare Plan | Non-U.S. Pension Plans | U.S. Pension Plans | U.S. Healthcare Plan | Non-U.S. Pension Plans | ||||||||||||||||||||||||||||
Service cost | $ | 450 | $ | 546 | $ | 5,082 | $ | 377 | $ | 473 | $ | 4,954 | $ | — | $ | 577 | $ | 5,087 | ||||||||||||||||||
Interest cost | 6,829 | 618 | 1,518 | 6,931 | 557 | 1,699 | 6,128 | 470 | 1,503 | |||||||||||||||||||||||||||
Expected return on plan assets | (10,298 | ) | (587 | ) | (1,688 | ) | (9,635 | ) | (519 | ) | (1,596 | ) | (9,145 | ) | (497 | ) | (1,542 | ) | ||||||||||||||||||
Settlement loss | 155 | — | 232 | — | — | — | — | — | 95 | |||||||||||||||||||||||||||
Net amortization: | ||||||||||||||||||||||||||||||||||||
Prior service (credit) cost | — | — | (168 | ) | — | — | (192 | ) | — | — | 39 | |||||||||||||||||||||||||
Net actuarial loss | 2,770 | — | 959 | 2,702 | — | 753 | 3,278 | — | 1,031 | |||||||||||||||||||||||||||
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| |||||||||||||||||||
Net periodic pension (benefit) cost | $ | (94 | ) | $ | 577 | $ | 5,935 | $ | 375 | $ | 511 | $ | 5,618 | $ | 261 | $ | 550 | $ | 6,213 | |||||||||||||||||
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2019 | 2018 | 2017 | ||||||||||||||||||||||||||||||||||
U.S. Pension Plans | U.S. Retiree Healthcare Plan | Non-U.S. Pension Plans | U.S. Pension Plans | U.S. Retiree Healthcare Plan | Non-U.S. Pension Plans | U.S. Pension Plans | U.S. Retiree Healthcare Plan | Non-U.S. Pension Plans | ||||||||||||||||||||||||||||
Service cost | $ | — | $ | 499 | $ | 4,339 | $ | 568 | $ | 566 | $ | 5,368 | $ | 450 | $ | 546 | $ | 5,082 | ||||||||||||||||||
Interest cost | 29 | 777 | 1,735 | 6,491 | 636 | 1,707 | 6,829 | 618 | 1,518 | |||||||||||||||||||||||||||
Expected return on plan assets | — | (706 | ) | (2,154 | ) | (6,833 | ) | (706 | ) | (1,974 | ) | (10,298 | ) | (587 | ) | (1,688 | ) | |||||||||||||||||||
Settlement loss | 27 | — | 1,548 | 45,157 | — | — | 155 | — | 232 | |||||||||||||||||||||||||||
Net amortization: | ||||||||||||||||||||||||||||||||||||
Prior service credit | — | (19 | ) | (108 | ) | — | (19 | ) | (108 | ) | — | — | (168 | ) | ||||||||||||||||||||||
Net actuarial loss | — | — | 531 | 3,082 | — | 680 | 2,770 | — | 959 | |||||||||||||||||||||||||||
Net periodic pension cost (benefit) | $ | 56 | $ | 551 | $ | 5,891 | $ | 48,465 | $ | 477 | $ | 5,673 | $ | (94 | ) | $ | 577 | $ | 5,935 | |||||||||||||||||
2017 | 2016 | 2015 | ||||||||||||||||||||||||||||||||||
U.S. Pension Plans | U.S. Healthcare Plan | Non-U.S. Pension Plans | U.S. Pension Plans | U.S. Healthcare Plan | Non-U.S. Pension Plans | U.S. Pension Plans | U.S. Healthcare Plan | Non-U.S. Pension Plans | ||||||||||||||||||||||||||||
Prior service credit (cost) | $ | — | $ | — | $ | (636 | ) | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 645 | |||||||||||||||||
Net gain (loss) arising during the year | 8,879 | 13 | 1,609 | (3,352 | ) | (594 | ) | (3,361 | ) | (6,365 | ) | 1,126 | 3,025 | |||||||||||||||||||||||
Amortization: | ||||||||||||||||||||||||||||||||||||
Prior service (credit) cost | — | — | (168 | ) | — | — | (192 | ) | — | — | 39 | |||||||||||||||||||||||||
Net loss | 2,925 | — | 1,191 | 2,702 | — | 753 | 3,278 | — | 1,126 | |||||||||||||||||||||||||||
Other Plans | — | — | — | — | — | (360 | ) | — | — | — | ||||||||||||||||||||||||||
Currency impact | — | — | (2,033 | ) | — | — | 884 | — | — | 1,760 | ||||||||||||||||||||||||||
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| |||||||||||||||||||
Total recognized in other comprehensive income (loss) | $ | 11,804 | $ | 13 | $ | (37 | ) | $ | (650 | ) | $ | (594 | ) | $ | (2,276 | ) | $ | (3,087 | ) | $ | 1,126 | $ | 6,595 | |||||||||||||
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2019 | 2018 | 2017 | ||||||||||||||||||||||||||||||||||
U.S. Pension Plans | U.S. Retiree Healthcare Plan | Non-U.S. Pension Plans | U.S. Pension Plans | U.S. Retiree Healthcare Plan | Non-U.S. Pension Plans | U.S. Pension Plans | U.S. Retiree Healthcare Plan | Non-U.S. Pension Plans | ||||||||||||||||||||||||||||
Prior service (cost) credit | $ | — | $ | — | $ | — | $ | — | $ | 130 | $ | 44 | $ | — | $ | — | $ | (636 | ) | |||||||||||||||||
Net gain (loss) arising during the year | 32 | (648 | ) | (8,940 | ) | (10,616 | ) | (670 | ) | 4,088 | 8,879 | 13 | 1,609 | |||||||||||||||||||||||
Amortization: | ||||||||||||||||||||||||||||||||||||
Prior service credit | — | (19 | ) | (108 | ) | — | (19 | ) | (35 | ) | — | — | (168 | ) | ||||||||||||||||||||||
Net loss | 27 | — | 2,079 | 48,239 | — | 680 | 2,925 | — | 1,191 | |||||||||||||||||||||||||||
Other Plans | — | — | 18 | — | — | (354 | ) | — | — | — | ||||||||||||||||||||||||||
Currency impact | — | — | 178 | — | — | 583 | — | — | (2,033 | ) | ||||||||||||||||||||||||||
Total recognized in other comprehensive (loss) income | $ | 59 | $ | (667 | ) | $ | (6,773 | ) | $ | 37,623 | $ | (559 | ) | $ | 5,006 | $ | 11,804 | $ | 13 | $ | (37 | ) | ||||||||||||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
2017 | 2016 | |||||||||||||||||||||||
U.S. Pension Plans | U.S. Retiree Healthcare Plan | Non-U.S. Pension Plans | U.S. Pension Plans | U.S. Retiree Healthcare Plan | Non-U.S. Pension Plans | |||||||||||||||||||
Net actuarial (loss) gain | $ | (37,682 | ) | $ | 588 | $ | (18,857 | ) | $ | (49,486 | ) | $ | 575 | $ | (19,638 | ) | ||||||||
Prior service credit | — | — | 530 | — | — | 1,348 | ||||||||||||||||||
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| |||||||||||||
Total | $ | (37,682 | ) | $ | 588 | $ | (18,327 | ) | $ | (49,486 | ) | $ | 575 | $ | (18,290 | ) | ||||||||
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2019 | 2018 | |||||||||||||||||||||||
U.S. Pension Plans | U.S. Retiree Healthcare Plan | Non-U.S. Pension Plans | U.S. Pension Plans | U.S. Retiree Healthcare Plan | Non-U.S. Pension Plans | |||||||||||||||||||
Net actuarial loss | $ | — | $ | (731 | ) | $ | (20,600 | ) | $ | (59 | ) | $ | (83 | ) | $ | (13,987 | ) | |||||||
Prior service credit | — | 93 | 506 | — | 112 | 666 | ||||||||||||||||||
Total | $ | — | $ | (638 | ) | $ | (20,094 | ) | $ | (59 | ) | $ | 29 | $ | (13,321 | ) | ||||||||
2017 | ||||||||||||
U.S. Pension Plans | U.S. Retiree Healthcare Plan | Non-U.S. Pension Plans | ||||||||||
Net actuarial loss | $ | (3,075 | ) | $ | — | $ | (685 | ) | ||||
Prior service credit | — | — | 119 | |||||||||
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| |||||||
Total | $ | (3,075 | ) | $ | — | $ | (566 | ) | ||||
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2019 | ||||||||||||
U.S. Pension Plans | U.S. Retiree Healthcare Plan | Non-U.S. Pension Plans | ||||||||||
Net actuarial loss | $ | — | $ | — | $ | (1,541 | ) | |||||
Prior service credit | — | 19 | 158 | |||||||||
Total | $ | — | $ | 19 | $ | (1,383 | ) | |||||
2017 | 2016 | |||||||||||||||||||||||
U.S. | U.S. | Non-U.S. | U.S. | U.S. | Non-U.S. | |||||||||||||||||||
Pension | Healthcare | Pension | Pension | Healthcare | Pension | |||||||||||||||||||
Plans | Plan | Plans | Plans | Plan | Plans | |||||||||||||||||||
Equity securities | 77 | % | 65 | % | 7 | % | 74 | % | 58 | % | 7 | % | ||||||||||||
Debt securities | 23 | % | 35 | % | 16 | % | 25 | % | 42 | % | 18 | % | ||||||||||||
Cash and cash equivalents | 0 | % | 0 | % | 8 | % | 1 | % | 0 | % | 6 | % | ||||||||||||
Insurance contracts and other | 0 | % | 0 | % | 69 | % | 0 | % | 0 | % | 69 | % | ||||||||||||
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| |||||||||||||
Total | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||||||
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2018:
2019 | 2018 | |||||||||||||||
U.S. Retiree Healthcare Plan | Non-U.S. Pension Plans | U.S. Retiree Healthcare Plan | Non-U.S. Pension Plans | |||||||||||||
Equity securities | 64 | % | 6 | % | 61 | % | 7 | % | ||||||||
Debt securities | 36 | % | 21 | % | 39 | % | 18 | % | ||||||||
Cash and cash equivalents | 0 | % | 1 | % | 0 | % | 5 | % | ||||||||
Insurance contracts and other | 0 | % | 72 | % | 0 | % | 70 | % | ||||||||
Total | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||
U.S. Pension and U.S. Retiree | Non-U.S. Pension Plans Policy Target | |||||||||||
Healthcare Plans | ||||||||||||
Policy Target | Range | |||||||||||
Equity securities | 70 | % | 50% - 90% | 5 | % | |||||||
Debt securities | 25 | % | 20% - 60% | 20 | % | |||||||
Cash and cash equivalents | 5 | % | 0% - 20% | 10 | % | |||||||
Insurance contracts and other | 0 | % | 0% - 20% | 65 | % |
U.S. Retiree Healthcare Plan | Non-U.S. Pension Plans Policy Target | |||||||||||
Policy Target | Range | |||||||||||
Equity securities | 60 | % | 30% - 90% | 5 | % | |||||||
Debt securities | 35 | % | 20% - | 20 | % | |||||||
Cash and cash equivalents | 0 | % | 0% - | 10 | % | |||||||
Insurance contracts and other | 5 | % | 0% - | 65 | % |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
plan. Within the equity portfolio of the U.S. retirement plans, Retiree Healthcare Plan,
Level 1: | The fair value of these types of investments is based on market and observable sources from daily quoted prices on nationally recognized securities exchanges. | |
Level 2: | The fair value of | |
Level 3: | These bank and insurance investment contracts are issued by well-known, highly-rated companies. The fair value disclosed represents the present value of future cash flows under the terms of the respective contracts. Significant assumptions used to determine the fair value of these contracts include the amount and timing of future cash flows and counterparty credit risk. |
Investments valued at NAV consist2018.
U.S. Pension Plans: Mutual funds(a) Total U.S. Pension Plans U.S. Retiree Healthcare Plan: Mutual funds(b) Total U.S. Retiree Healthcare Plan Non-U.S. Pension Plans: Cash equivalents(c) Mutual funds(d) Bank and insurance investment contracts(e) TotalNon-U.S. Pension Plans Total fair value of retirement plan assets Investments valued at NAV Total retirement plan assets U.S. Pension Plans: Mutual funds(f) Cash equivalents(g) Total U.S. Pension Plans U.S. Retiree Healthcare Plan: Mutual funds(h) Total U.S. Retiree Healthcare Plan Non-U.S. Pension Plans: Cash equivalents(c) Mutual funds(i) Bank and insurance investment contracts(e) TotalNon-U.S. Pension Plans Total fair value of retirement plan assets Investments valued at NAV Total retirement plan assets 20172019 (in thousands): Total at
December 31,
2017 Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1) Significant
Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3) $ 163,438 $ 163,438 $ — $ — 163,438 163,438 — — 11,125 11,125 — — 11,125 11,125 — — 5,783 5,783 — — 17,244 17,244 — — 51,963 — — 51,963 74,990 23,027 — 51,963 249,553 $ 197,590 $ — $ 51,963 7,935 $ 257,488
December 31,
2019
in Active
Markets for
Assets
(Level 1)
Other
Observable
Inputs
(Level 2)
Unobservable
Inputs
(Level 3) U.S. Retiree Healthcare Plan: $ $ $ $ 20162018 (in thousands): Total at
December 31,
2016 Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1) Significant
Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3) $ 136,548 $ 136,548 $ — $ — 728 — 728 — 137,276 136,548 728 — 9,142 9,142 — — 9,142 9,142 — — 3,718 3,718 — — 16,737 16,737 — — 45,093 — — 45,093 65,548 20,455 — 45,093 211,966 $ 166,145 $ 728 $ 45,093 7,389 $ 219,355
December 31,
2018
in Active
Markets for
(Level 1)
Other
Observable
Inputs
(Level 2)
Unobservable
Inputs
(Level 3) $ $ $ $ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)(a) The mutual fund balance in the U.S. Pension Plans are invested in the following categories: 45% in the common stock oflarge-cap U.S. companies, 30% in the common stock of international growth companies and 25% in fixed income bonds issued by U.S. companies and by the U.S. government and its agencies.(b)The mutual fund balance in the U.S. Retiree Healthcare Plan is invested in the following categories: 41%35% in the common stock of24%29% in the common stock of international growth companies and 35%36% in fixed income bonds of U.S. companies and(c)(b)Primarily represents deposit account funds held with various financial institutions. (d)(c)The mutual fund balance in the 58%57% in international bonds, 32%23% in the common stock of international companies 1% in mortgages and real estate and 9%20% in various other global investments.(e)(d)Amount represents bank and insurance guaranteed investment contracts. (f)(e)The mutual fund balance in the U.S. Pension Plans are35%40% in the common stock of38%21% in the common stock of international growth companies and 27%39% in fixed income bonds issued by by government and its agencies.government.(g)(f)Primarily represents money market funds held with various financial institutions.(h)The mutual fund balance in the Retiree Healthcare Plan is invested in the following categories: 38% in the common stock oflarge-cap U.S. companies, 19% in the common stock of international growth companies and 43% in fixed income bonds of U.S. companies and U.S. government.(i)The mutual fund balance in theNon-U.S. and 30%8% in mortgages and real estate and 6% 20%
Insurance Guaranteed Investment Contracts | ||||
Fair value of assets, December 31, 2015 | $ | 38,943 | ||
Net purchases (sales) and appreciation (depreciation) | 6,150 | |||
|
| |||
Fair value of assets, December 31, 2016 | 45,093 | |||
Net purchases (sales) and appreciation (depreciation) | 6,870 | |||
|
| |||
Fair value of assets, December 31, 2017 | $ | 51,963 | ||
|
|
Insurance Guaranteed Investment Contracts | ||||
Fair value of assets, December 31, 2017 | $ | 51,963 | ||
Net purchases (sales) and appreciation (depreciation) | 4,755 | |||
Fair value of assets, December 31, 2018 | 56,718 | |||
Net purchases (sales) and appreciation (depreciation) | 3,401 | |||
Fair value of assets, December 31, 2019 | $ | 60,119 | ||
2017 | 2016 | 2015 | ||||||||||||||||||||||
U.S. | Non-U.S. | U.S. | Non-U.S. | U.S. | Non-U.S. | |||||||||||||||||||
Discount rate | 3.94 | % | 1.79 | % | 4.41 | % | 1.71 | % | 4.59 | % | 2.23 | % | ||||||||||||
Increases in compensation levels | ** | 2.43 | % | ** | 2.47 | % | ** | 2.45 | % |
2019 | 2018 | 2017 | ||||||||||||||||||||||
U.S. | Non-U.S. | U.S. | Non-U.S. | U.S. | Non-U.S. | |||||||||||||||||||
Discount rate | 3.42 | % | 1.38 | % | 4.40 | % | 1.95 | % | 3.94 | % | 1.79 | % | ||||||||||||
Increases in compensation levels | ** | 2.83 | % | ** | 2.66 | % | ** | 2.43 | % |
** | Not applicable |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
2017 | 2016 | 2015 | ||||||||||||||||||||||
U.S. | Non-U.S. | U.S. | Non-U.S. | U.S. | Non-U.S. | |||||||||||||||||||
Discount rate | 4.28 | % | 1.80 | % | 4.42 | % | 2.20 | % | 3.71 | % | 1.98 | % | ||||||||||||
Return on plan assets | 6.53 | % | 2.64 | % | 6.47 | % | 2.74 | % | 6.35 | % | 2.58 | % | ||||||||||||
Increases in compensation levels | ** | 2.63 | % | ** | 2.50 | % | ** | 2.57 | % |
2019 | 2018 | 2017 | ||||||||||||||||||||||
U.S. | Non-U.S. | U.S. | Non-U.S. | U.S. | Non-U.S. | |||||||||||||||||||
Discount rate | 4.41 | % | 2.25 | % | 3.96 | % | 1.93 | % | 4.28 | % | 1.80 | % | ||||||||||||
Return on plan assets | 6.25 | % | 3.11 | % | 4.35 | % | 2.75 | % | 6.53 | % | 2.64 | % | ||||||||||||
Increases in compensation levels | ** | 3.20 | % | ** | 2.70 | % | ** | 2.63 | % |
** | Not applicable |
millionfor the Waters Retirement Plan bymillion. millionfor the Waters Retirement Plan bymillion.
U.S. Pension and Retiree Healthcare Plans | Non-U.S. Pension Plans | Total | ||||||||||
2018 | $ | 9,385 | $ | 2,396 | $ | 11,781 | ||||||
2019 | 10,114 | 1,563 | 11,677 | |||||||||
2020 | 10,287 | 2,060 | 12,347 | |||||||||
2021 | 10,777 | 2,089 | 12,866 | |||||||||
2022 | 10,749 | 2,963 | 13,712 | |||||||||
2023 - 2027 | 58,789 | 18,217 | 77,006 |
16
U.S. Retiree Healthcare Plans | Non-U.S. Pension Plans | Total | ||||||||||
2020 | $ | 1,123 | $ | 2,723 | $ | 3,846 | ||||||
2021 | 1,209 | 4,746 | 5,955 | |||||||||
2022 | 1,281 | 3,238 | 4,519 | |||||||||
2023 | 1,376 | 2,749 | 4,125 | |||||||||
2024 | 1,437 | 2,884 | 4,321 | |||||||||
2025 - 2029 | 7,420 | 20,691 | 28,111 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
2017 | 2016 | 2015 | ||||||||||
Product net sales: | ||||||||||||
Waters instrument systems | $ | 988,750 | $ | 943,218 | $ | 895,626 | ||||||
Chemistry consumables | 372,157 | 345,413 | 317,941 | |||||||||
TA instrument systems | 191,442 | 171,665 | 171,689 | |||||||||
|
|
|
|
|
| |||||||
Total product sales | 1,552,349 | 1,460,296 | 1,385,256 | |||||||||
Service net sales: | ||||||||||||
Waters service | 686,656 | 639,432 | 593,301 | |||||||||
TA service | 70,073 | 67,695 | 63,775 | |||||||||
|
|
|
|
|
| |||||||
Total service sales | 756,729 | 707,127 | 657,076 | |||||||||
|
|
|
|
|
| |||||||
Total net sales | $ | 2,309,078 | $ | 2,167,423 | $ | 2,042,332 | ||||||
|
|
|
|
|
|
Geographic sales information is presented below for the years ended December 31, 2017, 2016 and 2015 (in thousands):
2017 | 2016 | 2015 | ||||||||||
Net Sales: | ||||||||||||
United States | $ | 669,274 | $ | 665,280 | $ | 656,361 | ||||||
Europe | 636,472 | 577,257 | 555,886 | |||||||||
Asia: | ||||||||||||
China | 387,059 | 331,354 | 278,600 | |||||||||
Japan | 167,258 | 167,977 | 145,184 | |||||||||
Asia Other | 308,300 | 283,653 | 272,179 | |||||||||
|
|
|
|
|
| |||||||
Total Asia | 862,617 | 782,984 | 695,963 | |||||||||
Other | 140,715 | 141,902 | 134,122 | |||||||||
|
|
|
|
|
| |||||||
Total net sales | $ | 2,309,078 | $ | 2,167,423 | $ | 2,042,332 | ||||||
|
|
|
|
|
|
The Other category includes Canada, Latin America and Puerto Rico.
2019 | 2018 | 2017 | ||||||||||
Product net sales: | ||||||||||||
Waters instrument systems | $ | 963,871 | $ | 1,000,625 | $ | 988,750 | ||||||
Chemistry consumables | 412,018 | 400,287 | 372,157 | |||||||||
TA instrument systems | 191,300 | 204,081 | 191,442 | |||||||||
Total product sales | 1,567,189 | 1,604,993 | 1,552,349 | |||||||||
Service net sales: | ||||||||||||
Waters service | 761,594 | 738,433 | 686,656 | |||||||||
TA service | 77,813 | 76,503 | 70,073 | |||||||||
Total service sales | 839,407 | 814,936 | 756,729 | |||||||||
Total net sales | $ | 2,406,596 | $ | 2,419,929 | $ | 2,309,078 | ||||||
2019 | 2018 | 2017 | ||||||||||
Net Sales: | ||||||||||||
Asia: | ||||||||||||
China | $ | 439,557 | $ | 443,321 | $ | 387,059 | ||||||
Japan | 180,707 | 173,357 | 167,258 | |||||||||
Asia Other | 318,848 | 305,613 | 308,300 | |||||||||
Total Asia | 939,112 | 922,291 | 862,617 | |||||||||
Americas: | ||||||||||||
United States | 692,277 | 683,596 | 669,274 | |||||||||
Americas Other | 137,964 | 151,581 | 140,715 | |||||||||
Total Americas | 830,241 | 835,177 | 809,989 | |||||||||
Europe | 637,243 | 662,461 | 636,472 | |||||||||
Total net sales | $ | 2,406,596 | $ | 2,419,929 | $ | 2,309,078 | ||||||
Net sales by customer class are as follows for the years ended December 31, 2019, 2018 and 2017 (in thousands):
2019 | 2018 | 2017 | ||||||||||
Pharmaceutical | $ | 1,365,275 | $ | 1,365,731 | $ | 1,294,668 | ||||||
Industrial | 719,377 | 737,144 | 721,088 | |||||||||
Academic and governmental | 321,944 | 317,054 | 293,322 | |||||||||
Total net sales | $ | 2,406,596 | $ | 2,419,929 | $ | 2,309,078 | ||||||
2019 | 2018 | 2017 | ||||||||||
Net sales recognized at a point in time: | ||||||||||||
Instrument systems | $ | 1,155,171 | $ | 1,204,706 | $ | 1,180,192 | ||||||
Chemistry consumables | 412,018 | 400,287 | 372,157 | |||||||||
Service sales recognized at a point in time (time & materials) | 323,247 | 317,549 | 299,385 | |||||||||
Total net sales recognized at a point in time | 1,890,436 | 1,922,542 | 1,851,734 | |||||||||
Net sales recognized over time: | ||||||||||||
Service and software sales recognized over time (contracts) | 516,160 | 497,387 | 457,344 | |||||||||
Total net sales | $ | 2,406,596 | $ | 2,419,929 | $ | 2,309,078 | ||||||
2017 | 2016 | 2015 | ||||||||||
Long-lived assets: | ||||||||||||
United States | $ | 186,344 | $ | 207,062 | $ | 192,352 | ||||||
Europe | 136,440 | 114,848 | 128,189 | |||||||||
Asia | 24,774 | 14,376 | 11,868 | |||||||||
Other | 1,720 | 832 | 946 | |||||||||
|
|
|
|
|
| |||||||
Total long-lived assets | $ | 349,278 | $ | 337,118 | $ | 333,355 | ||||||
|
|
|
|
|
|
2019 | 2018 | 2017 | ||||||||||
Long-lived assets: | ||||||||||||
United States | $ | 276,891 | $ | 203,664 | $ | 186,344 | ||||||
Americas Other | 1,929 | 1,680 | 1,720 | |||||||||
Total Americas | 278,820 | 205,344 | 188,064 | |||||||||
Europe | 116,734 | 118,513 | 136,440 | |||||||||
Asia | 21,788 | 19,226 | 24,774 | |||||||||
Total long-lived assets | $ | 417,342 | $ | 343,083 | $ | 349,278 | ||||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
17
First | Second | Third | Fourth | |||||||||||||||||
2017 | Quarter | Quarter | Quarter | Quarter | Total | |||||||||||||||
Net sales | $ | 497,969 | $ | 558,250 | $ | 565,584 | $ | 687,275 | $ | 2,309,078 | ||||||||||
Costs and operating expenses: | ||||||||||||||||||||
Cost of sales | 211,095 | 229,627 | 235,892 | 270,453 | 947,067 | |||||||||||||||
Selling and administrative expenses | 130,524 | 130,190 | 135,194 | 148,795 | 544,703 | |||||||||||||||
Research and development expenses | 30,752 | 32,937 | 33,782 | 35,122 | 132,593 | |||||||||||||||
Litigation provisions | — | 10,018 | — | 1,096 | 11,114 | |||||||||||||||
Purchased intangibles amortization | 1,729 | 1,693 | 1,682 | 1,639 | 6,743 | |||||||||||||||
Acquiredin-process research and development | 5,000 | — | — | — | 5,000 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total costs and operating expenses | 379,100 | 404,465 | 406,550 | 457,105 | 1,647,220 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Operating income | 118,869 | 153,785 | 159,034 | 230,170 | 661,858 | |||||||||||||||
Interest expense | (12,725 | ) | (14,083 | ) | (14,750 | ) | (15,281 | ) | (56,839 | ) | ||||||||||
Interest income | 7,343 | 8,370 | 9,516 | 10,849 | 36,078 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Income before income taxes | 113,487 | 148,072 | 153,800 | 225,738 | 641,097 | |||||||||||||||
Provision for income taxes | 7,930 | 16,250 | 17,696 | 578,910 | 620,786 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net income (loss) | $ | 105,557 | $ | 131,822 | $ | 136,104 | $ | (353,172 | ) | $ | 20,311 | |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net income (loss) per basic common share | 1.32 | 1.65 | 1.71 | (4.44 | ) | 0.25 | ||||||||||||||
Weighted-average number of basic common shares | 80,073 | 79,979 | 79,712 | 79,454 | 79,793 | |||||||||||||||
Net income (loss) per diluted common share | 1.31 | 1.63 | 1.69 | (4.44 | ) | 0.25 | ||||||||||||||
Weighted-average number of diluted common shares and equivalents | 80,769 | 80,756 | 80,521 | 79,454 | 80,604 |
First | Second | Third | Fourth | |||||||||||||||||
2016 | Quarter | Quarter | Quarter | Quarter | Total | |||||||||||||||
Net sales | $ | 475,246 | $ | 536,560 | $ | 526,830 | $ | 628,787 | $ | 2,167,423 | ||||||||||
Costs and operating expenses: | ||||||||||||||||||||
Cost of sales | 201,151 | 220,379 | 218,344 | 251,579 | 891,453 | |||||||||||||||
Selling and administrative expenses | 129,351 | 129,581 | 123,861 | 130,238 | 513,031 | |||||||||||||||
Research and development expenses | 29,438 | 32,578 | 30,418 | 32,753 | 125,187 | |||||||||||||||
Litigation provisions | — | — | — | 3,524 | 3,524 | |||||||||||||||
Purchased intangibles amortization | 2,644 | 2,411 | 2,476 | 2,358 | 9,889 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total costs and operating expenses | 362,584 | 384,949 | 375,099 | 420,452 | 1,543,084 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Operating income | 112,662 | 151,611 | 151,731 | 208,335 | 624,339 | |||||||||||||||
Interest expense | (10,119 | ) | (10,983 | ) | (11,707 | ) | (12,102 | ) | (44,911 | ) | ||||||||||
Interest income | 4,087 | 4,827 | 5,426 | 6,346 | 20,686 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Income before income taxes | 106,630 | 145,455 | 145,450 | 202,579 | 600,114 | |||||||||||||||
Provision for income taxes | 12,578 | 17,238 | 20,594 | 28,201 | 78,611 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net income | $ | 94,052 | $ | 128,217 | $ | 124,856 | $ | 174,378 | $ | 521,503 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net income per basic common share | 1.16 | 1.59 | 1.55 | 2.17 | 6.46 | |||||||||||||||
Weighted-average number of basic common shares | 81,275 | 80,804 | 80,677 | 80,366 | 80,786 | |||||||||||||||
Net income per diluted common share | 1.15 | 1.57 | 1.53 | 2.15 | 6.41 | |||||||||||||||
Weighted-average number of diluted common shares and equivalents | 81,974 | 81,455 | 81,388 | 80,954 | 81,417 |
First | Second | Third | Fourth | |||||||||||||||||
2019 | Quarter | Quarter | Quarter | Quarter | Total | |||||||||||||||
Net sales | $ | 513,862 | $ | 599,162 | $ | 577,278 | $ | 716,294 | $ | 2,406,596 | ||||||||||
Costs and operating expenses: | ||||||||||||||||||||
Cost of sales | 221,031 | 249,546 | 241,055 | 299,068 | 1,010,700 | |||||||||||||||
Selling and administrative expenses | 134,339 | 133,208 | 126,036 | 141,208 | 534,791 | |||||||||||||||
Research and development expenses | 35,060 | 36,490 | 34,333 | 37,072 | 142,955 | |||||||||||||||
Purchased intangibles amortization | 2,281 | 2,264 | 2,619 | 2,529 | 9,693 | |||||||||||||||
Total costs and operating expenses | 392,711 | 421,508 | 404,043 | 479,877 | 1,698,139 | |||||||||||||||
Operating income | 121,151 | 177,654 | 173,235 | 236,417 | 708,457 | |||||||||||||||
Other expense | (525 | ) | (342 | ) | (496 | ) | (2,223 | ) | (3,586 | ) | ||||||||||
Interest expense | (11,563 | ) | (11,448 | ) | (11,456 | ) | (14,223 | ) | (48,690 | ) | ||||||||||
Interest income | 8,315 | 5,871 | 3,455 | 4,417 | 22,058 | |||||||||||||||
Income before income taxes | 117,378 | 171,735 | 164,738 | 224,388 | 678,239 | |||||||||||||||
Provision for income taxes | 8,392 | 27,325 | 26,605 | 23,719 | 86,041 | |||||||||||||||
Net income | $ | 108,986 | $ | 144,410 | $ | 138,133 | $ | 200,669 | $ | 592,198 | ||||||||||
Net income per basic common share | 1.52 | 2.09 | 2.09 | 3.15 | 8.76 | |||||||||||||||
Weighted-average number of basic common shares | 71,704 | 68,989 | 66,226 | 63,795 | 67,627 | |||||||||||||||
Net income per diluted common share | 1.51 | 2.08 | 2.07 | 3.12 | 8.69 | |||||||||||||||
Weighted-average number of diluted common shares and equivalents | 72,415 | 69,494 | 66,768 | 64,348 | 68,166 |
First | Second | Third | Fourth | |||||||||||||||||
2018 | Quarter | Quarter | Quarter | Quarter | Total | |||||||||||||||
Net sales | $ | 530,670 | $ | 596,219 | $ | 578,021 | $ | 715,019 | $ | 2,419,929 | ||||||||||
Costs and operating expenses: | ||||||||||||||||||||
Cost of sales | 221,421 | 243,135 | 241,139 | 286,869 | 992,564 | |||||||||||||||
Selling and administrative expenses | 130,407 | 136,645 | 126,997 | 142,853 | 536,902 | |||||||||||||||
Research and development expenses | 34,480 | 35,644 | 35,173 | 38,106 | 143,403 | |||||||||||||||
Purchased intangibles amortization | 1,659 | 1,602 | 2,114 | 2,337 | 7,712 | |||||||||||||||
Litigation provisions | (1,672 | ) | — | 924 | 322 | (426 | ) | |||||||||||||
Total costs and operating expenses | 386,295 | 417,026 | 406,347 | 470,487 | 1,680,155 | |||||||||||||||
Operating income | 144,375 | 179,193 | 171,674 | 244,532 | 739,774 | |||||||||||||||
Other income (expense) | 346 | (1,828 | ) | (811 | ) | (45,501 | ) | (47,794 | ) | |||||||||||
Interest expense | (13,838 | ) | (11,692 | ) | (11,435 | ) | (11,676 | ) | (48,641 | ) | ||||||||||
Interest income | 9,666 | 8,888 | 9,802 | 10,451 | 38,807 | |||||||||||||||
Income before income taxes | 140,549 | 174,561 | 169,230 | 197,806 | 682,146 | |||||||||||||||
Provision for income taxes | 28,598 | 18,884 | 28,216 | 12,654 | 88,352 | |||||||||||||||
Net income | $ | 111,951 | $ | 155,677 | $ | 141,014 | $ | 185,152 | $ | 593,794 | ||||||||||
Net income per basic common share | 1.42 | 2.00 | 1.84 | 2.48 | 7.71 | |||||||||||||||
Weighted-average number of basic common shares | 78,883 | 77,833 | 76,575 | 74,802 | 76,992 | |||||||||||||||
Net income per diluted common share | 1.40 | 1.98 | 1.83 | 2.46 | 7.65 | |||||||||||||||
Weighted-average number of diluted common shares and equivalents | 79,715 | 78,438 | 77,136 | 75,345 | 77,618 |
Item 9A: | Controls and Procedures |
Item 9B: Other | Information |
Item 10: | Directors, Executive Officers and Corporate Governance |
In 2017, the Company adopted a proxy access bylaw provision that allows eligible stockholders or groups of up to 20 stockholders who have held at least 3% of the Company’s common stock continuously for three years to nominate up to two individuals or 20% of the Board of Directors, whichever is greater, for election at the Company’s Annual Meeting of Stockholders, and to have those individuals included in the Company’s proxy materials for that meeting. The Company believes that the proxy access bylaw adopted by the Company strikes an appropriate balance between providing meaningful proxy access for stockholders and limiting the potential for abuse.
Item 11: | Executive Compensation |
Item 12: | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
A | B | C | ||||||||||
Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (1) | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights (1) | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (excluding securities reflected in column (A)) | ||||||||||
Equity compensation plans approved by security holders | 2,521 | $ | 124.41 | 3,346 | ||||||||
Equity compensation plans not approved by security holders | — | — | — | |||||||||
|
|
|
|
|
| |||||||
Total | 2,521 | $ | 124.41 | 3,346 | ||||||||
|
|
|
|
|
|
A | B | C | ||||||||||
Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (1) | Weighted-Average ExercisePrice of Outstanding Options, Warrants and Rights (1) | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (excluding securities reflected in column (A)) | ||||||||||
Equity compensation plans approved by security holders | 1,861 | $ | 158.61 | 2,711 | ||||||||
Equity compensation plans not approved by security holders | — | — | — | |||||||||
Total | 1,861 | $ | 158.61 | 2,711 | ||||||||
(1) | Column (a) includes an aggregate of |
Item | 13: Certain Relationships and Related Transactions and Director Independence |
Item | 14: Principal Accountant Fees and Services |
(1) | Financial Statements: |
93.95. The report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, dated February 27, 2018,25, 2020, is set forth beginning on page 4847 of thisForm (2) Financial Statement Schedule:Exhibits:See (c) below. (3)Exhibits:ExhibitNumber
Number 3.1 3.2 3.3 3.4 3.5 10.1 10.2 10.3 10.4 10.5 10.6 10.7 10.8 10.9 10.10 10.11 10.12
| ||||
Exhibit Number | Description of Document | |||
10.13 | ||||
10.14 | ||||
10.15 | ||||
10.16 | ||||
10.17 | ||||
10.18 | ||||
10.19 | ||||
10.20 | ||||
10.21 | ||||
10.22 | ||||
10.23 | ||||
10.24 | ||||
10.25 | ||||
10.26 | ||||
10.27 | ||||
10.28 | ||||
10.29 | ||||
10.30 | ||||
10.31 | ||||
10.32 | ||||
10.33 | ||||
10.34 | ||||
10.35 | ||||
10.36 | ||||
10.37 |
Exhibit Number | Description of Document | |||
10.38 | ||||
10.39 | ||||
10.40 | ||||
10.41 | ||||
10.42 | ||||
10.43 | ||||
21.1 | ||||
23.1 |
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| |||
31.1 | ||||
31.2 | ||||
32.1 | ||||
32.2 | ||||
101 | The following materials from Waters Corporation’s Annual Report on Form 10-K for the year ended December 31, | |||
104 | Cover Page Interactive Date File (formatted in iXBRL and contained in Exhibit 101). |
(1) | Incorporated by reference to the Registrant’s Report onForm 10-K dated March 29, 1996 (FileNo. 001-14010). |
(2) | Incorporated by reference to the Registrant’s Registration Statement onForm S-1 (File No. 333-96934). |
(3) | Incorporated by reference to the Registrant’s Report onForm 10-Q dated August 11, 1999 (FileNo. 001-14010). |
(4) | Incorporated by reference to the Registrant’s Report onForm 10-Q dated August 8, 2000 (FileNo. 001-14010). |
(5) | Incorporated by reference to the Registrant’s Report onForm 10-K dated March 28, 2002 (FileNo. 001-14010). |
(6) | Incorporated by reference to the Registrant’s Report onForm S-8 dated November 20, 2003 (FileNo. 333-110613). |
(7) | Incorporated by reference to the Registrant’s Report onForm 10-K dated March 12, 2004 (FileNo. 001-14010). |
(8) | Incorporated by reference to the Registrant’s Report onForm 10-Q dated November 10, 2004 (FileNo. 001-14010). |
(9) | Incorporated by reference to the Registrant’s Report onForm 10-Q dated August 5, 2005 (FileNo. 001-14010). |
(10) | Incorporated by reference to the Registrant’s Report onForm 10-K dated March 1, 2007 (FileNo. 001-14010). |
(11) | Incorporated by reference to the Registrant’s Report onForm 10-Q dated November 2, 2007 (FileNo. 001-14010). |
(12) | Incorporated by reference to the Registrant’s Report onForm 10-K dated February 29, 2008 (FileNo. 001-14010). |
(13) | Incorporated by reference to the Registrant’s Report onForm 10-K dated February 27, 2009 (FileNo. 001-14010). |
(14) | Incorporated by reference to the Registrant’s Report onForm S-8 dated July 10, 2009 (FileNo. 333-160507). |
(15) | Incorporated by reference to the Registrant’s Report onForm 10-K dated February 26, 2010 (FileNo. 001-14010). |
(16) | Incorporated by reference to the Registrant’s Report onForm 10-Q dated May 6, 2011 (FileNo. 001-14010). |
(17) | Incorporated by reference to the Registrant’s Report onForm S-8 dated September 5, 2012 (FileNo. 333-183721). |
(18) | Incorporated by reference to the Registrant’s Report onForm 8-K dated December 11, 2012 (FileNo. 001-14010). |
(19) | Incorporated by reference to the Registrant’s Report onForm 8-K dated December 11, 2013 (FileNo. 001-14010). |
(20) | Incorporated by reference to the Registrant’s Report onForm 10-Q dated August 1, 2014 (FileNo. 001-14010). |
(21) | Incorporated by reference to the Registrant’s Report onForm 10-K dated February 27, 2015 (FileNo. 001-14010). |
(22) | Incorporated by reference to the Registrant’s Report onForm 10-Q dated May 8, 2015 (FileNo. 001-14010). |
(23) | Incorporated by reference to the Registrant’s Report onForm 10-Q dated August 7, 2015 (FileNo. 001-14010). |
(24) | Incorporated by reference to the Registrant’s Report onForm 10-Q dated August 5, 2016 (FileNo. 001-14010). |
(25) | Incorporated by reference to the Registrant’s Report onForm 8-K dated December 15, 2016 (FileNo. 001-14010). |
(26) | Incorporated by reference to the Registrant’s Report onForm 10-K dated February 24, 2017 (FileNo. 001-14010). |
(27) | Incorporated by reference to the Registrant’s Report onForm 8-K dated March 27, 2017 (FileNo. 001-14010). |
(28) | Incorporated by reference to the Registrant’s Report onForm 10-Q dated November 3, 2017 (FileNo. 001-14010). |
(29) | Incorporated by reference to the Registrant’s Report onForm 8-K dated December 8, 2017 (FileNo. 001-14010). |
(30) | Incorporated by reference to the Registrant’s Report on Form 10-K dated February 27, 2018 (File No. 001-14010). |
(31) | Incorporated by reference to the Registrant’s Report on Form 10-K/A dated March 1, 2019 (File No. 001-14010). |
(32) | Incorporated by reference to the Registrant’s Report on Form 8-K dated September 16, 2019 (File No. 001-14010). |
(P) | Paper Filing |
(*) | Management contract or compensatory plan required to be filed as an Exhibit to thisForm 10-K. |
(**) | 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 of 1933, as amended, 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. |
(b) | See Item 15 (a) (3) above. |
16: Form 10-K Summary |
The following additional financial statement schedule should be considered in conjunction with the consolidated financial statements. All other schedules have been omitted because the required information is either not applicable or not sufficiently material to require submission of the schedule.
WATERS CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For each of the three years in the period ended December 31, 2017
Balance at Beginning of Period | Charged to Provision for Income Taxes* | Other** | Balance at End of Period | |||||||||||||
Valuation allowance for deferred tax assets: | ||||||||||||||||
2017 | $ | 61,225 | $ | (6,363 | ) | $ | 7,236 | $ | 62,098 | |||||||
2016 | $ | 68,595 | $ | (5,473 | ) | $ | (1,897 | ) | $ | 61,225 | ||||||
2015 | $ | 82,550 | $ | 1,363 | $ | (15,318 | ) | $ | 68,595 |
Waters Corporation |
/s/ |
Sherry L. Buck |
|
Senior Vice President and |
|
25, 2020
| ||
/s/ Christopher J. O’Connell | Chairman of the Board of Directors | |
Christopher J. O’Connell | Executive Officer (principal executive officer) | |
| ||
/s/ Sherry L. Buck | Senior Vice President and Chief Financial Officer | |
Sherry L. Buck | (principal financial officer) (principal accounting officer) | |
| ||
/s/ Linda Baddour | Director | |
Linda Baddour | ||
| ||
/s/ Dr. Michael J. Berendt | Director | |
Dr. Michael J. Berendt | ||
| ||
/s/ Edward Conard | Director | |
Edward Conard | ||
| ||
/s/ Dr. Laurie H. Glimcher | Director | |
Dr. Laurie H. Glimcher | ||
| ||
/s/ Gary Hendrickson | Director | |
Gary Hendrickson | ||
| ||
/s/ Christopher A. | Director | |
Christopher A. Kuebler | ||
/s/ Flemming Ornskov | Director | |
Flemming Ornskov | ||
| ||
/s/ JoAnn A. Reed | Director | |
JoAnn A. Reed | ||
/s/ Thomas P. Salice | Director | |
Thomas P. Salice |
102