SEC Info - Waters Corp./DE - ‘10-Q’ for 4/3/21

Waters Corp./DE – ‘10-Q’ for 4/3/21

Waters Corp./DE – ‘10-Q’ for 4/3/21

On: Thursday, 5/6/21, at 10:49am ET · For: 4/3/21 · Accession #: 1193125-21-152840 · File #: 1-14010

Quarterly Report — Form 10-Q

Filing Table of Contents

‘10-Q’ — Quarterly Report

Document Table of Contents

This is an HTML Document rendered as filed. [ Alternative Formats ]

Dates Referenced Herein and Documents Incorporated by Reference

4 Subsequent Filings that Reference this Filing

1 Previous Filing that this Filing References

On: Thursday, 5/6/21, at 10:49am ET · For: 4/3/21 · Accession #: 1193125-21-152840 · File #: 1-14010

Quarterly Report — Form 10-QFiling Table of Contents

‘10-Q’ — Quarterly ReportDocument Table of Contents

This is an HTML Document rendered as filed. [ Alternative Formats ]

Dates Referenced Herein and Documents Incorporated by Reference

4 Subsequent Filings that Reference this Filing

1 Previous Filing that this Filing References

Quarterly Report — Form 10-Q

Filing Table of Contents

‘10-Q’ — Quarterly Report

Document Table of Contents

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  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

 5/06/21  Waters Corp./DE                   10-Q        4/03/21   93:8.5M                                   Donnelley … Solutions/FA

Document/Exhibit                   Description                      Pages   Size 

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 2: EX-10.2     Material Contract                                   HTML     74K 
 3: EX-10.3     Material Contract                                   HTML     52K 
 4: EX-10.4     Material Contract                                   HTML     77K 
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10: EX-32.2     Certification -- §906 - SOA'02                      HTML     26K 
17: R1          Cover Page                                          HTML     79K 
18: R2          Consolidated Balance Sheets                         HTML    138K 
19: R3          Consolidated Balance Sheets (Parenthetical)         HTML     44K 
20: R4          Consolidated Statements of Operations               HTML     95K 
21: R5          Consolidated Statements of Comprehensive Income     HTML     64K 
22: R6          Consolidated Statements of Cash Flows               HTML    105K 
23: R7          Consolidated Statements of Stockholders' Equity     HTML     73K 
                (Deficit)                                                        
24: R8          Basis of Presentation and Summary of Significant    HTML    158K 
                Accounting Policies                                              
25: R9          Revenue Recognition                                 HTML     45K 
26: R10         Marketable Securities                               HTML     72K 
27: R11         Inventories                                         HTML     35K 
28: R12         Goodwill and Other Intangibles                      HTML     51K 
29: R13         Debt                                                HTML     64K 
30: R14         Income Taxes                                        HTML     44K 
31: R15         Stock-Based Compensation                            HTML    105K 
32: R16         Earnings Per Share                                  HTML     46K 
33: R17         Accumulated Other Comprehensive Income              HTML     39K 
34: R18         Retirement Plans                                    HTML     51K 
35: R19         Business Segment Information                        HTML     84K 
36: R20         Recent Accounting Standard Changes and              HTML     45K 
                Developments                                                     
37: R21         Subsequent Events                                   HTML     30K 
38: R22         Basis of Presentation and Summary of Significant    HTML    232K 
                Accounting Policies (Policies)                                   
39: R23         Basis of Presentation and Summary of Significant    HTML    137K 
                Accounting Policies (Tables)                                     
40: R24         Revenue Recognition (Tables)                        HTML     43K 
41: R25         Marketable Securities (Tables)                      HTML     73K 
42: R26         Inventories (Tables)                                HTML     36K 
43: R27         Goodwill and Other Intangibles (Tables)             HTML     50K 
44: R28         Debt (Tables)                                       HTML     60K 
45: R29         Income Taxes (Tables)                               HTML     35K 
46: R30         Stock-Based Compensation (Tables)                   HTML    111K 
47: R31         Earnings Per Share (Tables)                         HTML     45K 
48: R32         Accumulated Other Comprehensive Income (Tables)     HTML     38K 
49: R33         Retirement Plans (Tables)                           HTML     47K 
50: R34         Business Segment Information (Tables)               HTML     85K 
51: R35         Basis of Presentation and Summary of Significant    HTML    107K 
                Accounting Policies - Additional Information                     
                (Detail)                                                         
52: R36         Basis of Presentation and Summary of Significant    HTML     36K 
                Accounting Policies - Allowance for Doubtful                     
                Accounts Roll Forward (Detail)                                   
53: R37         Basis of Presentation and Summary of Significant    HTML     85K 
                Accounting Policies - Summary of Assets and                      
                Liabilities Measured at Fair Value on Recurring                  
                Basis (Detail)                                                   
54: R38         Basis of Presentation and Summary of Significant    HTML     52K 
                Accounting Policies - Fair Value of Forward                      
                Foreign Exchange Contracts (Detail)                              
55: R39         Basis of Presentation and Summary of Significant    HTML     43K 
                Accounting Policies - Gains (Losses) on Foreign                  
                Exchange Contracts (Detail)                                      
56: R40         Basis of Presentation and Summary of Significant    HTML     33K 
                Accounting Policies - Summary of Activity of                     
                Company's Accrued Warranty Liability (Detail)                    
57: R41         Revenue Recognition - Additional Information        HTML     30K 
                (Detail)                                                         
58: R42         Revenue Recognition - Summary of Activity of the    HTML     34K 
                Company's Deferred Revenue and Customer Advances                 
                (Detail)                                                         
59: R43         Revenue Recognition - Schedule of Estimated Amount  HTML     40K 
                of Deferred Revenue and Customer Advances (Detail)               
60: R44         Marketable Securities - Schedule of                 HTML     49K 
                Available-for-Sale Securities Reconciliation                     
                (Detail)                                                         
61: R45         Marketable Securities - Investments Classified By   HTML     34K 
                Contractual Maturity Date (Detail)                               
62: R46         Inventories - Inventory, Net of Reserves (Detail)   HTML     36K 
63: R47         Goodwill and Other Intangibles - Additional         HTML     49K 
                Information (Detail)                                             
64: R48         Goodwill and Other Intangibles - Schedule of        HTML     46K 
                Intangible Assets (Detail)                                       
65: R49         Debt - Additional Information (Detail)              HTML     85K 
66: R50         Debt - Summary of Senior Unsecured Notes Issued     HTML     39K 
                (Detail)                                                         
67: R51         Debt - Summary of Outstanding Debt (Detail)         HTML     63K 
68: R52         Debt - Summary of Outstanding Debt (Parenthetical)  HTML     52K 
                (Detail)                                                         
69: R53         Income Taxes - Additional Information (Detail)      HTML     63K 
70: R54         Income Taxes - Unrecognized Tax Benefits (Detail)   HTML     34K 
71: R55         Stock-Based Compensation - Additional Information   HTML     48K 
                (Detail)                                                         
72: R56         Stock-Based Compensation - Schedule of Stock-Based  HTML     36K 
                Compensation Expense (Detail)                                    
73: R57         Stock-Based Compensation - Relevant Data Used to    HTML     46K 
                Determine the Value of Stock Options Granted                     
                During the Period (Detail)                                       
74: R58         Stock-Based Compensation - Stock Options            HTML     56K 
                Outstanding Roll Forward (Detail)                                
75: R59         Stock-Based Compensation - Restricted Stock Units   HTML     49K 
                Unvested Roll Forward (Detail)                                   
76: R60         Stock-Based Compensation - Relevant Data Used to    HTML     44K 
                Determine the Value of Performance Shares (Detail)               
77: R61         Stock-Based Compensation - Performance Stock Units  HTML     49K 
                Unvested Roll Forward (Detail)                                   
78: R62         Earnings Per Share - Earnings Per Share             HTML     58K 
                Reconciliation (Detail)                                          
79: R63         Earnings Per Share - Additional Information         HTML     28K 
                (Detail)                                                         
80: R64         Accumulated Other Comprehensive Income - Schedule   HTML     46K 
                of Accumulated Other Comprehensive Income (Detail)               
81: R65         Retirement Plans - Additional Information (Detail)  HTML     32K 
82: R66         Retirement Plans - Defined Benefit Plan, Net        HTML     53K 
                Periodic Benefit Cost (Detail)                                   
83: R67         Business Segment Information - Additional           HTML     31K 
                Information (Detail)                                             
84: R68         Business Segment Information - Summary of Net       HTML     46K 
                Sales for Company's Products and Services (Detail)               
85: R69         Business Segment Information - Summary of           HTML     48K 
                Geographic Sales Information (Detail)                            
86: R70         Business Segment Information - Summary of Net       HTML     38K 
                Sales by Customer Class (Detail)                                 
87: R71         Business Segment Information - Summary of Net       HTML     45K 
                Sales of Company Recognized at a Point in Time                   
                Versus Over Time (Detail)                                        
88: R72         Recent Accounting Standard Changes and              HTML     34K 
                Developments - Additional Information (Detail)                   
89: R73         Subsequent Events - Additional Information          HTML     30K 
                (Detail)                                                         
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93: ZIP         XBRL Zipped Folder -- 0001193125-21-152840-xbrl      Zip    244K

Page	(sequential)	(alphabetic)	↑Top
		Alternative Formats (Word, et al.) Condensed Notes to Consolidated Financial Statements (unaudited) Consolidated Balance Sheets (unaudited) as of April 3, 2021 and December 31, 2020 Consolidated Statements of Cash Flows (unaudited) for the three months ended April 3, 2021 and March 28, 2020 Consolidated Statements of Comprehensive Income (unaudited) for the three months ended April 3, 2021 and March 28, 2020 Consolidated Statements of Operations (unaudited) for the three months ended April 3, 2021 and March 28, 2020 Consolidated Statements of Stockholders' Equity (Deficit) (unaudited) for the three months ended April 3, 2021 and March 28, 2020 Controls and Procedures Exhibits Legal Proceedings Management's Discussion and Analysis of Financial Condition and Results of Operations Quantitative and Qualitative Disclosures About Market Risk Risk Factors Signature Table of Contents Unregistered Sales of Equity Securities and Use of Proceeds
1	1st Page – Filing Submission
"	Table of Contents
"	Consolidated Balance Sheets (unaudited) as of April 3, 2021 and December 31, 2020
"	Consolidated Statements of Operations (unaudited) for the three months ended April 3, 2021 and March 28, 2020
"	Consolidated Statements of Comprehensive Income (unaudited) for the three months ended April 3, 2021 and March 28, 2020
"	Consolidated Statements of Cash Flows (unaudited) for the three months ended April 3, 2021 and March 28, 2020
"	Consolidated Statements of Stockholders' Equity (Deficit) (unaudited) for the three months ended April 3, 2021 and March 28, 2020
"	Condensed Notes to Consolidated Financial Statements (unaudited)
"	Management's Discussion and Analysis of Financial Condition and Results of Operations
"	Quantitative and Qualitative Disclosures About Market Risk
"	Controls and Procedures
"	Legal Proceedings
"	Risk Factors
"	Unregistered Sales of Equity Securities and Use of Proceeds
"	Exhibits
"	Signature

iX:

10-Q

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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form i 10-Q

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

For the quarterly period ended i April 3, i 2021 /

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

For the transition period from

Commission File Number:

i 01-14010

i Waters Corporation

(Exact name of registrant as specified in its charter)


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

i 34 Maple Street

i Milford, i Massachusetts i 01757

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

( i 508) i 478-2000

(Registrant’s telephone number, including area code)

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


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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

i Yes ☒

No ☐

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

Regulation S-T

(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such

files). i Yes ☒ No ☐

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

non-accelerated

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

Rule 12b-2

of the Exchange Act.

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

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

Rule 12b-2

of the Act). Yes ☐

No i ☒

Indicate the number of shares outstanding of the registrant’s common stock as of April 30, 2021: i 61,700,498

Table of Contents

WATERS CORPORATION AND SUBSIDIARIES

QUARTERLY REPORT ON FORM

10-Q

INDEX


		Page
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets (unaudited) as of April 3, 2021 and December 31, 2020		3
	Consolidated Statements of Operations (unaudited) for the three months ended April 3, 2021 and March 28, 2020		4
	Consolidated Statements of Comprehensive Income (unaudited) for the three months ended April 3, 2021 and March 28, 2020		5
	Consolidated Statements of Cash Flows (unaudited) for the three months ended April 3, 2021 and March 28, 2020		6
	Consolidated Statements of Stockholders’ Equity (Deficit) (unaudited) for the three months ended April 3, 2021 and March 28, 2020		7
	Condensed Notes to Consolidated Financial Statements (unaudited)		8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		37
Item 4.	Controls and Procedures		37

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

Table of Contents

Item 1:

Financial Statements

WATERS CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(unaudited)


	April 3, 2021			December 31, 2020
	(In thousands, except per share data)
ASSETS
Current assets:
Cash and cash equivalents	$	i 683,783		$	i 436,695
Investments		i 125,986			i 6,451
Accounts receivable, net		i 550,677			i 573,316
Inventories		i 327,967			i 304,281
Other current assets		i 79,510			i 80,290

Total current assets		i 1,767,923			i 1,401,033
Property, plant and equipment, net		i 513,719			i 494,003
Intangible assets, net		i 240,853			i 258,645
Goodwill		i 438,139			i 444,362
Operating lease assets		i 88,283			i 93,252
Other assets		i 162,646			i 148,625

Total assets	$	i 3,211,563		$	i 2,839,920


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Notes payable and debt	$	i 100,000		$	i 150,000
Accounts payable		i 81,511			i 72,212
Accrued employee compensation		i 35,104			i 72,166
Deferred revenue and customer advances		i 280,848			i 198,240
Current operating lease liabilities		i 26,908			i 27,764
Accrued income taxes		i 82,642			i 76,558
Accrued warranty		i 10,705			i 10,950
Other current liabilities		i 167,331			i 197,093

Total current liabilities		i 785,049			i 804,983
Long-term liabilities:
Long-term debt		i 1,603,090			i 1,206,515
Long-term portion of retirement benefits		i 72,756			i 72,620
Long-term income tax liabilities		i 357,824			i 357,493
Long-term operating lease liabilities		i 61,503			i 68,197
Other long-term liabilities		i 100,379			i 97,968

Total long-term liabilities		i 2,195,552			i 1,802,793

Total liabilities		i 2,980,601			i 2,607,776

Commitments and contingencies (Notes 6 , 7 and 1 1 )		i			i

Stockholders’ equity:
Preferred stock, par value $ i i 0.01 / per share, i i 5,000 / shares authorized, i i none / issued at April 3, 2021 and December 31, 2020		i —			i —
Common stock, par value $ i i 0.01 / per share, i i 400,000 / shares authorized, i 161,859 and i 161,666 shares issued, i 61,847 and i 62,309 shares outstanding at April 3, 2021 and December 31, 2020, respectively		i 1,619			i 1,617
Additional paid-in capital		i 2,054,076			i 2,029,465
Retained earnings		i 7,256,116			i 7,107,989
Treasury stock, at cost, i 100,012 and i 99,357 shares at April 3, 2021 and December 31, 2020, respectively		( i 8,969,643	)		( i 8,788,984	)
Accumulated other comprehensive loss		( i 111,206	)		( i 117,943	)

Total stockholders’ equity		i 230,962			i 232,144

Total liabilities and stockholders’ equity	$	i 3,211,563		$	i 2,839,920

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

Table of Contents

WATERS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)


	Three Months Ended
	April 3, 2021			March 28, 2020
	(In thousands, except per share data)
Revenues:
Product sales	$	i 382,022		$	i 274,183

Service sales		i 226,523			i 190,756


Total net sales		i 608,545			i 464,939

Costs and operating expenses:
Cost of product sales		i 158,876			i 119,839

Cost of service sales		i 95,271			i 90,805

Selling and administrative expenses		i 143,196			i 147,735

Research and development expenses		i 38,092			i 34,989

Purchased intangibles amortization		i 1,840			i 2,625

Litigation provision		i —			i 666


Total costs and operating expenses		i 437,275			i 396,659


Operating income		i 171,270			i 68,280

Other income (expense ), net		i 9,359			( i 374	)

Interest expense		( i 10,946	)		( i 14,079	)

Interest income		i 4,101			i 4,036


Income before income taxes		i 173,784			i 57,863

Provision for income taxes		i 25,657			i 4,301


Net income	$	i 148,127		$	i 53,562


Net income per basic common share	$	i 2.38		$	i 0.86

Weighted-average number of basic common shares		i 62,260			i 62,232

Net income per diluted common share	$	i 2.37		$	i 0.86

Weighted-average number of diluted common shares and equivalents		i 62,632			i 62,626

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

Table of Contents

WATERS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)


	Three Months Ended
	April 3, 2021			March 28, 2020
	(In thousands)
Net income	$	i 148,127		$	i 53,562

Other comprehensive income (loss):

Foreign currency translation		i 5,825			( i 19,344	)

Unrealized losses on investments before income taxes		( i 10	)		i —

Unrealized losses on investments, net of tax		( i 10	)		i —

Retirement liability adjustment before reclassifications		i 1,054			i 296
Amounts reclassified to other income		i 216			i 340

Retirement liability adjustment before income taxes		i 1,270			i 636
Income tax expense		( i 348	)		( i 238	)

Retirement liability adjustment, net of tax		i 922			i 398

Other comprehensive income (loss)		i 6,737			( i 18,946	)

Comprehensive income	$	i 154,864		$	i 34,616

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

Table of Contents

WATERS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


	Three Months Ended
	April 3, 2021			March 28, 2020
	(In thousands)
Cash flows from operating activities:
Net income	$	i 148,127		$	i 53,562
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation		i 8,305			i 9,196
Deferred income taxes		i 2,787			( i 2,525	)
Depreciation		i 16,343			i 15,708
Amortization of intangibles		i 15,013			i 13,480
Change in operating assets and liabilities:
Decrease in accounts receivable		i 7,945			i 54,026
Increase in inventories		( i 30,544	)		( i 29,399	)
Increase in other current assets		( i 3,080	)		( i 5,036	)
(Increase) decrease in other assets		( i 4,219	)		i 2,745
Decrease in accounts payable and other current liabilities		( i 29,758	)		( i 15,825	)
Increase in deferred revenue and customer advances		i 89,048			i 46,465
(Decrease) increase in other liabilities		( i 1,563	)		i 9,238

Net cash provided by operating activities		i 218,404			i 151,635
Cash flows from investing activities:
Additions to property, plant, equipment and software capitalization		( i 39,503	)		( i 51,130	)
Business acquisitions, net of cash acquired		i —			( i 76,664	)
Purchases of investments		( i 122,640	)		( i 3,520	)
Maturities and sales of investments		i 3,139			i 1,139

Net cash used in investing activities		( i 159,004	)		( i 130,175	)
Cash flows from financing activities:
Proceeds from debt issuances		i 500,000			i 315,000
Payments on debt		( i 150,000	)		( i 100,366	)
Payments of debt issuance costs		( i 3,637	)		i —
Proceeds from stock plans		i 16,295			i 11,743
Purchases of treasury shares		( i 173,305	)		( i 196,226	)
(Payments for) proceeds from derivative contracts		( i 578	)		i 2,767

Net cash provided by financing activities		i 188,775			i 32,918
Effect of exchange rate changes on cash and cash equivalents		( i 1,087	)		( i 32	)

Increase in cash and cash equivalents		i 247,088			i 54,346
Cash and cash equivalents at beginning of period		i 436,695			i 335,715

Cash and cash equivalents at end of period	$	i 683,783		$	i 390,061

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

Table of Contents

WATERS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(unaudited, in thousands)

Number
of
Common
Shares

Common
Stock

Additional

Paid-In

Capital

Retained
Earnings

Treasury
Stock

Accumulated
Other
Comprehensive
Loss

Total
Stockholders’

Deficit

Balance December 31, 2019

i 161,030

i 1,610

i 1,926,753

i 6,587,403

( i 8,612,576

)

( i 119,471

)

( i 216,281

)

Net income

—

i 53,562

—

i 53,562

Adoption of new accounting pronouncement

—

( i 985

)

—

( i 985

)

Other comprehensive loss

—

( i 18,946

)

( i 18,946

)

Issuance of common stock for employees:

Employee Stock Purchase Plan

i 9

—

i 1,736

—

i 1,736

Stock options exercised

i 81

i 1

i 10,124

—

i 10,125

Treasury stock

—

( i 176,225

)

—

( i 176,225

)

Stock-based compensation

i 133

i 2

i 9,013

—

i 9,015

Balance March 28, 2020

i 161,253

i 1,613

i 1,947,626

i 6,639,980

( i 8,788,801

)

( i 138,417

)

( i 337,999

)

Number
of
Common
Shares

Common
Stock

Additional

Paid-In

Capital

Retained
Earnings

Treasury
Stock

Accumulated
Other
Comprehensive
Loss

Total
Stockholders’

Equity

Balance December 31, 2020

i 161,666

i 1,617

i 2,029,465

i 7,107,989

( i 8,788,984

)

( i 117,943

)

i 232,144

Net income

—

i 148,127

—

i 148,127

Other comprehensive income

—

i 6,737

Issuance of common stock for employees:

Employee Stock Purchase Plan

i 11

i 1,855

—

i 1,855

Stock options exercised

i 95

i 1

i 15,129

—

i 15,130

Treasury stock

—

( i 180,659

)

—

( i 180,659

)

Stock-based compensation

i 87

i 1

i 7,627

—

i 7,628

Balance April 3, 2021

i 161,859

i 1,619

i 2,054,076

i 7,256,116

( i 8,969,643

)

( i 111,206

)

i 230,962

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

Table of Contents

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1 Basis of Presentation and Summary of Significant Accounting Policies

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

” and, together with HPLC, referred to as “LC”) and mass spectrometry (“MS”) technology systems and support products, including chromatography columns, other consumable products and comprehensive post-warranty service plans. These systems are complementary products that are frequently employed together

(“LC-MS”)

and sold as integrated instrument systems using common software platforms. LC is a standard technique and is utilized in a broad range of industries to detect, identify, monitor and measure the chemical, physical and biological composition of materials, and to purify a full range of compounds. MS technology, principally in conjunction with chromatography, is employed in drug discovery and development, including clinical trial testing, the analysis of proteins in disease processes (known as “proteomics”), nutritional safety analysis and environmental testing.

LC-MS

instruments combine a liquid phase sample introduction and separation system with mass spectrometric compound identification and quantification. In addition, the Company designs, manufactures, sells and services thermal analysis, rheometry and calorimetry instruments through its TA

product line. These instruments are used in predicting the suitability and stability of fine chemicals, pharmaceuticals, water, polymers, metals and viscous liquids for various industrial, consumer goods and healthcare products, as well as for life science research. The Company is also a developer and supplier of advanced software-based products that interface with the Company’s instruments, as well as other manufacturers’ instruments.

i The Company’s interim fiscal quarter typically ends on the thirteenth Saturday of each quarter. Since the Company’s fiscal year end is December 31, the first and fourth fiscal quarters may have more or less than thirteen complete weeks. The Company’s first fiscal quarters for 2021 and 2020 ended on April 3, 2021 and March 28, 2020, respectively.

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

Form

10-Q

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

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

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

Form 10-K

for the year ended December 31, 2020, as filed with the U.S. Securities and Exchange Commission (“SEC”) on February 24, 2021.

/ i

Risks and Uncertainties

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

Both the Company’s domestic and international operations have been and continue to be affected by the ongoing global

COVID-19

pandemic and the resulting volatility and uncertainty it has caused in the U.S. and international markets. Since being declared a pandemic in March 2020 by the World Health Organization,

COVID-19

has continued to spread throughout the U.S. and globally. The

COVID-19

pandemic has caused significant volatility and uncertainty in U.S. and international markets, which has disrupted and is expected to continue to disrupt the Company’s business and could result in a prolonged economic downturn. The Company operates in over 35 countries, including those in regions most impacted by the

COVID-19

pandemic.

Table of Contents

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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

Translation of Foreign Currencies

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

For the Company’s foreign operations, assets and liabilities are translated into U.S. dollars at exchange rates prevailing on the balance sheet date, while revenues and expenses are translated at average exchange rates prevailing during the respective period. Any resulting translation gains or losses are included in accumulated other comprehensive income in the consolidated balance sheets.

Cash, Cash Equivalents and Investments

i Cash equivalents represent highly liquid investments, with original maturities of 90 days or less, while investments with longer maturities are classified as investments. The Company maintains cash balances in various operating accounts in excess of federally insured limits, and in foreign subsidiary accounts in currencies other than the U.S. dollar. As of April 3, 2021 and December 31, 2020, $ i 317 million out of $ i 810 million and $ i 364 million out of $ i 443 million, respectively, of the Company’s total cash, cash equivalents and investments were held by foreign subsidiaries. In addition, $ i 256 million out of $ i 810 million and $ i 254 million out of $ i 443 million of cash, cash equivalents and investments were held in currencies other than the U.S. dollar at April 3, 2021 and December 31, 2020, respectively.

/ i

Accounts Receivable and Allowance for Credit Losses

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

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

re-possess,

refurbish and

re-sell

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

Table of Contents

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

The following is a summary of the activity of the Company’s allowance for credit losses for the three months ended April 3, 2021 and March 28, 2020 (in thousands):

Balance at
Beginning

of Period

Impact of
CECL

Adoption

Additions

Deductions

Balance at
End of

Period

Allowance for

Credit Losses

April 3, 2021

i 14,381

—

i 775

( i 1,561

)

i 13,595

March 28, 2020

i 9,560

i 985

i 3,506

( i 1,749

)

i 12,302

/ i

Other Investments

During the three months ended April 3, 2021, the Company recorded an unrealized gain on an equity security still held at the reporting date of approximately $ i 10 million within other income (expense) on the income statement. This unrealized gain was recorded as an upward price adjustment to the carrying value of the investment due to an observable price change of a similar security issued during the current period.

i Fair Value Measurements

In accordance with the accounting standards for fair value measurements and disclosures, certain of the Company’s assets and liabilities are measured at fair value on a recurring basis as of April 3, 2021 and December 31, 2020. Fair values determined by Level 1 inputs utilize observable data, such as quoted prices in active markets. Fair values determined by Level 2 inputs utilize data points other than quoted prices in active markets that are observable either directly or indirectly. Fair values determined by Level 3 inputs utilize unobservable data points for which there is little or no market data, which require the reporting entity to develop its own assumptions.

Table of Contents

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

The following table represents the Company’s assets and liabilities measured at fair value on a recurring basis at April 3, 2021 (in thousands):

Total at

April 3,

2021

Quoted Prices

in Active

Markets

for Identical

Assets

(Level 1)

Significant

Other

Observable

Inputs

(Level 2)

Significant

Unobservable

Inputs

(Level 3)

Assets:

U.S. Treasury securities

i 12,061

i —

i 12,061

i —

Corporate debt securities

i 119,800

i —

i 119,800

i —

Time deposits

i 58,712

i —

i 58,712

i —

Waters 401(k) Restoration Plan assets

i 39,605

i —

Foreign currency exchange contracts

i 208

i —

i 208

i —

Total

i 230,386

i 39,605

i 190,781

i —

Liabilities:

Contingent consideration

i 1,225

i —

i 1,225

Foreign currency exchange contracts

i 241

i —

i 241

i —

Interest rate cross-currency swap agreements

i 20,030

i —

i 20,030

i —

Total

i 21,496

i —

i 20,271

i 1,225

The following table represents the Company’s assets and liabilities measured at fair value on a recurring basis at December 31, 2020 (in thousands):

Total at

December 31,

2020

Quoted

Prices

in Active

Markets

for Identical

Assets

(Level 1)

Significant

Other

Observable

Inputs

(Level 2)

Significant

Unobservable

Inputs

(Level 3)

Assets:

Time deposits

i 6,451

—

i 6,451

—

Waters 401(k) Restoration Plan assets

i 38,988

—

Foreign currency exchange contracts

i 836

—

i 836

—

Total

i 46,275

i 38,988

i 7,287

—

Liabilities:

Contingent consideration

i 1,185

—

i 1,185

Foreign currency exchange contracts

i 185

—

i 185

—

Interest rate cross-currency swap agreements

i 44,996

—

i 44,996

—

Total

i 46,366

—

i 45,181

i 1,185

Table of Contents

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

Fair Value of 401(k) Restoration Plan Assets

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

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

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

Fair Value of Contingent Consideration

The fair value of the Company’s liability for contingent consideration relates to earnout payments in connection with the December 2020 acquisition of Integrated Software Solutions (“ISS”) and is determined using a probability-weighted discounted cash flow model, which uses significant unobservable inputs, and has been classified as Level 3. Subsequent changes in the fair value of the contingent consideration liability are recorded in the results of operations. The fair value of the contingent consideration liability associated with future earnout payments is based on several factors, including the estimated future results and a discount rate that reflects both the likelihood of achieving the estimated future results and the Company’s creditworthiness. A change in any of these unobservable inputs can significantly change the fair value of the contingent consideration.

The fair value of future contingent consideration payments related to the December 2020 acquisition of ISS was estimated to be

i 1

million at both
April 3, 2021 and December 31, 2020. The fair value is based on the achievement of certain revenue and customer account milestones over the two
years after the acquisition date.

Fair Value of Other Financial Instruments

The Company’s accounts receivable, accounts payable and variable interest rate debt are recorded at cost, which approximates fair value due to their short-term nature. The carrying value of the Company’s fixed interest rate debt was $ i 1.4 billion and $ i 910 million at April 3, 2021 and December 31, 2020, respectively. The fair value of the Company’s fixed interest rate debt was estimated using discounted cash flow models, based on estimated current rates offered for similar debt under current market conditions for the Company. The fair value of the Company’s fixed interest rate debt was estimated to be $ i 1.3 billion and $ i 1.0 billion at April 3, 2021 and December 31, 2020, respectively, using Level 2 inputs.

Derivative Transactions

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

non-U.S.

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

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

Table of Contents

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

Foreign Currency Exchange Contracts

The Company does not specifically enter into any derivatives that hedge foreign-currency-denominated operating assets, liabilities or commitments on its balance sheet, other than a portion of certain third-party accounts receivable and accounts payable, and the Company’s net worldwide intercompany receivables and payables, which are eliminated in consolidation. i The Company periodically aggregates its net worldwide balances by currency and then enters into foreign currency exchange contracts that mature within 90 days to hedge a portion of the remaining balance to minimize some of the Company’s currency price risk exposure. The foreign currency exchange contracts are not designated for hedge accounting treatment. Principal hedged currencies include the Euro, Japanese yen, British pound, Mexican peso and Brazilian real.

Interest Rate Cross-Currency Swap Agreements

As of April 3, 2021, the Company had entered into i three-year interest rate cross-currency swap derivative agreements with an aggregate notional value of $ i 520 million to hedge the variability in the movement of foreign currency exchange rates on a portion of its Euro-denominated net asset investments. Under hedge accounting, the change in fair value of the derivative that relates to changes in the foreign currency spot rate are recorded in the currency translation adjustment in other comprehensive income and remain in accumulated comprehensive income in stockholders’ equity (deficit) until the sale or substantial liquidation of the foreign operation. The difference between the interest rate received and paid under the interest rate cross-currency swap derivative agreement is recorded in interest income in the statement of operations.

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

April 3, 2021

December 31, 2020

Notional Value

Fair Value

Notional Value

Fair Value

Foreign currency exchange contracts:

Other current assets

i 36,131

i 208

i 66,690

i 836

Other current liabilities

i 25,423

i 241

i 20,000

i 185

Interest rate cross-currency swap agreements:

Other

liabilities

i 520,000

( i 20,030

)

i 560,000

( i 44,996

)

Accumulated other

comprehensive loss

i 23,751

i 44,996

/ i

The following is a summary of the activity included in the statements of comprehensive income related to the foreign currency exchange contracts (in thousands):


	Financial	Three Months Ended
	Statement Classification	April 3, 2021			March 28, 2020
Foreign currency exchange contracts:

Realized gains (losses) on closed contracts	Cost of sales	$	i 1,667		$	( i 2,981	)
Unrealized (losses) gains on open contracts	Cost of sales		( i 753	)		i 1,325

Cumulative net pre-tax gains (losses)	Cost of sales	$	i 914		$	( i 1,656	)


Interest rate cross-currency swap agreements:
Interest earned	Interest income	$	i 3,827		$	i 3,714
Unrealized gains on contracts, net	Stockholders’ equity (deficit)	$	i 21,244		$	i 5,522

Table of Contents

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

Stockholders’ Equity

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

i two-year

period. This program replaced the remaining amounts available from the

pre-existing

program. During the three months ended April 3, 2021 and March 28, 2020, the Company repurchased i 0.6 million and i 0.8 million shares of the Company’s outstanding common stock at a cost of $ i 173 million and $ i 167

million, respectively, under the January 2019 authorization and other previously announced programs. In addition, the

Company
repurchased

$ i 8 million and $ i 9

million of common stock related to the vesting of restricted stock units during the three months ended April 3, 2021 and March 28, 2020, respectively. As of April 3, 2021, the Company had repurchased an aggregate of i 11.8 million shares at a cost of $ i 2.6 billion under the January 2019 repurchase program and had a total of $ i 1.4 billion authorized for future repurchases. In December 2020, the Company’s Board of Directors authorized the extension of the share repurchase program through January 21, 2023.

The Company had $ i 7 million of treasury stock purchases that were accrued and unsettled at April 3, 2021. These transactions were settled in April 2021, during the Company’s second quarter.

The Company had $ i 20

million of treasury stock purchases that were accrued and unsettled at December 31, 2019. These transactions were settled in January 2020. The Company did i i no / t have any unsettled treasury stock purchases as of December 31, 2020 or March 28, 2020.

Product Warranty Costs

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

The following is a summary of the activity of the Company’s accrued warranty liability for the three months ended April 3, 2021 and March 28, 2020 (in thousands):

Balance at

Beginning

of Period

Accruals for

Warranties

Settlements

Made

Balance at

End of

Period

Accrued warranty liability:

April 3, 2021

i 10,950

i 2,337

( i 2,582

)

i 10,705

March 28, 2020

i 11,964

i 1,671

( i 2,619

)

i 11,016

/ / i

Restructuring

In January 2020, the Company made organizational changes to better align its resources with its growth and innovation strategies, resulting in a worldwide workforce reduction, impacting i 3% of the Company’s employees.

During the three months ended March 28, 2020, the Company
incurred

$ i 18

million of severance-related costs, lease termination costs and other related costs. The Company did not incur any restructuring charges during the three months ended April 3, 2021.

2 Revenue Recognition

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

Table of Contents

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

The following is a summary of the activity of the Company’s deferred revenue and customer advances for the three months ended April 3, 2021 and March 28, 2020 (in thousands):


	April 3, 2021			March 28, 2020
Balance at the beginning of the period	$	i 239,759		$	i 213,695
Recognition of revenue included in balance at beginning of the period		( i 94,078	)		( i 82,604	)
Revenue deferred during the period, net of revenue recognized		i 182,384			i 138,430

Balance at the end of the period	$	i 328,065		$	i 269,521

The Company classified $ i 47 million and $ i 42 million of deferred revenue and customer advances in other long-term liabilities at April 3, 2021 and December 31, 2020, respectively.

The amount of deferred revenue and customer advances equals the transaction price allocated to unfulfilled performance obligations for the period presented. Such amounts are expected to be recognized in the future as follows (in thousands):


	April 3, 2021
Deferred revenue and customer advances expected to be recognized in:
One year or less	$	i 280,848
13-24 months		i 25,860
25 months and beyond		i 21,357

Total	$	i 328,065

/ i

3 Marketable Securities

The Company’s marketable securities within cash equivalents and investments included in the consolidated balance sheets are detailed as follows (in thousands):

April 3, 2021

Amortized

Cost

Unrealized

Gain

Unrealized

Loss

Fair

Value

U.S. Treasury securities

i 12,061

—

i 12,061

Corporate debt securities

i 119,810

i 7

( i 17

)

i 119,800

Time deposits

i 58,712

—

i 58,712

Total

i 190,583

i 7

( i 17

)

i 190,573

Amounts included in:

Cash equivalents

i 64,590

i 1

( i 4

)

i 64,587

Investments

i 125,993

i 6

( i 13

)

i 125,986

Total

i 190,583

i 7

( i 17

)

i 190,573

December 31, 2020

Amortized
Cost

Unrealized
Gain

Unrealized
Loss

Fair
Value

Time deposits

i 6,451

—

i 6,451

Total

i 6,451

—

i 6,451

Amounts included in:

Investments

i 6,451

—

i 6,451

Total

i 6,451

—

i 6,451

/ /

Table of Contents

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

The estimated fair value of marketable debt securities by maturity date is as follows (in thousands):


	April 3, 2021		December 31, 2020
Due in one year or less	$	i 164,762	$	i 6,451
Due after one year through three years		i 25,811		—

Total	$	i 190,573	$	i 6,451

/ i

4 Inventories

Inventories are classified as follows (in thousands):


	April 3, 2021		December 31, 2020
Raw materials	$	i 141,600	$	i 133,490
Work in progress		i 21,689		i 18,678
Finished goods		i 164,678		i 152,113

Total inventories	$	i 327,967	$	i 304,281

/ / i

5 Goodwill and Other Intangibles

The carrying amount of goodwill was $ i 438 million and $ i 444 million at April 3, 2021 and December 31, 2020, respectively. The effect of foreign currency translation decreased goodwill by $ i 6 million.

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

April 3, 2021

December 31, 2020

Gross

Carrying

Amount

Accumulated

Amortization

Weighted-

Average

Amortization

Period

Gross

Carrying

Amount

Accumulated

Amortization

Weighted-

Average

Amortization

Period

Capitalized software

i 563,157

i 403,614

i 5 years

i 584,452

i 409,847

i 5 years

Purchased intangibles

i 202,828

i 160,028

i 11 years

i 205,585

i 160,342

i 11 years

Trademarks

i 9,680

—

i 9,680

—

Licenses

i 5,960

i 5,773

i 6 years

i 5,923

i 5,697

i 6 years

Patents and other intangibles

i 92,321

i 63,678

i 8 years

i 90,699

i 61,808

i 8 years

Total

i 873,946

i 633,093

i 7 years

i 896,339

i 637,694

i 7 years

The gross carrying value of intangible assets and accumulated amortization for intangible assets decreased by $ i 27 million and $ i 19 million, respectively, in the three months ended April 3, 2021 due to the effects of foreign currency translation. Amortization expense for intangible assets was $ i 15 million and $ i 13 million for the three months ended April 3, 2021 and March 28, 2020, respectively. Amortization expense for intangible assets is estimated to be $ i i i i i 62 / / / / million per year for each of the next five years.

Table of Contents

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

6 Debt

In March 2021, the Company issued the following senior unsecured notes:


Senior Unsecured Notes	Term	Interest Rate	Face Value (in millions)		Maturity Date

Series N	i 5 years	i 1.68%	$	i 100	March 2026
Series O	i 10 years	i 2.25%	$	i 400	March 2031

The Company used the proceeds from the issuance of these senior unsecured notes to repay other outstanding debt and for general corporate purposes. Interest on the Series N and O Senior Notes is payable semi-annually. The Company may prepay some or all of the Senior Notes at any time in an amount not less than i 10% of the aggregate principal amount of the Senior Notes then outstanding, plus the applicable make-whole amount for Series N and O Senior Notes, in each case, upon no more than 60 nor less than 20 days’ written notice to the holders of the Senior Notes.

i In the event of a change in control (as defined in the note purchase agreement) of the Company, the Company may be required to prepay the Senior Notes at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest. Other provisions for these senior unsecured notes are similar to the existing senior unsecured notes, as described below.

In November 2017, the Company entered into a credit agreement (the “2017 Credit Agreement”) that provides for a $ i 1.5 billion revolving facility and a $ i 300 million term loan. As of April 3, 2021 and December 31, 2020, the revolving facility and term loan had a total of $ i 300 million and $ i 400 million, respectively, outstanding and mature on November 30, 2022 and require no scheduled prepayments before that date.

i i The interest rates applicable to the 2017 Credit Agreement are, at the Company’s option, equal to either the alternate base rate (which is a rate per annum equal to the greatest of (1) the prime rate in effect on such day, (2) the Federal Reserve Bank of New York Rate on such day plus 1/2 of 1% per annum and (3) the adjusted LIBO rate on such day (or if such day is not a business day, the immediately preceding business day) for a deposit in U.S. dollars with a maturity of one month plus 1% per annum) or the applicable 1, 2, 3 or 6 month adjusted LIBO rate or EURIBO rate for Euro-denominated loans, in each case, plus an interest rate margin based upon the Company’s leverage ratio, which can range between 0 and 12.5 basis points for alternate base rate loans and between 80 and 112.5 basis points for LIBO rate or EURIBO rate loans. The facility fee on the 2017 Credit Agreement ranges between 7.5 and 25 basis points per annum, based on the leverage ratio, of the amount of the revolving facility commitments and the outstanding / term loan. i The 2017 Credit Agreement requires that the Company comply with an interest coverage ratio test of not less than 3.50:1 as of the end of any fiscal quarter for any period of four consecutive fiscal quarters and a leverage ratio test of not more than 3.50:1 as of the end of any fiscal quarter. In addition, the 2017 Credit Agreement includes negative covenants, affirmative covenants, representations and warranties and events of default that are customary for investment grade credit facilities.

As of April 3, 2021 and December 31, 2020, the Company had a total of $ i 1.4 billion and $ i 1.0 billion, respectively, of outstanding senior unsecured notes. Interest on the fixed rate senior unsecured notes is payable semi-annually each year. Interest on the floating rate senior unsecured notes is payable quarterly. i The Company may prepay all or some of the senior unsecured notes at any time in an amount not less than i 10% of the aggregate principal amount outstanding, plus the applicable make-whole amount or prepayment premium for the Series H senior unsecured note / . In the event of a change in control of the Company (as defined in the note purchase agreement), the Company may be required to prepay the senior unsecured notes at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest.

i These senior unsecured notes require that the Company comply with an interest coverage ratio test of not less than i 3.50:1 for any period of four consecutive fiscal quarters and a leverage ratio test of not more than i 3.50:1 as of the end of any fiscal quarter. In addition, these senior unsecured notes include customary negative covenants, affirmative covenants, representations and warranties and events of default. /

i In February 2019, certain defined terms related to the subsidiary guarantors were amended in the 2017 Credit Agreement and senior unsecured note agreements. In addition, the Company amended the senior unsecured note agreements to allow the Company to elect an increase in the permitted leverage ratio from 3.50:1 to 4.0:1, for a period of three consecutive quarters, for a material acquisition of $400 million or more. During the period of time where the leverage ratio exceeds 3.50:1, the interest payable on the senior unsecured notes shall increase by 0.50%. The debt covenants in the senior unsecured note agreements were also modified to address the change in accounting guidance for leases.

Table of Contents

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

The Company had the following outstanding debt at April 3, 2021 and December 31, 2020 (in thousands):


	April 3, 2021			December 31, 2020
Senior unsecured notes - Series E - i i 3.97 / %, due March 2021		—			i 50,000
Senior unsecured notes - Series F - i i 3.40 / %, due June 2021		i 100,000			i 100,000

Total notes payable and debt, current		i 100,000			i 150,000

Senior unsecured notes - Series G - i i 3.92 / %, due June 2024		i 50,000			i 50,000
Senior unsecured notes - Series H - floating rate*, due June 2024		i 50,000			i 50,000
Senior unsecured notes - Series I - i i 3.13 / %, due May 2023		i 50,000			i 50,000
Senior unsecured notes - Series K - i i 3.44 / %, due May 2026		i 160,000			i 160,000
Senior unsecured notes - Series L - i i 3.31 / %, due September 2026		i 200,000			i 200,000
Senior unsecured notes - Series M - i i 3.53 / %, due September 2029		i 300,000			i 300,000
Senior unsecured notes - Series N - i i 1.68 / %, due March 2026		i 100,000			—
Senior unsecured notes - Series O - i i 2.25 / %, due March 2031		i 400,000			—
Credit agreement		i 300,000			i 400,000
Unamortized debt issuance costs		( i 6,910	)		( i 3,485	)

Total long-term debt		i 1,603,090			i 1,206,515

Total debt	$	i 1,703,090		$	i 1,356,515

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

As of April 3, 2021 and December 31, 2020, the Company had a total amount available to borrow under the 2017 Credit Agreement of $ i 1.5 billion and $ i i 1.4 / billion, respectively, after outstanding letters of credit. The weighted-average interest rates applicable to the senior unsecured notes and credit agreement borrowings collectively were i 2.68% and i 2.92% at April 3, 2021 and December 31, 2020, respectively. As of April 3, 2021, the Company was in compliance with all debt covenants.

The Company and its foreign subsidiaries also had available short-term lines of credit totaling $ i 122 million and $ i 109 million at April 3, 2021 and December 31, 2020, respectively, for the purpose of short-term borrowing and issuance of commercial guarantees. None of the Company’s foreign subsidiaries had outstanding short-term borrowings as of April 3, 2021

December 31, 2020.

investments.

7 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

i 21

i 12.5

i 19

% and

i 17

%, respectively, as of April

2021

. The Company ha

a contractual tax rate of

i 0

% on qualifying activities in Singapore through

March 2021

, based upon the achievement of certain contractual milestones. The Company has a new Development and Expansion Incentive in Singapore that provides a concessionary income tax rate of

i 5

% on certain types of income for the period April

2021

through March

2026

. The effect of applying the

i 0

% concessionary income tax rate rather than the statutory tax rate to income arising from qualifying activities in Singapore increased the Company’s net income for the

three

months ended April

2021

and March

2020

$ i 4 million

and $

i 2

million, respectively, and increased the Company’s net income per diluted share by $

i 0.06

and $

i 0.04

, respectively.

The Company’s effective

tax

rate for the three months ended April 3, 2021 and March 28, 2020 was i 14.8% and i 7.4%, respectively. The income tax provision includes a $ i i 2 / million income tax benefit related to stock-based compensation

for both

the three months ended April 3, 2021 and March 28, 2020. The effective tax rate for the three months ended

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

March 28, 2020 included a $ i 4 million income tax benefit related to certain restructuring charges. This income tax benefit decreased the effective tax rate by i 7.1

percentage points for the three months ended March 28, 2020. 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.

i The Company accounts for its uncertain tax return positions in accordance with the accounting standards for income taxes, which require financial statement reporting of the expected future tax consequences of uncertain tax reporting positions on the presumption that all concerned tax authorities possess full knowledge of those tax reporting positions, as well as all of the pertinent facts and circumstances, but prohibit any discounting of unrecognized tax benefits associated with those reporting positions for the time value of money. The Company continues to classify interest and penalties related to unrecognized tax benefits as a component of the provision for income taxes.

The following is a summary of the activity of the Company’s gross unrecognized tax benefits, excluding interest and penalties, for the three months ended April 3, 2021 and March 28, 2020 (in thousands):


	April 3, 2021			March 28, 2020
Balance at the beginning of the period	$	i 28,666		$	i 27,790
Net reductions for lapse of statutes taken during the period		( i 95	)		( i 101	)
Net additions for tax positions taken during the current period		i 289			i 203

Balance at the end of the period	$	i 28,860		$	i 27,892

With limited exceptions, the Company is no longer subject to tax audit examinations in significant jurisdictions for the years ended on or before December 31, 201

. The Company continuously monitors the lapsing of statutes of limitations on potential tax assessments for related changes in the measurement of unrecognized tax benefits, related net interest and penalties, and deferred tax assets and liabilities. As of April 3, 2021, the Company expects to record reductions in the measurement of its unrecognized tax benefits and related net interest and penalties of less than $ i 1 million within the next twelve months due to potential tax audit settlements and the lapsing of statutes of limitations on potential tax assessments. The Company does not expect to record any other material reductions in the measurement of its unrecognized tax benefits within the next twelve months.

8 Stock-Based Compensation

The Company maintains various stockholder-approved, stock-based compensation plans which allow for the issuance of incentive or

non-qualified

stock options, stock appreciation rights, restricted stock or other types of awards (e.g. restricted stock units and performance stock units).

In May 2020, the Company’s stockholders approved the Company’s 2020 Equity Incentive Plan (“2020 Plan”). As of April 3, 2021, the 2020 Plan had i 6.5 million shares available for grant in the form of incentive or

non-qualified

stock options, stock appreciation rights (“SARs”), restricted stock, restricted stock units or other types of awards (e.g. restricted stock units and performance stock units). The Company issues new shares of common stock upon exercise of stock options or restricted stock unit conversion. Under the 2020 Plan, the exercise price for stock

options may not be less

than the fair market value of the underlying stock at the date of grant. The 2020 Plan is scheduled to terminate on May 13, 2030. Options generally will expire no later than i ten yearsafter the date on which they are granted and will become exercisable as directed by the Compensation Committee of the Board of Directors and generally vest in equal annual installments over a five-year period. A SAR may be granted alone or in conjunction with an option or other award. Shares of restricted stock, restricted stock units and performance stock units may be issued under the 2020 Plan for such consideration as is determined by the Compensation Committee of the Board of Directors. As of April 3, 2021, the Company had stock options, restricted stock, and restricted and performance stock unit awards outstanding under the 2020 Plan.

i The Company accounts for stock-based compensation costs in accordance with the accounting standards for stock-based compensation, which require that all share-based payments to employees be recognized in the statements of operations, based on their grant date fair values. The Company recognizes the expense using the straight-line attribution method. The stock-based compensation expense recognized in the consolidated statements of operations is based on awards that ultimately are expected to vest; therefore, the amount of expense has been reduced for estimated forfeitures. Forfeitures are estimated based on historical experience. If actual results differ significantly from these

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

estimates, stock-based compensation expense and the Company’s results of operations could be materially impacted. In addition, if the Company employs different assumptions in the application of these standards, the compensation expense that the Company records in the future periods may differ significantly from what the Company has recorded in the current period.

The consolidated statements of operations for the three months ended April 3, 2021 and March 28, 2020 include the following stock-based compensation expense related to stock option awards, restricted stock awards, restricted stock unit awards, performance stock unit awards and the employee stock purchase plan (in thousands):


	Three Months Ended
	April 3, 2021		March 28, 2020
Cost of sales	$	i 633	$	i 570
Selling and administrative expenses		i 6,420		i 7,373
Research and development expenses		i 1,252		i 1,253

Total stock-based compensation	$	i 8,305	$	i 9,196

Stock Options

In determining the fair value of the stock options, the Company makes a variety of assumptions and estimates, including volatility measures, expected yields and expected stock option lives. The fair value of each option grant was estimated on the date of grant using the Black-Scholes option pricing model. The Company uses implied volatility on its publicly-traded options as the basis for its estimate of expected volatility. The Company believes that implied volatility is the most appropriate indicator of expected volatility because it is generally reflective of historical volatility and expectations of how future volatility will differ from historical volatility. The expected life assumption for grants is based on historical experience for the population of

non-qualified

stock option exercises. The risk-free interest rate is the yield currently available on U.S. Treasury

zero-coupon

issues with a remaining term approximating the expected term used as the input to the Black-Scholes model. i The relevant data used to determine the value of the stock options granted during the three months ended April 3, 2021 and March 28, 2020 are as follows:


	Three Months Ended
Options Issued and Significant Assumptions Used to Estimate Option Fair Values	April 3, 2021			March 28, 2020

Options issued in thousands		i 139			i 227
Risk-free interest rate		i 0.8	%		i 1.4	%
Expected life in years		i 6			i 6
Expected volatility		i 33.1	%		i 26.5	%
Expected dividend s		i —			—

	Three Months Ended
Weighted-Average Exercise Price and Fair Value of Options on the Date of Grant	April 3, 2021		March 28, 2020
Exercise price	$	i 277.32	$	i 216.08
Fair value	$	i 91.63	$	i 61.70

Table of Contents

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

The following table summarizes stock option activity for the plans for the three months ended April 3, 2021 (in thousands, except per share data):

Number of Shares

Exercise Price per Share

Weighted-Average

Exercise Price per
Share

Outstanding at December 31, 2020

i 1,067

i 75.94

i 238.52

i 179.59

Granted

i 139

i 250.15

i 280.80

i 277.32

Exercised

( i 95

)

i 99.22

i 238.52

i 159.10

Canceled

( i 125

)

i 139.51

i 224.37

i 183.98

Outstanding at April 3, 2021

i 986

i 75.94

i 266.05

i 194.77

Restricted Stock

During the three months ended April 3, 2021, the Company granted four thousand shares of restricted stock. The weighted-average fair value per share of these awards on the grant date was $ i 250.15

Restricted Stock Units

The following table summarizes the unvested restricted stock unit award activity for the three months ended April 3, 2021 (in thousands, except per share data):


	Shares			Weighted-Average Grant Date Fair Value per Share
Unvested at December 31, 2020		i 271		$	i 202.00
Granted		i 76		$	i 279.66
Vested		( i 80	)	$	i 182.14
Forfeited		( i 3	)	$	i 210.35

Unvested at April 3, 2021		i 264		$	i 230.28

Restricted stock units are generally granted annually in February and vest in equal annual installments over a five-year period.

Performance Stock Units

The Company’s performance stock units are equity compensation awards with a market vesting condition based on the Company’s Total Shareholder Return (“TSR”) relative to the TSR of the components of the S&P Health Care Index. TSR is the change in value of a stock price over time, including the reinvestment of dividends. The vesting schedule ranges from i 0% to i 200% of the target shares awarded. Beginning with the grants made in 2020, the vesting conditions for performance stock units now include a performance condition based on future sales growth.

In determining the fair value of the performance stock units, the Company makes a variety of assumptions and estimates, including volatility measures, expected yields and expected terms. The fair value of each performance stock unit grant was estimated on the date of grant using the Monte Carlo simulation model. The Company uses implied volatility on its publicly-traded options as the basis for its estimate of expected volatility. The Company believes that implied volatility is the most appropriate indicator of expected volatility because it is generally reflective of historical volatility and expectations of how future volatility will differ from historical volatility. The expected life assumption for grants is based on the performance period of the underlying performance stock units. The risk-free interest rate is the yield currently available on U.S. Treasury

zero-coupon

issues with a remaining term approximating the expected term used as the input to the Monte Carlo simulation model. The correlation coefficient is used to model the way in which each company in the S&P Health Care Index tends to move in relation to each other during the performance period. i The relevant data used to determine the value of the performance stock units granted during the three months ended April 3, 2021 and March 28, 2020 are as follows:


	Three Months Ended
Performance Stock Units Issued and Significant Assumptions Used to Estimate Fair Values	April 3, 2021			March 28, 2020
Performance stock units issued (in thousands)		i 41			i 58
Risk-free interest rate		i 0.2	%		i 1.3	%
Expected life in years		i 2.9			i 2.9
Expected volatility		i 38.7	%		i 25.1	%
Average volatility of peer companies		i 34.7	%		i 26.1	%
Correlation coefficient		i 45.8	%		i 36.6	%
Expected dividends		i —			—

Table of Contents

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

The following table summarizes the unvested performance stock unit award activity for the three months ended April 3, 2021 (in thousands, except per share data):


	Shares			Weighted-Average Fair Value per Share
Unvested at December 31, 2020		i 95		$	i 230.36
Granted		i 41		$	i 315.98
Vested		( i 5	)	$	i 242.94
Forfeited		( i 33	)	$	i 228.24

Unvested at April 3, 2021		i 98		$	i 266.25

/ i

9 Earnings Per Share

Basic and diluted EPS calculations are detailed as follows (in thousands, except per share data):

Three Months Ended April 3, 2021

Net Income
(Numerator)

Weighted-
Average

Shares
(Denominator)

Per

Share
Amount

Net income per basic common share

i 148,127

i 62,260

i 2.38

Effect of dilutive stock option, restricted stock, performance stock unit and restricted stock unit securities

i —

i 372

( i 0.01

)

Net income per diluted common share

i 148,127

i 62,632

i 2.37

/ /

Three Months Ended March 28, 2020

Net Income
(Numerator)

Weighted-

Average Shares
(Denominator)

Per

Share
Amount

Net income per basic common share

i 53,562

i 62,232

i 0.86

Effect of dilutive stock option, restricted stock, performance stock unit and restricted stock unit securities

—

i 394

—

Net income per diluted common share

i 53,562

i 62,626

i 0.86

For the three

months

ended April 3, 2021 and March 28, 2020, the Company had i 0.1 million and i 0.2 million stock options that were antidilutive, respectively, due to having higher exercise prices than the Company’s average stock price during the period. These securities were not included in the computation of diluted EPS. i The effect of dilutive securities was calculated using the treasury stock method.

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

10 Accumulated Other Comprehensive Income

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

Currency
Translation

Unrealized Loss on
Retirement Plans

Unrealized Gain
(Loss) on
Investments

Accumulated Other
Comprehensive
Loss

Balance at December 31, 2020

( i 98,082

)

( i 19,861

)

i —

( i 117,943

)

Other comprehensive loss, net of tax

i 5,825

i 922

( i 10

)

i 6,737

Balance at April 3, 2021

( i 92,257

)

( i 18,939

)

( i 10

)

( i 111,206

)

/ / i

11 Retirement Plans

i The Company sponsors various retirement plans. The components of net periodic benefit cost other than the service cost component are included in other expense in the consolidated statements of operations. i The summary of the components of net

periodic

pension costs for the plans for the three months ended April 3, 2021 and March 28, 2020 is as follows (in thousands):

Three Months Ended

April 3, 2021

March 28, 2020

U.S. Retiree

Non-U.S.

U.S. Retiree

Non-U.S.

Healthcare

Pension

Healthcare

Pension

Plan

Plans

Plan

Plans

Service cost

i 233

i 1,160

i 151

i 1,099

Interest cost

i 139

i 315

i 176

i 345

Expected return on plan assets

( i 255

)

( i 466

)

( i 219

)

( i 456

)

Net amortization:

Prior service credit

( i 5

)

( i 41

)

( i 5

)

( i 40

)

Net actuarial loss

i —

i 262

—

i 385

Net periodic pension cost

i 112

i 1,230

i 103

i 1,333

During fiscal year 2021, the Company expects to contribute a total of approximately $ i 3 million to $ i 6 million to the Company’s defined benefit plans.

12 Business Segment Information

The Company’s business activities, for which discrete financial information is available, are regularly reviewed and evaluated by the chief operating decision maker. As a result of this evaluation, the Company determined that it has i twooperating segments: Waters

and TA

The Waters operating segment is primarily in the business of designing, manufacturing, selling and servicing LC and MS instruments, columns and other precision chemistry consumables that can be integrated and used along with other analytical instruments. The TA operating segment is primarily in the business of designing, manufacturing, selling and servicing thermal analysis, rheometry and calorimetry instruments. The Company’s two operating segments have similar economic characteristics; product processes; products and services; types and classes of customers; methods of distribution; and regulatory environments. Because of these similarities, the two segments have been aggregated into one reporting segment for financial statement purposes. Please refer to the consolidated financial statements for financial information regarding the i one reportable segment of the Company.

Table of Contents

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

Net sales for the Company’s products and services are as follows for the three months ended April 3, 2021 and March 28, 2020 (in thousands):


	Three Months Ended
	April 3, 2021		March 28, 2020
Product net sales:
Waters instrument systems	$	i 216,072	$	i 142,829
Chemistry consumables		i 118,974		i 97,245
TA instrument systems		i 46,976		i 34,109

Total product sales		i 382,022		i 274,183
Service net sales:
Waters service		i 206,832		i 174,137
TA service		i 19,691		i 16,619

Total service sales		i 226,523		i 190,756

Total net sales	$	i 608,545	$	i 464,939

/ i

Net sales are attributable to geographic areas based on the region of destination. Geographic sales information is presented below for the three months ended April 3, 2021 and March 28, 2020 (in thousands):


	Three Months Ended
	April 3, 2021		March 28, 2020
Net Sales:
Asia:
China	$	i 102,919	$	i 47,231
Japan		i 50,296		i 45,089
Asia Other		i 76,327		i 66,760

Total Asia		i 229,542		i 159,080
Americas:
United States		i 162,433		i 143,898
Americas Other		i 34,924		i 28,278

Total Americas		i 197,357		i 172,176
Europe		i 181,646		i 133,683

Total net sales	$	i 608,545	$	i 464,939

Net sales by customer class are as follows for the three months ended April 3, 2021 and March 28, 2020 (in thousands):


	Three Months Ended
	April 3, 2021		March 28, 2020
Pharmaceutical	$	i 360,148	$	i 272,563
Industrial		i 183,273		i 143,354
Academic and government		i 65,124		i 49,022

Total net sales	$	i 608,545	$	i 464,939

Table of Contents

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

Net sales for the Company recognized at a point in time versus over time are as follows for the three months ended April 3, 2021 and March 28, 2020 (in thousands):


	Three Months Ended
	April 3, 2021		March 28, 2020
Net sales recognized at a point in time:
Instrument systems	$	i 263,048	$	i 176,938
Chemistry consumables		i 118,974		i 97,245
Service sales recognized at a point in time (time & materials)		i 79,287		i 67,742

Total net sales recognized at a point in time		i 461,309		i 341,925
Net sales recognized over time:
Service and software sales recognized over time (contracts)		i 147,236		i 123,014

Total net sales	$	i 608,545	$	i 464,939

/ i

13 Recent Accounting Standard Changes and Developments

Recently Adopted Accounting Standards

In June 2016, accounting guidance was issued that modifies the recognition of credit losses related to financial assets, such as debt securities, trade receivables, net investments in leases,

off-balance

sheet credit exposures, and other financial assets that have the contractual right to receive cash. Prior guidance required the recognition of a credit loss when it was considered probable that a loss event had occurred. The current guidance requires the measurement of expected credit losses to be based upon relevant information, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the asset. As such, expected credit losses may be recognized sooner under the new guidance due to the broader range of information that will be required to determine credit loss estimates. The new guidance also amends the current other-than-temporary impairment model used for debt securities classified as

available-for-sale.

When the fair value of an

available-for-sale

debt security is below its amortized cost, the new guidance requires the total unrealized loss to be bifurcated into its credit and

non-credit

components. Any expected credit losses or subsequent recoveries will be recognized in earnings and any changes not considered credit related will continue to be recognized within other comprehensive income. This guidance is effective for annual and interim periods beginning after December 15, 2019. On January 1, 2020 the Company adopted this new standard using a modified retrospective method for all financial assets measured at amortized cost which only impacted the Company’s allowance on trade accounts receivable. The Company did not have any significant

off-balance

sheet credit exposures which would be impacted by the new guidance. Results for reporting periods beginning after January 1, 2020 are presented under the new standard while prior period amounts continue to be reported in accordance with previously applicable GAAP. The Company recorded a net decrease of $ i 1 million to stockholders’ deficit as of January 1, 2020 for the cumulative effect of adopting the new standard due to converting to the current expected credit loss model for the allowance recorded against trade accounts receivables. This accounting standard did not have an impact on the Company’s results of operations and cash flows.

/ /

In January 2017, accounting guidance was issued that simplifies the accounting for goodwill impairment. The guidance eliminates step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. This guidance is effective for annual and interim periods beginning after December 15, 2019. The Company adopted this standard on January 1, 2020. The adoption of this standard did not have a material effect on the Company’s financial position, results of operations and cash flows.

In August 2018, accounting guidance was issued that modifies the disclosure requirements of fair value measurements. The amendments remove disclosures that are no longer considered cost beneficial, clarify the specific requirements of disclosure and add disclosure requirements identified as relevant. This guidance is effective for annual and interim periods beginning after December 15, 2019. The Company adopted this standard on January 1, 2020. The adoption of this standard did not have a material impact on the Company’s financial position, results of operations and cash flows.

In August 2018, accounting guidance

was

issued that modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The amendments remove disclosures that are no longer considered cost beneficial, clarify the specific requirements of disclosure and add disclosure requirements identified as relevant. This guidance is effective for annual and interim periods ending after December 15, 2020. The Company adopted this standard on January 1, 2020. The adoption of this standard did not have a material impact on the Company’s financial position, results of operations and cash flows.

Table of Contents

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

In December 2019, accounting guidance was issued that simplifies the accounting for income taxes by removing certain exceptions within the current guidance, including the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The amendment also improves consistent application by clarifying and amending existing guidance related to aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step up in the tax basis of goodwill. This guidance is effective for annual and interim periods beginning after December 15, 2020. The Company adopted this standard on January 1, 2021. The

adoption

of this standard did not have a material impact on the Company’s financial position, results of operations and cash flows.

In January 2020, accounting guidance was issued that clarifies the accounting guidance for equity method investments, joint ventures, and derivatives and hedging. The update clarifies the interaction between different sections of the accounting guidance that could be applicable and helps clarify which guidance should be applied in certain situations which should increase relevance and comparability of financial statement information. This guidance is effective for annual and interim periods beginning after December 15, 2020. The Company adopted this standard on January 1, 2021. The adoption of this standard did not have a material impact on the Company’s financial position, results of operations and cash flows.

Recently Issued Accounting Standards

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

an update was issued to clarify that certain optional expedients and exceptions under the reference rate reform guidance for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. Specifically, certain provisions in the reference rate reform guidance, if elected by an entity, apply to derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. This temporary guidance is effective for all entities as of March 12, 2020 through December 31, 2022. The Company may elect to apply this guidance for all contract modifications or eligible hedging relationships during that time period subject to certain criteria. The Company is still

evaluating the impact of reference rate reform and whether this guidance will be adopted.

14 Subsequent Events

The Company has evaluated for the occurrence of subsequent events through the issuance date of the Company’s consolidated financial statements. No other recognized or

non-recognized

subsequent events occurred that require recognition or disclosure in the consolidated financial statements, except as noted below.

The Company has executed a settlement agreement to resolve patent infringement litigation with Bruker Corporation and Bruker Daltronik GmbH regarding their timsTOF product line. In connection with that settlement, the Company will receive

$ i 10 million

in guaranteed payments, including minimum royalty payments, which will be recognized within other income in our consolidated statement of operations in the second quarter of

2021.

Table of Contents

Item 2:

Management’s Discussion and Analysis of Financial Condition and

Results of Operations

Business Overview

The Company has two operating segments: Waters

and TA

. Waters products and services primarily consist of high performance liquid chromatography (“HPLC”), ultra performance liquid chromatography (“UPLC

” 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

Pandemic

Both the Company’s domestic and international operations have been and continue to be affected by the ongoing global

COVID-19

pandemic that has led to volatility and uncertainty in the U.S. and international markets. The Company is actively managing its business to respond to the

COVID-19

impact; however, the Company cannot reasonably estimate the length or severity of the

COVID-19

pandemic 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.

During the three months ended April 3, 2021, the

COVID-19

pandemic did not materially impact the Company’s manufacturing facilities or those of the third parties to whom it outsources certain manufacturing processes, the distribution centers where its inventory is managed, or the operations of its logistics and other service providers. The Company also did not see material disruptions or delays in shipments of certain materials or components of its products.

The Company has taken decisive and appropriate actions throughout the pandemic, and continues to take proactive measures to guard the health of its global employee base and the safety of all customer interactions. The Company has implemented rigorous protocols to promote a safe work environment in all of its locations that are operational around the world and continues to closely monitor and update its multi-phase process for the safe return of employees to their physical workplaces as social distancing, governmental requirements, including capacity limitations, and other protocols allow.

The vast majority of the markets the Company serves, most notably the pharmaceutical, biomedical research, materials sciences, food/environmental and clinical markets, have continued to operate at various levels, and the Company is working closely with these customers to facilitate their seamless operation.

The

COVID-19

pandemic continues to be fluid with uncertainties and risks remaining across the global economy. During 2020, the Company took a proactive approach managing through this unpredictability and implemented a series of cost reduction actions, which included temporary salary reductions, furloughs and reductions in

non-essential

spending and other working capital reductions in order to preserve liquidity and enhance financial flexibility. These cost reductions were completed by the end of 2020; however, the Company’s plan will be adjusted accordingly depending on the pace of the recovery and any further governmental restrictions that may be implemented. The 2020 cost actions reduced the Company’s spending by approximately $100 million with 58% of these savings being realized by the end of the second quarter of 2020 and approximately 21% of the savings being realized in each of the third and fourth quarters of 2020. The majority of these cost saving actions were reinstated at the beginning of 2021 and as a result, the Company expects a significant increase in its expenses and a negative impact on its cash flows during the last three quarters of 2021 from a normalization of these costs.

Table of Contents

Financial Overview

The Company’s operating results are as follows for the three months ended April 3, 2021 and March 28, 2020 (dollars in thousands, except per share data):


	Three Months Ended
	April 3, 2021			March 28, 2020			% change
Revenues:
Product sales	$	382,022		$	274,183			39	%
Service sales		226,523			190,756			19	%

Total net sales		608,545			464,939			31	%
Costs and operating expenses:
Cost of sales		254,147			210,644			21	%
Selling and administrative expenses		143,196			147,735			(3	%)
Research and development expenses		38,092			34,989			9	%
Purchased intangibles amortization		1,840			2,625			(30	%)
Litigation provision		—			666			(100	%)

Operating income		171,270			68,280			151	%
Operating income as a % of sales		28.1	%		14.7	%

Other income (expense), net		9,359			(374	)		2,602	%
Interest expense, net		(6,845	)		(10,043	)		(32	%)

Income before income taxes		173,784			57,863			200	%
Provision for income taxes		25,657			4,301			497	%

Net income	$	148,127		$	53,562			177	%


Net income per diluted common share	$	2.37		$	0.86			176	%

Despite the various ongoing challenges caused by the

COVID-19

pandemic, the Company’s net sales increased 31% in the first quarter of 2021 as compared to the first quarter of 2020 driven by strong sales growth across all major geographies, end markets, and product categories. Overall, first quarter sales benefited from stronger demand for our products and services across all major geographies as a result of our customers continuing to resume laboratory and manufacturing operations, particularly in China where sales grew 118%. Foreign currency translation increased total sales by 4%. In addition, the Company’s first quarter of 2021 included five more calendar days than the first quarter of 2020.

Instrument system sales increased 49% in the quarter, due to customer demand continuing to increase to

pre-pandemic

levels as customer laboratories and manufacturing facilities returned to normal operations. This strength was broad-based, particularly in LC,

LC-MS

and TA instrument system sales. Foreign currency translation increased instrument system sales by 4%. Recurring revenues (combined sales of precision chemistry consumables and services) increased 20% in the quarter, with foreign currency translation increasing sales by 5%. In the first quarter of 2021, recurring revenues benefited from five additional calendar days as compared to the first quarter of 2020.

Geographically, the Company’s sales growth was broad-based across all major regions as sales increased 44% in Asia, 15% in the Americas, and 36% in Europe, with the effect of foreign currency translation increasing sales in those regions by 3%, 1%, and 11%, respectively, during the first quarter of 2021. In the first quarter of 2021, China sales increased 118%, driven by stronger demand due to customers resuming laboratory and manufacturing operations as well as the

pent-up

demand caused by the 48% decline in China’s sales in the first quarter of 2020 when the negative impact of the pandemic lockdowns were first experienced. Foreign currency translation increased China sales growth by 9% in the quarter. Sales increased 13% in the U.S., 12% in Japan and 13% in India. Foreign currency translation increased sales growth in Japan by 4% and decreased sales growth in India by 8% in the first quarter of 2021, respectively.

During the first quarter of 2021, sales to pharmaceutical customers increased 32%, driven by growth in all regions, including 127% in China, 18% in India, and 32% in Europe as strong customer demand continued to recover to

pre-pandemic

levels. Foreign currency translation increased pharmaceutical sales growth by 4%. Combined sales to industrial customers, which include material characterization, food, environmental and fine chemical markets, increased 28%, with the effect of foreign currency translation increasing sales growth by 4%. During the first quarter of 2021, combined sales to academic and government customers increased 33%, as government customers ramped up their spending in the first quarter following lower spending levels throughout 2020 due to the

COVID-19

pandemic.

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Foreign currency translation increased academic and government sales growth by 4%. 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.

Operating income was $171 million in the first quarter of 2021, an increase of 151% as compared to the first quarter of 2020. This increase in the quarter was primarily a result of the increase in sales volumes caused by our customers continuing to resume laboratory and manufacturing operations throughout the world. Operating income in the first quarter of 2020 included $18 million of severance-related costs in connection with a reduction in workforce and lease termination costs.

The Company generated $218 million and $152 million of net cash flows from operations in the first quarter of 2021 and 2020, respectively. Cash flows used in investing activities included capital expenditures related to property, plant, equipment and software capitalization of $40 million and $51 million in the first quarter of 2021 and 2020, respectively.

The first quarter of 2021 includes $14 million of capital expenditures related to the expansion of the Company’s precision chemistry consumable operations in the U.S. The Company has incurred $166 million on this facility through the end of the first quarter of 2021 and anticipates spending a total of $215 million to build and equip this new

state-of-the-art

manufacturing facility.

In March 2021, the Company issued senior unsecured notes with an aggregate principal amount of $500 million. The Series N $100 million notes have a five-year term and a fixed interest rate of 1.68%. The Series O $400 million notes have a

10-year

term and a fixed interest rate of 2.25%.

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. During the first quarters of 2021 and 2020, the Company repurchased $173 million and $167 million of the Company’s outstanding common stock, respectively, under authorized share repurchase programs. In December 2020, the Company’s Board of Directors authorized the extension of the share repurchase program through January 21, 2023.

Results of Operations

Sales by Geography

Geographic sales information is presented below for the three months ended April 3, 2021 and March 28, 2020 (dollars in thousands):


	Three Months Ended
	April 3, 2021		March 28, 2020		% change
Net Sales:
Asia:
China	$	102,919	$	47,231		118	%
Japan		50,296		45,089		12	%
Asia Other		76,327		66,760		14	%

Total Asia		229,542		159,080		44	%
Americas:
United States		162,433		143,898		13	%
Americas Other		34,924		28,278		24	%

Total Americas		197,357		172,176		15	%
Europe		181,646		133,683		36	%

Total net sales	$	608,545	$	464,939		31	%

In the first quarter of 2021, sales benefited from stronger demand for our products and services across all major geographies and customer classes as a result of our customers continuing to resume laboratory and manufacturing operations, as well as the

pent-up

demand from 2020 caused by the pandemic, particularly in China, where sales grew

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118%. The sales strength was broad-based, driven by continued growth in recurring revenues and the strong sales growth in instruments, particularly in LC and

LC-MS

instrument system sales which grew double-digits across all geographies. Recurring revenues sales growth was favorably impacted by the five additional calendar days in the first quarter of 2021 as compared to the first quarter of 2020.

Sales by Trade Class

Net sales by customer class are presented below for the three months ended April 3, 2021 and March 28, 2020 (dollars in thousands):


	Three Months Ended
	April 3, 2021		March 28, 2020		% change
Pharmaceutical	$	360,148	$	272,563		32	%
Industrial		183,273		143,354		28	%
Academic and government		65,124		49,022		33	%

Total net sales	$	608,545	$	464,939		31	%

In the first quarter of 2021, the increase in sales to pharmaceutical customers was broad-based and primarily due to stronger demand for our products and services across all major geographies as a result of our customers resuming laboratory and manufacturing operations. Sales also benefited from the demand from certain pharmaceutical customers involved with

COVID-19

diagnostic testing and the increase in the development of new drugs and therapies. Foreign currency translation increased sales to pharmaceutical customers by 4%. The increase in sales to industrial and academic and government customers was mostly broad-based across all product classes as customers continued to resume laboratory and manufacturing operations during the quarter.

Waters Products and Services Net Sales

Net sales for Waters products and services were as follows for the three months ended April 3, 2021 and March 28, 2020 (dollars in thousands):


	Three Months Ended
	April 3, 2021		% of Total			March 28, 2020		% of Total			% change
Waters instrument systems	$	216,072		40	%	$	142,829		34	%		51	%
Chemistry consumables		118,974		22	%		97,245		24	%		22	%

Total Waters product sales		335,046		62	%		240,074		58	%		40	%
Waters service		206,832		38	%		174,137		42	%		19	%

Total Waters net sales	$	541,878		100	%	$	414,211		100	%		31	%

The effect of foreign currency translation increased Waters sales by 5% for the first quarter. Chemistry consumables sales increased in the first quarter driven by the strong demand in China, where sales grew 79%, in addition to increased demand in Europe, Japan, and India driven by the uptake in columns and application-specific testing kits to pharmaceutical customers. Waters service sales increased due to higher service demand billings as

COVID-19

business closures and lockdowns began to ease, particularly in China and Europe. Waters recurring revenues also benefited by five additional calendar days and the positive impact of foreign currency translation which increased sales by 5% in the first quarter of 2021 as compared to the first quarter of 2020. Waters instrument system sales (LC and MS technology-based) increased in all geographical regions primarily due to higher sales as a result of stronger demand for our products and services by our customers due to our customers resuming laboratory and manufacturing operations throughout the world.

In the first quarter of 2021, Waters sales growth was broad-based and increased 35% in Europe, 11% in the Americas and 47% in Asia, with sales in China growing 129%. Foreign currency translation increased Waters sales by 11%, 3% and 8% in Europe, Asia and China, respectively.

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TA Product and Services Net Sales

Net sales for TA products and services were as follows for the three months ended April 3, 2021 and March 28, 2020 (dollars in thousands):


	Three Months Ended
	April 3, 2021		% of Total		March 28, 2020		% of Total		% change
TA instrument systems	$	46,976		70%	$	34,109		67%		38%
TA service		19,691		30%		16,619		33%		18%

Total TA net sales	$	66,667		100%	$	50,728		100%		31%

TA product and service sales were broad-based across all major geographies increasing 31% in the first quarter, driven by stronger demand as a result of our customers continuing to resume laboratory and manufacturing operations. The increase in TA instrument system sales in the first quarter of 2021 was primarily driven by strength in the U.S., Europe and China. The increase in TA service sales was primarily due to customers continuing to resume their operations after the restrictions caused by

COVID-19

in 2020, as well as sales of service plans and billings to a higher installed base of customers. The effect of foreign currency translation increased TA’s sales by 3%.

Cost of Sales

Cost of sales for the first quarter of 2021 increased 21% primarily due to the increase in sales volume. 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 increase gross profit slightly for the remainder of 2021. To date, the Company has not had significant issues with its supply chain; however, the prolonged impact of

COVID-19

on businesses could negatively impact our suppliers’ ability to deliver goods to us, as well as possibly increase the cost of those goods used in our manufacturing operations.

Selling and Administrative Expenses

Selling and administrative expenses decreased 3% in the first quarter of 2021 as compared to the first quarter of 2020. In the first quarter of 2021, selling and administrative expenses were impacted by higher merit and incentive compensation costs, compared to the first quarter of 2020 which was impacted by $18 million of

one-time

severance-related costs in connection with a reduction in workforce and lease termination costs. Excluding these

one-time

expenses in 2020, selling and administrative expenses increased 10%. In addition, the effect of foreign currency translation increased selling and administrative expenses by 3% in the first quarter of 2021.

As a percentage of net sales, selling and administrative expenses were 23.5% and 31.8% for the first quarters of 2021 and 2020, respectively. The decrease in this percentage is attributable to the increase in sales and the $18 million of

one-time

severance-related and lease termination costs in the first quarter of 2020.

Research and Development Expenses

Research and development expenses increased 9% in the first quarter of 2021. In addition, the effect of foreign currency translation decreased research and development expenses by 1% in the quarter.

Other Income (Expense), net

During the first quarter of 2021, the Company recorded an unrealized gain of $10 million due to an observable change in the fair value of an existing investment the Company does not have the ability to exercise significant influence over.

Interest Expense, Net

The decrease in net interest expense in the first quarter of 2021 was primarily attributable to lower outstanding debt balances and higher interest income on higher cash, cash equivalents and investment balances.

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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%, 19% and 17%, respectively, as of April 3, 2021. The Company had a contractual tax rate of 0% on qualifying activities in Singapore through March 2021, based upon the achievement of certain contractual milestones. The Company has a new Development and Expansion Incentive in Singapore that provides a concessionary income tax rate of 5% on certain types of income for the period April 1, 2021 through March 31, 2026. The effect of applying the concessionary income tax rates rather than the statutory tax rate to income from qualifying activities in Singapore increased the Company’s net income for the quarter in 2021 and 2020 by $4 million and $2 million, respectively, and increased the Company’s net income per diluted share by $0.06 and $0.04, respectively.

The Company’s effective tax rate for the 2021 and 2020 quarters was 14.8% and 7.4%, respectively. The income tax provision included a $2 million income tax benefit related to stock-based compensation for the first quarter of both 2021 and 2020. The effective tax rate for the 2020 quarter included a $4 million income tax benefit related to certain restructuring charges. This income tax benefit decreased the effective tax rate by 7.1 percentage points for the 2020 quarter. 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
	April 3, 2021			March 28, 2020
Net income	$	148,127		$	53,562
Depreciation and amortization		31,356			29,188
Stock-based compensation		8,305			9,196
Deferred income taxes		2,787			(2,525	)
Change in accounts receivable		7,945			54,026
Change in inventories		(30,544	)		(29,399	)
Change in accounts payable and other current liabilities		(29,758	)		(15,825	)
Change in deferred revenue and customer advances		89,048			46,465
Other changes		(8,862	)		6,947

Net cash provided by operating activities		218,404			151,635
Net cash used in investing activities		(159,004	)		(130,175	)
Net cash provided by financing activities		188,775			32,918
Effect of exchange rate changes on cash and cash equivalents		(1,087	)		(32	)

Increase in cash and cash equivalents	$	247,088		$	54,346

Cash Flow from Operating Activities

Net cash provided by operating activities was $218 million and $152 million during the first quarter of 2021 and 2020, respectively. This increase in operating cash flow was primarily a result of higher sales volumes in the first quarter of 2021 compared to the first quarter of 2020. 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 timing of payments made by customers and timing of sales. Days sales outstanding decreased to 84 days at April 3, 2021 as compared to 99 days at March 28, 2020.

•

The changes in accounts payable and other current liabilities were a result of the timing of payments to vendors, as well as the annual payment of management incentive compensation.

•

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.

•

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 $159 million and $130 million in the first quarter of April 3, 2021 and March 28, 2020, respectively. Additions to fixed assets and capitalized software were $40 million and $51 million in the three months ended April 3, 2021 and March 28, 2020, respectively. In February 2018, the Company’s Board of Directors approved expanding its precision chemistry consumable manufacturing operations in the U.S. The Company anticipates spending an estimated $215 million to build and equip this new

state-of-the-art

manufacturing facility, which will be paid for with existing cash, investments and debt capacity. The Company incurred $14 million of costs associated with the construction of this facility during the three months ended April 3, 2021. The Company has incurred $166 million on this facility through the end of the first quarter of 2021.

During the three months ended April 3, 2021 and March 28, 2020, the Company purchased $123 million and $4 million of investments, respectively, while $3 million and $1 million of investments matured, respectively, and were used for financing activities described below.

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In January of 2020, the Company acquired all of the outstanding stock of Andrew Alliance, S.A. and its two operating subsidiaries, Andrew Alliance USA, Inc. and Andrew Alliance France, SASU (collectively “Andrew Alliance”), for $80 million, net of cash acquired. The Company had an equity investment in Andrew Alliance that was valued at $4 million and included as part of the total consideration.

Cash Flow from Financing Activities

a 10-year term

and a fixed interest rate of 2.25% The Company used the proceeds from the issuance of these senior unsecured notes to repay other outstanding debt and for general corporate purposes. During the three months ended April 3, 2021 and March 28, 2020, the Company’s net debt borrowings increased by $350 million and $215 million, respectively. As of April 3, 2021, the Company had a total of $1.7 billion in outstanding debt, which consisted of $1,410 million in outstanding senior unsecured notes and $300 million borrowed under a term loan under the credit agreement dated November 2017 (“2017 Credit Agreement”). As of April 3, 2021, the Company had a total amount available to borrow under the 2017 Credit Agreement of $1.5 billion after outstanding letters of credit. As of April 3, 2021, the Company was in compliance with all debt covenants.

In 2018 and 2019, the Company entered into a total of $560 million of

U.S.-to-Euro

interest rate cross-currency swap agreements that hedge the Company’s net investment in its Euro denominated net assets. As a result of entering into these agreements, the Company anticipates lowering net interest expense by approximately $12 million annually over the three-year term of the agreements. During the first quarter of 2021, $40 million of the Company’s interest rate cross-currency swaps had matured and resulted in a $3 million payment upon settlement. As of April 3, 2021, the Company had a total of $520 million of interest rate cross-currency swaps agreements outstanding.

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. During the three months ended April 3, 2021 and March 28, 2020, the Company repurchased $173 million and $167 million, respectively, of the Company’s outstanding common stock under authorized share repurchase programs. In addition, the Company repurchased $8 million and $9 million of common stock related to the vesting of restricted stock units during both the three months ended April 3, 2021 and March 28, 2020, respectively. In December 2020, the Company’s Board of Directors authorized the extension of the share repurchase program through January 21, 2023.

The Company received $16 million and $12 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 three months ended April 3, 2021 and March 28, 2020, respectively.

The Company had cash, cash equivalents and investments of $810 million as of April 3, 2021. The majority of the Company’s cash and cash equivalents are generated from foreign operations, with $317 million held by foreign subsidiaries at April 3, 2021, of which $256 million was held in currencies other than U.S. dollars.

Management believes, as of the date of this report, that the Company’s financial position, along with expected future cash flows from earnings based on historical trends and the ability to raise funds from external sources and the borrowing capacity from existing, committed credit facilities, will be sufficient to service debt and fund working capital and capital spending requirements, authorized share repurchase amounts and potential acquisitions for at least the next twelve months.

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, 2020, as filed with the SEC on February 24, 2021. The Company reviewed its contractual obligations and commercial commitments as of April 3, 2021 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,

with the exception of the recently issued senior unsecured notes as described in Note 6, “Debt.”

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.

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During fiscal year 2021, the Company expects to contribute a total of approximately $3 million to $6 million to its defined benefit plans, excluding the U.S. defined benefit pension 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, 2020, as filed with the SEC on February 24, 2021, the Company’s most critical accounting policies and estimates upon which its financial status depends were identified as those relating to revenue recognition, loss provisions on accounts receivable and inventory, valuation of long-lived assets, intangible assets and goodwill, income taxes, uncertain tax positions, warranty, litigation, pension and other postretirement benefit obligations, stock-based compensation 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 three months ended April 3, 2021. The Company did not make any changes in those policies during the three months ended April 3, 2021.

New Accounting Pronouncements

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

Special Note Regarding Forward-Looking Statements

Certain of the statements in this Quarterly Report on Form

10-Q,

including the information incorporated by reference herein, may contain forward-looking statements with respect to future results and events, including any statements regarding, among other items, anticipated trends or growth in the Company’s business, including, but not limited to, the impact of the ongoing

COVID-19

pandemic; the impact of new or proposed tariff or trade regulations or changes in the interpretation or enforcement of existing regulations; the impact of foreign currency translation on financial results; development of products by acquired businesses; the growth rate of sales and research and development expenses; the impact of costs associated with developing new technologies and bringing these new technologies to market; the impact of new product launches and the associated costs, such as the amortization expense related to software platforms; geographic sales mix of business; development of products by acquired businesses and the amount of contingent payments to the sellers of an acquired business; anticipated expenses, including interest expense, capitalized software costs and effective tax rates; the impact of the 2017 Tax Act in the U.S.; the impact and outcome of the Company’s various ongoing tax audit examinations; the achievement of contractual milestones to preserve foreign tax rates; the impact and outcome of litigation matters; the impact of the loss of intellectual property protection;

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the impact of new accounting standards and pronouncements; the adequacy of the Company’s supply chain and manufacturing capabilities and facilities; the impact of regulatory compliance; the Company’s expected cash flow, borrowing capacity, debt repayment and refinancing; the Company’s ability to fund working capital, capital expenditures, service debt, repay outstanding lines of credit, make authorized share repurchases, fund potential acquisitions and pay any adverse litigation or tax audit liabilities, particularly in the U.S.; future impairment charges; the Company’s contributions to defined benefit plans; the Company’s expectations regarding changes to its financial position; compliance with applicable environmental laws; and the impact of recent acquisitions on sales and earnings.

Many of these statements appear, in particular, under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I, Item 2 of this Quarterly Report on Form

10-Q.

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 statements are subject to various risks and uncertainties, many of which are outside the control of the Company, including, and without limitation:

•

Risks related to the effects of the

COVID-19

pandemic on our business, including: portions of our global workforce being unable to work fully and/or effectively due to working remotely, illness, quarantines, government actions, facility closures or other reasons related to the pandemic, increased risks of cyber attacks resulting from our temporary remote working model, disruptions in our manufacturing capabilities or to our supply chain, volatility and uncertainty in global capital markets limiting our ability to access capital, customers being unable to make timely payment for purchases and volatility in demand for our products.

•

Foreign currency exchange rate fluctuations that could adversely affect translation of the Company’s future sales, financial operating results and the condition of its

non-U.S.

operations, especially when a currency weakens against the U.S. dollar.

•

Current global economic, sovereign and political conditions and uncertainties, particularly regarding the effect of the

COVID-19

pandemic; new or proposed tariffs or trade regulations or changes in the interpretation or enforcement of existing regulations; the United Kingdom’s exit from the European Union as well as the Chinese government’s ongoing tightening of restrictions on procurement by government-funded customers; the Company’s ability to access capital and maintain liquidity in volatile market conditions; changes in timing and demand for the Company’s products among the Company’s customers and various market sectors or geographies, particularly if they should reduce capital expenditures or are unable to obtain funding, as in the cases of governmental, academic and research institutions; the effect of mergers and acquisitions on customer demand for the Company’s products; and the Company’s ability to sustain and enhance service.

•

Negative industry trends; changes in the competitive landscape as a result of changes in ownership, mergers and continued consolidation among the Company’s competitors; introduction of competing products by other companies and loss of market share; pressures on prices from customers or resulting from competition; regulatory, economic and competitive obstacles to new product introductions; lack of acceptance of new products; expansion of our business in developing markets; spending by certain

end-markets;

ability to obtain alternative sources for components and modules; and the possibility that future sales of new products related to acquisitions, which trigger contingent purchase payments, may exceed the Company’s expectations.

•

Increased regulatory burdens as the Company’s business evolves, especially with respect to the United States Food and Drug Administration and the United States Environmental Protection Agency, among others, as well as regulatory, environmental and logistical obstacles affecting the distribution of the Company’s products, completion of purchase order documentation by our customers and ability of customers to obtain letters of credit or other financing alternatives.

•

Risks associated with lawsuits, particularly involving claims for infringement of patents and other intellectual property rights.

•

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 2017 Tax Act in the U.S.; shifts in taxable income among jurisdictions with different effective tax rates; and the outcome of and costs associated with ongoing and future tax audit examinations or changes in respective country legislation affecting the Company’s effective rates.

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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, 2020, as filed with the SEC on February 24, 2021. 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 April 3, 2021, 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 April 3, 2021 and December 31, 2020, $317 million out of $810 million and $364 million out of $443 million, respectively, of the Company’s total cash, cash equivalents and investments were held by foreign subsidiaries. In addition, $256 million out of $810 million and $254 million out of $443 million of cash, cash equivalents and investments were held in currencies other than the U.S. dollar at April 3, 2021 and December 31, 2020, respectively. As of April 3, 2021, 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 April 3, 2021 would decrease by approximately $25 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 three months ended April 3, 2021. 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, 2020, as filed with the SEC on February 24, 2021.

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 Securities Exchange Act of 1934, as amended (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 April 3, 2021 (1) to ensure that information required to be disclosed by the Company, including its consolidated subsidiaries, in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its chief executive officer and chief financial officer, to allow timely decisions regarding the required disclosure and (2) to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Changes in Internal Control Over Financial Reporting

No change was identified in the Company’s internal control over financial reporting (as defined in

Rules 13a-15(f)

and

15d-15(f)

under the Exchange Act) during the quarter ended April 3, 2021 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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Part II:

Other Information

Item 1:

Legal Proceedings

There have been no material changes in the Company’s legal proceedings during the three months ended April 3, 2021 as described in Item 3 of Part I of the Company’s Annual Report on Form

10-K

for the year ended December 31, 2020, as filed with the SEC on February 24, 2021.

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, 2020, as filed with the SEC on February 24, 2021. The Company reviewed its risk factors as of April 3, 2021 and determined that there were no material changes from the ones set forth in the Form

10-K.

Note, however, the discussion 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 also may materially adversely affect the Company’s business, financial condition and operating results.

Item 2:

Unregistered Sales of Equity Securities and Use of Proceeds

Purchases of Equity Securities by the Issuer

The following table provides information about purchases by the Company during the three months ended April 3, 2021 of equity securities registered by the Company under the Exchange Act (in thousands, except per share data):


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, 2021 to January 30, 2021		—	$	—		—	$	1,524,905
January 31, 2021 to February 27, 2021		254	$	281.49		229	$	1,460,425
February 28, 2021 to April 3, 2021		401	$	272.22		399	$	1,351,782

Total		655	$	275.82		628	$	1,351,782

(1)	The Company repurchased 27 thousand shares of common stock at a cost of $8 million related to the vesting of restricted stock during the three months ended April 3, 2021.

(2)

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

two-year

period. This program replaced the remaining amounts available under the

pre-existing

authorization. In December 2020, the Company’s Board of Directors authorized the extension of the share repurchase program through January 21, 2023.

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Item 6:

Exhibits


Exhibit Number		Description of Document

10.1		Note Purchase Agreement, dated as of March 2, 2021, by and among the Company and the purchasers signatory thereto, including the forms of notes (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, File No. 001-14010, filed on March 4, 2021).

10.2		Employment Offer Letter, dated April 16, 2021, between Waters Corporation and Amol Chaubal.

10.3		Change of Control Agreement, dated April 16, 2021, between Waters Corporation and Amol Chaubal.

10.4		Transition and Consulting Agreement, dated April 16, 2021, between Waters Corporation and Michael C. Harrington.

10.5		Transition and Consulting Agreement, dated April 19, 2021, between Waters Corporation and Ian S. King.

10.6		Letter Agreement, dated April 18, 2021, between Waters Corporation and Jonathan M. Pratt.

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

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

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

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

101		The following materials from Waters Corporation’s Quarterly Report on Form 10-Q for the quarter ended April 3, 2021, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets (unaudited), (ii) the Consolidated Statements of Operations (unaudited), (iii) the Consolidated Statements of Comprehensive Income (unaudited), (iv) the Consolidated Statements of Cash Flows (unaudited) and (vi) Condensed Notes to Consolidated Financial Statements (unaudited).

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

(*)

This exhibit shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in any filing, except to the extent the Company specifically incorporates it by reference.

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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/ Michael F. Silveira

Michael F. Silveira

Interim Chief Financial Officer

(principal financial officer)

(principal accounting officer)

Date: May 6, 2021

This ‘10-Q’ Filing	Date	Other Filings

	5/13/30
	3/31/26
	1/21/23
	12/31/22
	11/30/22
Filed on:	5/6/21
	4/30/21
For Period end:	4/3/21
	4/1/21	DEF 14A, DEFA14A
	2/28/21
	2/27/21
	2/24/21	10-K, 4
	1/31/21
	1/30/21
	1/1/21	3
	12/31/20	10-K, 11-K, 4, SD
	12/15/20	8-K/A
	3/28/20	10-Q
	3/12/20
	1/1/20
	12/31/19	10-K, 11-K, 4, SD
	12/15/19
		List all Filings

  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

 2/27/24  Waters Corp./DE                   10-K       12/31/23  135:16M                                    Donnelley … Solutions/FA
 2/27/23  Waters Corp./DE                   10-K       12/31/22  129:17M                                    Donnelley … Solutions/FA
 2/24/22  Waters Corp./DE                   10-K       12/31/21  132:16M                                    Donnelley … Solutions/FA
 8/05/21  Waters Corp./DE                   10-Q        7/03/21   86:9.3M                                   Donnelley … Solutions/FA

  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

 3/04/21  Waters Corp./DE                   8-K:1,2,9   3/02/21   11:720K                                   Donnelley … Solutions/FA

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