ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 2019 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 21, 2020: 62,158,045 2018 Delaware 13-3668640 Name of each exchange on which registered: (§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. ☑ ��30, 2018: $14,912,684,699.22, 2019: 71,512,39120192020 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: |
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The Company WatersTM and TATM.TA. The Waters operating segment is primarily in the business of designing, manufacturing, selling 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, selling and servicing thermal analysis, rheometry and calorimetry instruments. The Company’s two operating segments have similar economic characteristics; product processes; products and services; types and classes of customers; methods of distribution; and regulatory environments. Because of these similarities, the two segments have been aggregated into one reporting segment for financial statement purposes.1718 in the Notes to the Consolidated Financial Statements, which is incorporated herein by reference.
In 2019, the Company introduced the ACQUITY
ACQUITY UPLC instrument systems and, furthermore, that its ACQUITY UPLC instruments primarily use ACQUITY UPLC columns. In 2016, the Company continued to expand its column chemistry capabilities through the introduction of CORTECSTM C8, CORTECSTM Phenyl, CORTECSTMT3 and CORTECSTM Shield RP18. In 2018, the Company introduced the BioResolve
In 2019, the Company introduced the BioResolv SCX mAb Columns and VanGuard
quantifying pesticide residues and other contaminants in food using
In 2019, the Company introduced the BioAccord
In 2016, TA introduced a new line of differential scanning calorimeters and thermogravimetric analyzers. These new Discovery DSC systems feature enhanced sensing technologies resulting in unprecedented performance in baseline flatness, sensitivity, resolution and reproducibility. In addition, TA introduced theACS-2 Air Chiller System, ElectroForce 3310 test instrument and DuraPulseTM Stent Graft test instrument in 2016.
agencies.
Regulation and the European
each of its three primary technologies. The Company competes in its markets primarily on the basis of product performance, reliability, service and, to a lesser extent, price. Competitors continuously introduce new products and have instrument businesses that are generally more diversified than the Company’s business. Some competitors have greater financial resources and broader distribution than the Company’s.
for more information on the potential significance of climate change legislation. See also Note 1718 in the Notes to the Consolidated Financial Statements for financial information about geographic areas.
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Item 1A: RiskFactors
Ireland; MS products at its facilities in Wilmslow, England, Solihull, England and Wexford, Ireland; thermal analysis and rheometry products at its facilities in New Castle, Delaware and other instruments and consumables at various other locations as a result of the Company’s acquisitions. Any prolonged disruption to the operations at any of these facilities, whether due to labor difficulties, destruction of or damage to any facility or other reasons, could have a material adverse effect on the Company’s results of operations or financial condition.
laundering and data privacy. In particular, the FCPA, the U.K. Bribery Act and similar anti-bribery laws generally prohibit companies and their intermediaries from making improper payments to government officials for the purpose of obtaining or retaining business, and we operate in many parts of the world that have experienced governmental corruption to some degree. Any such improper actions or allegations of such acts could damage our reputation and subject us to civil or criminal investigations in the U.S. and in other jurisdictions and related shareholder lawsuits, could lead to substantial civil and criminal, monetary and
On December 22, 2017, the U.S. enacted 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 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, which started in 2018, and will not accrue interest. During 2018, the Internal Revenue Service issued proposed regulations with respect to the transition tax and other new areas of the Tax Reform law that impact the 2018 tax provision. The Company anticipates additional proposed regulations, and the final versions of the currently proposed regulations could clarify or change the interpretation of the new laws. As permitted by the SEC Staff Accounting Bulletin No. 118, the Company completed its analysis and calculation of the 2017 Tax Act federal and state transition tax liability during 2018, which remained significantly unchanged.
The Company has conducted apost-tax reform evaluation of its capital allocation strategy and is currently planning to use its existing cash, cash equivalents and investments, cash flow from operations and available debt capacity to repurchase up to $4 billion of the Company’s common stock over the next two years. As a result,such, the Company’s financial condition and results of operations could be adversely impacted if the Company is unable to generate and maintain a sufficient level of cash flow to address these requirements through (1) cash from operations, (2) the Company’s ability to access its existing 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.
transfer all or substantially all of the Company’s assets. The Company is also required to meet specified financial ratios under the terms of the Company’s debt agreements. The Company’s ability to comply with these financial restrictions and all other covenants is dependent on the Company’s future performance, which is subject to, but not limited to, prevailing economic conditions and other factors, including factors that are beyond the Company’s control, such as foreign exchange rates, interest rates, changes in technology and changes in the level of competition. As of December 31, 2018, the Company was in compliance with all debt covenants.
In December 2018, the Company settled a frozen U.S. defined benefit pension plan by makinglump-sum cash payments and purchasing annuity contracts for participants to permanently extinguish the pension plan’s obligations. This plan was the Company’s largest defined benefit pension plan.
Item |
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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 | |||||||
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. |
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Mark T. Beaudouin, 64,
including Vice President, Europe and Asia Pacific Operations, Senior Director of US Sales Operations, Director of US Chemistry Sales and General Manager of Phase Separations. Prior to joining Waters Corporation, Dr. Harrington held senior sales positions at Celsis, Inc.
Terrance P. Kelly, 56,
President of Beckman Coulter Life Sciences. Additionally, he held senior positions at Pall Corporation, where he was President of its Food & Beverage, Laboratory and ForteBio businesses.
On February 17, 2020, Mr. Kim notified the Company that he will be resigning his position on March 16, 2020.
Item 5: |
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2017.
2014
2013 | 2014 | 2015 | 2016 | 2017 | 2018 | |||||||||||||||||||
WATERS CORPORATION | $ | 100.00 | $ | 112.72 | $ | 134.58 | $ | 134.39 | $ | 193.19 | $ | 188.65 | ||||||||||||
NYSE MARKET INDEX | $ | 100.00 | $ | 106.75 | $ | 102.38 | $ | 114.61 | $ | 136.07 | $ | 123.89 | ||||||||||||
SIC CODE INDEX | $ | 100.00 | $ | 127.50 | $ | 141.59 | $ | 130.44 | $ | 199.51 | $ | 210.24 | ||||||||||||
S&P 500 INDEX | $ | 100.00 | $ | 113.69 | $ | 115.26 | $ | 129.05 | $ | 157.22 | $ | 150.33 |
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) | ||||||||||||
September 30 to October 27, 2018 | 128 | $ | 182.79 | 128 | $ | 2,968,685 | ||||||||||
October 28 to November 24, 2018 | 1,126 | $ | 195.56 | 1,126 | $ | 2,748,484 | ||||||||||
November 25 to December 31, 2018 | 1,466 | $ | 189.54 | 1,460 | $ | 2,471,785 | ||||||||||
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Total | 2,720 | $ | 191.71 | 2,714 | $ | 2,471,785 | ||||||||||
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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) |
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*** Employees 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 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%.2015 and 2014.2015. The Company’s financial statements as of December 31, 20182019 and 2017,2018, and for each of the three years in the period ended December 31, 20182019 are included in Part II, Item 8, Financial Statements and Supplementary Data, of this Form 2018 2017 2016 2015 2014 $ 2,419,929 $ 2,309,078 $ 2,167,423 $ 2,042,332 $ 1,989,344 $ 682,146 $ 641,097 $ 600,114 $ 541,918 $ 490,740 $ 593,794 $ 20,311 $ 521,503 $ 469,275 $ 431,620 $ 7.71 $ 0.25 $ 6.46 $ 5.70 $ 5.12 76,992 79,793 80,786 82,336 84,358 $ 7.65 $ 0.25 $ 6.41 $ 5.65 $ 5.07 77,618 80,604 81,417 83,087 85,151 $ 1,735,224 $ 3,393,701 $ 2,813,032 $ 2,399,263 $ 2,055,388 $ 2,214,232 $ 3,663,977 $ 3,115,124 $ 2,649,457 $ 2,236,558 $ 3,727,426 $ 5,324,354 $ 4,662,059 $ 4,268,677 $ 3,874,690 $ 1,148,172 $ 1,897,501 $ 1,701,966 $ 1,493,027 $ 1,237,463 $ 1,567,258 $ 2,233,788 $ 2,301,949 $ 2,058,851 $ 1,894,666 7,246 7,020 6,899 6,594 6,161
and employees data $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ ) $ $ $ $ * 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 |
*** | In 2018, the Company adopted new accounting guidance which 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. The Company adopted this standard as of January 1, 2018 with a $4 million charge to beginning retained earnings in the consolidated balance sheet. |
Item 7: |
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Revenues: Product sales Service sales Total net sales Costs and operating expenses: Cost of sales Selling and administrative expenses Research and development expenses Purchased intangibles amortization Litigation (settlement) provision Acquiredin-process research and development Operating income Operating income as a % of sales Other expense Interest expense, net Income before income taxes Provision for income taxes Net income Net income per diluted common share2017 and 20162017 (dollars in thousands, except per share data): Year Ended December 31, % change 2018 2017 2016 2018 vs.
2017 2017 vs.
2016 $ 1,604,993 $ 1,552,349 $ 1,460,296 3 % 6 % 814,936 756,729 707,127 8 % 7 % 2,419,929 2,309,078 2,167,423 5 % 7 % 992,564 947,067 891,453 5 % 6 % 536,902 544,363 512,331 (1 %) 6 % 143,403 132,593 125,187 8 % 6 % 7,712 6,743 9,889 14 % (32 %) (426 ) 11,114 3,524 (104 %) 215 % — 5,000 — (100 %) — 739,774 662,198 625,039 12 % 6 % 30.6 % 28.7 % 28.8 % (47,794 ) (340 ) (700 ) * * 51 % (9,834 ) (20,761 ) (24,225 ) (53 %) (14 %) 682,146 641,097 600,114 6 % 7 % 88,352 620,786 78,611 (86 %) 690 % $ 593,794 $ 20,311 $ 521,503 * * (96 %) $ 7.65 $ 0.25 $ 6.41 * * (96 %) **Percentage not meaningful
2018
2017 $ $ $ %) % % % %) % % % %) % % % ) % %) %) %) % % % % ) ) ) ** ** ) ) ) % %) %) % %) %) $ $ $ ** $ $ $ % **
Recurring revenues were impacted by foreign currency, which decreased sales by 2% in 2019 and increased sales by 2% in 2018.
Rico.
Operating income increased 6% in 2017 as compared to 2016. This increase was primarily a result of the effect of higher sales volume achieved in 2017, which was somewhat offset by the impact of $13 million of severance costs primarily associated with the closure of a facility in Germany and costs associated with providing U.S. employees with an early retirement transition incentive; an $11 million litigation settlement provision and related costs and a $5 million charge relating to a milestone payment for the licensing of certain intellectual property relating to mass spectrometry technologies yet to be commercialized. The change in operating income in 2017 as compared with 2016 was also impacted by $4 million of expense in 2017 related to the acceleration of certain stock awards as compared to $7 million of similar expense in 2016.
In December 2018, the Company settled a pension plan obligation and incurred a $46 million expense which reduced the net income per diluted share by makinglump-sum cash payments and purchasing annuity contracts for participants to permanently extinguish the pension plan’s
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The significant increase in the provision for income taxes for 2017 was a result of the $550 million estimate forincome tax provision related to the impact of the enactment of the legislation informally referred to as the2017 Tax Cuts and Jobs Act (the “2017(“2017 Tax Act”). The 2017 Tax Act changed which reduced the U.S. tax system to a territorial system, including broadening measures requiring the taxation of the Company’s historical unremitted foreign earnings through a deemed repatriation. This provision reduced net income per diluted share by $6.82, inand excluding the 2017 andTax Act income tax provision, the Company’s effective tax rate wasin 2017 would have been 11.0% excluding this $550 million provision. As permitted by the U.S. Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin No. 118, the Company completed its analysis and calculation of the 2017 Tax Act federal and state transition tax liability during 2018, which remained significantly unchanged.
During the past three years, the Company has acquired technology to expand its future sales.2019. In July 2018, the Company acquired the sole 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 patent. DESI is a mass spectrometry imaging technique that is used to develop medical therapies. During 2018, the Company made $8 million of investments in unaffiliated companies. In 2017, the Company made a $7 million payment for an investment in a developer of analytical system solutions used to make measurements, predict stability and accelerate product discovery in the routine analytic, process monitoring and quality control release processes for life science and biopharmaceutical markets. In addition, the Company made a milestone payment of $5 million in 2017 to acquire and license intellectual property. In September 2016, the Company acquired Rubotherm GmbH for approximately $6 million in cash.
During 2018, the Company had net proceeds from the maturity of short-term investments of $1.8 billion. Most of these proceeds were repatriated into the U.S. in 2018, and were taxed at lower income tax rates as a result of the 2017 Tax Act, and used to reduce the Company’s debt by $850 million and fund $1,315 million of share repurchases.
The Company has conducted apost-tax reform evaluation of its capital allocation strategy and the Company is currently planning to use its existing cash, cash equivalents and investments, cash flow from operations and its available debt capacity to repurchase up to $4 billion of the Company’s common stock over the next two years. The Company is currently planning to increase its outstanding debt balances to approximately 2.5 times the
Company’s netdebt-to-earnings before interest, taxes, depreciation and amortization ratio to fund a significant portion of these share repurchases.
In January 2019, the Company’s Board of Directors authorized the Company to repurchase up to $4 billion of its outstanding common stock over aThis new program replaced the remaining amounts available under the AprilDuring 2019, 2018 authorization of $3 billion. During 2018,and 2017, and 2016, the Company repurchased $1,30611.1 million, $3236.8 million and $3181.8 million shares of the Company’s outstanding common stock at a cost of $2.5 billion, $1.3 billion and $323 million, respectively, under the January 2019 authorization and other previously announced programs. As of December 31, 2019, the Company has a total of $1.7 billion authorized share repurchase programs.for future repurchases. The Company believes that it has the financial flexibility to fund these share repurchases given current cash and investment levels and debt borrowing capacity, as well as to invest in research, technology and business acquisitions to further grow the Company’s sales and profits.
2020.
Year Ended December 31, | % change | |||||||||||||||||||
2018 | 2017 | 2016 | 2018 vs. 2017 | 2017 vs. 2016 | ||||||||||||||||
Net Sales: | ||||||||||||||||||||
Asia: | ||||||||||||||||||||
China | $ | 443,321 | $ | 387,059 | $ | 331,354 | 15 | % | 17 | % | ||||||||||
Japan | 173,357 | 167,258 | 167,977 | 4 | % | — | ||||||||||||||
Asia Other | 305,613 | 308,300 | 283,653 | (1 | %) | 9 | % | |||||||||||||
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Total Asia | 922,291 | 862,617 | 782,984 | 7 | % | 10 | % | |||||||||||||
Americas: | ||||||||||||||||||||
United States | 683,596 | 669,274 | 665,280 | 2 | % | 1 | % | |||||||||||||
Americas Other | 151,581 | 140,715 | 141,902 | 8 | % | (1 | %) | |||||||||||||
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Total Americas | 835,177 | 809,989 | 807,182 | 3 | % | — | ||||||||||||||
Europe | 662,461 | 636,472 | 577,257 | 4 | % | 10 | % | |||||||||||||
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Total net sales | $ | 2,419,929 | $ | 2,309,078 | $ | 2,167,423 | 5 | % | 7 | % | ||||||||||
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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 | % | ||||||||||
addition, the effect of foreign currency translation increased sales in Europe by 3% in 2018. Sales growth in the U.S. in 2018 was driven by recurring revenues and TA instruments. Sales in the rest of the Americas had double-digit sales growth for instrument systems and double-digit sales growth for pharmaceutical customers, which was offset by a decline in sales to industrial customers.
In 2017, the sales growth in Asia was driven by double-digit increases in China’s sales across all product and customer classes. The increase in Asia Other in 2017 was driven by strong sales in India across all product and customer classes. Japan’s sales in 2017 were flat as the effect
Year Ended December 31, | % change | |||||||||||||||||||
2018 | 2017 | 2016 | 2018 vs. 2017 | 2017 vs. 2016 | ||||||||||||||||
Pharmaceutical | $ | 1,365,731 | $ | 1,294,668 | $ | 1,206,316 | 5 | % | 7 | % | ||||||||||
Industrial | 737,144 | 721,088 | 690,119 | 2 | % | 4 | % | |||||||||||||
Governmental and academic | 317,054 | 293,322 | 270,988 | 8 | % | 8 | % | |||||||||||||
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Total net sales | $ | 2,419,929 | $ | 2,309,078 | $ | 2,167,423 | 5 | % | 7 | % | ||||||||||
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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 | % | ||||||||||
In 2017, the growth within our pharmaceutical market was driven by double-digit growth in China, India and Europe. Sales growth to the industrial market in 2017 was highest in China and India, with modest growth in other regions offset by flat sales in the Americas. The increase in sales to governmental and academic customers in 2017 was broad-based across all geographies, with double-digit growth in Europe and the Americas.
Year Ended December 31, | % change | |||||||||||||||||||||||||||||||
2018 | % of Total | 2017 | % of Total | 2016 | % of Total | 2018 vs. 2017 | 2017 vs. 2016 | |||||||||||||||||||||||||
Waters instrument systems | $ | 1,000,625 | 47 | % | $ | 988,750 | 48 | % | $ | 943,218 | 49 | % | 1 | % | 5 | % | ||||||||||||||||
Chemistry consumables | 400,287 | 18 | % | 372,157 | 18 | % | 345,413 | 18 | % | 8 | % | 8 | % | |||||||||||||||||||
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Total Waters product sales | 1,400,912 | 65 | % | 1,360,907 | 66 | % | 1,288,631 | 67 | % | 3 | % | 6 | % | |||||||||||||||||||
Waters service | 738,433 | 35 | % | 686,656 | 34 | % | 639,432 | 33 | % | 8 | % | 7 | % | |||||||||||||||||||
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Total Waters net sales | $ | 2,139,345 | 100 | % | $ | 2,047,563 | 100 | % | $ | 1,928,063 | 100 | % | 4 | % | 6 | % | ||||||||||||||||
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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 | % | |||||||||||||||||
service plans and higher service demand billings to a higher installed base of customers. The increase in Waters instrument system sales (LC and MS technology-based) decreased in 2018 is2019 in most major geographical regions, primarily attributabledue to lower sales of LC systems, while sales growthto pharmaceutical and industrial customers due to uncertainty caused by macroeconomic conditions relating to Brexit and other regulatory changes in 2017 was driven by higher sales ofLC-MS systems that incorporate the Company’s tandem quadrupole technologies.certain regions. The effect of foreign currency translation decreased Waters sales by 2% in 2019 and had a minimal impact on Waters sales in both 20182018.
decreased 3% in Europe, where the effect of foreign currency decreased sales by 4%. Within Asia, Waters sales decreased 1% in China and increased 4% in Japan and 9% in the rest of Asia, excluding India.
In 2017, Waters sales increased 10% in both Europe and Asia and were flat in the Americas. Waters sales increased 16% in China and were broad-based across all product and customer classes. Waters sales in Japan decreased 1%, primarily due to foreign currency translation, which decreased sales by 3%. Waters sales in the rest of Asia increased 8% and were driven by recurring revenues across all customer classes.
Year Ended December 31, | % change | |||||||||||||||||||||||||||||||
2018 | % of Total | 2017 | % of Total | 2016 | % of Total | 2018 vs. 2017 | 2017 vs. 2016 | |||||||||||||||||||||||||
TA instrument systems | $ | 204,081 | 73 | % | $ | 191,442 | 73 | % | $ | 171,665 | 72 | % | 7 | % | 12 | % | ||||||||||||||||
TA service | 76,503 | 27 | % | 70,073 | 27 | % | 67,695 | 28 | % | 9 | % | 4 | % | |||||||||||||||||||
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Total TA net sales | $ | 280,584 | 100 | % | $ | 261,515 | 100 | % | $ | 239,360 | 100 | % | 7 | % | 9 | % | ||||||||||||||||
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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 | % | ||||||||||||||||
2018.
In 2017, TA sales increased 14% in Asia, 11% in Europe and 5% in the Americas. TA achieved double-digit sales growth in Asia, with the exception of Japan, where a 5% sales growth included a 2% negative impact of foreign currency translation. TA sales in the U.S. in 2017 increased 8%, while sales in the rest of the Americas declined after strong sales in the prior year.
The increases in cost
2019 primarily from the favorable foreign currency translation effect the British Pound had on the Company’s U.K. manufacturing operations.
Litigation Settlement
In the second quarter of 2017, the Company incurred an $11 million litigation provision related to the issuance of a verdict in a patent litigation case. In the first quarter of 2018, the Company resolved the case with a final settlement that resulted in a gain of $2 million.
In 2018, the Company entered into three-yearagreements with a notional value of $300 million that hedges the Company’s net investment in its Euro denominated net assets. The difference between the interest rate received and paid under the interest rate cross-currency swap agreement is recorded as interest income. During 2018, the Company recorded $3 million of interest income related to these agreements. This interest rate cross-currency swap agreement is estimated to generate $9 million of interest income annually over a three-year period.
The
In December 2017,effective tax rate differed from the U.S. enacted legislation informally referredfederal statutory tax rate primarily due to asthe jurisdictional mix of earnings, a $14 million provision related to the GILTI tax, an $8 million provision for a change in foreign currency exchange rates related to the transition tax, a $9 million benefit related to stock-based compensation and a $6 million net benefit related to the finalization of the impact of the Tax Cuts and Jobs Act (the “2017 Tax Act”). For
During 2018, the Internal Revenue Service issued proposed regulations on the federal transition tax and various other aspects of the Tax Reform law. The Company finalized its analysis of the transition tax and related liabilities, including uncertain tax positions, in the fourth quarter of 2018 pursuant to U.S. Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin No. 118. As a result of the new guidance issued and additional work to complete the calculation of its federal transition tax, the Company reduced its provisional accrual for federal, state and foreign taxes by net $24 million during 2018. In addition,2017, the Company also assessed its uncertain tax positionshad a benefit of $20 million related to these taxes and accrued income tax reserves of $18 million during 2018. The net favorable impact to the 2018 provision for income taxes is $6 million.
The provision for income taxes for 2018 includes a $7 million expense related to the 2017 Tax Act. This additional tax results from the change in foreign currency exchange rates on the earnings taxed on December 31, 2017 under 2017 Tax Act as compared with the foreign currency exchange rates on the date of distribution of assets into the U.S. We do not expect this expense to recur in future periods.
The 2018 effective income tax rate of 13.0% was impacted by the reduction in the U.S. federal income tax rate from 35% to 21% as a result of the 2017 Tax Act, which decreased the Company’s effective tax rate by 2.0 percentage points as compared to 2017. The 2017 Tax act also added a new Global IntangibleLow-Taxed Income (GILTI) tax, which increased the Company’s 2018 effective tax rate by approximately 2.0 percentage points.
After the completion of the Company’s review of its capital allocation strategy in the fourth quarter of 2018, the Company determined that it will provide income taxes on all future foreign earnings from 2018 forward. As a result, this change added 0.6 percentage points to the 2018 effective tax rate as compared to 2017.
In addition, the reduction in the U.S. federal income tax rate from 35% to 21% as a result of the 2017 Tax Act also reduced the 2018 tax benefit on stockstock-based compensation. The Company recorded a tax benefit on stock-based compensation in 2018 and 2017 that decreased income tax expense by $9 million and $20 million, respectively, and added $0.11 and $0.24 to net income per diluted share, respectively.
The difference between the 2017 and 2016 effective tax rates can be attributed primarily to the 2016 provision for income taxes including a $3 million tax benefit (0.7 percentage points) related to the release of a valuation allowance on certain net operating loss carryforwards.
The remaining differences between effective tax rates can primarily be attributed to differences in the proportionate amounts of
Year Ended December 31, | ||||||||||||
2018 | 2017 | 2016 | ||||||||||
Net income | $ | 593,794 | $ | 20,311 | $ | 521,503 | ||||||
Depreciation and amortization | 108,408 | 106,002 | 96,449 | |||||||||
Stock-based compensation | 37,541 | 39,436 | 40,998 | |||||||||
Deferred income taxes | 2,405 | 45,510 | 1,204 | |||||||||
Excess tax benefit related to stock option plans | — | — | 13,844 | |||||||||
Gain on sale of assets | — | — | (1,500 | ) | ||||||||
In-process research and development and othernon-cash charges | — | 5,000 | — | |||||||||
Change in accounts receivable | (47,921 | ) | (24,013 | ) | (31,721 | ) | ||||||
Change in inventories | (25,396 | ) | 731 | (20,147 | ) | |||||||
Change in accounts payable and other current liabilities | (81,663 | ) | 3,175 | 6,842 | ||||||||
Change in deferred revenue and customer advances | 2,721 | 10,386 | 9,974 | |||||||||
Effect of the 2017 Tax Act | (6,059 | ) | 530,383 | — | ||||||||
Other changes | 20,616 | (39,281 | ) | 5,474 | ||||||||
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Net cash provided by operating activities | 604,446 | 697,640 | 642,920 | |||||||||
Net cash provided by (used in) investing activities | 1,683,302 | (535,752 | ) | (487,918 | ) | |||||||
Net cash used in financing activities | (2,119,522 | ) | (63,869 | ) | (115,701 | ) | ||||||
Effect of exchange rate changes on cash and cash equivalents | (14,265 | ) | 38,669 | (21,335 | ) | |||||||
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Increase in cash and cash equivalents | $ | 153,961 | $ | 136,688 | $ | 17,966 | ||||||
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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, the Company reclassified $14 million of excess tax benefits related to stock-based compensation in 2016 from cash flows from financing activities to cash flows from operating activities.
Through December 31, 2019, the Company has incurred $85 million of costs for this facility. shares. approximately $80 million in cash. This acquisition is not expected to have a material effect on the Company’s sales and expenses in 2020.and $488 million in 2017 and 2016, respectively.2017. Additions to fixed assets and capitalized software were $164 million, $96 million and $85 million in 2019, 2018 and $95 million in 2018, 2017, and 2016, respectively. In February 2018, the Company’s Board of Directors approved expanding its chemistry synthesis operations in the U.S. The Company anticipates spending an estimated $215 million to build and equip this new2017 and 2016,2017, the Company purchased $1.0 billion $3.0 billion and $2.4$3.0 billion of investments, respectively, whilerespectively. During 2019, 2018 and 2017, $1.0 billion, $2.8 billion $2.5 billion and $2.0$2.5 billion of investments matured, respectively. MostThe 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 by $850 million and fund the Company’s shareto repurchase program.and $6 million during 2018 and 2016, respectively.2018. There were no business acquisitions in 2019 or 2017. During 2019 and 2018, the Company made $9 million and $8 million of investments in unaffiliated companies.companies, respectively. During 2017, the Company made a $7 million payment for an investment in a developer of analytical system solutions used to make measurements, predict stability and accelerate product discovery in the routine analytic, process monitoring and quality control release processes for life science and biopharmaceutical markets. DuringAlso during 2017, the Company made payments of $5 million to acquire and license intellectual property relating to mass spectrometry technologies yet to be commercialized.2016,January 2020, the Company soldcompany entered into a definitive agreement to acquire Andrew Alliance, an equity investmentinnovator in specialty laboratory automation technology, including software and robotics for $4 million.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
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.
Interest on the Company’s fixed rate senior unsecured notes is payable semi-annually each year. Interest on the floating rate senior unsecured notes is payable quarterly. The Company may prepay all or some of the senior unsecured notes at any time in an amount not less than 10% of the aggregate principal amount outstanding, plus the applicable make-whole amount or prepayment premium for Series H and J senior unsecured notes. In the event of a change in control of the Company (as defined in the note purchase agreement), the Company may be required to prepay the senior unsecured notes at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest. These senior unsecured notes require that the Company comply with an interest coverage ratio test of not less than 3.50:1 for any period of four consecutive fiscal quarters and a leverage ratio test of not more than 3.50:1 as of the end of any fiscal quarter. In addition, these senior unsecured notes include customary negative covenants, affirmative covenants, representations and warranties and events of default.
During 2018, the Company’s net debt borrowings decreased by $850 million, using cash repatriated under the 2017 Tax Act. During 2017 and 2016, the Company’s net debt borrowings increased $170 million and $160 million, respectively. As of December 31, 2018, the Company had a total of $1.1 billion in outstanding debt, which consisted of $560 million in outstanding senior unsecured notes, $300 million borrowed under a term loan and $290 million borrowed under a revolving credit facility, with both the term loan and revolving credit facilities under the 2017 Credit Agreement. As of December 31, 2018, the Company had a total amount available to borrow under the 2017 Credit Agreement of $1,208 million after outstanding letters of credit. As of December 31, 2018, the Company was in compliance with all debt covenants.
During 2018, the Company entered into $300 million ofU.S.-to-Euro interest rate cross-currency swap agreements that hedge the Company’s net investment in its Euro denominated net assets. As a result of entering into these agreements, the Company anticipates lowering net interest expense by approximately $9 million annually over the three-year term of the agreements.
In January 2019, the Company’s Board of Directors authorized the Company to repurchase up to $4 billion of its outstanding common stock over atwo-year period. This new program replaced the remaining amounts available under the April 2018 authorization of $3 billion. During 2018, 2017 and 2016, the Company repurchased 6.8 million, 1.8 million and 2.3 million shares of the Company’s outstanding common stock at a cost of $1,306 million, $323 million and $318 million, respectively, under the April 2018 authorization and other previously announced programs. In addition, the Company repurchased $10 million, $10 million and $8 million of common stock related to the vesting of restricted stock units during the years ended December 31, 2018, 2017 and 2016, respectively.
The Company received $52 million, $98 million and $62 million of proceeds from the exercise of stock options and the purchase of shares pursuant to the Company’s employee stock purchase plan in 2018, 2017 and 2016, respectively.
The Company had cash, cash equivalents and investments of $1,735 million as of December 31, 2018. The majority of the Company’s cash, cash equivalents and investments are generated from foreign operations, with
$471 million held by foreign subsidiaries at December 31, 2018, of which $251 million was held in currencies other than U.S. dollars. The Company believes it has sufficient levels of cash flow and access to its existing cash, cash equivalents and investments to fund operations and capital expenditures, service debt interest, finance potential acquisitions and continue the authorized stock repurchase program in the U.S. These cash requirements are managed by the Company’s cash flow from operations, its existing cash, cash equivalents and investments, and the use of the Company’s revolving credit facility.
Management believes, as of the date of this report, that the Company’s financial position, along with expected future cash flows from earnings based on historical trends and the ability to raise funds from external sources and the borrowing capacity from existing, committed credit facilities, will be sufficient to service debt and fund working capital and capital spending requirements, authorized share repurchase amounts and potential acquisitions for at least the next twelve months. The Company has conducted apost-tax reform evaluation of its capital allocation strategy and the Company is currently planning to use its existing cash, cash equivalents and investments, cash flow from operations and its available debt capacity to repurchase up to $4 billion of the Company’s common stock over the next two years. The Company is currently planning to increase its outstanding debt balances to approximately 2.5 times the Company’s netdebt-to-earnings before interest, taxes, depreciation and amortization ratio to fund a significant portion of these share repurchases. In addition, as of December 31, 2018, the Company has determined that it will provide income taxes on all future foreign earnings and reverse its historical assertion that its foreign earnings were permanently invested. However, the Company will continue to be permanently reinvested in relation to the cumulative historical outside basis difference that is not related to the unremitted earnings. There have been no other significant changes to the Company’s financial position.
Contractual Obligations and Commercial Commitments
The following is a summary of the Company’s known contractual obligations as of December 31, 2018 (in thousands):
Payments Due by Year (1) | ||||||||||||||||||||||||||||||||
Total | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | After 2024 | |||||||||||||||||||||||||
Notes payable and debt | $ | 178 | $ | 178 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||
Interest on senior unsecured notes | 86,418 | 21,214 | 16,630 | 12,942 | 10,829 | 9,851 | 7,384 | 7,568 | ||||||||||||||||||||||||
Long-term debt (2) | 1,150,000 | — | 100,000 | 150,000 | 590,000 | 50,000 | 100,000 | 160,000 | ||||||||||||||||||||||||
2017 Tax Act liability | 432,877 | 29,109 | 38,454 | 38,454 | 38,454 | 72,101 | 96,135 | 120,170 | ||||||||||||||||||||||||
Operating leases | 102,958 | 28,417 | 23,424 | 16,032 | 11,816 | 6,601 | 5,285 | 11,383 | ||||||||||||||||||||||||
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Total | $ | 1,772,431 | $ | 78,918 | $ | 178,508 | $ | 217,428 | $ | 651,099 | $ | 138,553 | $ | 208,804 | $ | 299,121 | ||||||||||||||||
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The following is a summary of the Company’s known commercial commitments as of December 31, 2018 (in thousands):
Amount of Commitments Expiration Per Period | ||||||||||||||||||||||||||||||||
Total | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | After 2024 | |||||||||||||||||||||||||
Letters of credit | $ | 1,572 | $ | 1,572 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — |
From time to time, the Company and its subsidiaries are involved in various litigation matters arising in the ordinary course of business. The Company believes it has meritorious arguments in its current litigation matters and believes any outcome, either individually or in the aggregate, will not be material to the Company’s financial position or results of operations.
The Company has long-term liabilities for deferred employee compensation, including pension and supplemental executive retirement plans. The payments related to the supplemental retirement plan are not included above since they are dependent upon when the employee retires or leaves the Company and whether the employee electslump-sum or annuity payments. During fiscal year 2019, the Company expects to contribute approximately $3 million to $6 million to the Company’s defined benefit plans.
The Company has contingent consideration for an earnout pertaining to its July 2014 acquisition of the net assets of Medimass Research, Development and Service Kft. (“Medimass”). The earnout payments are not included above since they are dependent upon many factors that cannot be predicted with any certainty. The estimated fair value of the contingent consideration as of December 31, 2018 is $2 million.
The Company licenses certain technology and software from third parties. Future minimum license fees payable under existing license agreements as of December 31, 2018 are immaterial. The Company enters into licensing arrangements with third parties that require future milestone or royalty payments contingent upon future events. Upon the achievement of certain milestones in existing agreements, the Company could make additional future payments of up to $7 million, as well as royalties on future net sales. It is not possible to predict with reasonable certainty whether these milestones will be achieved or the timing for achievement. As a result, these potential payments are not included in the table above.
The Company accounts for its uncertain tax positions in accordance with the accounting standards for income taxes, which require financial statement reporting of the expected future tax consequences of uncertain tax positions on the presumption that all concerned tax authorities possess full knowledge of those tax positions, as well as all of the pertinent facts and circumstances, but prohibit any discounting of unrecognized tax benefits associated with those 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, 2018 were to become recognizable in the future, the Company would record a total reduction of approximately $26 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, 2013. However, carryforward tax attributes that were generated in years beginning on or before January 1, 2014 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.
As of December 31, 2018, 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.
The Company has not paid any dividends and has no plans, at this time, to pay any dividends in the future.
Off-Balance Sheet Arrangements
The Company has not created, and is not party to, any special-purpose oroff-balance sheet entities for the purpose of raising capital, incurring debt or operating parts of its business that are not consolidated (to the extent of the Company’s ownership interest therein) into the consolidated financial statements. The Company has not entered into any transactions with unconsolidated entities whereby it has subordinated retained interests, derivative instruments or other contingent arrangements that expose the Company to material continuing risks, contingent liabilities or any other obligation under a variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to the Company.
The Company enters into standard indemnification agreements in its ordinary course of business. Pursuant to these agreements, the Company indemnifies, holds harmless and agrees to reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally the Company’s business partners or customers, in connection with patent, copyright or other intellectual property infringement claims by any third party with respect to its current products, as well as claims relating to property damage or personal injury resulting from the performance of services by the Company or its subcontractors. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited. Historically, the Company’s costs to defend lawsuits or settle claims relating to such indemnity agreements have been minimal and management accordingly believes the estimated fair value of these agreements is immaterial.
Critical Accounting Policies and Estimates
Summary
The preparation of consolidated financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities. Critical accounting policies are those that are central to the presentation of the Company’s financial condition and results of operations that require management to make estimates about matters that are highly uncertain and that would have a material impact on the Company’s results of operations given changes in the estimate that are reasonably likely to occur from period to period or use of different estimates that reasonably could have been used in the current period. On an ongoing basis, the Company evaluates its policies and estimates. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual amounts may differ from these estimates under different assumptions or conditions. There are other items within the Company’s consolidated financial statements that require estimation, but are not deemed critical as defined above. Changes in estimates used in these and other items could potentially have a material impact on the Company’s consolidated financial statements.
Revenue Recognition
The Company adopted new accounting guidance regarding the recognition of revenue from contracts with customers as of January 1, 2018 and applied the modified-retrospective method. The Company elected the practical expedient and only evaluated the contracts that were considered incomplete as of January 1, 2018 when quantifying the cumulative effect adjustment under the modified retrospective method. Ultimately, the Company
determined that there was not a significant change in the timing or pattern of revenue recognition for the Company’s products and services. The adoption of this standard did not have a material impact on the Company’s financial position, results of operations or cash flows and, as such, did not require any adjustments to information reported in the prior year. The revenue recognition policies described below were effective as of January 1, 2018.
The Company recognizes revenue upon transfer of control of promised products and services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. The Company generally enters into contracts that include a combination of products and services. Revenue is allocated to distinct performance obligations and is recognized net of allowances for returns and discounts.
The Company recognizes revenue on product sales at the time control of the product transfers to the customer. In substantially all of the Company’s arrangements, title of the product transfers at shipping point and, as a result, the Company determined control transfers at the point of shipment. In more limited cases, there are destination-based shipping terms and, thus, control is deemed 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.
Generally, the Company’s contracts for products include a performance obligation related to installation. The Company has determined that the installation represents a distinct performance obligation and revenue is recognized separately upon the completion of installation. The Company determines the amount of the transaction price to allocate to the installation service based on the standalone selling price of the product and the service, which requires judgment. The Company determines relative standalone selling price of installation based upon a number of factors, including hourly service billing rates and estimated installation hours. In developing these estimates, the Company considers past history, competition, billing rates of current services and other factors.
The Company has sales from standalone software, which is included in instrument systems revenue. These arrangements typically include software licenses and maintenance contracts, both of which the Company has determined are distinct performance obligations. The Company determines the amount of the transaction price to allocate to the license and maintenance contract based on the relative standalone selling price of each performance obligation. Software license revenue is recognized at the point in time when control has been transferred to the customer. The revenue allocated to the software maintenance contract is recognized on a straight-line basis over the maintenance period, which is the contractual term of the contract, as a time-based measure of progress best reflects the Company’s performance in satisfying this obligation. Unspecified rights to software upgrades are typically sold as part of the maintenance contract on awhen-and-if-available basis.
Payment terms and conditions vary among the Company’s revenue streams, although terms generally include a requirement of payment within 30 to 60 days of product shipment. Prior to providing payment terms to customers, an evaluation of the customer’s credit risk is performed. Returns and customer credits are infrequent and insignificant and are recorded as a reduction to sales. Rights of return are not included in sales arrangements and, therefore, there is minimal variable consideration included in the transaction price of our products.
Service revenue includes (i) service and software maintenance contracts and (ii) service calls (time and materials). Instrument service contracts and software maintenance contracts are typically annual contracts, which are billed at the beginning of the contract or maintenance period. The amount of the service and software maintenance contract is recognized on a straight-line basis to revenue over the maintenance service period, which is the contractual term of the contract, as a time-based measure of progress best reflects the Company’s performance in satisfying this obligation. There are no deferred costs associated with the service contract, as the cost of the service is recorded when the service is performed. Service calls are recognized to revenue at the time a service is performed.
The Company’s deferred revenue liabilities at December 31, 2018 was $204 million on the consolidated balance sheets consists of the obligation on instrument service contracts and customer payments received in advance, prior to transfer of control of the instrument. The Company records deferred revenue primarily related to its service contracts, where consideration is billable at the beginning of the service period.
Loss Provisions on Accounts Receivable and Inventory
The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. The Company does not request collateral from its customers, but collectibility is enhanced through the use of credit card payments and letters of credit. The Company assesses collectibility based on a number of factors, including, but not limited to, past transaction history with the customer, the credit-worthiness of the customer, industry trends and the macro-economic environment. Historically, the Company has not experienced significant bad debt losses. Sales returns and allowances are estimates of future product returns related to current period revenue. Material differences may result in the amount and timing of revenue for any period if management made different judgments or utilized different estimates for sales returns and allowances for doubtful accounts. The Company’s accounts receivable balance at December 31, 2018 was $568 million, net of allowances for doubtful accounts of $8 million.
The Company values all of its inventories at the lower of cost or net realizable value on afirst-in,first-out basis (“FIFO”). The Company estimates revisions to its inventory valuations based on technical obsolescence, historical demand, projections of future demand, including that in the Company’s current backlog of orders, and industry and market conditions. If actual future demand or market conditions are less favorable than those projected by management, additional write-downs may be required. The Company’s inventory balance at December 31, 2018 was recorded at its net realizable value of $292 million, which is net of write-downs of $23 million.
Long-Lived Assets, Intangible Assets and Goodwill
The Company assesses the impairment of identifiable intangibles, long-lived assets and goodwill whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors the Company considers important which could trigger impairment include, but are not limited to, the following:
significant underperformance relative to historical or projected future operating results, particularly as it pertains to capitalized software and patent costs;
significant negative industry or economic trends, competitive products and technologies; and
significant changes or developments in strategic technological collaborations or legal matters which affect the Company’s capitalized patents, purchased technology, trademarks and intellectual properties, such as licenses.
When the Company determines that the carrying value of an individual intangible asset, long-lived asset or goodwill may not be recoverable based upon the existence of one or more of the above indicators, an estimate of
undiscounted future cash flows produced by that intangible asset, long-lived asset or goodwill, including its eventual residual value, is compared to the carrying value to determine whether impairment exists. In the event that such cash flows are not expected to be sufficient to recover the carrying amount of the asset, the asset is written-down to its estimated fair value. Net intangible assets, long-lived assets and goodwill amounted to $247 million, $343 million and $356 million, respectively, as of December 31, 2018.
The Company performs annual impairment reviews of its goodwill on January 1 of each year. For goodwill impairment review purposes, the Company has two reporting units: Waters and TA. The Company currently does not expect to record an impairment charge in the foreseeable future; however, there can be no assurance that, at the time future reviews are completed, a material impairment charge will not be recorded. The factors that could cause a material goodwill impairment charge in the future include, but are not limited to, the following:
significant decline in the Company’s projected revenue, earnings or cash flows;
significant adverse change in legal factors or business climate;
significant decline in the Company’s stock price or the stock price of comparable companies;
adverse action or assessment by a regulator; and
unanticipated competition.
Income Taxes
As part of the process of preparing the consolidated financial statements, the Company is required to estimate its income taxes in each of the jurisdictions in which it operates. This process involves the Company estimating its 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 and 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.
The accounting standards for income taxes require that a company continually evaluate the necessity of establishing or changing a valuation allowance for deferred tax assets depending on whether it is more likely than not that the actual benefit of those assets will be realized in future periods.
Uncertain Tax Positions
The Company accounts for its uncertain tax return positions in accordance with the accounting standards for income taxes, which require financial statement reporting of the expected future tax consequences of uncertain tax positions on the presumption that all concerned tax authorities possess full knowledge of those tax positions, as well as all of the pertinent facts and circumstances, but prohibit any discounting of unrecognized tax benefits associated with those 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. At December 31, 2018, the Company had unrecognized tax benefits of $27 million.
The Company has been granted a 0% contractual tax rate in Singapore that requires the achievement of certain operational and financial milestones that the Company expects to meet, to the extent not already achieved, by December 31, 2020 and maintain through at least March 31, 2021. As part of the Company’s determination of uncertain tax positions, the Company regularly assesses its progress against these operational and financial milestone targets to determine whether the milestones can be reasonably achieved. These milestones were negotiated with the Singaporean tax authorities and established based on the Company’s historical financial performance; the anticipated customerend-market demand, particularly in certain regions in the world, and the Company’s anticipated future operating plans. These assessments require significant judgments and estimates
about the Company’s ability to meet the milestone targets for the following types of objectives: reaching and maintaining annual revenue and business spending targets; meeting capital expenditures targets; attaining and sustaining employment targets; and establishing a local research and development and service center. The Company regularly monitors its actual and forecasted sales and operating results against these milestones and the Company makes the determination as to whether the future forecasted financial results are most likely to be achieved. These milestones are very similar in nature to the previous Singaporean tax holiday contractual agreements that the Company successfully completed. These milestones are not required to be met until December 21, 2020, at the earliest, which gives the Company sufficient time to make any necessary adjustments to its operating plans to achieve the milestones.
Currently, the Company has determined that it is more likely than not to realize the contractual tax rate in Singapore of 0% and has not recognized an uncertain tax position in its balance sheet related to the achievement of the contractual milestones in Singapore. However, these milestones can be significantly influenced by the business climate in Singapore and the Company’s overall financial performance and, in the event that the Company determines that the milestone targets are not expected to be met, the Company would no longer be able to record a tax benefit at a 0% contractual tax rate on income earned in Singapore from and after the April 1, 2016 start date of the contract period. At such time, the Company would record an income tax charge on the affected Singapore income earned back to April 1, 2016 at the Singapore statutory tax rate(s) (currently 17%), with a corresponding income tax liability recorded on the balance sheet. For the year ended 2018, the effect of applying the contractual tax rate rather than the statutory tax rate to income from qualifying activities in Singapore increased the Company’s net income and net income per diluted share by $28 million and $0.36, respectively.
Warranty
Product warranties are recorded at the time revenue is recognized for certain product shipments. While the Company engages in extensive product quality programs and processes, including actively monitoring and evaluating the quality of its component suppliers, the Company’s warranty obligation is affected by product failure rates, material usage and service delivery costs incurred in correcting a product failure. Should actual product failure rates, material usage or service delivery costs differ from the Company’s previous estimates, revisions to the estimated warranty liability would be required. At December 31, 2018, the Company’s warranty liability was $12 million.
Litigation
As described in Part I, Item 3, Legal Proceedings, of thisForm 10-K, the Company is a party to various pending litigation matters. With respect to each pending claim, management determines whether it can reasonably estimate whether a loss is probable and, if so, the probable range of that loss. If and when management has determined, with respect to a particular claim, both that a loss is probable and that it can reasonably estimate the range of that loss, the Company records a charge equal to either its best estimate of that loss or the lowest amount in that probable range of loss. The Company will disclose additional exposures when the range of loss is subject to considerable uncertainty.
Pension and Other Retirement Benefits
Assumptions used in determining projected benefit obligations and the fair values of plan assets for the Company’s pension plans and other retirement benefits are evaluated periodically by management. Changes in assumptions are based on relevant Company data. Critical assumptions, such as the discount rate used to measure the benefit obligations and the expected long-term rate of return on plan assets, are evaluated and updated annually. The Company has assumed that the weighted-average expected long-term rate of return on plan assets will be 4.35% for its U.S. benefit plans and 2.75% for itsnon-U.S. benefit plans.
At the end of each year, the Company determines the discount rate that reflects the current rate at which the pension liabilities could be effectively settled. The Company utilized Milliman’s Bond Matching model to
determine the discount rate for its U.S. benefit plans. The Company determined the discount rate for itsnon-U.S. benefit plans based on the analysis of the Mercer Pension Discount Curve for high quality investments as of December 31, 2018 that best matched the timing of the plan’s future cash flows for the period to maturity of the pension benefits. Once the interest rates were determined, the plan’s cash flow was discounted at the spot interest rate back to the measurement date. At December 31, 2018, the Company determined the weighted-average discount rate to be 4.40% for the U.S. benefit plans and 1.95% for thenon-U.S. benefits plans.
Aone-quarter percentage point increase in the assumed long-term rate of return would decrease the Company’s net periodic benefit cost by less than $1 million. Aone-quarter percentage point increase in the discount rate would decrease the Company’s net periodic benefit cost by less than $1 million.
Stock-based Compensation
The accounting standards for stock-based compensation require that all share-based payments to employees be recognized in the statements of operations based on their fair values. The Company has used the Black-Scholes 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.
As of December 31, 2018, unrecognized compensation costs and related weighted-average lives over which the costs will be amortized were as follows (in millions):
Unrecognized Compensation Costs | Weighted-Average Life in Years | |||||||
Stock options | $ | 42 | 3.5 | |||||
Restricted stock units | 34 | 3.2 | ||||||
Performance stock units | 14 | 2.3 | ||||||
Restricted stock | — | — | ||||||
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Total | $ | 90 | 3.2 | |||||
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Business Combinations and Asset Acquisitions
The Company accounts for business acquisitions under the accounting standards for business combinations. The results of each acquisition are included in the Company’s consolidated results as of the acquisition date and the purchase price of an acquisition is allocated to tangible and intangible assets and assumed liabilities based on their estimated fair values. Any excess of the fair value consideration transferred over the estimated fair values of the net assets acquired is recognized as goodwill. Acquiredin-process research and development (“IPR&D”) included in a business combination is capitalized as an indefinite-lived intangible asset. Development costs incurred after the acquisition are expensed as incurred and acquired IPR&D is tested for impairment annually until completion of the acquired programs. Upon commercialization, this indefinite-lived intangible asset is then accounted for as a finite-lived intangible asset and amortized on a straight-line basis over its estimated useful life,
subject to periodic impairment reviews. If the research and development project is abandoned, the indefinite-lived asset is charged to expense. Legal costs, due diligence costs, business valuation costs and all other business acquisition costs are expensed when incurred.
The Company also acquires intellectual property through licensing arrangements. These arrangements often require upfront payments and may include additional milestone or royalty payments, contingent upon certain future events. IPR&D acquired in an asset acquisition (as opposed to a business combination) is expensed immediately unless there is an alternative future use. Subsequent payments made for the achievement of milestones are evaluated to determine whether they have an alternative future use or should be expensed. Payments made to third parties subsequent to commercialization are capitalized and amortized over the remaining useful life of the related asset, and are classified as intangible assets.
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 $2 million as of December 31, 2018, based on the Company’s best estimate, as the earnout is based on future sales of certain products through 2034.
Recent Accounting Standard Changes and Developments
Information regarding recent accounting standard changes and developments is incorporated by reference from Part II, Item 8, Financial Statements and Supplementary Data, of this document and should be considered an integral part of this Item 7. See Note 2 in the Notes to the Consolidated Financial Statements for recently adopted and issued accounting standards.
Item 7A: Quantitative and Qualitative Disclosures About Market Risk
Derivative Transactions
The Company is a global company that operates in over 35 countries and, as a result, the Company’s net sales, cost of sales, operating expenses and balance sheet amounts are significantly impacted by fluctuations in foreign currency exchange rates. The Company is exposed to currency price risk on foreign currency exchange rate fluctuations when it translates itsnon-U.S. dollar foreign subsidiaries’ financial statements into U.S. dollars, and when any of the Company’s subsidiaries purchase or sell products or services in a currency other than its own currency.
The Company’s principal strategies in managing exposures to changes in foreign currency exchange rates are to (1) naturally hedge the foreign-currency-denominated liabilities on the Company’s balance sheet against corresponding assets of the same currency, such that any changes in liabilities due to fluctuations in foreign currency exchange rates are typically offset by corresponding changes in assets and (2) mitigate foreign exchange risk exposure of international operations by hedging the variability in the movement of foreign currency exchange rates on a portion of its Euro-denominated net asset investments. The Company presents the derivative transactions in financing activities in the statement of cash flows.
Foreign Currency Exchange Contracts
The Company does not specifically enter into any derivatives that hedge foreign-currency-denominated operating assets, liabilities or commitments on its balance sheet, other than a portion of certain third-party accounts receivable and accounts payable, and the Company’s net worldwide intercompany receivables and payables, which are eliminated in consolidation. The Company periodically aggregates these net worldwide balances by currency and then enters into foreign currency exchange contracts that mature within 90 days to hedge a portion of the remaining balance to minimize some of the Company’s currency price risk exposure. The foreign currency exchange contracts are not designated for hedge accounting treatment. Principal hedged currencies include the Euro, Japanese yen, British pound, Mexican peso and Brazilian real.
Interest Rate Cross-Currency Swap Agreements
In 2018, the Company entered into three-year interest rate cross-currency swap derivative agreements with a notional value of $300 million to hedge the variability in the movement of foreign currency exchange rates on a portion of its Euro-denominated net asset investments. Under hedge accounting, the change in fair value of the derivative that relates to changes in the foreign currency spot rate are recorded in the currency translation adjustment in other comprehensive income and remain in accumulated comprehensive income in stockholders’ equity until the sale or substantial liquidation of the foreign operation. The difference between the interest rate received and paid under the interest rate cross-currency swap derivative agreement is recorded in interest income in the statement of operations.
The Company’s foreign currency exchange contracts and interest rate cross-currency swap agreements included in the consolidated balance sheets are classified as follows (in thousands):
December 31, 2018 | December 31, 2017 | |||||||||||||||
Notional Value | Fair Value | Notional Value | Fair Value | |||||||||||||
Foreign currency exchange contracts: | ||||||||||||||||
Other current assets | $ | 112,212 | $ | 503 | $ | 110,759 | $ | 566 | ||||||||
Other current liabilities | $ | 40,175 | $ | 224 | $ | 37,104 | $ | 182 | ||||||||
Interest rate cross-currency swap agreements: | ||||||||||||||||
Other assets | $ | 300,000 | $ | 1,093 | $ | — | $ | — | ||||||||
Accumulated other comprehensive income | $ | (1,093 | ) | $ | — |
The following is a summary of the activity included in the statements of comprehensive income related to the foreign currency exchange contracts (in thousands):
Financial Statement Classification | ||||||||||||||
Year Ended December 31, | ||||||||||||||
2018 | 2017 | 2016 | ||||||||||||
Foreign currency exchange contracts: | ||||||||||||||
Realized (losses) gains on closed contracts | Cost of sales | $ | (6,684 | ) | $ | 3,894 | $ | (10,401 | ) | |||||
Unrealized (losses) gains on open contracts | Cost of sales | (105 | ) | 1,054 | (883 | ) | ||||||||
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Cumulative netpre-tax (losses) gains | Cost of sales | $ | (6,789 | ) | $ | 4,948 | $ | (11,284 | ) | |||||
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Interest rate cross-currency swap agreements: | ||||||||||||||
Interest earned | Interest income | $ | 2,713 | $ | — | $ | — | |||||||
Unrealized gains on open contracts | Stockholders’ equity | $ | 1,093 | $ | — | $ | — |
Assuming a hypothetical adverse change of 10% inyear-end exchange rates (a strengthening of the U.S. dollar), the fair market value of the foreign currency exchange contracts outstanding as of December 31, 2018 would decreasepre-tax earnings by approximately $15 million. Assuming a hypothetical adverse change of 10% inyear-end exchange rates (a strengthening of the U.S. dollar), the fair market value of the interest rate cross-currency swap agreements outstanding as of December 31, 2018 would increase by approximately $30 million and would be recorded to foreign currency translation in other comprehensive income within stockholders’ equity. The related impact on interest income would not have a material effect onpre-tax earnings.
The Company’s cash and cash equivalents are not subject to significant interest rate risk due to the short maturities of these instruments. The Company’s cash equivalents represent highly liquid investments, with original maturities of 90 days or less, primarily in bank deposits, U.S. treasury bill money market funds and commercial paper. As of December 31, 2018, the carrying value of the Company’s cash and cash equivalents approximated fair value.
The Company is exposed to the risk of interest rate fluctuations from the investments of cash generated from operations. Investments with maturities greater than 90 days are classified as investments, and are held primarily in U.S. dollar-denominated treasury bills and commercial paper, bank deposits and corporate debt securities. As of December 31, 2018, the Company estimates that a hypothetical adverse change of 100 basis points across all maturities would not have a material effect on the fair market value of its portfolio.
The Company is also exposed to the risk of exchange rate fluctuations. The Company maintains cash balances in various operating accounts in excess of federally insured limits, and in foreign subsidiary accounts in currencies other than the U.S. dollar. As of December 31, 2018 and 2017, $471 million out of $1,735 million and $3,326 million out of $3,394 million, respectively, of the Company’s total cash, cash equivalents and investments were held by foreign subsidiaries. In addition, $251 million out of $1,735 million and $304 million out of $3,394 million of cash, cash equivalents and investments were held in currencies other than the U.S. dollar at December 31, 2018 and 2017, respectively. As of December 31, 2018, the Company has no holdings in auction rate securities or commercial paper issued by structured investment vehicles.
Assuming a hypothetical adverse change of 10% inyear-end exchange rates (a strengthening of the U.S. dollar), the fair market value of the Company’s cash, cash equivalents and investments held in currencies other than the U.S. dollar as of December 31, 2018 would decrease by approximately $25 million, of which the majority would be recorded to foreign currency translation in other comprehensive income within stockholders’ equity.
Item 8: Financial Statements and Supplementary Data
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined inRules 13a-15(f) and15d-15(f) under the Exchange Act. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework inInternal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our evaluation under the framework inInternal Control — Integrated Framework (2013), our management, including our chief executive officer and chief financial officer, concluded that our internal control over financial reporting was effective as of December 31, 2018.
The effectiveness of our internal control over financial reporting as of December 31, 2018 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included herein.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Waters Corporation
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Waters Corporation and its subsidiaries (the “Company”) as of December 31, 2018 and 2017, and the related consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2018, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, 2018 appearing under Item 15(c) (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control — Integrated Framework (2013) issued by the COSO.
Change in Accounting Principle
As discussed in Note 10 to the consolidated financial statements, the Company changed the manner in which it accounts for share-based payment transactions in 2017.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
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We have served as the Company’s auditor since 1994.
WATERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, | ||||||||
2018 | 2017 | |||||||
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ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 796,280 | $ | 642,319 | ||||
Investments | 938,944 | 2,751,382 | ||||||
Accounts receivable, net | 568,316 | 533,825 | ||||||
Inventories | 291,569 | 270,294 | ||||||
Other current assets | 68,054 | 72,314 | ||||||
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Total current assets | 2,663,163 | 4,270,134 | ||||||
Property, plant and equipment, net | 343,083 | 349,278 | ||||||
Intangible assets, net | 246,902 | 228,395 | ||||||
Goodwill | 355,614 | 359,819 | ||||||
Other assets | 118,664 | 116,728 | ||||||
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Total assets | $ | 3,727,426 | $ | 5,324,354 | ||||
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LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Notes payable and debt | $ | 178 | $ | 100,273 | ||||
Accounts payable | 68,168 | 64,537 | ||||||
Accrued employee compensation | 64,545 | 69,024 | ||||||
Deferred revenue and customer advances | 164,965 | 166,840 | ||||||
Accrued income taxes | 22,943 | 73,008 | ||||||
Accrued warranty | 12,300 | 13,026 | ||||||
Other current liabilities | 115,832 | 119,449 | ||||||
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Total current liabilities | 448,931 | 606,157 | ||||||
Long-term liabilities: | ||||||||
Long-term debt | 1,148,172 | 1,897,501 | ||||||
Long-term portion of retirement benefits | 55,853 | 67,334 | ||||||
Long-term income tax liabilities | 430,866 | 456,949 | ||||||
Other long-term liabilities | 76,346 | 62,625 | ||||||
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Total long-term liabilities | 1,711,237 | 2,484,409 | ||||||
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Total liabilities | 2,160,168 | 3,090,566 | ||||||
Commitments and contingencies (Notes 6, 9, 10, 11, 12 and 16) | ||||||||
Stockholders’ equity: | ||||||||
Preferred stock, par value $0.01 per share, 5,000 shares authorized, none issued at December 31, 2018 and December 31, 2017 | — | — | ||||||
Common stock, par value $0.01 per share, 400,000 shares authorized, 160,472 and 159,845 shares issued, 73,115 and 79,337 shares outstanding at December 31, 2018 and December 31, 2017, respectively | 1,605 | 1,598 | ||||||
Additionalpaid-in capital | 1,834,741 | 1,745,088 | ||||||
Retained earnings | 5,995,205 | 5,405,380 | ||||||
Treasury stock, at cost, 87,357 and 80,509 shares at December 31, 2018 and December 31, 2017, respectively | (6,146,322 | ) | (4,808,211 | ) | ||||
Accumulated other comprehensive loss | (117,971 | ) | (110,067 | ) | ||||
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|
| |||||
Total stockholders’ equity | 1,567,258 | 2,233,788 | ||||||
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| |||||
Total liabilities and stockholders’ equity | $ | 3,727,426 | $ | 5,324,354 | ||||
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The accompanying notes are an integral part of the consolidated financial statements.
WATERS CORPORATION AND SUBSIDIARIES
| ||||||||||||
CONSOLIDATED STATEMENTS OF OPERATIONS
| ||||||||||||
Year Ended December 31, | ||||||||||||
2018 | 2017 | 2016 | ||||||||||
(In thousands, except per share data) | ||||||||||||
Revenues: | ||||||||||||
Product sales | $ | 1,604,993 | $ | 1,552,349 | $ | 1,460,296 | ||||||
Service sales | 814,936 | 756,729 | 707,127 | |||||||||
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| |||||||
Total net sales | 2,419,929 | 2,309,078 | 2,167,423 | |||||||||
Costs and operating expenses: | ||||||||||||
Cost of product sales | 656,275 | 623,214 | 595,796 | |||||||||
Cost of service sales | 336,289 | 323,853 | 295,657 | |||||||||
Selling and administrative expenses | 536,902 | 544,363 | 512,331 | |||||||||
Research and development expenses | 143,403 | 132,593 | 125,187 | |||||||||
Purchased intangibles amortization | 7,712 | 6,743 | 9,889 | |||||||||
Litigation (settlement) provision (Note 11) | (426 | ) | 11,114 | 3,524 | ||||||||
Acquiredin-process research and development (Note 2) | — | 5,000 | — | |||||||||
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| |||||||
Total costs and operating expenses | 1,680,155 | 1,646,880 | 1,542,384 | |||||||||
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| |||||||
Operating income | 739,774 | 662,198 | 625,039 | |||||||||
Other expense | (47,794 | ) | (340 | ) | (700 | ) | ||||||
Interest expense | (48,641 | ) | (56,839 | ) | (44,911 | ) | ||||||
Interest income | 38,807 | 36,078 | 20,686 | |||||||||
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| |||||||
Income before income taxes | 682,146 | 641,097 | 600,114 | |||||||||
Provision for income taxes | 88,352 | 620,786 | 78,611 | |||||||||
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| |||||||
Net income | $ | 593,794 | $ | 20,311 | $ | 521,503 | ||||||
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| |||||||
Net income per basic common share | $ | 7.71 | $ | 0.25 | $ | 6.46 | ||||||
Weighted-average number of basic common shares | 76,992 | 79,793 | 80,786 | |||||||||
Net income per diluted common share | $ | 7.65 | $ | 0.25 | $ | 6.41 | ||||||
Weighted-average number of diluted common shares and equivalents | 77,618 | 80,604 | 81,417 |
The accompanying notes are an integral part of the consolidated financial statements.
WATERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Year Ended December 31, | ||||||||||||
2018 | 2017 | 2016 | ||||||||||
(In thousands) | ||||||||||||
Net income | $ | 593,794 | $ | 20,311 | $ | 521,503 | ||||||
Other comprehensive (loss) income: | ||||||||||||
Foreign currency translation | (36,279 | ) | 101,148 | (66,996 | ) | |||||||
Unrealized gains (losses) on investments before income taxes | 698 | (1,794 | ) | 279 | ||||||||
Income tax benefit | 443 | 68 | 111 | |||||||||
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|
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| |||||||
Unrealized gains (losses) on investments, net of tax | 1,141 | (1,726 | ) | 390 | ||||||||
Retirement liability adjustment before reclassifications | (6,722 | ) | 7,832 | (6,783 | ) | |||||||
Amounts reclassified to other expense | 48,792 | 3,948 | 3,263 | |||||||||
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| |||||||
Retirement liability adjustment before income taxes | 42,070 | 11,780 | (3,520 | ) | ||||||||
Income tax (expense) benefit | (14,836 | ) | (4,989 | ) | 572 | |||||||
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| |||||||
Retirement liability adjustment, net of tax | 27,234 | 6,791 | (2,948 | ) | ||||||||
Other comprehensive (loss) income | (7,904 | ) | 106,213 | (69,554 | ) | |||||||
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| |||||||
Comprehensive income | $ | 585,890 | $ | 126,524 | $ | 451,949 | ||||||
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The accompanying notes are an integral part of the consolidated financial statements.
WATERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, | ||||||||||||
2018 | 2017 | 2016 | ||||||||||
(In thousands) | ||||||||||||
Cash flows from operating activities: | ||||||||||||
Net income | $ | 593,794 | $ | 20,311 | $ | 521,503 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Stock-based compensation | 37,541 | 39,436 | 40,998 | |||||||||
Deferred income taxes | 2,405 | 45,510 | 1,204 | |||||||||
Depreciation | 57,952 | 61,450 | 51,684 | |||||||||
Amortization of intangibles | 50,456 | 44,552 | 44,765 | |||||||||
Excess tax benefit related to stock option plans | — | — | 13,844 | |||||||||
Gain on sale of assets | — | — | (1,500 | ) | ||||||||
In-process research and development and othernon-cash charges | — | 5,000 | — | |||||||||
Change in operating assets and liabilities, net of acquisitions: | ||||||||||||
Increase in accounts receivable | (47,921 | ) | (24,013 | ) | (31,721 | ) | ||||||
(Increase) decrease in inventories | (25,396 | ) | 731 | (20,147 | ) | |||||||
Increase in other current assets | (12,446 | ) | (16,323 | ) | (2,436 | ) | ||||||
Decrease (increase) in other assets | 6,047 | (24,098 | ) | (1,076 | ) | |||||||
(Decrease) increase in accounts payable and other current liabilities | (81,663 | ) | 3,175 | 6,842 | ||||||||
Increase in deferred revenue and customer advances | 2,721 | 10,386 | 9,974 | |||||||||
Enactment of the 2017 Tax Act | (6,059 | ) | 530,383 | — | ||||||||
Increase in other liabilities | (27,015 | ) | 1,140 | 8,986 | ||||||||
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| |||||||
Net cash provided by operating activities | 604,446 | 697,640 | 642,920 | |||||||||
Cash flows from investing activities: | ||||||||||||
Additions to property, plant, equipment and software capitalization | (96,079 | ) | (85,473 | ) | (94,967 | ) | ||||||
Asset and business acquisitions, net of cash acquired | (31,486 | ) | — | (5,609 | ) | |||||||
Investment in unaffiliated company | (7,615 | ) | (7,000 | ) | — | |||||||
Payments for intellectual property licenses | — | (5,000 | ) | — | ||||||||
Purchases of investments | (1,006,080 | ) | (2,960,379 | ) | (2,396,032 | ) | ||||||
Maturities and sales of investments | 2,824,562 | 2,522,100 | 2,004,690 | |||||||||
Proceeds from sale of assets | — | — | 4,000 | |||||||||
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Net cash provided by (used in) investing activities | 1,683,302 | (535,752 | ) | (487,918 | ) | |||||||
Cash flows from financing activities: | ||||||||||||
Proceeds from debt issuances | 274 | 1,480,190 | 485,298 | |||||||||
Payments on debt | (850,435 | ) | (1,310,214 | ) | (325,323 | ) | ||||||
Payments of debt issuance costs | — | (2,984 | ) | (1,705 | ) | |||||||
Proceeds from stock plans | 52,429 | 97,789 | 62,189 | |||||||||
Purchases of treasury shares | (1,315,106 | ) | (332,544 | ) | (325,759 | ) | ||||||
(Payments for) proceeds from derivative contracts | (6,684 | ) | 3,894 | (10,401 | ) | |||||||
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Net cash used in financing activities | (2,119,522 | ) | (63,869 | ) | (115,701 | ) | ||||||
Effect of exchange rate changes on cash and cash equivalents | (14,265 | ) | 38,669 | (21,335 | ) | |||||||
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| |||||||
Increase in cash and cash equivalents | 153,961 | 136,688 | 17,966 | |||||||||
Cash and cash equivalents at beginning of period | 642,319 | 505,631 | 487,665 | |||||||||
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Cash and cash equivalents at end of period | $ | 796,280 | $ | 642,319 | $ | 505,631 | ||||||
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Supplemental cash flow information: | ||||||||||||
Income taxes paid | $ | 159,397 | $ | 70,583 | $ | 50,007 | ||||||
Interest paid | $ | 50,798 | $ | 56,503 | $ | 43,595 |
The accompanying notes are an integral part of the consolidated financial statements.
WATERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
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, 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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Balance December 31, 2016 | 158,634 | $ | 1,586 | $ | 1,607,241 | $ | 5,385,069 | $ | (4,475,667 | ) | $ | (216,280 | ) | $ | 2,301,949 | |||||||||||||
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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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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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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 | |||||||||||||||||||||
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Balance December 31, 2018 | 160,472 | $ | 1,605 | $ | 1,834,741 | $ | 5,995,205 | $ | (6,146,322 | ) | $ | (117,971 | ) | $ | 1,567,258 | |||||||||||||
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The accompanying notes are an integral part of the consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 Description of Business and Organization
Waters Corporation (the “Company,” “we,” “our,” or “us”) is a specialty measurement company that operates with a fundamental underlying purpose to advance the science that enables our customers to enhance human health and well-being. The Company has pioneered analytical workflow solutions involving liquid chromatography, mass spectrometry and thermal analysis innovations serving the life, materials and food sciences for more than 60 years. The Company primarily designs, manufactures, sells and services high performance liquid chromatography (“HPLC”), ultra performance liquid chromatography (“UPLCTM” and together with HPLC, referred to as “LC”) and mass spectrometry (“MS”) technology systems and support products, including chromatography columns, other consumable products and comprehensive post-warranty service plans. These systems are complementary products that are frequently employed together(“LC-MS”) and sold as integrated instrument systems using common software platforms. LC is a standard technique and is utilized in a broad range of industries to detect, identify, monitor and measure the chemical, physical and biological composition of materials, and to purify a full range of compounds. MS technology, principally in conjunction with chromatography, is employed in drug discovery and development, including clinical trial testing, the analysis of proteins in disease processes (known as “proteomics”), nutritional safety analysis and environmental testing.LC-MS instruments combine a liquid phase sample introduction and separation system with mass spectrometric compound identification and quantification. In addition, the Company designs, manufactures, sells and services thermal analysis, rheometry and calorimetry instruments through its TATM product line. These instruments are used in predicting the suitability and stability of fine chemicals, pharmaceuticals, water, polymers, metals and viscous liquids for various industrial, consumer goods and healthcare products, as well as for life science research. The Company is also a developer and supplier of advanced software-based products that interface with the Company’s instruments, as well as other manufacturers’ instruments.
2 Basis of Presentation and Summary of Significant Accounting Policies
Use of Estimates
The preparation of consolidated financial statements in conformity with generally accepted accounting principles (“GAAP”) requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities at the dates of the financial statements. On an ongoing basis, the Company evaluates its estimates, including those related to revenue recognition, product returns and allowances, bad debts, inventory valuation, goodwill and intangible assets, income taxes, warranty and installation provisions, litigation, retirement plan obligations, stock-based compensation, equity investments and contingencies. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual amounts may differ from these estimates under different assumptions or conditions.
Risks and Uncertainties
The Company is subject to risks common to companies in the analytical instrument industry, including, but not limited to, global economic and financial market conditions, fluctuations in foreign currency exchange rates, fluctuations in customer demand, development by its competitors of new technological innovations, costs of developing new technologies, levels of debt and debt service requirements, risk of disruption, dependence on key personnel, protection and litigation of proprietary technology, shifts in taxable income between tax jurisdictions and compliance with regulations of the U.S. Food and Drug Administration and similar foreign regulatory authorities and agencies.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries, which are wholly owned. The Company consolidates entities in which it owns or controls fifty percent or more of the voting shares. All inter-company balances and transactions have been eliminated.
Translation of Foreign Currencies
The functional currency of each of the Company’s foreign operating subsidiaries is the local currency of its country of domicile, except for the Company’s subsidiaries in Hong Kong, Singapore and the Cayman Islands, where the underlying transactional cash flows are denominated in currencies other than the respective local currency of domicile. The functional currency of the Hong Kong, Singapore and Cayman Islands subsidiaries is the U.S. dollar, based on the respective entity’s cash flows.
For most of the Company’s foreign operations, assets and liabilities are translated into U.S. dollars at exchange rates prevailing on the balance sheet date, while revenues and expenses are translated at average exchange rates prevailing during the respective period. Any resulting translation gains or losses are included in accumulated other comprehensive income in the consolidated balance sheets.
The Company’s net sales derived from operations outside the United States were 72%, 71% and 69% in 2018, 2017 and 2016, respectively. Gains and losses from foreign currency transactions are included in net income in the consolidated statements of operations. In 2018, 2017 and 2016, foreign currency transactions resulted in net losses of $3 million, $1 million and $4 million, respectively.
Seasonality of Business
The Company typically experiences an increase in sales in the fourth quarter, as a result of purchasing habits for capital goods of customers that tend to exhaust their spending budgets by calendar year end.
Cash, Cash Equivalents and Investments
Cash equivalents represent highly liquid investments, with original maturities of 90 days or less, primarily in bank deposits, U.S. treasury bill money market funds and commercial paper. Investments with longer maturities are classified as investments, and are held primarily in U.S. treasury bills, U.S. dollar-denominated treasury bills and commercial paper, bank deposits and corporate debt securities.
Investments are classified asavailable-for-sale in accordance with the accounting standards for investments in debt securities. All debt securities are recorded at fair market value and any unrealized holding gains and losses, to the extent deemed temporary, are included in accumulated other comprehensive income in stockholders’ equity, net of the related tax effects. If any adjustment to fair value reflects a decline in the value of the investment, the Company considers all available evidence to evaluate the extent to which the decline is “other than temporary” and, if so, records a loss as a charge to the statement of operations. The Company classifies its investments exclusive of those categorized as cash equivalents.
The Company maintains cash balances in various operating accounts in excess of federally insured limits, and in foreign subsidiary accounts in currencies other than the U.S. dollar. As of December 31, 2018 and 2017, $471 million out of $1,735 million and $3,326 million out of $3,394 million, respectively, of the Company’s total cash, cash equivalents and investments were held by foreign subsidiaries. In addition, $251 million out of $1,735 million and $304 million out of $3,394 million of cash, cash equivalents and investments were held in currencies other than the U.S. dollar at December 31, 2018 and 2017, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Accounts Receivable and Allowance for Doubtful Accounts
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The Company has very limited use of rebates and other cash considerations payable to customers and, as a result, the transaction price determination does not have any material variable consideration. The allowance for doubtful accounts is the best estimate of the amount of probable credit losses in the existing accounts receivable. The allowance is based on a number of factors, including historical experience and the customer’s credit-worthiness. The allowance for doubtful accounts is reviewed on at least a quarterly basis. Past due balances over 90 days and over a specified amount are reviewed individually for collectibility. Account balances are charged against the allowance when the Company determines it is probable that the receivable will not be recovered. The Company does not have anyoff-balance sheet credit exposure related to its customers. Historically, the Company has not experienced significant bad debt losses.
The following is a summary of the activity of the Company’s allowance for doubtful accounts for the years ended December 31, 2018, 2017 and 2016 (in thousands):
Balance at Beginning of Period | Additions | Deduction | Balance at End of Period | |||||||||||||
Allowance for Doubtful Accounts | ||||||||||||||||
December 31, 2018 | $ | 6,109 | $ | 6,333 | $ | (4,779 | ) | $ | 7,663 | |||||||
December 31, 2017 | $ | 5,141 | $ | 3,752 | $ | (2,784 | ) | $ | 6,109 | |||||||
December 31, 2016 | $ | 4,617 | $ | 2,399 | $ | (1,875 | ) | $ | 5,141 |
Concentration of Credit Risk
The Company sells its products and services to a significant number of large and small customers throughout the world, with net sales to the pharmaceutical industry of approximately 56% in each of the years 2018, 2017 and 2016. None of the Company’s individual customers accounted for more than 2% of annual Company sales in 2018, 2017 or 2016. The Company performs continuing credit evaluations of its customers and generally does not require collateral, but in certain circumstances may require letters of credit or deposits. Historically, the Company has not experienced significant bad debt losses.
Inventory
The Company values all of its inventories at the lower of cost or net realizable value on afirst-in,first-out basis (“FIFO”).
Income Taxes
Deferred income taxes are recognized for temporary differences between the financial statement and income tax basis of assets and liabilities using tax rates in effect for the years in which the differences are expected to reverse. A valuation allowance is provided to offset any net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. Appropriate long-term liabilities have also been recorded to recognize uncertain tax positions.
As part of the 2017 Tax Act, there is a provision for the taxation of certainoff-shore earnings referred to as the Global IntangibleLow-Taxed Income (“GILTI”) provision. This new provision taxesoff-shore earnings at a rate of 10.5%, partially offset with foreign tax credits. In connection with this new provision, the Company has adopted an accounting policy to treat this new tax as a current period cost.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Expenditures for maintenance and repairs are charged to expense, while the costs of significant improvements are capitalized. Depreciation is provided using the straight-line method over the following estimated useful lives: buildings — fifteen to thirty years; building improvements — five to ten years; leasehold improvements — the shorter of the economic useful life or life of lease; and production and other equipment — three to ten years. Upon retirement or sale, the cost of the assets disposed of and the related accumulated depreciation are eliminated from the consolidated balance sheets and related gains or losses are reflected in the consolidated statements of operations.
Asset Impairments
The Company reviews its long-lived assets for impairment in accordance with the accounting standards for property, plant and equipment. Whenever events or circumstances indicate that the carrying amount of an asset 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.
Business Combinations and Asset Acquisitions
The Company accounts for business acquisitions under the accounting standards for business combinations. The results of each acquisition are included in the Company’s consolidated results as of the acquisition date and the purchase price of an acquisition is allocated to tangible and intangible assets and assumed liabilities based on their estimated fair values. Any excess of the fair value consideration transferred over the estimated fair values of the net assets acquired is recognized as goodwill. Acquiredin-process research and development (“IPR&D”) included in a business combination is capitalized as an indefinite-lived intangible asset. Development costs incurred after the acquisition are expensed as incurred and acquired IPR&D is tested for impairment annually until completion of the acquired programs. Upon commercialization, this indefinite-lived intangible asset is then accounted for as a finite-lived intangible asset and amortized on a straight-line basis over its estimated useful life, subject to periodic impairment reviews. If the research and development project is abandoned, the indefinite-lived asset is charged to expense. Legal costs, due diligence costs, business valuation costs and all other business acquisition costs are expensed when incurred.
The Company also acquires intellectual property through licensing arrangements. These arrangements often require upfront payments and may include additional milestone or royalty payments, contingent upon certain future events. IPR&D acquired in an asset acquisition (as opposed to a business combination) is expensed immediately unless there is an alternative future use. Subsequent payments made for the achievement of milestones are evaluated to determine whether they have an alternative future use or should be expensed. Payments made to third parties subsequent to commercialization are capitalized and amortized over the remaining useful life of the related asset, and are classified as intangible assets.
Goodwill and Other Intangible Assets
The Company tests for goodwill impairment using a fair-value approach at the reporting unit level annually, or earlier, if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Additionally, the Company performs an annual goodwill impairment assessment for its reporting units as of January 1 each year. The goodwill and other intangible assets accounting standards define a reporting unit as an operating segment, or one level below an operating segment, if discrete financial information is prepared and reviewed by management. For goodwill impairment review purposes, the
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Company has two reporting units: Waters™ and TA™. Goodwill is allocated to the reporting units at the time of acquisition. Under the impairment test, if a reporting unit’s carrying amount exceeds its estimated fair value, goodwill impairment is recognized to the extent that the carrying amount of goodwill exceeds the implied fair value of the goodwill. The fair value of reporting units was estimated using a discounted cash flows technique, which includes certain management assumptions, such as estimated future cash flows, estimated growth rates and discount rates.
The Company’s intangible assets include purchased technology; capitalized software development costs; costs associated with acquiring Company patents, trademarks and intellectual properties, such as licenses; debt issuance costs and acquired IPR&D. Purchased intangibles are recorded at their fair market values as of the acquisition date and amortized over their estimated useful lives, ranging from one to fifteen years. Other intangibles are amortized over a period ranging from one to ten years. Debt issuance costs are amortized over the life of the related debt. Acquired IPR&D is amortized from the date of completion of the acquired program over its estimated useful life. IPR&D and indefinite-lived intangibles are tested annually for impairment.
Software Development Costs
The Company capitalizes internal and external software development costs for products offered for sale in accordance with the accounting standards for the costs of software to be sold, leased, or otherwise marketed. Capitalized costs are amortized to cost of sales over the period of economic benefit, which approximates a straight-line basis over the estimated useful lives of the related software products, generally three to ten years. The Company capitalized $34 million and $35 million of direct expenses that were related to the development of software in 2018 and 2017, respectively. Net capitalized software included in intangible assets totaled $147 million and $153 million at December 31, 2018 and 2017, respectively. See Note 8, “Goodwill and Other Intangibles”.
The Company capitalizes internal software development costs for internal use. Capitalized internal software development costs are amortized over the period of economic benefit, which approximates a straight-line basis over ten years. Net capitalized internal software included in property, plant and equipment totaled $2 million and $3 million at December 31, 2018 and 2017, respectively.
Other Investments
The Company accounts for its investments that represent less than twenty percent ownership, and for which the Company does not have the ability to exercise significant influence, using the accounting standards for investments in equity securities. Investments for which the Company does not have the ability to exercise significant influence, and for which there is not a readily determinable market value, are accounted for under the cost method of accounting. The Company periodically evaluates the carrying value of its investments accounted for under the cost method of accounting and carries them at the lower of cost or estimated net realizable value. For investments in which the Company owns or controls between twenty and forty-nine percent of the voting shares, or over which it has the ability to exercise significant influence over operating and financial policies, the equity method of accounting is used. The Company’s share of net income or losses of equity investments is included in the consolidated statements of operations and was not material in any period presented.
During the year ended December 31, 2018, the Company made $8 million of investments in unaffiliated companies. During the year ended December 31, 2017, the Company made a $7 million investment in a developer of analytical system solutions used to make measurements, predict stability and accelerate product discovery in the routine analytic, process monitoring and quality control release processes for life science and biopharmaceutical markets. During the year ended December 31, 2016, the Company sold an equity investment that was accounted for using the equity method of accounting and was included in other assets in the consolidated balance sheet for $4 million in cash.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Fair Value Measurements
In accordance with the accounting standards for fair value measurements and disclosures, certain of the Company’s assets and liabilities are measured at fair value on a recurring basis as of December 31, 2018 and 2017. Fair values determined by Level 1 inputs utilize observable data, such as quoted prices in active markets. Fair values determined by Level 2 inputs utilize data points other than quoted prices in active markets that are observable either directly or indirectly. Fair values determined by Level 3 inputs utilize unobservable data points for which there is little or no market data, which require the reporting entity to develop its own assumptions.
The following table represents the Company’s assets and liabilities measured at fair value on a recurring basis at December 31, 2018 (in thousands):
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 | — | ||||||||||||
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Total | $ | 1,034,175 | $ | 33,104 | $ | 1,001,071 | $ | — | ||||||||
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Liabilities: | ||||||||||||||||
Contingent consideration | $ | 2,476 | $ | — | $ | — | $ | 2,476 | ||||||||
Foreign currency exchange contracts | 224 | — | 224 | — | ||||||||||||
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Total | $ | 2,700 | $ | — | $ | 224 | $ | 2,476 | ||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table represents the Company’s assets and liabilities measured at fair value on a recurring basis at December 31, 2017 (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) | |||||||||||||
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 | — | ||||||||||||
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Total | $ | 3,429 | $ | — | $ | 182 | $ | 3,247 | ||||||||
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Fair Value of 401(k) Restoration Plan Assets
The 401(k) Restoration Plan is a nonqualified defined contribution plan and the assets were held in registered mutual funds and have been classified as Level 1. The fair values of the assets in the plan are determined through market and observable sources from daily quoted prices on nationally recognized securities exchanges.
Fair Value of Cash Equivalents, Investments, Foreign Currency Exchange Contracts and Interest Rate Cross-Currency Swap Agreements
The fair values of the Company’s cash equivalents, investments and foreign currency exchange contracts are determined through market and observable sources and have been classified as Level 2. These assets and liabilities have been initially valued at the transaction price and subsequently valued, typically utilizing third-party pricing services. The pricing services use many inputs to determine value, including reportable trades, benchmark yields, credit spreads, broker/dealer quotes, current spot rates and other industry and economic events. The Company validates the prices provided by third-party pricing services by reviewing their pricing methods and obtaining market values from other pricing sources.
Fair Value of Contingent Consideration
The fair value of the Company’s liability for contingent consideration relates to earnout payments in connection with the July 2014 acquisition of Medimass Research, Development and Service Kft. and is determined using a probability-weighted discounted cash flow model, which uses significant unobservable inputs, and has been classified as Level 3. 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 the estimated future results and a discount rate that reflects both the likelihood of achieving the estimated future results and the Company’s creditworthiness. A change in any of these unobservable inputs can significantly change the fair value of the contingent consideration. Although there
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
is no contractual limit, the fair value of future contingent consideration payments was estimated to be $2 million and $3 million at December 31, 2018 and 2017, respectively, based on the Company’s best estimate, as the earnout is based on future sales of certain products, some of which are currently in development, through 2034.
Fair Value of Other Financial Instruments
The Company’s accounts receivable, accounts payable and variable interest rate debt are recorded at cost, which approximates fair value due to their short-term nature. The carrying value of the Company’s fixed interest rate debt was $510 million and $610 million at December 31, 2018 and 2017, respectively. The fair value of the Company’s fixed interest rate debt was estimated using discounted cash flow models, based on estimated current rates offered for similar debt under current market conditions for the Company. The fair value of the Company’s fixed interest rate debt was estimated to be $502 million and $608 million at December 31, 2018 and 2017, respectively, using Level 2 inputs.
Derivative Transactions
The Company is a global company that operates in over 35 countries and, as a result, the Company’s net sales, cost of sales, operating expenses and balance sheet amounts are significantly impacted by fluctuations in foreign currency exchange rates. The Company is exposed to currency price risk on foreign currency exchange rate fluctuations when it translates itsnon-U.S. dollar foreign subsidiaries’ financial statements into U.S. dollars, and when any of the Company’s subsidiaries purchase or sell products or services in a currency other than its own currency.
The Company’s principal strategies in managing exposures to changes in foreign currency exchange rates are to (1) naturally hedge the foreign-currency-denominated liabilities on the Company’s balance sheet against corresponding assets of the same currency, such that any changes in liabilities due to fluctuations in foreign currency exchange rates are typically offset by corresponding changes in assets and (2) mitigate foreign exchange risk exposure of international operations by hedging the variability in the movement of foreign currency exchange rates on a portion of its Euro-denominated net asset investments. The Company presents the derivative transactions in financing activities in the statement of cash flows.
Foreign Currency Exchange Contracts
The Company does not specifically enter into any derivatives that hedge foreign-currency-denominated operating assets, liabilities or commitments on its balance sheet, other than a portion of certain third-party accounts receivable and accounts payable, and the Company’s net worldwide intercompany receivables and payables, which are eliminated in consolidation. The Company periodically aggregates its net worldwide balances by currency and then enters into foreign currency exchange contracts that mature within 90 days to hedge a portion of the remaining balance to minimize some of the Company’s currency price risk exposure. The foreign currency exchange contracts are not designated for hedge accounting treatment. Principal hedged currencies include the Euro, Japanese yen, British pound, Mexican peso and Brazilian real.
Interest Rate Cross-Currency Swap Agreements
In 2018, the Company entered into three-year interest rate cross-currency swap derivative agreements with a notional value of $300 million to hedge the variability in the movement of foreign currency exchange rates on a portion of its Euro-denominated net asset investments. Under hedge accounting, the change in fair value of the derivative that relates to changes in the foreign currency spot rate are recorded in the currency translation adjustment in other comprehensive income and remain in accumulated comprehensive income in stockholders’ equity until the sale or substantial liquidation of the foreign operation. The difference between the interest rate received and paid under the interest rate cross-currency swap derivative agreement is recorded in interest income in the statement of operations.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company’s foreign currency exchange contracts and interest rate cross-currency swap agreements included in the consolidated balance sheets are classified as follows (in thousands):
December 31, 2018 | December 31, 2017 | |||||||||||||||
Notional Value | Fair Value | Notional Value | Fair Value | |||||||||||||
Foreign currency exchange contracts: | ||||||||||||||||
Other current assets | $ | 112,212 | $ | 503 | $ | 110,759 | $ | 566 | ||||||||
Other current liabilities | $ | 40,175 | $ | 224 | $ | 37,104 | $ | 182 | ||||||||
Interest rate cross-currency swap agreements: | ||||||||||||||||
Other assets | $ | 300,000 | $ | 1,093 | $ | — | $ | — | ||||||||
Accumulated other comprehensive income | $ | (1,093 | ) | $ | — |
The following is a summary of the activity included in the statements of comprehensive income related to the foreign currency exchange contracts (in thousands):
Financial Statement Classification | ||||||||||||||
Year Ended December 31, | ||||||||||||||
2018 | 2017 | 2016 | ||||||||||||
Foreign currency exchange contracts: | ||||||||||||||
Realized (losses) gains on closed contracts | Cost of sales | $ | (6,684 | ) | $ | 3,894 | $ | (10,401 | ) | |||||
Unrealized (losses) gains on open contracts | Cost of sales | (105 | ) | 1,054 | (883 | ) | ||||||||
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Cumulative netpre-tax (losses) gains | Cost of sales | $ | (6,789 | ) | $ | 4,948 | $ | (11,284 | ) | |||||
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Interest rate cross-currency swap agreements: | ||||||||||||||
Interest earned | Interest income | $ | 2,713 | $ | — | $ | — | |||||||
Unrealized gains on open contracts | Stockholders’ equity | $ | 1,093 | $ | — | $ | — |
Stockholders’ Equity
In January 2019, the Company’s Board of Directors authorized the Company to repurchase up to $4 billion of its outstanding common stock over atwo-year period. This new program replaced the remaining amounts available under the April 2018 authorization of $3 billion. During 2018, 2017 and 2016, the Company repurchased 6.8 million, 1.8 million and 2.3 million shares of the Company’s outstanding common stock at a cost of $1,329 million, $323 million and $318 million, respectively, under the April 2018 authorization and other previously announced programs. In addition, the Company repurchased $10 million, $10 million and $8 million of common stock related to the vesting of restricted stock units during the years ended December 31, 2018, 2017 and 2016, respectively. The Company believes that it has the financial flexibility to fund these share repurchases given current cash levels and debt borrowing capacity, as well as to invest in research, technology and business acquisitions to further grow the Company’s sales and profits.
In December 2018, the Company accrued $23 million as a result of treasury stock purchases that were unsettled as of December 31, 2018. These transactions were settled in January 2019.
Product Warranty Costs
The Company accrues estimated product warranty costs at the time of sale, which are included in cost of sales in the consolidated statements of operations. While the Company engages in extensive product quality programs and processes, including actively monitoring and evaluating the quality of its component suppliers, the Company’s warranty obligation is affected by product failure rates, material usage and service delivery costs
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
incurred in correcting a product failure. The amount of the accrued warranty liability is based on historical information, such as past experience, product failure rates, number of units repaired and estimated costs of material and labor. The liability is reviewed for reasonableness at least quarterly.
The following is a summary of the activity of the Company’s accrued warranty liability for the years ended December 31, 2018, 2017 and 2016 (in thousands):
Balance at Beginning of Period | Accruals for Warranties | Settlements Made | Balance at End of Period | |||||||||||||
Accrued warranty liability: | ||||||||||||||||
December 31, 2018 | $ | 13,026 | $ | 5,033 | $ | (5,759 | ) | $ | 12,300 | |||||||
December 31, 2017 | $ | 13,391 | $ | 8,746 | $ | (9,111 | ) | $ | 13,026 | |||||||
December 31, 2016 | $ | 13,349 | $ | 9,755 | $ | (9,713 | ) | $ | 13,391 |
Advertising Costs
All advertising costs are expensed as incurred and are included in selling and administrative expenses in the consolidated statements of operations. Advertising expenses were $7 million, $6 million and $11 million for 2018, 2017 and 2016, respectively.
Research and Development Expenses
Research and development expenses are comprised of costs incurred in performing research and development activities, including salaries and benefits, facilities costs, overhead costs, contract services and other outside costs. Research and development expenses are expensed as incurred. During 2017, the Company incurred a $5 million charge for acquiredin-process research and development related to the licensing of certain intellectual property relating to mass spectrometry technologies yet to be commercialized and for which there was no future alternative use as of the acquisition date. These licensing arrangements are significantly related to new, biologically-focused applications, as well as other applications, and require the Company to make additional future payments of up to $7 million if certain milestones are achieved, as well as royalties on future net sales.
Stock-Based Compensation
The Company has two stock-based compensation plans, which are described in Note 13, “Stock-Based Compensation”.
Earnings Per Share
In accordance with the earnings per share accounting standards, the Company presents two earnings per share (“EPS”) amounts. Income per basic common share is based on income available to common shareholders and the weighted-average number of common shares outstanding during the periods presented. Income per diluted common share includes additional dilution from potential common stock, such as stock issuable pursuant to the exercise of stock options outstanding.
Retirement Plans
The Company sponsors various retirement plans, which are described in Note 16, “Retirement Plans”.
Comprehensive Income
The Company accounts for comprehensive income in accordance with the accounting standards for comprehensive income, which establish the accounting rules for reporting and displaying comprehensive income.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
These standards require that all components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements.
Subsequent Events
In January 2019, the Company’s Board of Directors authorized the Company to repurchase up to $4 billion of its outstanding common stock over atwo-year period. See discussion under the heading, “Stockholders’ Equity”, above.
In January 2019, the Company made organizational changes to better align our resources with our growth and innovation strategies, resulting in a worldwide workforce reduction, impacting 1% of the Company’s employees. The Company currently estimates that it will incur approximately $15 million of severance and related costs during 2019.
In February 2019, certain defined terms related to the subsidiary guarantors were amended in the Company’s credit agreement and senior unsecured note agreements. In addition, the Company amended the senior unsecured note agreements to allow the Company to elect an increase in the permitted leverage ratio from 3.50:1 to 4.0:1, for a period of three consecutive quarters, for a material acquisition of $400 million or more. During the period of time where the leverage ratio exceeds 3.50:1, the interest payable on the senior unsecured notes shall increase by 0.50%. The debt covenants in the senior unsecured note agreements were also modified to address the change in accounting guidance for leases.
Recently Adopted 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 adopted this standard as of January 1, 2018 and applied the modified-retrospective method. The Company elected the practical expedient and only evaluated the contracts that were considered incomplete as of January 1, 2018 when quantifying the cumulative effect adjustment under the modified retrospective method. The adoption of this standard did not have a material impact on the Company’s financial position, results of operations or cash flows and, as such, did not require any adjustments to information reported in the prior year.
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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
measurement category in the notes to the financial statements. The Company adopted this standard as of January 1, 2018 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 adopted this standard as of January 1, 2018 and the adoption of this standard did not 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. The Company adopted this standard as of January 1, 2018 with a $4 million charge to beginning retained earnings in the consolidated balance sheet. Please see Note 10, “Income Taxes”, for additional information.
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. The Company adopted this standard as of January 1, 2018 and will apply this guidance prospectively to any business combination transactions that take place in the future.
In March 2017, accounting guidance was issued regarding the presentation of net periodic pension cost and net periodic postretirement benefit cost. The new guidance requires that an employer disaggregate the service cost component from other components of net benefit cost, with service cost reported in the same line items as other compensation costs and the other components of net benefit costs presented outside income from operations. The Company adopted this standard as of January 1, 2018 and has reported the components of net periodic benefit cost other than the service cost component in other income on the consolidated statements of operations for all periods presented. Please see Note 16, “Retirement Plans”, for additional information.
In May 2017, accounting guidance was issued that clarifies the accounting for a change to the terms or conditions of a share-based payment award. The standard provides more specific guidance for determining when a change to an award requires modification accounting and when it should be deemed purely administrative in nature. The Company adopted this standard as of January 1, 2018 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 2017, accounting guidance was issued which simplifies the application of hedge accounting and enables companies to better portray the economics of their risk management activities in their financial statements. The Company adopted this standard in the second quarter of 2018, and this adoption did not have a material impact on the Company’s financial position, results of operations and cash flows.
Recently Issued Accounting Standards
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 require lessees to present the assets and liabilities that arise from leases on their balance sheets. This guidance is effective for annual and interim reporting periods beginning after December 15, 2018 and early adoption is permitted. The Company has 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 will have a material effect on the Company’s balance sheet by recording aright-of-use lease asset and lease liability
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
that is estimated to be approximately $97 million; however, it will not have an overall material impact on the Company’s results of operations and cash flows.
In June 2016, accounting guidance was issued that modifies the recognition of credit losses related to financial assets, such as debt securities, trade receivables, net investments in leases,off-balance sheet credit exposures, and other financial assets that have the contractual right to receive cash. Current guidance requires the recognition of a credit loss when it is considered probable that a loss event has occurred. The new guidance requires the measurement of expected credit losses to be based upon relevant information, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the asset. As such, expected credit losses may be recognized sooner under the new guidance due to the broader range of information that will be required to determine credit loss estimates. The new guidance also amends the current other-than-temporary impairment model used for debt securities classified asavailable-for-sale. When the fair value of anavailable-for-sale debt security is below its amortized cost, the new guidance requires the total unrealized loss to be bifurcated into its credit andnon-credit components. Any expected credit losses or subsequent recoveries will be recognized in earnings and any changes not considered credit related will continue to be recognized within other comprehensive income. This guidance is effective for annual and interim periods beginning after December 15, 2019. 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 January 2017, accounting guidance was issued that simplifies the accounting for goodwill impairment. The guidance eliminates step 2 of the goodwill impairment test, which requires a hypothetical purchase price 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.
In March 2017, accounting guidance was issued to amend the amortization period for certain purchased callable debt securities held at a premium. Specifically, the amortization period for certain callable debt securities will be shortened to end at the earliest call date. This guidance is effective for annual and interim periods beginning after December 15, 2018 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 financial position, results of operations and cash flows.
In February 2018, accounting guidance was issued to address the impact of the 2017 Tax Cuts and Jobs Act on items recorded in accumulated other comprehensive income. Current accounting guidance requires deferred tax liabilities and assets to be adjusted for 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 is effective for annual and interim periods beginning after December 15, 2018 and early adoption is permitted. 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 August 2018, accounting guidance was issued that modifies the disclosure requirements of fair value measurements. The amendments remove disclosures that are no longer considered cost beneficial, clarify the specific requirements of disclosure and add disclosure requirement identified as relevant. This guidance is effective for annual and interim periods beginning after December 15, 2019 and early adoption is permitted. 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 August 2018, accounting guidance was issued that modifies the disclosure requirements of retirement benefit plans. The amendments remove disclosures that are no longer considered cost beneficial, clarify the
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
specific requirements of disclosure and add disclosure requirement identified as relevant. This guidance is effective for annual and interim periods beginning after December 15, 2020 and early adoption is permitted. 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.
3 Revenue Recognition
The Company adopted new accounting guidance regarding the recognition of revenue from contracts with customers as of January 1, 2018 and applied the modified-retrospective method. The Company elected the practical expedient and only evaluated the contracts that were considered incomplete as of January 1, 2018 when quantifying the cumulative effect adjustment under the modified retrospective method. Ultimately, the Company determined that there was not a significant change in the timing or pattern of revenue recognition for the Company’s products and services. The adoption of this standard did not have a material impact on the Company’s financial position, results of operations or cash flows and, as such, did not require any adjustments to information reported in the prior year. The revenue recognition policies described below were effective as of January 1, 2018.
The Company recognizes revenue upon transfer of control of promised products and services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. The Company generally enters into contracts that include a combination of products and services. Revenue is allocated to distinct performance obligations and is recognized net of allowances for returns and discounts.
The Company recognizes revenue on product sales at the time control of the product transfers to the customer. In substantially all of the Company’s arrangements, title of the product transfers at shipping point and, as a result, the Company determined control transfers at the point of shipment. In more limited cases, there are destination-based shipping terms and, thus, control is deemed 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.
Generally, the Company’s contracts for products include a performance obligation related to installation. The Company has determined that the installation represents a distinct performance obligation and revenue is recognized separately upon the completion of installation. The Company determines the amount of the transaction price to allocate to the installation service based on the standalone selling price of the product and the service, which requires judgment. The Company determines relative standalone selling price of installation based upon a number of factors, including hourly service billing rates and estimated installation hours. In developing these estimates, the Company considers past history, competition, billing rates of current services and other factors.
The Company has sales from standalone software, which is included in instrument systems revenue. These arrangements typically include software licenses and maintenance contracts, both of which the Company has determined are distinct performance obligations. The Company determines the amount of the transaction price to
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
allocate to the license and maintenance contract based on the relative standalone selling price of each performance obligation. Software license revenue is recognized at the point in time when control has been transferred to the customer. The revenue allocated to the software maintenance contract is recognized on a straight-line basis over the maintenance period, which is the contractual term of the contract, as a time-based measure of progress best reflects the Company’s performance in satisfying this obligation. Unspecified rights to software upgrades are typically sold as part of the maintenance contract on awhen-and-if-available basis.
Payment terms and conditions vary among the Company’s revenue streams, although terms generally include a requirement of payment within 30 to 60 days of product shipment. Prior to providing payment terms to customers, an evaluation of the customer’s credit risk is performed. Returns and customer credits are infrequent and insignificant and are recorded as a reduction to sales. Rights of return are not included in sales arrangements and, therefore, there is minimal variable consideration included in the transaction price of our products.
Service revenue includes (i) service and software maintenance contracts and (ii) service calls (time and materials). Instrument service contracts and software maintenance contracts are typically annual contracts, which are billed at the beginning of the contract or maintenance period. The amount of the service and software maintenance contract is recognized on a straight-line basis to revenue over the maintenance service period, which is the contractual term of the contract, as a time-based measure of progress best reflects the Company’s performance in satisfying this obligation. There are no deferred costs associated with the service contract, as the cost of the service is recorded when the service is performed. Service calls are recognized to revenue at the time a service is performed.
The Company’s deferred revenue liabilities on the consolidated balance sheets consists of the obligation on instrument service contracts and customer payments received in advance, prior to transfer of control of the instrument. The Company records deferred revenue primarily related to its service contracts, where consideration is billable at the beginning of the service period.
The following is a summary of the activity of the Company’s deferred revenue and customer advances for the year ended December 31, 2018, 2017 and 2016 (in thousands):
December 31, | ||||||||||||
2018 | 2017 | 2016 | ||||||||||
Balance at the beginning of the period | $ | 192,589 | $ | 173,780 | $ | 170,201 | ||||||
Recognition of revenue included in balance at beginning of the period | (159,258 | ) | (143,589 | ) | (140,688 | ) | ||||||
Revenue deferred during the period, net of revenue recognized | 170,926 | 162,398 | 144,267 | |||||||||
|
|
|
|
|
| |||||||
Balance at the end of the period | $ | 204,257 | $ | 192,589 | $ | 173,780 | ||||||
|
|
|
|
|
|
As of December 31, 2018 and 2017, $39 million and $26 million of deferred revenue and customer advances were classified in other long-term liabilities, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The amount of deferred revenue and customer advances equals the transaction price allocated to unfulfilled performance obligations for the period presented. Such amounts are expected to be recognized in the future as follows (in thousands):
December 31, 2018 | ||||
Deferred revenue and customer advances expected to be recognized: | ||||
In one year or less | $ | 164,965 | ||
In13-24 months | 22,856 | |||
In 25 months and beyond | 16,436 | |||
|
| |||
Total | $ | 204,257 | ||
|
|
4 Marketable Securities
The Company’s marketable securities within cash equivalents and investments included in the consolidated balance sheets are detailed as follows (in thousands):
December 31, 2018 | ||||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gain | Loss | 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 | ||||||||||||||||
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 | |||||||
|
|
|
|
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The estimated fair value of marketable debt securities by maturity date is as follows (in thousands):
December 31, | ||||||||
2018 | 2017 | |||||||
Due in one year or less | $ | 797,649 | $ | 2,042,673 | ||||
Due after one year through three years | 201,826 | 902,938 | ||||||
|
|
|
| |||||
Total | $ | 999,475 | $ | 2,945,611 | ||||
|
|
|
|
In 2018, net realized losses on sales of investments were $1 million. Realized gains and losses on sales of investments were not material in 2017 and 2016.
5 Inventories
Inventories are classified as follows (in thousands):
December 31, | ||||||||
2018 | 2017 | |||||||
Raw materials | $ | 111,641 | $ | 99,033 | ||||
Work in progress | 15,552 | 15,324 | ||||||
Finished goods | 164,376 | 155,937 | ||||||
|
|
|
| |||||
Total inventories | $ | 291,569 | $ | 270,294 | ||||
|
|
|
|
During 2018, 2017 and 2016, the Company recorded inventory-related excess and obsolescence provisions of $8 million, $2 million and $9 million, respectively.
6 Property, Plant and Equipment
Property, plant and equipment consist of the following (in thousands):
December 31, | ||||||||
2018 | 2017 | |||||||
Land and land improvements | $ | 36,554 | $ | 37,525 | ||||
Buildings and leasehold improvements | 299,103 | 294,219 | ||||||
Production and other equipment | 494,302 | 484,475 | ||||||
Construction in progress | 41,909 | 22,140 | ||||||
|
|
|
| |||||
Total property, plant and equipment | 871,868 | 838,359 | ||||||
Less: accumulated depreciation and amortization | (528,785 | ) | (489,081 | ) | ||||
|
|
|
| |||||
Property, plant and equipment, net | $ | 343,083 | $ | 349,278 | ||||
|
|
|
|
In February 2018, the Company’s Board of Directors approved expanding its precision chemistry consumable manufacturing operations in the U.S. The Company anticipates spending an estimated $215 million to build and equip this newstate-of-the-art manufacturing facility, and has spent $11 million on this facility through December 31, 2018.
During 2018, 2017 and 2016, the Company retired and disposed of approximately $9 million, $15 million and $15 million of property, plant and equipment, respectively, most of which was fully depreciated and no longer in use. Gains on disposal were immaterial for the years ended December 31, 2018 and 2017.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
7 Acquisitions
In July 2018, the Company acquired the sole 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 patent. DESI is a mass spectrometry imaging technique that is used to develop medical therapies. The Company 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 which will be amortized over the useful life of 12 years.
In 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 each acquisition, the sellers provided the Company with customary representations, warranties and indemnification, which would be settled in the future if and when a breach of the contractual representation or warranty condition occurs. The pro forma effect of the ongoing operations for Waters Corporation, the DESI imaging technology and Rubotherm, either individually or in the aggregate, as though these acquisitions had occurred at the beginning of the periods covered by this report was immaterial.
8 Goodwill and Other Intangibles
The carrying amount of goodwill was $356 million and $360 million at December 31, 2018 and 2017, respectively. During the year ended December 31, 2018, the effect of foreign currency translation decreased goodwill by $4 million.
The Company’s intangible assets included in the consolidated balance sheets are detailed as follows (dollars in thousands):
December 31, 2018 | December 31, 2017 | |||||||||||||||||||||||
Gross Carrying Amount | Accumulated Amortization | Weighted- Average Amortization Period | Gross Carrying Amount | Accumulated Amortization | Weighted- Average Amortization Period | |||||||||||||||||||
Capitalized software | $ | 454,307 | $ | 307,634 | 5 years | $ | 438,652 | $ | 285,461 | 5 years | ||||||||||||||
Purchased intangibles | 201,566 | 144,184 | 11 years | 169,870 | 138,750 | 11 years | ||||||||||||||||||
Trademarks and IPR&D | 13,677 | — | — | 13,923 | — | — | ||||||||||||||||||
Licenses | 5,568 | 4,875 | 6 years | 5,840 | 4,628 | 6 years | ||||||||||||||||||
Patents and other intangibles | 77,753 | 49,276 | 8 years | 72,815 | 43,866 | 8 years | ||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||
Total | $ | 752,871 | $ | 505,969 | 7 years | $ | 701,100 | $ | 472,705 | 7 years | ||||||||||||||
|
|
|
|
|
|
|
|
The gross carrying value of intangible assets and accumulated amortization for intangible assets decreased by $23 million and $17 million, respectively, in the year ended December 31, 2018 due to the effects of foreign currency translation. Amortization expense for intangible assets was $50 million, $45 million and $45 million for the years ended December 31, 2018, 2017 and 2016, respectively. Amortization expense for intangible assets is estimated to be $51 million per year for each of the next five years.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
9 Debt
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 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, 2018 and 2017, the Company had a total of $560 million and $700 million of outstanding senior unsecured notes, respectively.
In
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
$3 million during 2019 and 2018, respectively. The Company hadanticipates that these swap agreements will lower net interest expense by approximately $15 million annually in 2020, $11 million in 2021 and $1 million in 2022 as the followingthree-year term of the agreements expire.
December 31, | ||||||||
2018 | 2017 | |||||||
Foreign subsidiary lines of credit | $ | 178 | $ | 273 | ||||
Senior unsecured notes - Series D - 3.22%, due March 2018 | — | 100,000 | ||||||
|
|
|
| |||||
Total notes payable and debt, current | 178 | 100,273 | ||||||
|
|
|
| |||||
Senior unsecured notes - Series B - 5.00%, due February 2020 | 100,000 | 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 | ||||||
Senior unsecured notes - Series K - 3.44%, due May 2026 | 160,000 | 160,000 | ||||||
Credit agreement | 590,000 | 1,300,000 | ||||||
Unamortized debt issuance costs | (1,828 | ) | (2,499 | ) | ||||
|
|
|
| |||||
Total long-term debt | 1,148,172 | 1,897,501 | ||||||
|
|
|
| |||||
Total debt | $ | 1,148,350 | $ | 1,997,774 | ||||
|
|
|
| |||||
* Series H senior unsecured notes bear interest at a3-month LIBOR for that floating rate interest period plus 1.25%. |
| |||||||
** Series J senior unsecured notes bore interest at a3-month LIBOR for that floating rate interest period plus 1.45%. |
|
As of December 31,common stock over a
The Company and its foreign subsidiaries also had available short-term lines of credit totaling $90 million and $91 million at December 31, 2018 and 2017, respectively, for the purpose of short-term borrowing and issuance of commercial guarantees. The weighted-average interest rates applicable to these short-term borrowings were 1.88% and 1.48% for December 31, 2018 and 2017, respectively.
Annual maturities of debt outstanding at December 31, 2018 are as follows (in thousands):
Total | ||||
2019 | $ | 178 | ||
2020 | 100,000 | |||
2021 | 150,000 | |||
2022 | 590,000 | |||
2023 | 50,000 | |||
Thereafter | 260,000 | |||
|
| |||
Total | $ | 1,150,178 | ||
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
10 Income Taxes
Income tax data for the years ended December 31, 2018, 2017 and 2016 is as follows (in thousands):
Year Ended December 31, | ||||||||||||
2018 | 2017 | 2016 | ||||||||||
The components of income from operations before income taxes are as follows: | ||||||||||||
Domestic | $ | 57,822 | $ | 55,751 | $ | 35,154 | ||||||
Foreign | 624,324 | 585,346 | 564,960 | |||||||||
|
|
|
|
|
| |||||||
Total | $ | 682,146 | $ | 641,097 | $ | 600,114 | ||||||
|
|
|
|
|
|
Year Ended December 31, | ||||||||||||
2018 | 2017 | 2016 | ||||||||||
The current and deferred components of the provision for income taxes on operations are as follows: | ||||||||||||
Current | $ | 85,947 | $ | 575,276 | $ | 77,407 | ||||||
Deferred | 2,405 | 45,510 | 1,204 | |||||||||
|
|
|
|
|
| |||||||
Total | $ | 88,352 | $ | 620,786 | $ | 78,611 | ||||||
|
|
|
|
|
| |||||||
The jurisdictional components of the provision for income taxes on operations are as follows: | ||||||||||||
Federal | $ | 24,021 | $ | 535,777 | $ | 19,693 | ||||||
State | (9,717 | ) | 26,561 | 3,090 | ||||||||
Foreign | 74,048 | 58,448 | 55,828 | |||||||||
|
|
|
|
|
| |||||||
Total | $ | 88,352 | $ | 620,786 | $ | 78,611 | ||||||
|
|
|
|
|
|
The differences between income taxes computed at the United States statutory rate and the provision for income taxes are summarized as follows for the years ended December 31, 2018, 2017 and 2016 (in thousands):
Year Ended December 31, | ||||||||||||
2018 | 2017 | 2016 | ||||||||||
Federal tax computed at U.S. statutory income tax rate | $ | 143,251 | $ | 224,384 | $ | 210,040 | ||||||
Enactment of the 2017 Tax Act | (6,059 | ) | 550,000 | — | ||||||||
Foreign currency exchange impact on distributed earnings | 7,495 | — | — | |||||||||
GILTI, net of foreign tax credits | 13,727 | — | — | |||||||||
Settlement of tax audits | — | 706 | 345 | |||||||||
State income tax, net of federal income tax benefit | 2,910 | 1,289 | 2,008 | |||||||||
Net effect of foreign operations | (66,092 | ) | (134,117 | ) | (133,518 | ) | ||||||
Effect of stock-based compensation | (9,089 | ) | (19,566 | ) | — | |||||||
Other, net | 2,209 | (1,910 | ) | (264 | ) | |||||||
|
|
|
|
|
| |||||||
Provision for income taxes | $ | 88,352 | $ | 620,786 | $ | 78,611 | ||||||
|
|
|
|
|
|
The four principal jurisdictions in which the Company manufactures are the U.S., Ireland, the U.K. and Singapore, where the statutory tax rates were 21%, 12.5%, 19% and 17%, respectively, as of December 31, 2018. The Company has a contractual tax rate in Singapore of 0% on qualifying activities in Singapore through March 2021, based upon the achievement of certain contractual milestones, which the Company expects to continue to meet. The effect of applying the contractual tax rate rather than the statutory tax rate to income from qualifying activities in Singapore increased the Company’s net incomerestricted stock units during the years ended December 31, 2019, 2018 2017
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
and 2016 by $282017, respectively.
In December 2017, the U.S. enacted legislation informally referred to as the Tax Cuts and Jobs Act (the “2017 Tax Act”). For the year ended December 31, 2017 the Company accrued a $550 million tax provision related to the 2017 Tax Act.2019. The $550 million expense consisted of $490 million related to the federal transition tax, $40 million for state income taxes and foreign withholding taxes and $20 million for the revaluationmajority of the Company’s deferred tax assetscash and liabilitiescash equivalents are generated from foreign operations, with $249 million held by foreign subsidiaries at December 31, 2019, of which $176 million was held in currencies other than U.S. dollars. The Company believes it has sufficient levels of cash flow and access to its existing cash and cash equivalents, as well as the new federal tax rate of 21%. This provision reduced net income per diluted share by $6.82 in 2017,ability to raise funds from external sources and the borrowing capacity from existing, committed credit facilities, to fund operations and capital expenditures, service debt interest, finance potential acquisitions and continue the authorized stock repurchase program in the U.S. These cash requirements are managed by the Company’s effective tax rate was 11.0% excluding this $550 million provision.
During 2018,cash flow from operations, its existing cash and cash equivalents and the Internal Revenue Service issued proposed regulations on the federal transition tax and various other aspectsuse of the Tax Reform law. The Company finalized its analysisCompany’s revolving credit facility.
The provision for income taxes for 2018 includes a $7 million expense related to the 2017 Tax Act. This additional tax results from the change in foreign currency exchange rates on the earnings taxed on December 31, 2017 under 2017 Tax Act as compared with the foreign currency exchange rates on the date of distributionthis report, that the Company’s financial position, along with expected future cash flows from earnings based on historical trends and the ability to raise funds from external sources and the borrowing capacity from existing, committed credit facilities, will be sufficient to service debt and fund working capital and capital spending requirements, authorized share repurchase amounts and potential acquisitions for at least the next twelve months. Prior to the enactment of assets into the U.S. We do not expect this expense to recur in future periods.
The2017 Act, the Company had an indefinite reinvestment assertion on a significant portion of its undistributed earnings from foreign subsidiaries. At the end of 2018, effective income tax rate of 13.0% was impacted by the reduction in the U.S. federal income tax rate from 35% to 21%and as a result of the 2017 Tax Act, which decreased the Company’s effective tax rate by 2.0 percentage points as compared to 2017. The 2017 Tax act also added a new Global IntangibleLow-Taxed Income (GILTI) tax, which increased the Company’s 2018 effective tax rate by approximately 2.0 percentage points.
After the completion of the Company’s review of its capital allocation strategy in the fourth quarter of 2018, the Company determined that it will provide income taxes on all future foreign earnings from 2018 forward. As a result, this change added 0.6 percentage points to the 2018 effective tax rate as compared to 2017.
In addition, the reduction in the U.S. federal income tax rate from 35% to 21% as a resultenactment of the 2017 Tax Act, also reduced the 2018 tax benefit on stock compensation. The Company recorded a tax benefit on stock-based compensation in 2018we reevaluated our historic assertion and 2017 that decreased income tax expense by $9 million and $20 million, respectively, and added $0.11 and $0.24 to net income per diluted share, respectively.
The difference between the 2017 and 2016 effective tax rates can be attributed primarily to the 2016 provision for income taxes including a $3 million tax benefit (0.7 percentage points) related to the release of a valuation allowance on certain net operating loss carryforwards.
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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The tax effects of temporary differences and carryforwards which give rise to deferred tax assets and deferred tax liabilities are summarized as follows (in thousands):
December 31, | ||||||||
2018 | 2017 | |||||||
Deferred tax assets: | ||||||||
Net operating losses and credits | $ | 63,052 | $ | 75,630 | ||||
Depreciation | 7,495 | 5,952 | ||||||
Amortization | 3,633 | — | ||||||
Stock-based compensation | 9,984 | 9,815 | ||||||
Deferred compensation | 27,939 | 21,434 | ||||||
Revaluation of equity investments and licenses | 3,148 | 3,465 | ||||||
Inventory | 4,588 | 4,864 | ||||||
Accrued liabilities and reserves | 7,213 | 8,230 | ||||||
Other | 8,727 | 11,873 | ||||||
|
|
|
| |||||
Total deferred tax assets | 135,779 | 141,263 | ||||||
Valuation allowance | (53,893 | ) | (62,098 | ) | ||||
|
|
|
| |||||
Deferred tax assets, net of valuation allowance | 81,886 | 79,165 | ||||||
Deferred tax liabilities: | ||||||||
Capitalized software | (19,491 | ) | (19,630 | ) | ||||
Amortization | — | (3,394 | ) | |||||
Indefinite-lived intangibles | (13,753 | ) | (13,254 | ) | ||||
Deferred tax liability on foreign earnings | (20,443 | ) | (21,000 | ) | ||||
|
|
|
| |||||
Total deferred tax liabilities | (53,687 | ) | (57,278 | ) | ||||
|
|
|
| |||||
Net deferred tax assets | $ | 28,199 | $ | 21,887 | ||||
|
|
|
|
The Company has gross foreign net operating losses of $240 million that do not expire under current laws. As of December 31, 2018, the Company has provided a deferred tax valuation allowance of $54 million, of which $51 million relates to certain foreign net operating losses. The Company’s net deferred tax assets associated with net operating losses and tax credit carryforwards are approximately $12 million as of December 31, 2018, 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 new accounting guidance related to stock-based compensation in 2017, the Company no longer records excess tax benefits relatedconsidered these earnings to stock-based compensationbe indefinitely reinvested in equity. The income tax benefits associated with equity compensation expense recognized for tax purposesour foreign subsidiaries.
The Company accounts for its uncertain tax positions in accordance with the accounting standards for income taxes, which require financial statement reporting of the expected future tax consequences of uncertain tax positions on the presumption that all concerned tax authorities possess full knowledge of those tax positions, as well as all of the pertinent facts and circumstances, but prohibit any discounting of unrecognized tax benefits associated with those positions for the time value of money. The Company continues to classify interest and penalties related to unrecognized tax benefits as a component of the provision for income taxes.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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, 2019, the Company was in compliance with all such covenants. |
2018 | 2017 | 2016 | ||||||||||
Balance at the beginning of the period | $ | 5,843 | $ | 9,964 | $ | 14,450 | ||||||
Net reductions for settlement of tax audits | — | (22 | ) | (828 | ) | |||||||
Net reductions for lapse of statutes taken during the period | (436 | ) | (5,178 | ) | (4,998 | ) | ||||||
Net additions for tax positions taken during the prior period | 17,651 | — | — | |||||||||
Net additions for tax positions taken during the current period | 3,050 | 1,079 | 1,340 | |||||||||
|
|
|
|
|
| |||||||
Balance at the end of the period | $ | 26,108 | $ | 5,843 | $ | 9,964 | ||||||
|
|
|
|
|
|
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, 2013. However, carryforward tax attributes that were generated in years beginning on or before January 1, 2014 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.
Asknown commercial commitments as of December 31, 2018, 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.
In addition, upon completion of the Company’s review of its capital allocation strategy in the fourth quarter of 2018, the Company has determined that it will provide income taxes on all future foreign earnings. However, the Company will continue to be permanently reinvested in relation to the cumulative historical outside basis difference that is not related to earnings. The determination of the unrecognized deferred tax liability on cumulative historical outside basis differences that are not related to earnings is not practicable.
The Company adopted new accounting guidance which 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. The Company adopted this standard as of January 1, 2018 with a $4 million charge to beginning retained earnings in the consolidated balance sheet.
11 Litigation
2019 (in thousands):
Amount of Commitments Expiration Per Period | ||||||||||||||||||||||||||||||||
Total | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | After 2025 | |||||||||||||||||||||||||
Letters of credit | $ | 1,797 | $ | 1,797 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — |
12 Other Commitments and Contingencies
Lease agreements, expiring at various dates through 2031, cover buildings, office equipment and automobiles. Rental expense was $28 million, $27 million and $28 million for the years ended December 31, 2018, 2017 and
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
2016, respectively. Future minimum rents payablecontingent consideration as of December 31, 2018 undernon-cancelable leases with initial terms exceeding one year are as follows (in thousands):
2019 | $ | 28,417 | ||
2020 | 23,424 | |||
2021 | 16,032 | |||
2022 | 11,816 | |||
2023 and thereafter | 23,269 | |||
|
| |||
Total | $ | 102,958 | ||
|
|
2019 is $3 million.
It is not possible to predict with reasonable certainty whether these milestones will be achieved or the timing for achievement. As a result, these potential payments are not included in the table above.
13
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 | |||||
Item 7A: | Quantitative and Qualitative Disclosures About Market Risk |
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 | ) |
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 | $ | — |
Item | 8: Financial Statements and Supplementary Data |
/s/ PricewaterhouseCoopers LLP |
Boston, Massachusetts |
February 25, 2020 |
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, | ||||||||||||
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, | ||||||||||||
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, | ||||||||||||
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 ( 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 | ) | ||||||||||||
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 |
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, 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 | ||||||||
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 | ) |
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 | $ | — |
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 |
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, 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, 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, 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 | ||||
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 | ||||
December 31, | ||||||||
2019 | 2018 | |||||||
Land and land improvements | $ | 37,040 | $ | 36,554 | ||||
Buildings and leasehold improvements | 355,425 | 299,103 | ||||||
Production and other equipment | 537,211 | 494,302 | ||||||
Construction in progress | 57,985 | 41,909 | ||||||
Total property, plant and equipment | 987,661 | 871,868 | ||||||
Less: accumulated depreciation and amortization | (570,319 | ) | (528,785 | ) | ||||
Property, plant and equipment, net | $ | 417,342 | $ | 343,083 | ||||
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 | ||||||||||||||
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 |
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%. |
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, | ||||||||||||
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 | ||||||
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 | ||||||
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 | ||||
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 | ||||||
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. |
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 | ||||
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 | ||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
three months beginning on January 1, April 1, July 1 and October 1 of each year.
2018 | 2017 | 2016 | ||||||||||
Cost of sales | $ | 2,212 | $ | 3,032 | $ | 2,738 | ||||||
Selling and administrative expenses | 30,443 | 33,335 | 34,451 | |||||||||
Research and development expenses | 4,886 | 3,069 | 3,809 | |||||||||
|
|
|
|
|
| |||||||
Total stock-based compensation | $ | 37,541 | $ | 39,436 | $ | 40,998 | ||||||
|
|
|
|
|
|
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 | ||||||
Options Issued and Significant Assumptions Used to Estimate Option Fair Values | 2018 | 2017 | 2016 | |||||||||
Options issued in thousands | 321 | 389 | 324 | |||||||||
Risk-free interest rate | 2.7 | % | 2.2 | % | 1.9 | % | ||||||
Expected life in years | 6 | 6 | 6 | |||||||||
Expected volatility | 25.3 | % | 22.7 | % | 24.7 | % | ||||||
Expected dividends | — | — | — |
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 | — | — | — |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Weighted-Average Exercise Price and Fair Value of Options on the Date of Grant | 2018 | 2017 | 2016 | |||||||||
Exercise price | $ | 196.78 | $ | 170.24 | $ | 135.02 | ||||||
Fair value | $ | 59.89 | $ | 45.73 | $ | 37.44 |
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 per Share | ||||||||||||||||||
Outstanding at December 31, 2017 | 2,039 | $ | 38.09 | to | $ | 194.26 | $ | 124.41 | ||||||||||||
Granted | 321 | $ | 188.26 | to | $ | 208.47 | $ | 196.78 | ||||||||||||
Exercised | (433 | ) | $ | 38.09 | to | $ | 154.33 | $ | 102.92 | |||||||||||
Canceled | (137 | ) | $ | 98.21 | to | $ | 154.33 | $ | 125.93 | |||||||||||
|
| |||||||||||||||||||
Outstanding at December 31, 2018 | 1,790 | $ | 38.09 | to | $ | 208.47 | $ | 142.47 | ||||||||||||
|
|
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 $123.55 | 575 | $ | 103.24 | 5.1 | 450 | $ | 99.53 | |||||||||||||
$123.56 to $141.74 | 597 | $ | 133.21 | 7.4 | 290 | $ | 132.29 | |||||||||||||
$141.75 to $208.47 | 618 | $ | 187.92 | 9.0 | 54 | $ | 182.46 | |||||||||||||
|
|
|
| |||||||||||||||||
Total | 1,790 | $ | 142.47 | 7.2 | 794 | $ | 117.08 | |||||||||||||
|
|
|
|
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 | |||||||||||||
2019.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Shares | Weighted-Average Fair Value per Share | |||||||
Unvested at December 31, 2017 | 374 | $ | 124.81 | |||||
Granted | 91 | $ | 207.85 | |||||
Vested | (139 | ) | $ | 115.75 | ||||
Forfeited | (22 | ) | $ | 131.72 | ||||
|
| |||||||
Unvested at December 31, 2018 | 304 | $ | 153.31 | |||||
|
|
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 | |||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
other during the performance period. The relevant data used to determine the value of the performance stock units granted during the year ended December 31, 2019, 2018 2017 and 20162017 are as follows:
Performance Stock Units Issued and Significant Assumptions Used to Estimate Fair Values | 2018 | 2017 | 2016 | |||||||||
Performance stock units issued in thousands | 40 | 40 | 27 | |||||||||
Risk-free interest rate | 2.4 | % | 1.6 | % | 1.4 | % | ||||||
Expected life in years | 3.0 | 3.0 | 3.0 | |||||||||
Expected volatility | 22.0 | % | 20.9 | % | 23.3 | % | ||||||
Average volatility of peer companies | 25.9 | % | 25.6 | % | 26.1 | % | ||||||
Correlation Coefficient | 35.9 | % | 37.8 | % | 38.6 | % | ||||||
Expected dividends | — | — | — |
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 per Share | |||||||
Unvested at December 31, 2017 | 64 | $ | 196.29 | |||||
Granted | 40 | $ | 235.63 | |||||
Forfeited | (4 | ) | $ | 188.45 | ||||
|
| |||||||
Unvested at December 31, 2018 | 100 | $ | 212.34 | |||||
|
|
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 | |||||
14
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 | |||||||
|
|
|
|
|
|
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 | ) | ||||||||
|
|
|
|
|
| |||||||
Net income per diluted common share | $ | 521,503 | 81,417 | $ | 6.41 | |||||||
|
|
|
|
|
|
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 | |||||||
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 | ) | ||||
|
|
|
|
|
|
|
|
16
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)
The Company also sponsors other employee benefit plans in the U.S., including a retiree healthcare plan, which provides reimbursement for medical expenses and is contributory. There are various employee benefit plans outside the United States (both defined benefit and defined contribution plans). Certain
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 | |||||||||||||||||||
Projected benefit obligation, January 1 | $ | 168,064 | $ | 17,121 | $ | 96,378 | $ | 159,416 | $ | 14,921 | $ | 85,311 | ||||||||||||
Service cost | 568 | 566 | 5,368 | 450 | 546 | 5,082 | ||||||||||||||||||
Employee contributions | — | 1,159 | 622 | — | 1,041 | 605 | ||||||||||||||||||
Interest cost | 6,491 | 636 | 1,707 | 6,829 | 618 | 1,518 | ||||||||||||||||||
Actuarial losses (gains) | 6,415 | (621 | ) | (2,274 | ) | 8,658 | 942 | (2,590 | ) | |||||||||||||||
Benefits paid | (3,416 | ) | (1,007 | ) | (3,277 | ) | (5,058 | ) | (947 | ) | (2,078 | ) | ||||||||||||
Plan amendments | — | (130 | ) | (44 | ) | — | — | 636 | ||||||||||||||||
Plan settlements | (177,150 | ) | — | (2,791 | ) | (2,231 | ) | — | (1,229 | ) | ||||||||||||||
Other plans | — | — | 1,063 | — | — | 196 | ||||||||||||||||||
Currency impact | — | — | (3,030 | ) | — | — | 8,927 | |||||||||||||||||
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Projected benefit obligation, December 31 | $ | 972 | $ | 17,724 | $ | 93,722 | $ | 168,064 | $ | 17,121 | $ | 96,378 | ||||||||||||
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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 | ||||||||||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 | |||||||||||||||||||
Accumulated benefit obligation | $ | 972 | * | * | $ | 82,026 | $ | 168,064 | * | * | $ | 82,615 |
** Not applicable.
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. |
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 | |||||||||||||||||||
Fair value of plan assets, January 1 | $ | 171,373 | $ | 11,125 | $ | 74,990 | $ | 144,665 | $ | 9,142 | $ | 65,548 | ||||||||||||
Actual return on plan assets | 2,555 | (584 | ) | 1,070 | 27,729 | 1,542 | 390 | |||||||||||||||||
Company contributions | 6,625 | 387 | 10,778 | 6,162 | 347 | 4,733 | ||||||||||||||||||
Employee contributions | — | 1,159 | 622 | — | 1,041 | 605 | ||||||||||||||||||
Plan settlements | (177,137 | ) | — | — | (2,125 | ) | — | (915 | ) | |||||||||||||||
Benefits paid | (3,416 | ) | (1,007 | ) | (3,277 | ) | (5,058 | ) | (947 | ) | (2,078 | ) | ||||||||||||
Other plans | — | — | — | — | — | (213 | ) | |||||||||||||||||
Currency impact | — | — | (2,596 | ) | — | — | 6,920 | |||||||||||||||||
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Fair value of plan assets, December 31 | $ | — | $ | 11,080 | $ | 81,587 | $ | 171,373 | $ | 11,125 | $ | 74,990 | ||||||||||||
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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 | ||||||||||||
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 | |||||||||||||||||||
Projected benefit obligation | $ | (972 | ) | $ | (17,724 | ) | $ | (93,722 | ) | $ | (168,064 | ) | $ | (17,121 | ) | $ | (96,378 | ) | ||||||
Fair value of plan assets | — | 11,080 | 81,587 | 171,373 | 11,125 | 74,990 | ||||||||||||||||||
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Funded status | $ | (972 | ) | $ | (6,644 | ) | $ | (12,135 | ) | $ | 3,309 | $ | (5,996 | ) | $ | (21,388 | ) | |||||||
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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 | ) | |||||||
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 | |||||||||||||||||||
Long-term assets | $ | — | $ | — | $ | 3,284 | $ | 4,562 | $ | — | $ | 1,245 | ||||||||||||
Current liabilities | (972 | ) | (387 | ) | (1 | ) | (76 | ) | (347 | ) | — | |||||||||||||
Long-term liabilities | — | (6,257 | ) | (15,418 | ) | (1,177 | ) | (5,649 | ) | (22,633 | ) | |||||||||||||
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Net amount recognized at December 31 | $ | (972 | ) | $ | (6,644 | ) | $ | (12,135 | ) | $ | 3,309 | $ | (5,996 | ) | $ | (21,388 | ) | |||||||
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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)
2018 | 2017 | |||||||
Projected benefit obligation | $ | 60,359 | $ | 81,498 | ||||
Accumulated benefit obligations | $ | 56,029 | $ | 71,967 | ||||
Fair value of plan assets | $ | 44,940 | $ | 58,865 |
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 |
2018 | 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 | U.S. Pension Plans | U.S. Retiree Healthcare Plan | Non-U.S. Pension Plans | ||||||||||||||||||||||||||||
Service cost | $ | 568 | $ | 566 | $ | 5,368 | $ | 450 | $ | 546 | $ | 5,082 | $ | 377 | $ | 473 | $ | 4,954 | ||||||||||||||||||
Interest cost | 6,491 | 636 | 1,707 | 6,829 | 618 | 1,518 | 6,931 | 557 | 1,699 | |||||||||||||||||||||||||||
Expected return on plan assets | (6,833 | ) | (706 | ) | (1,974 | ) | (10,298 | ) | (587 | ) | (1,688 | ) | (9,635 | ) | (519 | ) | (1,596 | ) | ||||||||||||||||||
Settlement loss | 45,157 | — | — | 155 | — | 232 | — | — | — | |||||||||||||||||||||||||||
Net amortization: | ||||||||||||||||||||||||||||||||||||
Prior service credit | — | (19 | ) | (108 | ) | — | — | (168 | ) | — | — | (192 | ) | |||||||||||||||||||||||
Net actuarial loss | 3,082 | — | 680 | 2,770 | — | 959 | 2,702 | — | 753 | |||||||||||||||||||||||||||
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Net periodic pension cost (benefit) | $ | 48,465 | $ | 477 | $ | 5,673 | $ | (94 | ) | $ | 577 | $ | 5,935 | $ | 375 | $ | 511 | $ | 5,618 | |||||||||||||||||
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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 | |||||||||||||||||
2018 | 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 | U.S. Pension Plans | U.S. Retiree Healthcare Plan | Non-U.S. Pension Plans | ||||||||||||||||||||||||||||
Prior service credit | $ | — | $ | 130 | $ | 44 | $ | — | $ | — | $ | (636 | ) | $ | — | $ | — | $ | — | |||||||||||||||||
Net (loss) gain arising during the year | (10,616 | ) | (670 | ) | 4,088 | 8,879 | 13 | 1,609 | (3,352 | ) | (594 | ) | (3,361 | ) | ||||||||||||||||||||||
Amortization: | ||||||||||||||||||||||||||||||||||||
Prior service credit | — | (19 | ) | (35 | ) | — | — | (168 | ) | — | — | (192 | ) | |||||||||||||||||||||||
Net loss | 48,239 | — | 680 | 2,925 | — | 1,191 | 2,702 | — | 753 | |||||||||||||||||||||||||||
Other Plans | — | — | (354 | ) | — | — | — | — | — | (360 | ) | |||||||||||||||||||||||||
Currency impact | — | — | 583 | — | — | (2,033 | ) | — | — | 884 | ||||||||||||||||||||||||||
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Total recognized in other comprehensive (loss) income | $ | 37,623 | $ | (559 | ) | $ | 5,006 | $ | 11,804 | $ | 13 | $ | (37 | ) | $ | (650 | ) | $ | (594 | ) | $ | (2,276 | ) | |||||||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The summary of the amounts included in accumulated other comprehensive loss in stockholders’ equity for the plans at December 31,2019, 2018 and 2017 is as follows (in thousands):
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 | |||||||||||||||||||
Net actuarial (loss) gain | $ | (59 | ) | $ | (83 | ) | $ | (13,987 | ) | $ | (37,682 | ) | $ | 588 | $ | (18,857 | ) | |||||||
Prior service credit | — | 112 | 666 | — | — | 530 | ||||||||||||||||||
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Total | $ | (59 | ) | $ | 29 | $ | (13,321 | ) | $ | (37,682 | ) | $ | 588 | $ | (18,327 | ) | ||||||||
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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 | ) | ||||||||||||||
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 | ) | ||||||||
2018 | ||||||||||||
U.S. Pension Plans | U.S. Retiree Healthcare Plan | Non-U.S. Pension Plans | ||||||||||
Net actuarial loss | $ | — | $ | — | $ | (537 | ) | |||||
Prior service credit | — | 19 | 147 | |||||||||
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Total | $ | — | $ | 19 | $ | (390 | ) | |||||
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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 | ) | |||||
2018 | 2017 | |||||||||||||||||||
U.S. Retiree | Non-U.S. | U.S. | U.S. Retiree | Non-U.S. | ||||||||||||||||
Healthcare | Pension | Pension | Healthcare | Pension | ||||||||||||||||
Plan | Plans | Plans | Plan | Plans | ||||||||||||||||
Equity securities | 61 | % | 7 | % | 77 | % | 65 | % | 7 | % | ||||||||||
Debt securities | 39 | % | 18 | % | 23 | % | 35 | % | 16 | % | ||||||||||
Cash and cash equivalents | 0 | % | 5 | % | 0 | % | 0 | % | 8 | % | ||||||||||
Insurance contracts and other | 0 | % | 70 | % | 0 | % | 0 | % | 69 | % | ||||||||||
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Total | 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. Retiree Healthcare Plan | Non-U.S. Pension Plans Policy Target | |||||||||||
Policy Target | Range | |||||||||||
Equity securities | 65 | % | 40% - 90% | 5 | % | |||||||
Debt securities | 35 | % | 10% - 60% | 20 | % | |||||||
Cash and cash equivalents | 0 | % | 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)
portfolios and of appropriate market indexes and maintaining sufficient liquidity to meet the obligations of the plan. Within the equity portfolio of the U.S. 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 these types of investments utilizes data points other than quoted prices in active markets that are observable either directly or indirectly. | |
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. |
2018.
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) | |||||||||||||
U.S. Retiree Healthcare Plan: | ||||||||||||||||
Mutual funds (a) | 13,773 | 13,773 | — | — | ||||||||||||
Total U.S. Retiree Healthcare Plan | 13,773 | 13,773 | — | — | ||||||||||||
Non-U.S. Pension Plans: | ||||||||||||||||
Cash equivalents (b) | 690 | 690 | — | — | ||||||||||||
Mutual funds (c) | 22,202 | 22,202 | — | — | ||||||||||||
Bank and insurance investment contracts (d) | 60,119 | — | — | 60,119 | ||||||||||||
Total Non-U.S. Pension Plans | 83,011 | 22,892 | — | 60,119 | ||||||||||||
Total fair value of retirement plan assets | $ | 96,784 | $ | 36,665 | $ | — | $ | 60,119 | ||||||||
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) | |||||||||||||
U.S. Retiree Healthcare Plan: | 11,080 | 11,080 | — | — | ||||||||||||
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|
|
|
|
|
|
| |||||||||
Total U.S. Retiree Healthcare Plan | 11,080 | 11,080 | — | — | ||||||||||||
Non-U.S. Pension Plans: | ||||||||||||||||
Cash equivalents(b) | 4,439 | 4,439 | — | — | ||||||||||||
Mutual funds(c) | 20,430 | 20,430 | — | — | ||||||||||||
Bank and insurance investment contracts(d) | 56,718 | — | — | 56,718 | ||||||||||||
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|
|
|
|
|
|
| |||||||||
TotalNon-U.S. Pension Plans | 81,587 | 24,869 | — | 56,718 | ||||||||||||
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|
|
|
|
|
|
| |||||||||
Total fair value of retirement plan assets | $ | 92,667 | $ | 35,949 | $ | — | $ | 56,718 | ||||||||
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|
|
|
|
|
|
Total at December 31, 2018 | Quoted Prices in Active Markets for Identical (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||
U.S. Retiree Healthcare Plan: | ||||||||||||||||
Mutual funds ( e ) | 11,080 | 11,080 | — | — | ||||||||||||
Total U.S. Retiree Healthcare Plan | 11,080 | 11,080 | — | — | ||||||||||||
Non-U.S. Pension Plans: | ||||||||||||||||
Cash equivalents (b) | 4,439 | 4,439 | — | — | ||||||||||||
Mutual funds ( f ) | 20,430 | 20,430 | — | — | ||||||||||||
Bank and insurance investment contracts (d) | 56,718 | — | — | 56,718 | ||||||||||||
Total Non-U.S. Pension Plans | 81,587 | 24,869 | — | 56,718 | ||||||||||||
Total fair value of retirement plan assets | $ | 92,667 | $ | 35,949 | $ | — | $ | 56,718 | ||||||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The fair value of the Company’s retirement plan assets are as follows at December 31, 2017 (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) | |||||||||||||
U.S. Pension Plans: | ||||||||||||||||
Mutual funds(e) | $ | 163,438 | $ | 163,438 | $ | — | $ | — | ||||||||
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|
|
|
|
|
|
| |||||||||
Total U.S. Pension Plans | 163,438 | 163,438 | — | — | ||||||||||||
U.S. Retiree Healthcare Plan: | ||||||||||||||||
Mutual funds(f) | 11,125 | 11,125 | — | — | ||||||||||||
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|
|
|
|
|
| |||||||||
Total U.S. Retiree Healthcare Plan | 11,125 | 11,125 | — | — | ||||||||||||
Non-U.S. Pension Plans: | ||||||||||||||||
Cash equivalents(b) | 5,783 | 5,783 | — | — | ||||||||||||
Mutual funds(g) | 17,244 | 17,244 | — | — | ||||||||||||
Bank and insurance investment contracts(d) | 51,963 | — | — | 51,963 | ||||||||||||
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|
|
|
|
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|
| |||||||||
TotalNon-U.S. Pension Plans | 74,990 | 23,027 | — | 51,963 | ||||||||||||
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|
|
| |||||||||
Total fair value of retirement plan assets | 249,553 | $ | 197,590 | $ | — | $ | 51,963 | |||||||||
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|
| |||||||||||
Investments valued at NAV | 7,935 | |||||||||||||||
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| |||||||||||||||
Total retirement plan assets | $ | 257,488 | ||||||||||||||
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(a) | The mutual fund balance in the U.S. Retiree Healthcare Plan is invested in the following categories: 35% in the common stock of |
(b) | Primarily represents deposit account funds held with various financial institutions. |
(c) | The mutual fund balance in the Non-U.S. Pension Plans is primarily invested in the following categories: 57% in international bonds, 23% in the common stock of international companies and 20% in various other global investments. |
(d) | Amount represents bank and insurance guaranteed investment contracts. |
(e) | The mutual fund balance in the U.S. Retiree Healthcare Plan is invested in the following categories: 40% in the common stock oflarge-cap U.S. companies, 21% in the common stock of international growth companies and 39% in fixed income bonds of U.S. companies andthe U.S. government. |
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The mutual fund balance in the |
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Insurance Guaranteed Investment Contracts | ||||
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 | |||
Net purchases (sales) and appreciation (depreciation) | 4,755 | |||
|
| |||
Fair value of assets, December 31, 2018 | $ | 56,718 | ||
|
|
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 | ||
2018 | 2017 | 2016 | ||||||||||||||||||||||
U.S. | Non-U.S. | U.S. | Non-U.S. | U.S. | Non-U.S. | |||||||||||||||||||
Discount rate | 4.40 | % | 1.95 | % | 3.94 | % | 1.79 | % | 4.41 | % | 1.71 | % | ||||||||||||
Increases in compensation levels | ** | 2.66 | % | ** | 2.43 | % | ** | 2.47 | % |
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 |
2018 | 2017 | 2016 | ||||||||||||||||||||||
U.S. | Non-U.S. | U.S. | Non-U.S. | U.S. | Non-U.S. | |||||||||||||||||||
Discount rate | 3.96 | % | 1.93 | % | 4.28 | % | 1.80 | % | 4.42 | % | 2.20 | % | ||||||||||||
Return on plan assets | 4.35 | % | 2.75 | % | 6.53 | % | 2.64 | % | 6.47 | % | 2.74 | % | ||||||||||||
Increases in compensation levels | ** | 2.70 | % | ** | 2.63 | % | ** | 2.50 | % |
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 |
million. millionmillion.millionNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
U.S. Pension and Retiree Healthcare Plans | Non-U.S. Pension Plans | Total | ||||||||||
2019 | $ | 1,084 | $ | 1,551 | $ | 2,635 | ||||||
2020 | 1,160 | 2,552 | 3,712 | |||||||||
2021 | 1,243 | 2,782 | 4,025 | |||||||||
2022 | 1,307 | 2,821 | 4,128 | |||||||||
2023 | 1,366 | 3,038 | 4,404 | |||||||||
2024 - 2028 | 7,146 | 19,277 | 26,423 |
17
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 |
2018 | 2017 | 2016 | ||||||||||
Product net sales: | ||||||||||||
Waters instrument systems | $ | 1,000,625 | $ | 988,750 | $ | 943,218 | ||||||
Chemistry consumables | 400,287 | 372,157 | 345,413 | |||||||||
TA instrument systems | 204,081 | 191,442 | 171,665 | |||||||||
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|
|
|
|
| |||||||
Total product sales | 1,604,993 | 1,552,349 | 1,460,296 | |||||||||
Service net sales: | ||||||||||||
Waters service | 738,433 | 686,656 | 639,432 | |||||||||
TA service | 76,503 | 70,073 | 67,695 | |||||||||
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|
|
|
|
| |||||||
Total service sales | 814,936 | 756,729 | 707,127 | |||||||||
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|
|
|
|
| |||||||
Total net sales | $ | 2,419,929 | $ | 2,309,078 | $ | 2,167,423 | ||||||
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|
|
|
|
|
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 | ||||||
2018 | 2017 | 2016 | ||||||||||
Net Sales: | ||||||||||||
Asia: | ||||||||||||
China | $ | 443,321 | $ | 387,059 | $ | 331,354 | ||||||
Japan | 173,357 | 167,258 | 167,977 | |||||||||
Asia Other | 305,613 | 308,300 | 283,653 | |||||||||
|
|
|
|
|
| |||||||
Total Asia | 922,291 | 862,617 | 782,984 | |||||||||
Americas: | ||||||||||||
United States | 683,596 | 669,274 | 665,280 | |||||||||
Americas Other | 151,581 | 140,715 | 141,902 | |||||||||
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|
|
|
|
| |||||||
Total Americas | 835,177 | 809,989 | 807,182 | |||||||||
Europe | 662,461 | 636,472 | 577,257 | |||||||||
|
|
|
|
|
| |||||||
Total net sales | $ | 2,419,929 | $ | 2,309,078 | $ | 2,167,423 | ||||||
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|
|
|
|
|
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 | ||||||
2018 | 2017 | 2016 | ||||||||||
Pharmaceutical | $ | 1,365,731 | $ | 1,294,668 | $ | 1,206,316 | ||||||
Industrial | 737,144 | 721,088 | 690,119 | |||||||||
Governmental and academic | 317,054 | 293,322 | 270,988 | |||||||||
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|
|
|
|
| |||||||
Total net sales | $ | 2,419,929 | $ | 2,309,078 | $ | 2,167,423 | ||||||
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|
|
|
|
|
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 | ||||||
2018 | 2017 | 2016 | ||||||||||
Net sales recognized at a point in time: | ||||||||||||
Instrument systems | $ | 1,204,706 | $ | 1,180,192 | $ | 1,114,883 | ||||||
Chemistry consumables | 400,287 | 372,157 | 345,413 | |||||||||
Service sales recognized at a point in time (time & materials) | 317,549 | 299,385 | 279,482 | |||||||||
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|
|
|
|
| |||||||
Total net sales recognized at a point in time | 1,922,542 | 1,851,734 | 1,739,778 | |||||||||
Net sales recognized over time: | ||||||||||||
Service and software sales recognized over time (contracts) | 497,387 | 457,344 | 427,645 | |||||||||
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|
|
|
|
| |||||||
Total net sales | $ | 2,419,929 | $ | 2,309,078 | $ | 2,167,423 | ||||||
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|
|
|
|
|
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 | ||||||
2018 | 2017 | 2016 | ||||||||||
Long-lived assets: | ||||||||||||
United States | $ | 203,664 | $ | 186,344 | $ | 207,062 | ||||||
Americas Other | 1,680 | 1,720 | 832 | |||||||||
|
|
|
|
|
| |||||||
Total Americas | 205,344 | 188,064 | 207,894 | |||||||||
Europe | 118,513 | 136,440 | 114,848 | |||||||||
Asia | 19,226 | 24,774 | 14,376 | |||||||||
|
|
|
|
|
| |||||||
Total long-lived assets | $ | 343,083 | $ | 349,278 | $ | 337,118 | ||||||
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|
|
|
|
|
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 | ||||||
18
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 (settlement) 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 | |||||||||||||||
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|
|
|
|
|
|
|
|
| |||||||||||
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 | ||||||||||
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|
|
|
|
|
|
|
|
| |||||||||||
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 |
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 | |||||||||||||||||
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 | 130,673 | 130,093 | 135,206 | 148,391 | 544,363 | |||||||||||||||
Research and development expenses | 30,752 | 32,937 | 33,782 | 35,122 | 132,593 | |||||||||||||||
Purchased intangibles amortization | 1,729 | 1,693 | 1,682 | 1,639 | 6,743 | |||||||||||||||
Litigation provisions | — | 10,018 | — | 1,096 | 11,114 | |||||||||||||||
Acquiredin-process research and development | 5,000 | — | — | — | 5,000 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total costs and operating expenses | 379,249 | 404,368 | 406,562 | 456,701 | 1,646,880 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Operating income | 118,720 | 153,882 | 159,022 | 230,574 | 662,198 | |||||||||||||||
Other income (expense) | 149 | (97 | ) | 12 | (404 | ) | (340 | ) | ||||||||||||
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 | |||||||||
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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 | |||||||||||||||||
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 |
In the second quarter of 2017, the Company incurred a $10 million litigation provision related to the issuance of a verdict in a patent litigation case.
Item 9A: 20182019 (1) to ensure that information required to be disclosed by the Company, including its consolidated subsidiaries, in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its chief executive officer and chief financial officer, to allow timely decisions regarding the required disclosure and (2) to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.4946 of this Form5047 of this FormControlsControl Over Financial Reporting20182019 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.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: |
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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 | 2,234 | $ | 142.47 | 3,005 | ||||||||
Equity compensation plans not approved by security holders | — | — | — | |||||||||
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Total | 2,234 | $ | 142.47 | 3,005 | ||||||||
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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: |
5250 to 97.95. The report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, dated February 26, 2019,25, 2020, is set forth beginning on page 5047 of thisForm (2) Financial Statement Schedule: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
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10.37 |
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10.43 | ||||
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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 |
(2) | Incorporated by reference to the Registrant’s Registration Statement onForm |
(3) | Incorporated by reference to the Registrant’s Report onForm |
(4) | Incorporated by reference to the Registrant’s Report onForm |
(5) | Incorporated by reference to the Registrant’s Report onForm |
(6) | Incorporated by reference to the Registrant’s Report onForm |
(7) | Incorporated by reference to the Registrant’s Report onForm |
(8) | Incorporated by reference to the Registrant’s Report onForm |
(9) | Incorporated by reference to the Registrant’s Report onForm |
(10) | Incorporated by reference to the Registrant’s Report onForm |
(11) | Incorporated by reference to the Registrant’s Report onForm |
(12) | Incorporated by reference to the Registrant’s Report onForm |
(13) | Incorporated by reference to the Registrant’s Report onForm |
(14) | Incorporated by reference to the Registrant’s Report onForm |
(15) | Incorporated by reference to the Registrant’s Report onForm |
(16) | Incorporated by reference to the Registrant’s Report onForm |
(17) | Incorporated by reference to the Registrant’s Report onForm |
(18) | Incorporated by reference to the Registrant’s Report onForm |
(19) | Incorporated by reference to the Registrant’s Report onForm |
(20) | Incorporated by reference to the Registrant’s Report onForm |
(21) | Incorporated by reference to the Registrant’s Report onForm |
(22) | Incorporated by reference to the Registrant’s Report onForm |
(23) | Incorporated by reference to the Registrant’s Report onForm |
(24) | Incorporated by reference to the Registrant’s Report onForm |
(25) | Incorporated by reference to the Registrant’s Report onForm |
(26) | Incorporated by reference to the Registrant’s Report onForm |
(27) | Incorporated by reference to the Registrant’s Report onForm |
(28) | Incorporated by reference to the Registrant’s Report onForm |
(29) | Incorporated by reference to the Registrant’s Report onForm |
(30) | Incorporated by reference to the Registrant’s Report onForm |
(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 |
(**) | 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, 2018
Balance at Beginning of Period | Charged to Provision for Income Taxes* | Other** | Balance at End of Period | |||||||||||||
Valuation allowance for deferred tax assets: | ||||||||||||||||
2018 | $ | 62,098 | $ | (2,128 | )�� | $ | (6,077 | ) | $ | 53,893 | ||||||
2017 | $ | 61,225 | $ | (6,363 | ) | $ | 7,236 | $ | 62,098 | |||||||
2016 | $ | 68,595 | $ | (5,473 | ) | $ | (1,897 | ) | $ | 61,225 |
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Waters Corporation |
/s/ |
Sherry L. Buck |
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Senior Vice President and |
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25, 2020
| ||
/s/ Christopher J. O’Connell | Chairman of the Board of Directors and Chief | |
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 | ||
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/s/ Edward Conard | Director | |
Edward Conard | ||
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/s/ Dr. Laurie H. Glimcher | Director | |
Dr. Laurie H. Glimcher | ||
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/s/ Gary Hendrickson | Director | |
Gary Hendrickson | ||
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/s/ Christopher A. Kuebler | Director | |
Christopher A. Kuebler | ||
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/s/ Flemming Ornskov | Director | |
Flemming Ornskov | ||
| ||
/s/ JoAnn A. Reed | Director | |
JoAnn A. Reed | ||
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/s/ Thomas P. Salice | Director | |
Thomas P. Salice |
106