QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware | 13-3668640 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, par value $0.01 per share | WAT | New York Stock Exchange, Inc. |
Large accelerated filer | Accelerated filer | ☐ | ||||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||
Emerging growth company | ☐ |
WATERS CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
INDEX
Page | ||||||
PART I | FINANCIAL INFORMATION | |||||
Item 1. | ||||||
Consolidated Balance Sheets (unaudited) as of | ||||||
4 | ||||||
5 | ||||||
6 | ||||||
7 | ||||||
9 | ||||||
Condensed Notes to Consolidated Financial Statements (unaudited) | ||||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |||||
Item 3. | ||||||
Item 4. | ||||||
PART II | ||||||
Item 1. | ||||||
Item 1A. | ||||||
Item 2. | ||||||
Item 6. | ||||||
April 1, 2023 | December 31, 2022 | |||||||
(In thousands, except per share data) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 486,070 | $ | 480,529 | ||||
Investments | 885 | 862 | ||||||
Accounts receivable, net | 683,341 | 722,892 | ||||||
Inventories | 499,422 | 455,710 | ||||||
Other current assets | 103,981 | 103,910 | ||||||
Total current assets | 1,773,699 | 1,763,903 | ||||||
Property, plant and equipment, net | 590,207 | 582,217 | ||||||
Intangible assets, net | 232,715 | 227,399 | ||||||
Goodwill | 431,642 | 430,328 | ||||||
Operating lease assets | 86,076 | 86,506 | ||||||
Other assets | 192,481 | 191,100 | ||||||
Total assets | $ | 3,306,820 | $ | 3,281,453 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Notes payable and debt | $ | 50,040 | $ | 50,000 | ||||
Accounts payable | 93,558 | 93,302 | ||||||
Accrued employee compensation | 25,727 | 103,300 | ||||||
Deferred revenue and customer advances | 306,865 | 227,908 | ||||||
Current operating lease liabilities | 24,470 | 26,429 | ||||||
Accrued income taxes | 150,689 | 132,545 | ||||||
Accrued warranty | 12,311 | 11,949 | ||||||
Other current liabilities | 138,290 | 140,304 | ||||||
Total current liabilities | 801,950 | 785,737 | ||||||
Long-term liabilities: | ||||||||
Long-term debt | 1,430,130 | 1,524,878 | ||||||
Long-term portion of retirement benefits | 42,661 | 38,203 | ||||||
Long-term income tax liabilities | 249,196 | 248,496 | ||||||
Long-term operating lease liabilities | 62,257 | 62,108 | ||||||
Other long-term liabilities | 120,803 | 117,543 | ||||||
Total long-term liabilities | 1,905,047 | 1,991,228 | ||||||
Total liabilities | 2,706,997 | 2,776,965 | ||||||
Commitments and contingencies (Notes 6, 7 and 8) | ||||||||
Stockholders’ equity: | ||||||||
Preferred stock, par value $0.01 per share, 5,000 shares authorized, none issued at April 1, 2023 and December 31, 2022 | — | — | ||||||
Common stock, par value $0.01 per share, 400,000 shares authorized, 162,550 and 162,425 shares issued, 59,020 and 59,104 shares outstanding at April 1, 2023 and December 31, 2022, respectively | 1,626 | 1,624 | ||||||
Additional paid-in capital | 2,214,963 | 2,199,824 | ||||||
Retained earnings | 8,649,510 | 8,508,587 | ||||||
Treasury stock, at cost, 103,530 and 103,321 shares at April 1, 2023 and December 31, 2022, respectively | (10,133,480 | ) | (10,063,975 | ) | ||||
Accumulated other comprehensive loss | (132,796 | ) | (141,572 | ) | ||||
Total stockholders’ equity | 599,823 | 504,488 | ||||||
Total liabilities and stockholders’ equity | $ | 3,306,820 | $ | 3,281,453 | ||||
July 1, 2023 | December 31, 2022 | |||||||
(In thousands, except per share data) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 329,693 | $ | 480,529 | ||||
Investments | 885 | 862 | ||||||
Accounts receivable, net | 693,436 | 722,892 | ||||||
Inventories | 536,828 | 455,710 | ||||||
Other current assets | 120,342 | 103,910 | ||||||
Total current assets | 1,681,184 | 1,763,903 | ||||||
Property, plant and equipment, net | 615,211 | 582,217 | ||||||
Intangible assets, net | 649,731 | 227,399 | ||||||
Goodwill | 1,313,501 | 430,328 | ||||||
Operating lease assets | 92,412 | 86,506 | ||||||
Other assets | 196,157 | 191,100 | ||||||
Total assets | $ | 4,548,196 | $ | 3,281,453 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Notes payable and debt | $ | 50,000 | $ | 50,000 | ||||
Accounts payable | 81,918 | 93,302 | ||||||
Accrued employee compensation | 35,522 | 103,300 | ||||||
Deferred revenue and customer advances | 324,665 | 227,908 | ||||||
Current operating lease liabilities | 25,908 | 26,429 | ||||||
Accrued income taxes | 121,294 | 132,545 | ||||||
Accrued warranty | 12,409 | 11,949 | ||||||
Other current liabilities | 157,671 | 140,304 | ||||||
Total current liabilities | 809,387 | 785,737 | ||||||
Long-term liabilities: | ||||||||
Long-term debt | 2,580,198 | 1,524,878 | ||||||
Long-term portion of retirement benefits | 43,565 | 38,203 | ||||||
Long-term income tax liabilities | 154,376 | 248,496 | ||||||
Long-term operating lease liabilities | 66,856 | 62,108 | ||||||
Other long-term liabilities | 122,585 | 117,543 | ||||||
Total long-term liabilities | 2,967,580 | 1,991,228 | ||||||
Total liabilities | 3,776,967 | 2,776,965 | ||||||
Commitments and contingencies (Notes 7 ,8 and9 ) | ||||||||
Stockholders’ equity: | ||||||||
Preferred stock, par value $0.01 per share, 5,000 shares authorized, none issued at July 1, 2023 and December 31, 2022 | — | — | ||||||
Common stock, par value $0.01 per share, 400,000 shares authorized, 162,576 and 162,425 shares issued, 59,046 and 59,104 shares outstanding at July 1, 2023 and December 31, 2022, respectively | 1,626 | 1,624 | ||||||
Additional paid-in capital | 2,232,055 | 2,199,824 | ||||||
Retained earnings | 8,800,064 | 8,508,587 | ||||||
Treasury stock, at cost, 103,530 and 103,321 shares at July 1, 2023 and December 31, 2022, respectively | (10,133,716 | ) | (10,063,975 | ) | ||||
Accumulated other comprehensive loss | (128,800 | ) | (141,572 | ) | ||||
Total stockholders’ equity | 771,229 | 504,488 | ||||||
Total liabilities and stockholders’ equity | $ | 4,548,196 | $ | 3,281,453 | ||||
Three Months Ended | ||||||||
April 1, 2023 | April 2, 2022 | |||||||
(In thousands, except per share data) | ||||||||
Revenues: | ||||||||
Product sales | $ | 436,457 | $ | 450,840 | ||||
Service sales | 248,217 | 239,732 | ||||||
Total net sales | 684,674 | 690,572 | ||||||
Costs and operating expenses: | ||||||||
Cost of product sales | 180,354 | 191,610 | ||||||
Cost of service sales | 104,026 | 94,075 | ||||||
Selling and administrative expenses | 181,956 | 157,475 | ||||||
Research and development expenses | 42,691 | 40,472 | ||||||
Purchased intangibles amortization | 1,479 | 1,673 | ||||||
Acquired in-process research and development | — | 9,797 | ||||||
Total costs and operating expenses | 510,506 | 495,102 | ||||||
Operating income | 174,168 | 195,470 | ||||||
Other income, net | 1,388 | 170 | ||||||
Interest expense | (14,444 | ) | (11,059 | ) | ||||
Interest income | 4,061 | 2,114 | ||||||
Income before income taxes | 165,173 | 186,695 | ||||||
Provision for income taxes | 24,250 | 26,864 | ||||||
Net income | $ | 140,923 | $ | 159,831 | ||||
Net income per basic common share | $ | 2.39 | $ | 2.64 | ||||
Weighted-average number of basic common shares | 59,023 | 60,580 | ||||||
Net income per diluted common share | $ | 2.38 | $ | 2.62 | ||||
Weighted-average number of diluted common shares and equivalents | 59,317 | 60,952 |
Three Months Ended | ||||||||
July 1, 2023 | July 2, 2022 | |||||||
(In thousands, except per share data) | ||||||||
Revenues: | ||||||||
Product sales | $ | 477,926 | $ | 469,630 | ||||
Service sales | 262,650 | 244,689 | ||||||
Total net sales | 740,576 | 714,319 | ||||||
Costs and operating expenses: | ||||||||
Cost of product sales | 194,354 | 202,356 | ||||||
Cost of service sales | 106,722 | 104,850 | ||||||
Selling and administrative expenses | 186,953 | 161,877 | ||||||
Research and development expenses | 45,873 | 44,006 | ||||||
Purchased intangibles amortization | 6,815 | 1,598 | ||||||
Total costs and operating expenses | 540,717 | 514,687 | ||||||
Operating income | 199,859 | 199,632 | ||||||
Other (expense) income, net | (352 | ) | 1,535 | |||||
Interest expense | (23,272 | ) | (11,419 | ) | ||||
Interest income | 4,040 | 2,526 | ||||||
Income before income taxes | 180,275 | 192,274 | ||||||
Provision for income taxes | 29,721 | 27,410 | ||||||
Net income | $ | 150,554 | $ | 164,864 | ||||
Net income per basic common share | $ | 2.56 | $ | 2.74 | ||||
Weighted-average number of basic common shares | 58,857 | 60,206 | ||||||
Net income per diluted common share | $ | 2.55 | $ | 2.72 | ||||
Weighted-average number of diluted common shares and equivalents | 59,010 | 60,510 |
Three Months Ended | ||||||||
April 1, 2023 | April 2, 2022 | |||||||
(In thousands) | ||||||||
Net income | $ | 140,923 | $ | 159,831 | ||||
Other comprehensive income (loss): | ||||||||
Foreign currency translation | 8,783 | (6,169 | ) | |||||
Unrealized gains on investments before income taxes | — | 15 | ||||||
Income tax expense | — | (4 | ) | |||||
Unrealized gains on investments, net of tax | — | 11 | ||||||
Retirement liability adjustment before reclassifications | 80 | 268 | ||||||
Amounts reclassified to other income | (83 | ) | 127 | |||||
Retirement liability adjustment before income taxes | (3 | ) | 395 | |||||
Income tax expense | (4 | ) | (97 | ) | ||||
Retirement liability adjustment, net of tax | (7 | ) | 298 | |||||
Other comprehensive income (loss) | 8,776 | (5,860 | ) | |||||
Comprehensive income | $ | 149,699 | $ | 153,971 | ||||
Six Months Ended | ||||||||
July 1, 2023 | July 2, 2022 | |||||||
(In thousands, except per share data) | ||||||||
Revenues: | ||||||||
Product sales | $ | 914,383 | $ | 920,470 | ||||
Service sales | 510,867 | 484,421 | ||||||
Total net sales | 1,425,250 | 1,404,891 | ||||||
Costs and operating expenses: | ||||||||
Cost of product sales | 374,708 | 393,966 | ||||||
Cost of service sales | 210,748 | 198,925 | ||||||
Selling and administrative expenses | 368,909 | 319,352 | ||||||
Research and development expenses | 88,564 | 84,478 | ||||||
Purchased intangibles amortization | 8,294 | 3,271 | ||||||
Acquired in-process research and development | — | 9,797 | ||||||
Total costs and operating expenses | 1,051,223 | 1,009,789 | ||||||
Operating income | 374,027 | 395,102 | ||||||
Other income, net | 1,036 | 1,705 | ||||||
Interest expense | (37,716 | ) | (22,478 | ) | ||||
Interest income | 8,101 | 4,640 | ||||||
Income before income taxes | 345,448 | 378,969 | ||||||
Provision for income taxes | 53,971 | 54,274 | ||||||
Net income | $ | 291,477 | $ | 324,695 | ||||
Net income per basic common share | $ | 4.97 | $ | 5.38 | ||||
Weighted-average number of basic common shares | 58,703 | 60,399 | ||||||
Net income per diluted common share | $ | 4.95 | $ | 5.35 | ||||
Weighted-average number of diluted common shares and equivalents | 58,909 | 60,744 |
Three Months Ended | Six Months Ended | |||||||||||||||
July 1, 2023 | July 2, 2022 | July 1, 2023 | July 2, 2022 | |||||||||||||
(In thousands) | (In thousands) | |||||||||||||||
Net income | $ | 150,554 | $ | 164,864 | $ | 291,477 | $ | 324,695 | ||||||||
Other comprehensive income (loss): | ||||||||||||||||
Foreign currency translation | 3,984 | (24,307 | ) | 12,767 | (30,476 | ) | ||||||||||
Unrealized gains on investments before income taxes | — | 11 | — | 26 | ||||||||||||
Income tax expense | — | (2 | ) | — | (6 | ) | ||||||||||
Unrealized gains on investments, net of tax | — | 9 | — | 20 | ||||||||||||
Retirement liability adjustment before reclassifications | 91 | 720 | 171 | 988 | ||||||||||||
Amounts reclassified to other income, net | (84 | ) | 120 | (167 | ) | 247 | ||||||||||
Retirement liability adjustment before income taxes | 7 | 840 | 4 | 1,235 | ||||||||||||
Income tax benefit (expense) | 5 | (206 | ) | 1 | (303 | ) | ||||||||||
Retirement liability adjustment, net of tax | 12 | 634 | 5 | 932 | ||||||||||||
Other comprehensive income (loss) | 3,996 | (23,664 | ) | 12,772 | (29,524 | ) | ||||||||||
Comprehensive income | $ | 154,550 | $ | 141,200 | $ | 304,249 | $ | 295,171 | ||||||||
Three Months Ended | ||||||||
April 1, 2023 | April 2, 2022 | |||||||
(In thousands) | ||||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 140,923 | $ | 159,831 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Stock-based compensation | 12,805 | 10,933 | ||||||
Deferred income taxes | (5,078 | ) | 4,175 | |||||
Depreciation | 19,411 | 17,209 | ||||||
Amortization of intangibles | 11,743 | 15,455 | ||||||
Acquired in-process research and development and othernon-cash items | — | 9,381 | ||||||
Change in operating assets and liabilities: | ||||||||
Decrease (increase) in accounts receivable | 44,047 | (907 | ) | |||||
Increase in inventories | (42,621 | ) | (26,832 | ) | ||||
Increase in other current assets | (2,123 | ) | (1,805 | ) | ||||
Decrease (increase) in other assets | 6,662 | (13,491 | ) | |||||
Decrease in accounts payable and other current liabilities | (71,257 | ) | (69,548 | ) | ||||
Increase in deferred revenue and customer advances | 77,206 | 91,514 | ||||||
Increase in other liabilities | 5,033 | 2,045 | ||||||
Net cash provided by operating activities | 196,751 | 197,960 | ||||||
Cash flows from investing activities: | ||||||||
Additions to property, plant, equipment and software capitalization | (34,390 | ) | (27,751 | ) | ||||
Proceeds from equity investments, net | — | 6,785 | ||||||
Payments for intellectual property licenses | — | (4,897 | ) | |||||
Purchases of investments | (893 | ) | (9,219 | ) | ||||
Maturities and sales of investments | 877 | 54,074 | ||||||
Net cash (used in) provided by investing activities | (34,406 | ) | 18,992 | |||||
Cash flows from financing activities: | ||||||||
Proceeds from debt issuances | 50,040 | — | ||||||
Payments on debt | (145,000 | ) | (70,000 | ) | ||||
Proceeds from stock plans | 2,378 | 12,832 | ||||||
Purchases of treasury shares | (69,505 | ) | (170,136 | ) | ||||
Proceeds from (payments for) derivative contracts | 2,876 | (107 | ) | |||||
Net cash used in financing activities | (159,211 | ) | (227,411 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents | 2,407 | (10,705 | ) | |||||
Increase (decrease) in cash and cash equivalents | 5,541 | (21,164 | ) | |||||
Cash and cash equivalents at beginning of period | 480,529 | 501,234 | ||||||
Cash and cash equivalents at end of period | $ | 486,070 | $ | 480,070 | ||||
Six Months Ended | ||||||||
July 1, 2023 | July 2, 2022 | |||||||
(In thousands) | ||||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 291,477 | $ | 324,695 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Stock-based compensation | 23,734 | 20,722 | ||||||
Deferred income taxes | (6,435 | ) | (12,523 | ) | ||||
Depreciation | 40,172 | 36,956 | ||||||
Amortization of intangibles | 29,866 | 29,935 | ||||||
Acquired in-process research and development and othernon-cash items | — | 7,903 | ||||||
Change in operating assets and liabilities: | ||||||||
Decrease (increase) in accounts receivable | 50,273 | (57,377 | ) | |||||
Increase in inventories | (63,607 | ) | (65,070 | ) | ||||
Increase in other current assets | (19,044 | ) | (9,199 | ) | ||||
Decrease in other assets | 12 | 4,658 | ||||||
Decrease in accounts payable and other current liabilities | (122,836 | ) | (32,197 | ) | ||||
Increase in deferred revenue and customer advances | 81,659 | 70,027 | ||||||
Decrease in other liabilities | (90,402 | ) | (63,667 | ) | ||||
Net cash provided by operating activities | 214,869 | 254,863 | ||||||
Cash flows from investing activities: | ||||||||
Additions to property, plant, equipment and software capitalization | (80,997 | ) | (74,746 | ) | ||||
Business acquisitions, net of cash acquired | (1,285,907 | ) | — | |||||
Proceeds from equity investments, net | — | 5,646 | ||||||
Payments for intellectual property licenses | — | (4,897 | ) | |||||
Purchases of investments | (893 | ) | (10,959 | ) | ||||
Maturities and sales of investments | 877 | 77,553 | ||||||
Net cash used in investing activities | (1,366,920 | ) | (7,403 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from debt issuances | 1,450,040 | 105,000 | ||||||
Payments on debt | (395,040 | ) | (135,000 | ) | ||||
Payments of debt issuance costs | (218 | ) | — | |||||
Proceeds from stock plans | 8,628 | 30,914 | ||||||
Purchases of treasury shares | (69,741 | ) | (321,944 | ) | ||||
Proceeds from derivative contracts | 5,294 | 10,849 | ||||||
Net cash provided by (used in) financing activities | 998,963 | (310,181 | ) | |||||
Effect of exchange rate changes on cash and cash equivalents | 2,252 | (19,616 | ) | |||||
Decrease in cash and cash equivalents | (150,836 | ) | (82,337 | ) | ||||
Cash and cash equivalents at beginning of period | 480,529 | 501,234 | ||||||
Cash and cash equivalents at end of period | $ | 329,693 | $ | 418,897 | ||||
Number of Common Shares | Common Stock | Additional Paid-In Capital | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Loss | Total Stockholders’ Equity | Number of Common Shares | Common Stock | Additional Paid-In Capital | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Loss | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||||||||
Balance December 31, 2021 | 162,084 | $ | 1,621 | $ | 2,114,880 | $ | 7,800,832 | $ | (9,437,914 | ) | $ | (111,865 | ) | $ | 367,554 | |||||||||||||||||||||||||||||||||||||||||
Balance April 2, 2022 | 162,252 | $ | 1,623 | $ | 2,138,426 | $ | 7,960,663 | $ | (9,608,050 | ) | $ | (117,725 | ) | $ | 374,937 | |||||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | 159,831 | — | — | 159,831 | — | — | — | 164,864 | — | — | 164,864 | ||||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | — | (5,860 | ) | (5,860 | ) | — | — | — | — | — | (23,664 | ) | (23,664 | ) | ||||||||||||||||||||||||||||||||||||||
Issuance of common stock for employees: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Employee Stock Purchase Plan | 7 | — | 2,327 | — | — | — | 2,327 | 11 | — | 3,559 | — | — | — | 3,559 | ||||||||||||||||||||||||||||||||||||||||||
Stock options exercised | 69 | 1 | 11,091 | — | — | — | 11,092 | 81 | — | 14,523 | — | — | — | 14,523 | ||||||||||||||||||||||||||||||||||||||||||
Treasury stock | — | — | — | — | (170,136 | ) | — | (170,136 | ) | — | — | — | — | (151,808 | ) | — | (151,808 | ) | ||||||||||||||||||||||||||||||||||||||
Stock-based compensation | 92 | 1 | 10,128 | — | — | — | 10,129 | 4 | — | 9,713 | — | — | — | 9,713 | ||||||||||||||||||||||||||||||||||||||||||
Balance April 2, 2022 | 162,252 | $ | 1,623 | $ | 2,138,426 | $ | 7,960,663 | $ | (9,608,050 | ) | $ | (117,725 | ) | $ | 374,937 | |||||||||||||||||||||||||||||||||||||||||
Balance July 2, 2022 | 162,348 | $ | 1,623 | $ | 2,166,221 | $ | 8,125,527 | $ | (9,759,858 | ) | $ | (141,389 | ) | $ | 392,124 | |||||||||||||||||||||||||||||||||||||||||
Number of Common Shares | Common Stock | Additional Paid-In Capital | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Loss | Total Stockholders’ Equity | ||||||||||||||||||||||
Balance December 31, 2022 | 162,425 | $ | 1,624 | $ | 2,199,824 | $ | 8,508,587 | $ | (10,063,975 | ) | $ | (141,572 | ) | $ | 504,488 | |||||||||||||
Net income | — | — | — | 140,923 | — | — | 140,923 | |||||||||||||||||||||
Other comprehensive income | — | — | — | — | — | 8,776 | 8,776 | |||||||||||||||||||||
Issuance of common stock for employees: | ||||||||||||||||||||||||||||
Employee Stock Purchase Plan | 8 | — | 2,000 | — | — | — | 2,000 | |||||||||||||||||||||
Stock options exercised | 6 | — | 969 | — | — | — | 969 | |||||||||||||||||||||
Treasury stock | — | — | — | — | (69,505 | ) | — | (69,505 | ) | |||||||||||||||||||
Stock-based compensation | 111 | 2 | 12,170 | — | — | — | 12,172 | |||||||||||||||||||||
Balance April 1, 2023 | 162,550 | $ | 1,626 | $ | 2,214,963 | $ | 8,649,510 | $ | (10,133,480 | ) | $ | (132,796 | ) | $ | 599,823 | |||||||||||||
Number of Common Shares | Common Stock | Additional Paid-In Capital | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Loss | Total Stockholders’ Equity | ||||||||||||||||||||||
Balance April 1, 2023 | 162,550 | $ | 1,626 | $ | 2,214,963 | $ | 8,649,510 | $ | (10,133,480 | ) | $ | (132,796 | ) | $ | 599,823 | |||||||||||||
Net income | — | — | — | 150,554 | — | — | 150,554 | |||||||||||||||||||||
Other comprehensive income | — | — | — | — | — | 3,996 | 3,996 | |||||||||||||||||||||
Issuance of common stock for employees: | ||||||||||||||||||||||||||||
Employee Stock Purchase Plan | 13 | — | 3,933 | — | — | — | 3,933 | |||||||||||||||||||||
Stock options exercised | 11 | — | 2,316 | — | — | — | 2,316 | |||||||||||||||||||||
Treasury stock | — | — | — | — | (236 | ) | — | (236 | ) | |||||||||||||||||||
Stock-based compensation | 2 | — | 10,843 | — | — | — | 10,843 | |||||||||||||||||||||
Balance July 1, 2023 | 162,576 | $ | 1,626 | $ | 2,232,055 | $ | 8,800,064 | $ | (10,133,716 | ) | $ | (128,800 | ) | $ | 771,229 | |||||||||||||
Number of Common Shares | Common Stock | Additional Paid-In Capital | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Loss | Total Stockholders’ Equity | ||||||||||||||||||||||
Balance December 31, 2021 | 162,084 | $ | 1,621 | $ | 2,114,880 | $ | 7,800,832 | $ | (9,437,914 | ) | $ | (111,865 | ) | $ | 367,554 | |||||||||||||
Net income | — | — | — | 324,695 | — | — | 324,695 | |||||||||||||||||||||
Other comprehensive loss | — | — | — | — | — | (29,524 | ) | (29,524 | ) | |||||||||||||||||||
Issuance of common stock for employees: | ||||||||||||||||||||||||||||
Employee Stock Purchase Plan | 19 | — | 5,886 | — | — | — | 5,886 | |||||||||||||||||||||
Stock options exercised | 150 | 1 | 25,614 | — | — | — | 25,615 | |||||||||||||||||||||
Treasury stock | — | — | — | — | (321,944 | ) | — | (321,944 | ) | |||||||||||||||||||
Stock-based compensation | 95 | 1 | 19,841 | — | — | — | 19,842 | |||||||||||||||||||||
Balance July 2, 2022 | 162,348 | $ | 1,623 | $ | 2,166,221 | $ | 8,125,527 | $ | (9,759,858 | ) | $ | (141,389 | ) | $ | 392,124 | |||||||||||||
Number of Common Shares | Common Stock | Additional Paid-In Capital | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Loss | Total Stockholders’ Equity | ||||||||||||||||||||||
Balance December 31, 2022 | 162,425 | $ | 1,624 | $ | 2,199,824 | $ | 8,508,587 | $ | (10,063,975 | ) | $ | (141,572 | ) | $ | 504,488 | |||||||||||||
Net income | — | — | — | 291,477 | — | — | 291,477 | |||||||||||||||||||||
Other comprehensive income | — | — | — | — | — | 12,772 | 12,772 | |||||||||||||||||||||
Issuance of common stock for employees: | ||||||||||||||||||||||||||||
Employee Stock Purchase Plan | 21 | — | 5,933 | — | — | — | 5,933 | |||||||||||||||||||||
Stock options exercised | 17 | — | 3,285 | — | — | — | 3,285 | |||||||||||||||||||||
Treasury stock | — | — | — | — | (69,741 | ) | — | (69,741 | ) | |||||||||||||||||||
Stock-based compensation | 113 | 2 | 23,013 | — | — | — | 23,015 | |||||||||||||||||||||
Balance July 1, 2023 | 162,576 | $ | 1,626 | $ | 2,232,055 | $ | 8,800,064 | $ | (10,133,716 | ) | $ | (128,800 | ) | $ | 771,229 | |||||||||||||
Balance at Beginning of Period | Additions | Deductions | Balance at End of Period | |||||||||||||
Allowance for Credit Losses | ||||||||||||||||
April 1, 2023 | $ | 14,311 | $ | 1,572 | $ | (1,028 | ) | $ | 14,855 | |||||||
April 2, 2022 | $ | 13,228 | $ | 987 | $ | (1,072 | ) | $ | 13,143 |
Balance at Beginning | Balance at End of | |||||||||||||||
of Period | Additions | Deductions | Period | |||||||||||||
Allowance for Credit Losses | ||||||||||||||||
July 1, 2023 | $ | 14,311 | $ | 3,075 | $ | (2,432 | ) | $ | 14,954 | |||||||
July 2, 2022 | $ | 13,228 | $ | 3,690 | $ | (3,571 | ) | $ | 13,347 |
Total at April 1, 2023 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||
Assets: | ||||||||||||||||
Time deposits | $ | 885 | $ | — | $ | 885 | $ | — | ||||||||
Waters 401(k) Restoration Plan assets | 28,310 | 28,310 | — | — | ||||||||||||
Foreign currency exchange contracts | 121 | — | 121 | — | ||||||||||||
Interest rate cross-currency swap agreements | 13,880 | — | 13,880 | — | ||||||||||||
Total | $ | 43,196 | $ | 28,310 | $ | 14,886 | $ | — | ||||||||
Liabilities: | ||||||||||||||||
Foreign currency exchange contracts | $ | 67 | $ | — | $ | 67 | $ | — | ||||||||
Interest rate cross-currency swap agreements | 6,756 | — | 6,756 | — | ||||||||||||
Total | $ | 6,823 | $ | — | $ | 6,823 | $ | — | ||||||||
Total at July 1, 2023 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||
Assets: | ||||||||||||||||
Time deposits | $ | 885 | $ | — | $ | 885 | $ | — | ||||||||
Waters 401(k) Restoration Plan assets | 28,485 | 28,485 | — | — | ||||||||||||
Foreign currency exchange contracts | 53 | — | 53 | — | ||||||||||||
Interest rate cross-currency swap agreements | 11,889 | — | 11,889 | — | ||||||||||||
Total | $ | 41,312 | $ | 28,485 | $ | 12,827 | $ | — | ||||||||
Liabilities: | ||||||||||||||||
Foreign currency exchange contracts | $ | 211 | $ | — | $ | 211 | $ | — | ||||||||
Interest rate cross-currency swap agreements | 6,164 | — | 6,164 | — | ||||||||||||
Total | $ | 6,375 | $ | — | $ | 6,375 | $ | — | ||||||||
Total at December 31, 2022 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total at December 31, 2022 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||
Time deposits | $ | 862 | $ | — | $ | 862 | $ | — | $ | 862 | $ | — | $ | 862 | $ | — | ||||||||||||||||
Waters 401(k) Restoration Plan assets | 25,532 | 25,532 | — | — | 25,532 | 25,532 | — | — | ||||||||||||||||||||||||
Foreign currency exchange contracts | 231 | — | 231 | — | 231 | — | 231 | — | ||||||||||||||||||||||||
Interest rate cross-currency swap agreements | 19,163 | — | 19,163 | — | 19,163 | — | 19,163 | — | ||||||||||||||||||||||||
Total | $ | 45,788 | $ | 25,532 | $ | 20,256 | $ | — | $ | 45,788 | $ | 25,532 | $ | 20,256 | $ | — | ||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||||||
Contingent consideration | $ | 1,509 | $ | — | $ | — | $ | 1,509 | $ | 1,509 | $ | — | $ | — | $ | 1,509 | ||||||||||||||||
Foreign currency exchange contracts | 98 | — | 98 | — | 98 | — | 98 | — | ||||||||||||||||||||||||
Interest rate cross-currency swap agreements | 4,783 | — | 4,783 | — | 4,783 | — | 4,783 | — | ||||||||||||||||||||||||
Total | $ | 6,390 | $ | — | $ | 4,881 | $ | 1,509 | $ | 6,390 | $ | — | $ | 4,881 | $ | 1,509 | ||||||||||||||||
April 1, 2023 | December 31, 2022 | |||||||||||||||
Notional Value | Fair Value | Notional Value | Fair Value | |||||||||||||
Foreign currency exchange contracts: | ||||||||||||||||
Other current assets | $ | 31,461 | $ | 121 | $ | 42,047 | $ | 231 | ||||||||
Other current liabilities | $ | 16,968 | $ | 67 | $ | 13,450 | $ | 98 | ||||||||
Interest rate cross-currency swap agreements: | ||||||||||||||||
Other assets | $ | 400,000 | $ | 13,880 | $ | 400,000 | $ | 19,163 | ||||||||
Other liabilities | $ | 185,000 | $ | 6,756 | $ | 185,000 | $ | 4,783 | ||||||||
Accumulated other comprehensive income | $ | 2,770 | $ | 10,026 |
July 1, 2023 | December 31, 2022 | |||||||||||||||
Notional Value | Fair Value | Notional Value | Fair Value | |||||||||||||
Foreign currency exchange contracts: | ||||||||||||||||
Other current assets | $ | 14,000 | $ | 53 | $ | 42,047 | $ | 231 | ||||||||
Other current liabilities | $ | 34,226 | $ | 211 | $ | 13,450 | $ | 98 | ||||||||
Interest rate cross-currency swap agreements: | ||||||||||||||||
Other assets | $ | 425,000 | $ | 11,889 | $ | 400,000 | $ | 19,163 | ||||||||
Other liabilities | $ | 200,000 | $ | 6,164 | $ | 185,000 | $ | 4,783 | ||||||||
Accumulated other comprehensive income | $ | 1,370 | $ | 10,026 |
Financial Statement Classification | Three Months Ended | |||||||||
April 1, 2023 | April 2, 2022 | |||||||||
Foreign currency exchange contracts: | ||||||||||
Realized gains (losses) on closed contracts | Cost of sales | $ | 30 | $ | (1,499 | ) | ||||
Unrealized losses on open contracts | Cost of sales | (78 | ) | (489 | ) | |||||
Cumulative net pre-tax losses | Cost of sales | $ | (48 | ) | $ | (1,988 | ) | |||
Interest rate cross-currency swap agreements: | ||||||||||
Interest earned | Interest income | $ | 2,655 | $ | 1,775 | |||||
Unrealized (losses) gains on contracts, net | Accumulated other comprehensive loss | $ | (7,256 | ) | $ | 12,188 |
Financial | Three Months Ended | Six Months Ended | ||||||||||||||||
Statement | July 1, 2023 | July 2, 2022 | July 1, 2023 | July 2, 2022 | ||||||||||||||
Classification | ||||||||||||||||||
Foreign currency exchange contracts: | ||||||||||||||||||
Realized gains ( losses) on closed contracts | Cost of sales | $ | 675 | $ | (1,292 | ) | $ | 705 | $ | (2,791 | ) | |||||||
Unrealized losses on open contracts | Cost of sales | (213 | ) | (66 | ) | (291 | ) | (555 | ) | |||||||||
Cumulative net pre-tax gains (losses) | Cost of sales | $ | 462 | $ | (1,358 | ) | $ | 414 | $ | (3,346 | ) | |||||||
Interest rate cross-currency swap agreements: | ||||||||||||||||||
Interest earned | Interest income | $ | 2,673 | $ | 2,077 | $ | 5,328 | $ | 3,852 | |||||||||
Unrealized (losses) gains on open contracts | Other comprehensive income | $ | (1,400 | ) | $ | 30,516 | $ | (8,656 | ) | $ | 42,704 |
Balance at | Balance at | |||||||||||||||
Beginning | Accruals for | Settlements | End of | |||||||||||||
of Period | Warranties | Made | Period | |||||||||||||
Accrued warranty liability: | ||||||||||||||||
July 1, 2023 | $ | 11,949 | $ | 3,983 | $ | (3,523 | ) | $ | 12,409 | |||||||
July 2, 2022 | $ | 10,718 | $ | 4,084 | $ | (4,646 | ) | $ | 10,156 |
Balance at Beginning of Period | Accruals for Warranties | Settlements Made | Balance at End of Period | |||||||||||||
Accrued warranty liability: | ||||||||||||||||
April 1, 2023 | $ | 11,949 | $ | 2,177 | $ | (1,815 | ) | $ | 12,311 | |||||||
April 2, 2022 | $ | 10,718 | $ | 1,916 | $ | (2,422 | ) | $ | 10,212 |
April 1, 2023 | April 2, 2022 | July 1, 2023 | July 2, 2022 | |||||||||||||
Balance at the beginning of the period | $ | 285,175 | $ | 273,598 | $ | 285,175 | $ | 273,598 | ||||||||
Recognition of revenue included in balance at beginning of the period | (105,222 | ) | (103,355 | ) | (176,508 | ) | (173,606 | ) | ||||||||
Revenue deferred during the period, net of revenue recognized | 193,286 | 198,036 | 284,863 | 240,928 | ||||||||||||
Balance at the end of the period | $ | 373,239 | $ | 368,279 | $ | 393,530 | $ | 340,920 | ||||||||
April 1, 2023 | July 1, 2023 | |||||||
Deferred revenue and customer advances expected to be recognized in: | ||||||||
One year or less | $ | 306,865 | $ | 324,665 | ||||
13-24 months | 40,785 | 42,196 | ||||||
25 months and beyond | 25,589 | 26,669 | ||||||
Total | $ | 373,239 | $ | 393,530 | ||||
April 1, 2023 | December 31, 2022 | July 1, 2023 | December 31, 2022 | |||||||||||||
Raw materials | $ | 217,120 | $ | 205,760 | $ | 238,392 | $ | 205,760 | ||||||||
Work in progress | 24,380 | 19,899 | 26,941 | 19,899 | ||||||||||||
Finished goods | 257,922 | 230,051 | 271,495 | 230,051 | ||||||||||||
Total inventories | $ | 499,422 | $ | 455,710 | $ | 536,828 | $ | 455,710 | ||||||||
Purchase Price | ||||
Cash p aid | $ | 1,311,531 | ||
Less: ash acquiredc | (25,624 | ) | ||
Net cash consideration | 1,285,907 | |||
Identifiable Net Assets (Liabilities) Acquired | ||||
Accounts receivable | 20,099 | |||
Inventory | 14,706 | |||
Prepaid and other assets | 1,327 | |||
Property, plant and equipment | 9,056 | |||
Operating lease assets | 5,204 | |||
Intangible assets | 418,100 | |||
Accounts payable and accrued expenses | (31,664 | ) | ||
Operating lease liabilities | (5,204 | ) | ||
Tax liabilities | (3,871 | ) | ||
Deferred revenue | (15,219 | ) | ||
Other liabilities | (5,728 | ) | ||
Total identifiable net assets acquired | 406,806 | |||
Goodwill | 879,101 | |||
Net cash consideration | $ | 1,285,907 | ||
Amount | Weighted-Average Life | |||||||
Developed technology | $ | 80,000 | 10 years | |||||
Customer relationships | 330,600 | 10 years | ||||||
Trade name | 7,500 | 5 years | ||||||
Total | $ | 418,100 | ||||||
April 1, 2023 | December 31, 2022 | |||||||||||||||||||||||
Gross Carrying Amount | Accumulated Amortization | Weighted- Average Amortization Period | Gross Carrying Amount | Accumulated Amortization | Weighted- Average Amortization Period | |||||||||||||||||||
Capitalized software | $ | 610,668 | $ | 455,952 | 5years | $ | 589,604 | $ | 441,414 | 5years | ||||||||||||||
Purchased intangibles | 198,395 | 168,787 | 11years | 197,805 | 166,735 | 11years | ||||||||||||||||||
Trademarks | 9,680 | — | — | 9,680 | — | — | ||||||||||||||||||
Licenses | 14,339 | 7,186 | 6years | 14,070 | 6,729 | 6years | ||||||||||||||||||
Patents and other intangibles | 106,660 | 75,102 | 8years | 104,139 | 73,021 | 8years | ||||||||||||||||||
Total | $ | 939,742 | $ | 707,027 | 7years | $ | 915,298 | $ | 687,899 | 7years | ||||||||||||||
July 1, 2023 | December 31, 2022 | |||||||||||||||||||||||
Weighted- | Weighted- | |||||||||||||||||||||||
Gross | Average | Gross | Average | |||||||||||||||||||||
Carrying | Accumulated | Amortization | Carrying | Accumulated | Amortization | |||||||||||||||||||
Amount | Amortization | Period | Amount | Amortization | Period | |||||||||||||||||||
Capitalized software | $ | 627,965 | $ | 467,233 | 5 years | $ | 589,604 | $ | 441,414 | 5 years | ||||||||||||||
Purchased intangibles | 612,946 | 171,959 | 10 years | 197,805 | 166,735 | 11 years | ||||||||||||||||||
Trademarks | 9,680 | — | — | 9,680 | — | — | ||||||||||||||||||
Licenses | 14,682 | 7,691 | 7 years | 14,070 | 6,729 | 6 years | ||||||||||||||||||
Patents and other intangibles | 108,687 | 77,346 | 8 years | 104,139 | 73,021 | 8 years | ||||||||||||||||||
Total | $ | 1,373,960 | $ | 724,229 | 7 years | $ | 915,298 | $ | 687,899 | 7 years | ||||||||||||||
Face Value | ||||||||||||||||
Senior Unsecured Notes | Term | Interest Rate | (in millions) | Maturity Date | ||||||||||||
Series P | 5 years | 4.91 | % | $ | 50 | May 2028 | ||||||||||
Series Q | 7 years | 4.91 | % | $ | 50 | May 2030 |
April 1, 2023 | December 31, 2022 | |||||||
Foreign subsidiary lines of credit | $ | 40 | $ | — | ||||
Senior unsecured notes—Series I - | 50,000 | 50,000 | ||||||
Total notes payable and debt, current | 50,040 | 50,000 | ||||||
Senior unsecured notes—Series G - | 50,000 | 50,000 | ||||||
Senior unsecured notes—Series H - | 50,000 | 50,000 | ||||||
Senior unsecured notes—Series K - | 160,000 | 160,000 | ||||||
Senior unsecured notes—Series L - | 200,000 | 200,000 | ||||||
Senior unsecured notes—Series M - | 300,000 | 300,000 | ||||||
Senior unsecured notes—Series N - | 100,000 | 100,000 | ||||||
Senior unsecured notes—Series O - | 400,000 | 400,000 | ||||||
Credit agreement | 175,000 | 270,000 | ||||||
Unamortized debt issuance costs | (4,870 | ) | (5,122 | ) | ||||
Total long-term debt | 1,430,130 | 1,524,878 | ||||||
Total debt | $ | 1,480,170 | $ | 1,574,878 | ||||
July 1, 2023 | December 31, 2022 | |||||||
Senior unsecured notes - Series I - 3.13%, due May 2023 | — | 50,000 | ||||||
Senior unsecured notes - Series G - 3.92%, due June 2024 | 50,000 | — | ||||||
Total notes payable and debt, current | 50,000 | 50,000 | ||||||
Senior unsecured notes - Series G - 3.92%, due June 2024 | — | 50,000 | ||||||
Senior unsecured notes - Series H - floating rate*, due June 2024 | — | 50,000 | ||||||
Senior unsecured notes - Series K - 3.44%, due May 2026 | 160,000 | 160,000 | ||||||
Senior unsecured notes - Series L - 3.31%, due September 2026 | 200,000 | 200,000 | ||||||
Senior unsecured notes - Series M - 3.53%, due September 2029 | 300,000 | 300,000 | ||||||
Senior unsecured notes - Series N - 1.68%, due March 2026 | 100,000 | 100,000 | ||||||
Senior unsecured notes - Series O - 2.25%, due March 2031 | 400,000 | 400,000 | ||||||
Senior unsecured notes - Series P - 4.91%, due May 2028 | 50,000 | — | ||||||
Senior unsecured notes - Series Q - 4.91%, due May 2030 | 50,000 | — | ||||||
Credit agreement | 1,325,000 | 270,000 | ||||||
Unamortized debt issuance costs | (4,802 | ) | (5,122 | ) | ||||
Total long-term debt | 2,580,198 | 1,524,878 | ||||||
Total debt | $ | 2,630,198 | $ | 1,574,878 | ||||
* | Series H senior unsecured notes bear interest at a 1.25%.3-month LIBOR for that floating rate interest period plus |
Three Months Ended April 1, 2023 | ||||||||||||
Net Income (Numerator) | Weighted- Average Shares (Denominator) | Per Share Amount | ||||||||||
Net income per basic common share | $ | 140,923 | 59,023 | $ | 2.39 | |||||||
Effect of dilutive stock option, restricted stock, performance stock unit and restricted stock unit securities | — | 294 | (0.01 | ) | ||||||||
Net income per diluted common share | $ | 140,923 | 59,317 | $ | 2.38 | |||||||
Three Months Ended July 1, 2023 | ||||||||||||
Net Income | Weighted- Average Shares | Per Share | ||||||||||
(Numerator) | (Denominator) | Amount | ||||||||||
Net income per basic common share | $ | 150,554 | 58,857 | $ | 2.56 | |||||||
Effect of dilutive stock option, restricted stock, performance stock unit and restricted stock unit securities | — | 153 | (0.01 | ) | ||||||||
Net income per diluted common share | $ | 150,554 | 59,010 | $ | 2.55 | |||||||
Three Months Ended July 2, 2022 | ||||||||||||||||||||||||
Three Months Ended April 2, 2022 | Net Income | Weighted- Average Shares | Per Share | |||||||||||||||||||||
Net Income (Numerator) | Weighted- Average Shares (Denominator) | Per Share Amount | (Numerator) | (Denominator) | Amount | |||||||||||||||||||
Net income per basic common share | $ | 159,831 | 60,580 | $ | 2.64 | $ | 164,864 | 60,206 | $ | 2.74 | ||||||||||||||
Effect of dilutive stock option, restricted stock, performance stock unit and restricted stock unit securities | — | 372 | (0.02 | ) | — | 304 | (0.02 | ) | ||||||||||||||||
Net income per diluted common share | $ | 159,831 | 60,952 | $ | 2.62 | $ | 164,864 | 60,510 | $ | 2.72 | ||||||||||||||
Six Months Ended July 1, 2023 | ||||||||||||
Net Income | Weighted- Average Shares | Per Share | ||||||||||
(Numerator) | (Denominator) | Amount | ||||||||||
Net income per basic common share | $ | 291,477 | 58,703 | $ | 4.97 | |||||||
Effect of dilutive stock option, restricted stock, performance stock unit and restricted stock unit securities | — | 206 | (0.02 | ) | ||||||||
Net income per diluted common share | $ | 291,477 | 58,909 | $ | 4.95 | |||||||
Six Months Ended July 2, 2022 | ||||||||||||
Net Income | Weighted- Average Shares | Per Share | ||||||||||
(Numerator) | (Denominator) | Amount | ||||||||||
Net income per basic common share | $ | 324,695 | 60,399 | $ | 5.38 | |||||||
Effect of dilutive stock option, restricted stock, performance stock unit and restricted stock unit securities | — | 345 | (0.03 | ) | ||||||||
Net income per diluted common share | $ | 324,695 | 60,744 | $ | 5.35 | |||||||
Currency Translation | Unrealized Gain (Loss) on Retirement Plans | Accumulated Other Comprehensive Loss | ||||||||||
Balance at December 31, 2022 | $ | (146,120 | ) | $ | 4,548 | $ | (141,572 | ) | ||||
Other comprehensive (loss) income, net of tax | 12,767 | 5 | 12,772 | |||||||||
Balance at July 1, 2023 | $ | (133,353 | ) | $ | 4,553 | $ | (128,800 | ) | ||||
Currency Translation | Unrealized Gain (Loss) on Retirement Plans | Accumulated Other Comprehensive Loss | ||||||||||
Balance at December 31, 2022 | $ | (146,120 | ) | $ | 4,548 | $ | (141,572 | ) | ||||
Other comprehensive (loss) income, net of tax | 8,783 | (7 | ) | 8,776 | ||||||||
Balance at April 1, 2023 | $ | (137,337 | ) | $ | 4,541 | $ | (132,796 | ) | ||||
Three Months Ended | Three Months Ended | Six Months Ended | ||||||||||||||||||||||
April 1, 2023 | April 2, 2022 | July 1, 2023 | July 2, 2022 | July 1, 2023 | July 2, 2022 | |||||||||||||||||||
Product net sales: | ||||||||||||||||||||||||
Waters instrument systems | $ | 244,211 | $ | 269,962 | $ | 279,940 | $ | 280,846 | $ | 524,151 | $ | 550,808 | ||||||||||||
Chemistry consumables | 133,515 | 125,618 | 135,919 | 131,947 | 269,434 | 257,565 | ||||||||||||||||||
TA instrument systems | 58,731 | 55,260 | 62,067 | 56,837 | 120,798 | 112,097 | ||||||||||||||||||
Total product sales | 436,457 | 450,840 | 477,926 | 469,630 | 914,383 | 920,470 | ||||||||||||||||||
Service net sales: | ||||||||||||||||||||||||
Waters service | 224,349 | 217,576 | 237,376 | 222,359 | 461,725 | 439,935 | ||||||||||||||||||
TA service | 23,868 | 22,156 | 25,274 | 22,330 | 49,142 | 44,486 | ||||||||||||||||||
Total service sales | 248,217 | 239,732 | 262,650 | 244,689 | 510,867 | 484,421 | ||||||||||||||||||
Total net sales | $ | 684,674 | $ | 690,572 | $ | 740,576 | $ | 714,319 | $ | 1,425,250 | $ | 1,404,891 | ||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
July 1, 2023 | July 2, 2022 | July 1, 2023 | July 2, 2022 | |||||||||||||
Net Sales: | ||||||||||||||||
Asia: | ||||||||||||||||
China | $ | 114,981 | $ | 138,740 | $ | 231,046 | $ | 259,772 | ||||||||
Japan | 37,380 | 37,504 | 83,874 | 86,127 | ||||||||||||
Asia Other | 102,262 | 101,766 | 192,784 | 186,445 | ||||||||||||
Total Asia | 254,623 | 278,010 | 507,704 | 532,344 | ||||||||||||
Americas: | ||||||||||||||||
United States | 238,955 | 213,815 | 441,260 | 422,528 | ||||||||||||
Americas Other | 43,972 | 43,456 | 88,088 | 83,580 | ||||||||||||
Total Americas | 282,927 | 257,271 | 529,348 | 506,108 | ||||||||||||
Europe | 203,026 | 179,038 | 388,198 | 366,439 | ||||||||||||
Total net sales | $ | 740,576 | $ | 714,319 | $ | 1,425,250 | $ | 1,404,891 | ||||||||
Three Months Ended | ||||||||
April 1, 2023 | April 2, 2022 | |||||||
Net Sales: | ||||||||
Asia: | ||||||||
China | $ | 116,065 | $ | 121,032 | ||||
Japan | 46,494 | 48,623 | ||||||
Asia Other | 90,522 | 84,679 | ||||||
Total Asia | 253,081 | 254,334 | ||||||
Americas: | ||||||||
United States | 202,305 | 208,713 | ||||||
Americas Other | 44,116 | 40,124 | ||||||
Total Americas | 246,421 | 248,837 | ||||||
Europe | 185,172 | 187,401 | ||||||
Total net sales | $ | 684,674 | $ | 690,572 | ||||
Three Months Ended | ||||||||
April 1, 2023 | April 2, 2022 | |||||||
Pharmaceutical | $ | 384,898 | $ | 415,772 | ||||
Industrial | 209,650 | 209,397 | ||||||
Academic and government | 90,126 | 65,403 | ||||||
Total net sales | $ | 684,674 | $ | 690,572 | ||||
Three Months Ended | Six Months Ended | |||||||||||||||
July 1, 2023 | July 2, 2022 | July 1, 2023 | July 2, 2022 | |||||||||||||
Pharmaceutical | $ | 426,744 | $ | 437,171 | $ | 811,642 | $ | 852,943 | ||||||||
Industrial | 229,655 | 208,517 | 439,305 | 417,914 | ||||||||||||
Academic and government | 84,177 | 68,631 | 174,303 | 134,034 | ||||||||||||
Total net sales | $ | 740,576 | $ | 714,319 | $ | 1,425,250 | $ | 1,404,891 | ||||||||
Three Months Ended | Three Months Ended | Six Months Ended | ||||||||||||||||||||||
April 1, 2023 | April 2, 2022 | July 1, 2023 | July 2, 2022 | July 1, 2023 | July 2, 2022 | |||||||||||||||||||
Net sales recognized at a point in time: | ||||||||||||||||||||||||
Instrument systems | $ | 302,942 | $ | 325,222 | $ | 342,007 | $ | 337,683 | $ | 644,949 | $ | 662,905 | ||||||||||||
Chemistry consumables | 133,515 | 125,618 | 135,919 | 131,947 | 269,434 | 257,565 | ||||||||||||||||||
Service sales recognized at a point in time (time & materials) | 88,207 | 85,778 | 92,711 | 91,571 | 180,918 | 177,350 | ||||||||||||||||||
Total net sales recognized at a point in time | 524,664 | 536,618 | 570,637 | 561,201 | 1,095,301 | 1,097,820 | ||||||||||||||||||
Net sales recognized over time: | ||||||||||||||||||||||||
Service and software maintenance sales recognized over time (contracts) | 160,010 | 153,954 | 169,939 | 153,118 | 329,949 | 307,071 | ||||||||||||||||||
Total net sales | $ | 684,674 | $ | 690,572 | $ | 740,576 | $ | 714,319 | $ | 1,425,250 | $ | 1,404,891 | ||||||||||||
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations
Business Overview
The Company has two operating segments: WatersTM and TATM. Waters products and services primarily consist of high-performance liquid chromatography (“HPLC”), ultra-performance liquid chromatography (“UPLCTM” and, together with HPLC, referred to as “LC”), mass spectrometry (“MS”) and precision chemistry consumable products and related services. TA products and services primarily consist of thermal analysis, rheometry and calorimetry instrument systems and service sales. The Company’s products are used by pharmaceutical, biochemical, industrial, nutritional safety, environmental, academic and government customers. These customers use the Company’s products to detect, identify, monitor and measure the chemical, physical and biological composition of materials and to predict the suitability and stability of fine chemicals, pharmaceuticals, water, polymers, metals and viscous liquids in various industrial, consumer goods and healthcare products.
COVID-19 PandemicWyatt Acquisition
BothOn May 16, 2023, the Company’s domesticCompany completed the acquisition of Wyatt Technology, LLC and international operations have beenits three operating subsidiaries, Wyatt Technology Europe GmbH, Wyatt Technology France and continueWyatt Technology UK Ltd. (collectively, “Wyatt”), for a total purchase price of $1.3 billion in cash. Wyatt is a pioneer in innovative light scattering and field-flow fractionation instruments, software, accessories, and services. The acquisition will expand Waters’ portfolio and increase exposure to be affected by the ongoing global COVID-19 pandemic that has led to volatility and uncertainty in the U.S. and international markets.large molecule applications. The Company is actively managingfinanced this transaction with a combination of cash on its business to respond to the COVID-19 impact; however, the Company cannot reasonably estimate the length or severity of the COVID-19 pandemic, including the effect of the emergence of variants of the virus, or the related response, or the extent to which the disruption may materially impact the Company’s business, consolidated financial position, consolidated results of operations or consolidated cash flows in the future.
The COVID-19 pandemic has not had a material impact on the Company’s manufacturing facilities or those of the third parties to whom it outsources certain manufacturing processes, the distribution centers where the inventory is managed or the operations ofbalance sheet and borrowings under its logistics and other service providers.revolving credit facility.
20
Financial Overview
The Company’s operating results are as follows for the three and six months ended AprilJuly 1, 2023 and AprilJuly 2, 2022 (dollars in thousands, except per share data):
Three Months Ended | Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||||||||
April 1, 2023 | April 2, 2022 | % change | July 1, 2023 | July 2, 2022 | % change | July 1, 2023 | July 2, 2022 | % change | ||||||||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||||||||||||||
Product sales | $ | 436,457 | $ | 450,840 | (3 | %) | $ | 477,926 | $ | 469,630 | 2 | % | $ | 914,383 | $ | 920,470 | (1 | %) | ||||||||||||||||||
Service sales | 248,217 | 239,732 | 4 | % | 262,650 | 244,689 | 7 | % | 510,867 | 484,421 | 5 | % | ||||||||||||||||||||||||
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Total net sales | 684,674 | 690,572 | (1 | %) | 740,576 | 714,319 | 4 | % | 1,425,250 | 1,404,891 | 1 | % | ||||||||||||||||||||||||
Costs and operating expenses: | ||||||||||||||||||||||||||||||||||||
Cost of sales | 284,380 | 285,685 | — | 301,076 | 307,206 | (2 | %) | 585,456 | 592,891 | (1 | %) | |||||||||||||||||||||||||
Selling and administrative expenses | 181,956 | 157,475 | 16 | % | 186,953 | 161,877 | 15 | % | 368,909 | 319,352 | 16 | % | ||||||||||||||||||||||||
Research and development expenses | 42,691 | 40,472 | 5 | % | 45,873 | 44,006 | 4 | % | 88,564 | 84,478 | 5 | % | ||||||||||||||||||||||||
Purchased intangibles amortization | 1,479 | 1,673 | (12 | %) | 6,815 | 1,598 | 326 | % | 8,294 | 3,271 | 154 | % | ||||||||||||||||||||||||
Acquired in-process research and development | — | 9,797 | * | * | ||||||||||||||||||||||||||||||||
Acquired in-process research and development (Note 1) | — | — | — | — | 9,797 | (100 | %) | |||||||||||||||||||||||||||||
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Operating income | 174,168 | 195,470 | (11 | %) | 199,859 | 199,632 | — | 374,027 | 395,102 | (5 | %) | |||||||||||||||||||||||||
Operating income as a % of sales | 25.4 | % | 28.3 | % | 27.0 | % | 27.9 | % | 26.2 | % | 28.1 | % | ||||||||||||||||||||||||
Other income, net | 1,388 | 170 | * | * | (352 | ) | 1,535 | (123 | %) | 1,036 | 1,705 | (39 | %) | |||||||||||||||||||||||
Interest expense, net | (10,383 | ) | (8,945 | ) | 16 | % | (19,232 | ) | (8,893 | ) | 116 | % | (29,615 | ) | (17,838 | ) | 66 | % | ||||||||||||||||||
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Income before income taxes | 165,173 | 186,695 | (12 | %) | 180,275 | 192,274 | (6 | %) | 345,448 | 378,969 | (9 | %) | ||||||||||||||||||||||||
Provision for income taxes | 24,250 | 26,864 | (10 | %) | 29,721 | 27,410 | 8 | % | 53,971 | 54,274 | (1 | %) | ||||||||||||||||||||||||
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Net income | $ | 140,923 | $ | 159,831 | (12 | %) | $ | 150,554 | $ | 164,864 | (9 | %) | $ | 291,477 | $ | 324,695 | (10 | %) | ||||||||||||||||||
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Net income per diluted common share | $ | 2.38 | $ | 2.62 | (9 | %) | $ | 2.55 | $ | 2.72 | (6 | %) | $ | 4.95 | $ | 5.35 | (7 | %) |
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27
The Company’s net sales decreased 1%increased 4% in the firstsecond quarter of 2023, drivenas compared to the second quarter of 2022, with the effect of foreign currency translation decreasing sales growth by weaker customer demand for our instrument systems1%. For the first half of 2023, the Company’s net sales increased 1% with the effect of foreign currency translation decreasing sales growth by 3% as compared to the first quarterhalf of 2022. Foreign currency translation decreased totalThe Wyatt acquisition increased sales growth by 4%2% and 1% for the second quarter and first half of 2023, respectively. The analysis in the remainder of this section compares the Company’s net sales for the second quarter and first quarterhalf of 2023 aswith the significant U.S. dollar strengthening that began in MarchCompany’s net sales for the second quarter and first half of 2022 annualized, negatively impacting our sales and operating profits. includes the effect of the Wyatt acquisition.
In addition, the Company’s first quarterhalf of 2023 hadincluded one less calendar day than the first quarterhalf of 2022. At current foreign currency exchange rates, the Company expects that foreign currency translation would be neutral to sales for the remainder of 2023. Over the two-year period comparing the first quarterhalf of 2023 to the first quarterhalf of 2021, the Company’s net sales grew 6%5% annually.
Instrument system sales decreased 7% primarily onincreased 1% for the second quarter of 2023, as the strength in the U.S. and Europe was offset by weaker customer demand in China from our pharmaceutical customers. Excluding China, the U.S., Europe and China inCompany’s instrument system sales increased 12% for the firstsecond quarter of 2023, as compared to the instrument system sales increase of 24% in the first quarter of 2022, which was broad-based across all existing and newly introduced LC, LC-MS and and Thermal Analysisthermal analysis instrument systems. Foreign currency translation decreased instrument system sales growth by 4%1% and 2% in the second quarter and first quarterhalf of 2023.2023, respectively. Recurring revenues (combined sales of precision chemistry consumables and services) increased 4% in6% and 5% for the second quarter and first quarterhalf of 2023, respectively, with foreign currency translation decreasing sales growth by 4%.2% and 3% for the second quarter and first half of 2023, respectively.
Operating income was $174 million inflat and decreased 5% for the second quarter and first quarterhalf of 2023, a decrease of 11% as compared to $195 million in the first quarter of 2022. This decrease wasrespectively, primarily a result ofdriven by higher salary expenses related to merit compensation and additional headcount increases, and Wyatt acquisition due diligence and integration costs of $4 million and $12 million for the second quarter and first half of 2023, respectively. The negative effect of foreign currency translation whichwas minimal for the second quarter and lowered operating income by approximately $16 million and $4 million duringfor the first quarterhalf of 2023.
The Company generated $215 million and $255 million of net cash from operating activities in the first half of 2023 and 2022, respectively.
The Company generated $197 million and $198 million of net cash flows provided by operating activities in the first quarter of 2023 and 2022, respectively.
Net cash used in investing activities included $1.3 billion for the Wyatt acquisition in the first half of 2023 and capital expenditures related to property, plant, equipment and software capitalization of $34$81 million and $28$75 million in the first quarterhalf of 2023 and 2022, respectively.
21
On February 14, 2023, the Company entered into an agreement to acquire all issued and outstanding equity interests of Wyatt Technology for $1.4 billion in cash at closing, subject to customary adjustments. Wyatt Technology is a pioneer in innovative light scattering and field-flow fractionation instruments, software, accessories and services. The Company will finance thisfunded the Wyatt acquisition throughwith a combination of cash on its balance sheethand and existing borrowing capacity that is available on itsborrowings under our revolving credit facility. The agreement contains certain customary termination rights, includingCompany’s outstanding debt on July 1, 2023 was $2.6 billion, a change of $1.2 billion from the rightend of the sellers to terminate this transaction if it has not been completed by June 14, 2023, subject to automatic extension to August 14, 2023 if certain regulatory approvals are not obtained by such date. If this were to occur, the Company would be required to pay the sellers a one-time fee in the amount of $15 million if the agreement is validly terminated and not consummated in accordance with the closing conditions set forth in the agreement. This transaction is expected to close in the secondfirst quarter of 2023. The Company estimates that its interest expense for the full year 2023 subject to regulatory approvals and other customary closing conditions.
In January 2019,will be approximately $80 million. As a result of the Company’s Board of Directors authorizedWyatt acquisition, the Company to repurchase up to $4 billion of its outstanding common stock over a two-year period. In December 2020, the Company’s Board of Directors authorized the extension of the share repurchase program through January 21, 2023. In December 2022, the Company’s Board of Directors amended and extended this repurchase program’s term by one year such that it shall now expire on January 21, 2024 and increased the total authorization level by $750 million to $4.8 billion. During the three months ended April 1, 2023 and April 2, 2022, the Company repurchased $58 million and $160 million of the Company’s outstanding common stock, respectively, under the share repurchase programs. While the Company believes that it has the financial flexibility to fund these share repurchases, as well as to invest in research, technology and business acquisitions, given current cash levels and debt borrowing capacity, it has temporarily suspended its share repurchases due to its recently announced agreement to acquire Wyatt Technology.buyback program in the first quarter 2023.
On March 3, 2023, in anticipation of closing of the Wyatt acquisition, the Company entered into an agreement to amend the credit agreement governing its revolving credit facility (the “2023 Amendment”). The 2023 Amendment increases the borrowing capacity by $200 million to an aggregate total borrowing capacity of $2.0 billion.
In May 2023, the Company entered into a note purchase and private shelf agreement with an aggregate amount of up to $400 million. In May 2023, the Company issued senior unsecured notes with an aggregate principal amount of $100 million. The Series P $50 million notes have a five-year term and a fixed interest rate of 4.91%. The Series Q $50 million notes have a seven-year term and a fixed interest rate of 4.91%.
In July 2023, the Company made organizational changes to better align its resources with its growth and innovation strategies, resulting in a worldwide workforce reduction, that has impacted approximately 5% of the Company’s employees. The Company expects to incur approximately $30 million of severance related costs relating to this reduction in the third quarter of 2023. The Company estimates that the savings from this reduction in workforce will be approximately $45 million on an annual basis.
28
Results of Operations
Sales by Geography
Geographic sales information is presented below for the three and six months ended AprilJuly 1, 2023 and AprilJuly 2, 2022 (dollars in thousands):
Three Months Ended | ||||||||||||
April 1, 2023 | April 2, 2022 | % change | ||||||||||
Net Sales: | ||||||||||||
Asia: | ||||||||||||
China | $ | 116,065 | $ | 121,032 | (4 | %) | ||||||
Japan | 46,494 | 48,623 | (4 | %) | ||||||||
Asia Other | 90,522 | 84,679 | 7 | % | ||||||||
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Total Asia | 253,081 | 254,334 | — | |||||||||
Americas: | ||||||||||||
United States | 202,305 | 208,713 | (3 | %) | ||||||||
Americas Other | 44,116 | 40,124 | 10 | % | ||||||||
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Total Americas | 246,421 | 248,837 | (1 | %) | ||||||||
Europe | 185,172 | 187,401 | (1 | %) | ||||||||
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Total net sales | $ | 684,674 | $ | 690,572 | (1 | %) | ||||||
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22
Three Months Ended | Six Months Ended | |||||||||||||||||||||||
July 1, 2023 | July 2, 2022 | % change | July 1, 2023 | July 2, 2022 | % change | |||||||||||||||||||
Net Sales: | ||||||||||||||||||||||||
Asia: | ||||||||||||||||||||||||
China | $ | 114,981 | $ | 138,740 | (17 | %) | $ | 231,046 | $ | 259,772 | (11 | %) | ||||||||||||
Japan | 37,380 | 37,504 | — | 83,874 | 86,127 | (3 | %) | |||||||||||||||||
Asia Other | 102,262 | 101,766 | — | 192,784 | 186,445 | 3 | % | |||||||||||||||||
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Total Asia | 254,623 | 278,010 | (8 | %) | 507,704 | 532,344 | (5 | %) | ||||||||||||||||
Americas: | ||||||||||||||||||||||||
United States | 238,955 | 213,815 | 12 | % | 441,260 | 422,528 | 4 | % | ||||||||||||||||
Americas Other | 43,972 | 43,456 | 1 | % | 88,088 | 83,580 | 5 | % | ||||||||||||||||
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Total Americas | 282,927 | 257,271 | 10 | % | 529,348 | 506,108 | 5 | % | ||||||||||||||||
Europe | 203,026 | 179,038 | 13 | % | 388,198 | 366,439 | 6 | % | ||||||||||||||||
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Total net sales | $ | 740,576 | $ | 714,319 | 4 | % | $ | 1,425,250 | $ | 1,404,891 | 1 | % | ||||||||||||
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Geographically, the Company’s sales growth in the second quarter and first half of 2023 was broad-based across all regions, with the exception of China which declined 17% and 11%, respectively. The decline in China was primarily driven by lower demand for our instrument systems by China’s pharmaceutical customers. Excluding China, the Company’s net sales would have increased 9% and 4% for the second quarter and first half of 2023, respectively. Foreign currency translation decreased total sales growth by 1% and 3% in the second quarter and first half of 2023, respectively. The significant impact of foreign currency translation in the first quarterhalf of 2023 can be attributed to the sales growth in Asia Other and Americas Other being offset by lower customer demand for our instrument systems in thesignificant U.S., Europe and China. Sales growth dollar strengthening that started late in the first quarter of 2022 and has now annualized.
During the second quarter of 2023, was negatively impactedsales increased 12% in the U.S. and 13% in Europe, while decreasing 8% in Asia driven by weakness in China. Foreign currency translation increased sales growth in Europe by 1% and decreased sales growth in Asia by 3% in the second quarter of 2023. During the first half of 2023, sales increased 4% in the U.S. and 6% in Europe and decreased 5% in Asia driven by weakness in China, with the effect of foreign currency translation across most major regions, decreasing total sales growth by 4% in the first quarter of 2023 as the impact of the U.S. dollar strengthening that began in March 2022 annualized. The geographies that were the most negatively impacted by the strengthening of the U.S. dollar in the first quarter of 2023 were Europe and Japan, as the weakening of the euro and Japanese yen lowered sales growth in Europe and JapanAsia by 4%2% and 13%5%, respectively, in the quarter.respectively.
Sales by Trade Class
Net sales by customer class are presented below for the three and six months ended AprilJuly 1, 2023 and AprilJuly 2, 2022 (dollars in thousands):
Three Months Ended | Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||||||||
April 1, 2023 | April 2, 2022 | % change | July 1, 2023 | July 2, 2022 | % change | July 1, 2023 | July 2, 2022 | % change | ||||||||||||||||||||||||||||
Pharmaceutical | $ | 384,898 | $ | 415,772 | (7 | %) | $ | 426,744 | $ | 437,171 | (2 | %) | $ | 811,642 | $ | 852,943 | (5 | %) | ||||||||||||||||||
Industrial | 209,650 | 209,397 | — | 229,655 | 208,517 | 10 | % | 439,305 | 417,914 | 5 | % | |||||||||||||||||||||||||
Academic and government | 90,126 | 65,403 | 38 | % | 84,177 | 68,631 | 23 | % | 174,303 | 134,034 | 30 | % | ||||||||||||||||||||||||
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Total net sales | $ | 684,674 | $ | 690,572 | (1 | %) | $ | 740,576 | $ | 714,319 | 4 | % | $ | 1,425,250 | $ | 1,404,891 | 1 | % | ||||||||||||||||||
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Sales
29
During the second quarter of 2023, sales to pharmaceutical customers decreased 7%2%, as double-digit growth in the first quarter of 2023 primarily due to a slower release of capital budgetsU.S. and Europe was offset by our customers andweakness in China, with foreign currency translation decreasing pharmaceutical sales growth by 3%1%. Combined sales to industrial customers, which include material characterization, food, environmental and fine chemical markets, were flatincreased 10% in the firstsecond quarter of 2023, with foreign currency translation decreasing sales growth by 3%1%. Combined sales to academic and government customers increased 38%23% in the firstsecond quarter of 2023, with foreign currency translation decreasing academic and government sales growth by 7%1%. Sales to our academic and government customers are highly dependent on when institutions receive funding to purchase our instrument systems and, as such, sales can vary significantly from period to period.
During the first half of 2023, sales to pharmaceutical customers decreased 5%, primarily driven by slower release of capital budgets by our customers, weakness in customer demand in China, and foreign currency translation which decreased pharmaceutical sales growth by 3%. Combined sales to industrial customers increased 5%, with the effect of foreign currency translation decreasing sales growth by 2%. Combined sales to academic and government customers increased 30%, with foreign currency translation decreasing sales growth by 4%.
Waters Products and Services Net Sales
Net sales for Waters products and services were as follows for the three and six months ended AprilJuly 1, 2023 and AprilJuly 2, 2022 (dollars in thousands):
Three Months Ended | ||||||||||||||||||||||||||||||||||||||||
Three Months Ended | July 1, 2023 | % of Total | July 2, 2022 | % of Total | % change | |||||||||||||||||||||||||||||||||||
April 1, 2023 | % of Total | April 2, 2022 | % of Total | % change | ||||||||||||||||||||||||||||||||||||
Waters instrument systems | $ | 244,211 | 41 | % | $ | 269,962 | 44 | % | (10 | %) | $ | 279,940 | 43 | % | $ | 280,846 | 44 | % | — | |||||||||||||||||||||
Chemistry consumables | 133,515 | 22 | % | 125,618 | 21 | % | 6 | % | 135,919 | 21 | % | 131,947 | 21 | % | 3 | % | ||||||||||||||||||||||||
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Total Waters product sales | 377,726 | 63 | % | 395,580 | 65 | % | (5 | %) | 415,859 | 64 | % | 412,793 | 65 | % | 1 | % | ||||||||||||||||||||||||
Waters service | 224,349 | 37 | % | 217,576 | 35 | % | 3 | % | 237,376 | 36 | % | 222,359 | 35 | % | 7 | % | ||||||||||||||||||||||||
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Total Waters net sales | $ | 602,075 | 100 | % | $ | 613,156 | 100 | % | (2 | %) | $ | 653,235 | 100 | % | $ | 635,152 | 100 | % | 3 | % | ||||||||||||||||||||
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Six Months Ended | ||||||||||||||||||||
July 1, 2023 | % of Total | July 2, 2022 | % of Total | % change | ||||||||||||||||
Waters instrument systems | $ | 524,151 | 42 | % | $ | 550,808 | 44 | % | (5 | %) | ||||||||||
Chemistry consumables | 269,434 | 21 | % | 257,565 | 21 | % | 5 | % | ||||||||||||
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Total Waters product sales | 793,585 | 63 | % | 808,373 | 65 | % | (2 | %) | ||||||||||||
Waters service | 461,725 | 37 | % | 439,935 | 35 | % | 5 | % | ||||||||||||
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Total Waters net sales | $ | 1,255,310 | 100 | % | $ | 1,248,308 | 100 | % | 1 | % | ||||||||||
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Waters products and service sales decreased 2%increased 3% and 1% in the second quarter and first quarterhalf of 2023, respectively, with the effect of foreign currency translation decreasing Waters sales growth by 4%.1% and 2% in the second quarter and first half of 2023, respectively. Waters instrument system sales were flat and decreased 10% in5% for the second quarter and first quarterhalf of 2023, respectively, due to weaker customer demand in China from pharmaceutical customers. Foreign currency translation decreased Waters instrument system sales growth by 2% for the U.S., Europe and China.first half of 2023. The increase in Waters chemistry consumables sales was primarily due to the continued strong demand in most major geographies, driven by the uptake in columns and application-specific testing kits to pharmaceutical customers, partially offset by the negative impact from foreign currency translation which decreased sales growth by 4%.2% in both the second quarter and first half of 2023. Waters service sales increased in the second quarter and first quarterhalf of 2023 due to higher service demand billing, particularly in China and Europe, partially offset by the negative impact from foreign currency translation which decreased service sales growth by 5%.2% and 3% in the second quarter and first half of 2023, respectively. The Wyatt acquisition increased Waters products and service sales by approximately 2% and 1% for the second quarter and first half of 2023, respectively, as compared to the corresponding prior year periods.
2330
TA Product and Services Net Sales
Net sales for TA products and services were as follows for the three and six months ended AprilJuly 1, 2023 and AprilJuly 2, 2022 (dollars in thousands):
Three Months Ended | ||||||||||||||||||||||||||||||||||||||||
Three Months Ended | July 1, 2023 | % of Total | July 2, 2022 | % of Total | % change | |||||||||||||||||||||||||||||||||||
April 1, 2023 | % of Total | April 2, 2022 | % of Total | % change | ||||||||||||||||||||||||||||||||||||
TA instrument systems | $ | 58,731 | 71 | % | $ | 55,260 | 71 | % | 6 | % | $ | 62,067 | 71 | % | $ | 56,837 | 72 | % | 9 | % | ||||||||||||||||||||
TA service | 23,868 | 29 | % | 22,156 | 29 | % | 8 | % | 25,274 | 29 | % | 22,330 | 28 | % | 13 | % | ||||||||||||||||||||||||
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Total TA net sales | $ | 82,599 | 100 | % | $ | 77,416 | 100 | % | 7 | % | $ | 87,341 | 100 | % | $ | 79,167 | 100 | % | 10 | % | ||||||||||||||||||||
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July 1, 2023 | % of Total | July 2, 2022 | % of Total | % change | ||||||||||||||||
TA instrument systems | $ | 120,798 | 71 | % | $ | 112,097 | 72 | % | 8 | % | ||||||||||
TA service | 49,142 | 29 | % | 44,486 | 28 | % | 10 | % | ||||||||||||
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Total TA net sales | $ | 169,940 | 100 | % | $ | 156,583 | 100 | % | 9 | % | ||||||||||
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TA instrument system and service sales increased 6% and 8%growth in the second quarter and first quarterhalf of 2023 respectively, with foreignwas broad-based across most major geographies, increasing 10% and 9% in the second quarter and first half of 2023, respectively. Foreign currency translation decreasing instrument systemdecreased sales by 1% for both the second quarter and service sales growth by 4% and 2%, respectively.first half of 2023. The sales growth was primarily driven by strong customer demand for our thermal analysis instruments and services, particularly in the U.S. and Europe.
Cost of Sales
Cost of sales were flatdecreased by 2% and 1% in the second quarter and first quarterhalf of 2023, compared to the first quarterrespectively. The decrease in cost of 2022,sales in these periods is primarily due to the change in sales mix and the favorable impact from foreign currency translation which decreasedlower material and freight costs by 1%.for both the second quarter and first half of 2023. Cost of sales is affected by many factors, including, but not limited to, foreign currency translation, product mix, product costs of instrument systems and amortization of software platforms. At current foreign currency exchange rates, the Company expects foreign currency translation to be neutral to gross profit during 2023.
Selling and Administrative Expenses
Selling and administrative expenses increased 15% and 16% in the second quarter and first quarterhalf of 2023. This increase includes2023, respectively. The increases in these periods include the Wyatt acquisition due diligence and integration costs, which increased expenses by 6%.2% and 4% for the second quarter and first half of 2023, respectively. The remaining increase is attributed to investment in headcount to support higher-growth adjacencies, annual merit compensation increases, normalization of travel expenses to pre-COVID levels and timing of investments associated with product launch. The effect of foreign currency translation decreased selling and administrative expenses by 3%1% and 2% in the second quarter and first quarterhalf of 2023.2023, respectively.
As a percentage of net sales, selling and administrative expenses were 26.6%25.2% and 22.8%25.9% for the second quarter and first quarterhalf of 2023, respectively, and 2022, respectively.22.7% for both the second quarter and first half of 2022.
Research and Development Expenses
Research and development expenses increased 4% and 5% in the second quarter and first quarterhalf of 2023.2023, respectively. The increaseincreases in research and development expenses in the first quarter of 2023 wasthese periods were impacted by additional headcount, higher salary expenses attributable to merit compensation increases and costs associated with new products and the development of new technology initiatives. The impact of foreign currency exchange decreased expenses by 4%2% and 3% in the second quarter and first quarterhalf of 2023.2023, respectively.
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Acquired In-Process Research & Development
In 2022, the Company completed an asset acquisition in which the CDMS technology assets of Megadalton were acquired for approximately $10 million in total purchase price, of which $5 million was paid at closing and the remaining $4 million will be paid in the future at various dates through 2029.
Other Income, net
During the first quarterhalf of 2022, the Company sold an equity investment for $7 million in cash and recorded a gain on the sale of approximately $4 million in other income, net on the statement of operations. The Company also incurred $4 million in losses on an equity investment within other income, net on the statement of operations.
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Interest Expense, net
NetThe increase in interest expense infor both the second quarter and first quarterhalf of can be primarily attributed to the additional borrowings to fund the Wyatt acquisition. The Company estimates that its interest expense for the full year 2023 increased $1 million, which was primarily attributable to higher debt levels and higher interest rates on our variable rate debt balances.will be approximately $80 million.
Provision for Income Taxes
The four principal jurisdictions in which the Company manufactures are the U.S., Ireland, the U.K. and Singapore, where the statutory tax rates were 21%, 12.5%, 25% and 17%, respectively, as of AprilJuly 1, 2023. The Company has a Development and Expansion Incentive in Singapore that provides a concessionary income tax rate of 5% on certain types of income for the period April 1, 2021 through March 31, 2026. The effect of applying the concessionary income tax rate rather than the statutory tax rate to income from qualifying activities in Singapore increased the Company’s net income by $3$7 million and $5$10 million and increased the Company’s net income per diluted share by $0.05$0.11 and $0.08$0.16 for the firstsecond quarter of 2023 and 2022, respectively.
The Company’s effective tax rate for the firstsecond quarter of 2023 and 2022 was 14.7%16.5% and 14.4%14.3%, respectively. The increase in the effective tax rate can be primarily attributed to the impact of discrete tax benefits in the prior year and differences in the proportionate amounts of pre-taxincome recognized in jurisdictions with different effective tax provision includes a $2 million and a $4 million incomerates.
The Company’s effective tax benefit related to stock-based compensationrate for the first quarterhalf of 2023 and 2022 was 15.6% and 14.3%, respectively. The remaining differences between the effective tax rates can primarily be attributed to differences in the proportionate amounts of pre-tax income recognized in jurisdictions with different effective tax rates.
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Liquidity and Capital Resources
Condensed Consolidated Statements of Cash Flows (in thousands):
Three Months Ended | Six Months Ended | |||||||||||||||
April 1, 2023 | April 2, 2022 | July 1, 2023 | July 2, 2022 | |||||||||||||
Net income | $ | 140,923 | $ | 159,831 | $ | 291,477 | $ | 324,695 | ||||||||
Depreciation and amortization | 31,154 | 32,664 | 70,038 | 66,891 | ||||||||||||
Stock-based compensation | 12,805 | 10,933 | 23,734 | 20,722 | ||||||||||||
Deferred income taxes | (5,078 | ) | 4,175 | (6,435 | ) | (12,523 | ) | |||||||||
Acquired in-process research and development and other non-cash items | — | 9,381 | — | 7,903 | ||||||||||||
Change in accounts receivable | 44,047 | (907 | ) | 50,273 | (57,377 | ) | ||||||||||
Change in inventories | (42,621 | ) | (26,832 | ) | (63,607 | ) | (65,070 | ) | ||||||||
Change in accounts payable and other current liabilities | (71,257 | ) | (69,548 | ) | (122,836 | ) | (32,197 | ) | ||||||||
Change in deferred revenue and customer advances | 77,206 | 91,514 | 81,659 | 70,027 | ||||||||||||
Other changes | 9,572 | (13,251 | ) | (109,434 | ) | (68,208 | ) | |||||||||
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Net cash provided by operating activities | 196,751 | 197,960 | 214,869 | 254,863 | ||||||||||||
Net cash (used in) provided by investing activities | (34,406 | ) | 18,992 | |||||||||||||
Net cash used in financing activities | (159,211 | ) | (227,411 | ) | ||||||||||||
Net cash used in investing activities | (1,366,920 | ) | (7,403 | ) | ||||||||||||
Net cash provided by (used in) financing activities | 998,963 | (310,181 | ) | |||||||||||||
Effect of exchange rate changes on cash and cash equivalents | 2,407 | (10,705 | ) | 2,252 | (19,616 | ) | ||||||||||
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Increase (decrease) in cash and cash equivalents | $ | 5,541 | $ | (21,164 | ) | |||||||||||
Decrease in cash and cash equivalents | $ | (150,836 | ) | $ | (82,337 | ) | ||||||||||
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Cash Flow from Operating Activities
Net cash provided by operating activities was $197$215 million and $198$255 million during the first quarterhalf of 2023 and 2022, respectively. The decrease in 2023 operating cash flow was primarily a result of lower net income, and higher inventory levels, higher income tax payments and the payment of acquired Wyatt liabilities, offset by higher cash collections in 2023 compared to 2022. The changes within net cash provided by operating activities include the following significant changes in the sources and uses of net cash provided by operating activities, aside from the changes in net income:
The changes in accounts receivable were primarily attributable to the timing of payments made by customers and timing of sales. Days sales outstanding was 9185 days at AprilJuly 1, 2023 and 81 days at AprilJuly 2, 2022.
The increase in inventory can primarily be attributed to higher material costs as well as an increase in safety stock levels to help mitigate any future supply chain issues.
Net cash provided from deferred revenue and customer advances results from annual increases in new service contracts as a higher installed base of customers renew annual service contracts.
An increase in income tax payments of $81 million as compared to the prior year and the payment of $26 million in Wyatt acquired liabilities.
Other changes were attributable to variation in the timing of various provisions, expenditures, prepaid income taxes and accruals in other current assets, other assets and other liabilities.
Cash Flow from Investing Activities
Net cash used in investing activities totaled $34$1.4 billion and $7 million induring the first quarterhalf of 2023 and net cash provided by investing activities totaled $19 million in the first quarter of 2022.2022, respectively. Additions to fixed assets and capitalized software were $34$81 million and $28$75 million in the first three monthshalf of 2023 and 2022, respectively. The cash flows from investing activities in 2023 and 2022 include $4$9 million and $6$17 million, respectively, of capital expenditures related to the major expansion of the Company’s precision chemistry consumable operations in the United States. The Company has incurred costs of $236$241 million on this facility through the end of the first quarterhalf of 2023 and anticipates spending approximately $16$11 million to complete this new state-of-the-art facility for the remainder of 2023.
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During the first three monthshalf of 2023 and 2022, the Company purchased $1 million and $9$11 million of investments, respectively, while $1 million and $54$78 million of investments matured, respectively, and were used for financing activities described below.
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During the first quarterhalf of 2022, the Company paid $5 million for the CDMS technology and intellectual property right asset from Megadalton, and the Company is required to make an additional $4 million of guaranteed payments at various dates in the future through 2029. The total purchase price of approximately $10 million was accounted for as Acquired In-Process Research and Development and expensed as part of costs and operating expenses in the statement of operations in 2022.
On February 14,May 16, 2023, the Company entered into an agreement to acquire all issued and outstanding equity interestscompleted the acquisition of Wyatt Technology for $1.4a total purchase price of $1.3 billion in cash at closing, subject to customary adjustments.cash. Wyatt Technology is a pioneer in innovative light scattering and field-flow fractionation instruments, software, accessories, and services. The Companyacquisition will finance this acquisition through cash on its balance sheetexpand Waters’ portfolio and existing borrowing capacity that is available on its revolving credit facility. The agreement contains certain customary termination rights, including the right of the sellersincrease exposure to terminate this transaction if it has not been completed by June 14, 2023, subject to automatic extension to August 14, 2023 if certain regulatory approvals are not obtained by such date. If this were to occur, the Company would be required to pay the sellers a one-time fee in the amount of $15 million if the agreement is validly terminated and not consummated in accordance with the closing conditions set forth in the agreement. This transaction is expected to close in the second quarter of 2023, subject to regulatory approvals and other customary closing conditions.large molecule applications.
Cash Flow from Financing Activities
In June 2023, the Company issued senior unsecured notes with an aggregate principal amount of $100 million. The Series P $50 million notes have a five-year term and a fixed interest rate of 4.91%. The Series Q $50 million notes have a seven-year term and a fixed interest rate of 4.91%. The Company used the proceeds from the issuance of these senior unsecured notes to repay other outstanding debt and for general corporate purposes.
The Company had entered into a credit agreement in September 2021 governing the Company’s five-year, $1.8 billion revolving facility that matures in September 2026. On March 3, 2023 the Company entered into an agreement to amend such credit agreement. The 2023 Amendment increases the borrowing capacity by $200 million to an aggregate borrowing capacity of $2.0 billion. As of AprilJuly 1, 2023, the Company had a total of $1.5$2.6 billion in outstanding debt, which consisted of $1.3 billion in outstanding senior unsecured notes and $175$1,325 million borrowed under its credit agreement. The Company’s net debt borrowings decreasedincreased by $95 million$1.1 billion and $70$30 million during the three months endedfirst half of 2023 and 2022, respectively.respectively, primarily to fund the Wyatt acquisition.
As of AprilJuly 1, 2023, the Company has entered into three-year interest rate cross-currency swap derivative agreements with aan aggregate notional value $585of $625 million to hedge the variability in the movement of foreign currency exchange rates on a portion of its euro-denominated and yen-denominated net asset investments. As a result of entering into these agreements, the Company lowered net interest expense by approximately $3$5 million and $2$4 million in the during the first quarterhalf of 2023 and 2022, respectively. The Company anticipates that these swap agreements will lower net interest expense by approximately $10 million in 2023.
In January 2019, the Company’s Board of Directors authorized the Company to repurchase up to $4 billion of its outstanding common stock over a two-year period. This new program replaced the remaining amounts available from the pre-existing program. In December 2020, the Company’s Board of Directors authorized the extension of the share repurchase program through January 21, 2023. In December 2022, the Company’s Board of Directors amended and extended this repurchase program’s term by one year such that it shall now expire on January 21, 2024 and increased the total authorization level to $4.8 billion, an increase of $750 million. During the three months ended Aprilfirst half of July 1, 2023 and AprilJuly 2, 2022, the Company repurchased $58 million and $160$312 million of the Company’s outstanding common stock, respectively, under the share repurchase program. In addition, the Company repurchased $11 million and $10 million of common stock related to the vesting of restricted stock units during the three months ended Aprilfirst half of July 1, 2023 and AprilJuly 2, 2022, respectively. While the Company believes that it has the financial flexibility to fund these share repurchases, as well as to invest in research, technology and business acquisitions, given current cash levels and debt borrowing capacity, it has temporarily suspended its share repurchases due to its recently announced agreement to acquire Wyatt Technology.acquisition of Wyatt.
The Company received $2$9 million and $13$31 million of proceeds from the exercise of stock options and the purchase of shares pursuant to the Company’s employee stock purchase plan during the first three monthshalf of 2023 and 2022, respectively.
The Company had cash, cash equivalents and investments of $487$331 million as of AprilJuly 1, 2023. The majority of the Company’s cash and cash equivalents are generated from foreign operations, with $313$272 million held by foreign subsidiaries at AprilJuly 1, 2023, of which $188$184 million was held in currencies other than U.S. dollars.
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Contractual Obligations, Commercial Commitments, Contingent Liabilities and Dividends
A summary of the Company’s contractual obligations and commercial commitments is included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on February 27, 2023. The Company reviewed its contractual obligations and commercial commitments as of AprilJuly 1, 2023 and determined that there were no material changes outside the ordinary course of business from the information set forth in the Annual Report on Form 10-K.
From time to time, the Company and its subsidiaries are involved in various litigation matters arising in the ordinary course of business. The Company believes that it has meritorious arguments in its current litigation matters and that any outcome, either individually or in the aggregate, will not be material to the Company’s financial position or results of operations.
During fiscal year 2023, the Company expects to contribute a total of approximately $3 million to $6 million to its defined benefit plans.
The Company has not paid any dividends and has no plans, at this time, to pay any dividends in the future.
Off-Balance Sheet Arrangements
The Company has not created, and is not party to, any special-purpose or off-balance sheet entities for the purpose of raising capital, incurring debt or operating parts of its business that are not consolidated (to the extent of the Company’s ownership interest therein) into the consolidated financial statements. The Company has not entered into any transactions with unconsolidated entities whereby it has subordinated retained interests, derivative instruments or other contingent arrangements that expose the Company to material continuing risks, contingent liabilities or any other obligation under a variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to the Company.
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
In the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on February 27, 2023, the Company’s most critical accounting policies and estimates upon which its financial status depends were identified as those relating to revenue recognition, valuation of long-lived assets, intangible assets and goodwill, income taxes, uncertain tax positions, litigation and business combinations and asset acquisitions. The Company reviewed its policies and determined that those policies remain the Company’s most critical accounting policies for the threesix months ended AprilJuly 1, 2023. The Company did not make any changes in those policies during the threesix months ended AprilJuly 1, 2023.
New Accounting Pronouncements
Please refer to Note 12,13, Recent Accounting Standard Changes and Developments, in the Condensed Notes to Consolidated Financial Statements.
Special Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q, including the information incorporated by reference herein, may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
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Statements that are not statements of historical fact may be deemed forward-looking statements. You can identify these forward-looking statements by the use of the words “feels”, “believes”, “anticipates”, “plans”, “expects”, “may”, “will”, “would”, “intends”, “suggests”, “appears”, “estimates”, “projects”, “should” and similar expressions, whether in the negative or affirmative. These forward-looking statements are subject to various risks and uncertainties, many of which are outside the control of the Company, including, and without limitation:
• | foreign currency exchange rate fluctuations potentially affecting translation of the Company’s future non-U.S. operating results, particularly when a foreign currency weakens against the U.S. dollar; |
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current global economic, sovereign and political conditions and uncertainties, including the effect of new or proposed tariff or trade regulations, changes in inflation and interest rates, the impacts and costs of war, in particular as a result of the ongoing conflict between Russia and Ukraine, and the possibility of further escalation resulting in new geopolitical and regulatory instability, the United Kingdom’s exit from the European Union and the Chinese government’s ongoing tightening of restrictions on procurement by government-funded customers;
the Company’s ability to access capital, maintain liquidity and service the Company’s debt in volatile market conditions;
• | risks related to the effects of the ongoing COVID-19 pandemic on our business, financial condition, results of operations and prospects; |
changes in timing and demand for the Company’s products among the Company’s customers and various market sectors, particularly as a result of fluctuations in their expenditures or ability to obtain funding, as in the cases of academic, governmental and research institutions;
the introduction of competing products by other companies and loss of market share, as well as pressures on prices from customers and/or competitors;
changes in the competitive landscape as a result of changes in ownership, mergers and continued consolidation among the Company’s competitors;
regulatory, economic and competitive obstacles to new product introductions, lack of acceptance of new products and inability to grow organically through innovation;
rapidly changing technology and product obsolescence;
risks associated with previous or future acquisitions, strategic investments, joint ventures and divestitures, including risks associated with contingent purchase price payments and expansion of our business into new or developing markets;
risks associated with unexpected disruptions in operations;
failure to adequately protect the Company’s intellectual property, infringement of intellectual property rights of third parties and inability to obtain licenses on commercially reasonable terms;
the Company’s ability to acquire adequate sources of supply and its reliance on outside contractors for certain components and modules, as well as disruptions to its supply chain;
risks associated with third-party sales intermediaries and resellers;
the impact and costs in connection with shifts in taxable income in jurisdictions with different effective tax rates, the outcome of ongoing and future tax examinations and changes in legislation affecting the Company’s effective tax rate;
the Company’s ability to attract and retain qualified employees and management personnel;
the ability to realize the expected benefits related to the Company’s various cost-saving initiatives;
risks associated with cybersecurity and technology, including attempts by third parties to defeat the security measures of the Company and its third-party partners;
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increased regulatory burdens as the Company’s business evolves, especially with respect to the U.S. Food and Drug Administration and U.S. Environmental Protection Agency, among others, and in connection with government contracts;
regulatory, environmental and logistical obstacles affecting the distribution of the Company’s products, completion of purchase order documentation and the ability of customers to obtain letters of credit or other financing alternatives;
risks associated with litigation and other legal and regulatory proceedings; and
the impact and costs incurred from changes in accounting principles and practices; the impact and costs of changes in statutory or contractual tax rates in jurisdictions in which the Company operates, specifically as it relates to the Tax Cuts and Jobs Act in the U.S.; and shifts in taxable income among jurisdictions with different effective tax rates.
Certain of these and other factors are discussed under the heading “Risk Factors” under Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on February 27, 2023. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements, whether because of these factors or for other reasons. All forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are expressly qualified in their entirety by the cautionary statements included in this report. Except as required by law, the Company does not assume any obligation to update any forward-looking statements.
Item 3: Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to the risk of interest rate fluctuations from the investments of cash generated from operations. Investments with maturities greater than 90 days are classified as investments and are held primarily in U.S. dollar-denominated treasury bills and commercial paper, bank deposits and corporate debt securities. As of AprilJuly 1, 2023, the Company estimates that a hypothetical adverse change of 100 basis points across all maturities would not have a material effect on the fair market value of its portfolio.
The Company is also exposed to the risk of exchange rate fluctuations. The Company maintains cash balances in various operating accounts in excess of federally insured limits, and in foreign subsidiary accounts in currencies other than the U.S. dollar. As of AprilJuly 1, 2023 and December 31, 2022, $313$272 million out of $487$331 million and $472 million out of $481 million, respectively, of the Company’s total cash, cash equivalents and investments were held by foreign subsidiaries. In addition, $188$184 million out of $487$331 million and $336 million out of $481 million of cash, cash equivalents and investments were held in currencies other than the U.S. dollar at AprilJuly 1, 2023 and December 31, 2022, respectively. As of AprilJuly 1, 2023, the Company had no holdings in auction rate securities or commercial paper issued by structured investment vehicles.
Assuming a hypothetical adverse change of 10% in year-end exchange rates (a strengthening of the U.S. dollar), the fair market value of the Company’s cash, cash equivalents and investments held in currencies other than the U.S. dollar as of AprilJuly 1, 2023 would decrease by approximately $19 million, of which the majority would be recorded to foreign currency translation in other comprehensive income within stockholders’ equity.
There have been no other material changes in the Company’s market risk during the threesix months ended AprilJuly 1, 2023. For information regarding the Company’s market risk, refer to Item 7A of Part II of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on February 27, 2023.
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Item 4: Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company’s chief executive officer and chief financial officer (principal executive officer and principal financial officer), with the participation of management, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, the Company’s chief executive officer and chief financial officer concluded that the Company’s disclosure controls and procedures were effective as of AprilJuly 1, 2023 (1) to ensure that information required to be disclosed by the Company, including its consolidated subsidiaries, in the
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reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its chief executive officer and chief financial officer, to allow timely decisions regarding the required disclosure and (2) to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
Changes in Internal Control Over Financial Reporting
No change was identified in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended AprilJuly 1, 2023 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Part II: Other Information
Item 1: Legal Proceedings
There have been no material changes in the Company’s legal proceedings during the threesix months ended AprilJuly 1, 2023 as described in Item 3 of Part I of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on February 27, 2023.
Item 1A: Risk Factors
Information regarding risk factors of the Company is set forth under the heading “Risk Factors” under Part I, Item 1A in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on February 27, 2023. The Company reviewed its risk factors as of AprilJuly 1, 2023 and determined that there were no material changes from the ones set forth in the Form 10-K. Note, however, the discussion of certain factors under the subheading “Special Note Regarding Forward-Looking Statements” in Part I, Item 2 of this Quarterly Report on Form 10-Q. These risks are not the only ones facing the Company. Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial may have a material adverse effect on the Company’s business, financial condition and operating results.
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Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
Purchases of Equity Securities by the Issuer
The following table provides information about purchases by the Company duringDuring the three months ended AprilJuly 1, 2023, the Company purchased 204, 491 and 149 shares at a cost of $62 thousand, $137 thousand and $38 thousand with average prices paid of $302.66, $278.06 and $256.45 during fiscal April, May and June, respectively, of equity securities registered by the Company under the Exchange Act (in thousands, except perAct.
In January 2019, the Company’s Board of Directors authorized the Company to repurchase up to $4 billion of its outstanding common stock in open market or private transactions over a two-year period. This program replaced the remaining amounts available under the pre-existing authorization. In December 2020, the Company’s Board of Directors authorized the extension of the share data):repurchase program through January 21, 2023. In December 2022, the Company’s Board of Directors amended and extended this repurchase program’s term by one year such that it shall now expire on January 21, 2024 and increased the total authorization to $4.8 billion, an increase of $750 million. As of July 1, 2023, the Company had repurchased an aggregate of 15.2 million shares at a cost of $3.8 billion under the January 2019 repurchase program and had a total of $1.0 billion authorized for future repurchases. The size and timing of these purchases, if any, will depend on our stock price and market and business conditions, as well as other factors.
Period | Total Number of Shares Purchased (1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Programs | Maximum Dollar Value of Shares that May Yet Be Purchased Under the Programs (2) | ||||||||||||
January 1, 2023 to January 28, 2023 | 173 | $ | 335.27 | 173 | $ | 1,011,207 | ||||||||||
January 29, 2023 to February 25, 2023 | 18 | $ | 313.01 | — | $ | 1,011,207 | ||||||||||
February 26, 2023 to April 1, 2023 | 18 | $ | 306.11 | — | $ | 1,011,207 | ||||||||||
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Total | 209 | $ | 330.84 | 173 | $ | 1,011,207 | ||||||||||
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Item 6: Exhibits
(*) | 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 |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
WATERS CORPORATION |
/s/Amol Chaubal |
Amol Chaubal |
Senior Vice President and Chief Financial Officer |
(Principal Financial Officer) |
(Principal Accounting Officer) |
Date: May 9,August 2, 2023
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