Table of Contents
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
Form
 10-Q
 
 
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 27, 2020July 3, 2021
or
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
                    
to
                    
.
Commission File Number:
01-14010
 
 
Waters Corporation
(Exact name of registrant as specified in its charter)
 
 
 
Delaware
 
13-3668640
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
34 Maple Street
Milford, Massachusetts 01757
(Address, including zip code, of principal executive offices)
(
(508)
508)
 
478-2000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock, par value $0.01 per share
 
WAT
 
New York Stock Exchange, Inc.
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in
Rule 12b-2
of the Exchange Act.
 
Large accelerated filer   Accelerated filer 
Non-accelerated filer   Smaller reporting company 
 
  Emerging growth company 
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  
Indicate the number of shares outstanding of the registrant’s common stock as of July 24, 2020: 61,925,97230, 2021: 
61,363,399
WATERS CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM
10-Q
INDEX
 
Page
PART I
FINANCIAL INFORMATION
  
Item 1.
3
3
4
5
6
7
8
9
10
Item 2.
31
30
Item 3.
42
41
Item 4.
42
   41 
PART II
  
Item 1.
43
42
Item 1A.
43
42
Item 2.
44
42
Item 6.
45
 
4
3
4
4
46

Item 1:
 Financial Statements
WATERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
 
 
June 27, 2020
 
  
 
December 31, 2019
 
 
 
(In thousands, except per share data)
 
ASSETS
 
 
 
 
Current assets:
      
Cash and cash equivalents
 $
339,036
  $
335,715
 
Investments
  
16,720
   
1,429
 
Accounts receivable, net
  
496,276
   
587,734
 
Inventories
  
344,009
   
320,551
 
Other current assets
  
73,386
   
67,062
 
         
Total current assets
  
1,269,427
   
1,312,491
 
Property, plant and equipment, net
  
459,173
   
417,342
 
Intangible assets, net
  
248,993
   
240,203
 
Goodwill
  
427,492
   
356,128
 
Operating lease assets
  
88,619
   
93,358
 
Other assets
  
154,598
   
137,533
 
         
Total assets
 $
2,648,302
  $
2,557,055
 
         
         
LIABILITIES AND STOCKHOLDERS’ DEFICIT
      
Current liabilities:
      
Notes payable and debt
 $
150,000
  $
100,366
 
Accounts payable
  
50,325
   
49,001
 
Accrued employee compensation
  
33,329
   
43,467
 
Deferred revenue and customer advances
  
213,402
   
176,360
 
Current operating lease liabilities
  
26,862
   
27,125
 
Accrued income taxes
  
87,841
   
45,967
 
Accrued warranty
  
10,113
   
11,964
 
Other current liabilities
  
125,448
   
137,084
 
         
Total current liabilities
  
697,320
   
591,334
 
Long-term liabilities:
      
Long-term debt
  
1,546,159
   
1,580,797
 
Long-term portion of retirement benefits
  
62,499
   
59,159
 
Long-term income tax liabilities
  
356,607
   
394,562
 
Long-term operating lease liabilities
  
63,828
   
66,881
 
Other long-term liabilities
  
113,631
   
80,603
 
         
Total long-term liabilities
  
2,142,724
   
2,182,002
 
         
Total liabilities
  
2,840,044
   
2,773,336
 
Commitments and contingencies (Notes 7, 8 and 12)
    
Stockholders’ deficit:
      
Preferred stock, par value $0.01 per share, 5,000 shares authorized, NaN issued at June 27, 2020 and December 31, 2019
  
—  
   
 
Common stock, par value $0.01 per share, 400,000 shares authorized, 161,273 and 161,030 shares issued, 61,916 and 62,587 shares outstanding at June 27, 2020 and December 31, 2019, respectively
  
1,613
   
1,610
 
Additional
paid-in
capital
  
1,959,498
   
1,926,753
 
Retained earnings
  
6,762,909
   
6,587,403
 
Treasury stock, at cost, 99,357 and 98,443 shares at June 27, 2020 and December 31, 2019, respectively
  
(8,788,872
)  
(8,612,576
)
Accumulated other comprehensive loss
  
(126,890
)  
(119,471
)
         
Total stockholders’ deficit
  
(191,742
)  
(216,281
)
         
Total liabilities and stockholders’ deficit
 $
2,648,302
  $
2,557,055
 
         
The accompanying notes are an integral part of the interim consolidated financial statements.
 
3

Table of Contents
WATERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
 
Three Months Ended
 
 
June 27, 2020
  
June 29, 2019
 
 
(In thousands, except per share data)
 
Revenues:
      
Product sales
 $
314,920
  $
387,265
 
         
Service sales
  
205,064
   
211,897
 
         
Total net sales
  
519,984
   
599,162
 
Costs and operating expenses:
      
Cost of product sales
  
134,802
   
156,975
 
Cost of service sales
  
78,332
   
92,571
 
Selling and administrative expenses
  
117,449
   
133,208
 
Research and development expenses
  
31,155
   
36,490
 
Purchased intangibles amortization
  
2,618
   
2,264
 
Litigation provision
  
514
   
—  
 
         
Total costs and operating expenses
  
364,870
   
421,508
 
         
         
Operating income
  
155,114
   
177,654
 
Other expense
  
(736
)  
(342
)
         
Interest expense
  
(13,018
)  
(11,448
)
Interest income
  
4,003
   
5,871
 
         
         
Income before income taxes
  
145,363
   
171,735
 
Provision for income taxes
  
22,434
   
27,325
 
         
         
Net income
 $
122,929
  $
144,410
 
         
         
Net income per basic common share
 $
1.98
  $
2.09
 
         
Weighted-average number of basic common shares
  
61,944
   
68,989
 
         
Net income per diluted common share
 $
1.98
  $
2.08
 
         
Weighted-average number of diluted common shares and equivalents
  
62,184
   
69,494
 
 
The accompanying notes are an integral part of the interim consolidated financial statements.
   
July 3, 2021
  
December 31, 2020
 
   
(In thousands, except per share data)
 
ASSETS
         
Current assets:
         
Cash and cash equivalents
  $460,056  $436,695 
Investments
   203,566   6,451 
Accounts receivable, net
   543,072   573,316 
Inventories
   348,770   304,281 
Other current assets
   83,086   80,290 
   
 
 
  
 
 
 
Total current assets
   1,638,550   1,401,033 
Property, plant and equipment, net
   527,135   494,003 
Intangible assets, net
   246,836   258,645 
Goodwill
   439,826   444,362 
Operating lease assets
   88,871   93,252 
Other assets
   162,429   148,625 
   
 
 
  
 
 
 
Total assets
  $3,103,647  $2,839,920 
   
 
 
  
 
 
 
   
LIABILITIES AND STOCKHOLDERS’ EQUITY
         
Current liabilities:
         
Notes payable and debt
  $0    $150,000 
Accounts payable
   83,249   72,212 
Accrued employee compensation
   48,282   72,166 
Deferred revenue and customer advances
   284,765   198,240 
Current operating lease liabilities
   27,583   27,764 
Accrued income taxes
   52,583   76,558 
Accrued warranty
   10,810   10,950 
Other current liabilities
   173,746   197,093 
   
 
 
  
 
 
 
Total current liabilities
   681,018   804,983 
Long-term liabilities:
         
Long-term debt
   1,603,367   1,206,515 
Long-term portion of retirement benefits
   74,794   72,620 
Long-term income tax liabilities
   319,121   357,493 
Long-term operating lease liabilities
   61,404   68,197 
Other long-term liabilities
   95,670   97,968 
   
 
 
  
 
 
 
Total long-term liabilities
   2,154,356   1,802,793 
   
 
 
  
 
 
 
Total liabilities
   2,835,374   2,607,776 
   
Commitments and contingencies (Notes 6, 7 and 11)
       
   
Stockholders’ equity:
         
Preferred stock, par value $0.01 per share, 5,000 shares authorized, 0ne issued at July 3, 2021 and December 31, 2020
   0     0—   
Common stock, par value $0.01 per share, 400,000 shares authorized, 162,017 and 161,666 shares issued, 61,481 and 62,309 shares outstanding at July 3, 2021
and December 31, 2020, respectively
   1,620   1,617 
Additional
paid-in
capital
   2,090,052   2,029,465 
Retained earnings
   7,423,408   7,107,989 
Treasury stock, at cost, 100,536 and 99,357 shares at July 3, 2021 and December 31, 2020, respectively
   (9,135,628  (8,788,984
Accumulated other comprehensive loss
   (111,179  (117,943
   
 
 
  
 
 
 
Total stockholders’ equity
   268,273   232,144 
   
 
 
  
 
 
 
Total liabilities and stockholders’ equity
  $3,103,647  $2,839,920 
   
 
 
  
 
 
 
4

Table of Contents
WATERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
 
Six Months Ended
 
 
June 27, 2020
  
June 29, 2019
 
 
(In thousands, except per share data)
 
Revenues:
      
Product sales
 $
589,103
  $
707,768
 
Service sales
  
395,820
   
405,256
 
         
Total net sales
  
984,923
   
1,113,024
 
Costs and operating expenses:
      
Cost of product sales
  
254,641
   
289,365
 
Cost of service sales
  
169,137
   
181,212
 
Selling and administrative expenses
  
265,184
   
267,547
 
Research and development expenses
  
66,144
   
71,550
 
Purchased intangibles amortization
  
5,243
   
4,545
 
Litigation provision
  
1,180
   
 
         
Total costs and operating expenses
  
761,529
   
814,219
 
         
Operating income
  
223,394
   
298,805
 
Other expense
  
(1,110
)  
(867
)
Interest expense
  
(27,097
)  
(23,011
)
Interest income
  
8,039
   
14,186
 
         
Income before income taxes
  
203,226
   
289,113
 
Provision for income taxes
  
26,735
   
35,717
 
         
Net income
 $
176,491
  $
253,396
 
         
Net income per basic common share
 $
2.84
  $
3.60
 
Weighted-average number of basic common shares
  
62,085
   
70,331
 
Net income per diluted common share
 $
2.83
  $
3.57
 
Weighted-average number of diluted common shares and equivalents
  
62,404
   
70,904
 
The accompanying notes are an integral part of the interim consolidated financial statements.
5
3

Table of Contents
WATERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
   
Three Months Ended
 
   
July 3, 2021
  
June 27, 2020
 
   
(In thousands, except per share data)
 
Revenues:
         
Product sales
  $440,955  $314,920 
   
Service sales
   240,692   205,064 
   
 
 
  
 
 
 
   
Total net sales
   681,647   519,984 
   
Costs and operating expenses:
         
Cost of product sales
   176,745   134,802 
   
Cost of service sales
   103,509   78,332 
   
Selling and administrative expenses
   158,213   117,449 
   
Research and development expenses
   44,949   31,155 
   
Purchased intangibles amortization
   1,809   2,618 
   
Litigation provision
   0     514 
   
 
 
  
 
 
 
Total costs and operating expenses
   485,225   364,870 
   
 
 
  
 
 
 
Operating income
   196,422   155,114 
   
Other income (expense)
   9,321   (736
   
Interest expense
   (12,027  (13,018
   
Interest income
   3,698   4,003 
   
 
 
  
 
 
 
Income before income taxes
   197,414   145,363 
   
Provision for income taxes
   30,122   22,434 
   
 
 
  
 
 
 
Net income
  $167,292  $122,929 
   
 
 
  
 
 
 
   
Net income per basic common share
  $2.71  $1.98 
   
Weighted-average number of basic common shares
   61,685   61,944 
   
Net income per diluted common share
  $2.69  $1.98 
   
Weighted-average number of diluted common shares and equivalents
   62,157   62,184 
The accompanying notes are an integral part of the interim consolidated financial statements.
4

Table of Contents
WATERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
   
Six Months Ended
 
   
July 3, 2021
  
June 27, 2020
 
   
(In thousands, except per share data)
 
Revenues:
         
Product sales
  $822,977  $589,103 
   
Service sales
   467,215   395,820 
   
 
 
  
 
 
 
   
Total net sales
   1,290,192   984,923 
   
Costs and operating expenses:
         
Cost of product sales
   335,621   254,641 
   
Cost of service sales
   198,780   169,137 
   
Selling and administrative expenses
   301,409   265,184 
   
Research and development expenses
   83,041   66,144 
   
Purchased intangibles amortization
   3,649   5,243 
   
Litigation provision
   0     1,180 
   
 
 
  
 
 
 
Total costs and operating expenses
   922,500   761,529 
   
 
 
  
 
 
 
Operating income
   367,692   223,394 
   
Other income (expense), net
   18,680   (1,110
   
Interest expense
   (22,973  (27,097
   
Interest income
   7,799   8,039 
   
 
 
  
 
 
 
   
Income before income taxes
   371,198   203,226 
   
Provision for income taxes
   55,779   26,735 
   
 
 
  
 
 
 
Net income
  $315,419  $176,491 
   
 
 
  
 
 
 
   
Net income per basic common share
  $5.09  $2.84 
   
Weighted-average number of basic common shares
   61,979   62,085 
   
Net income per diluted common share
  $5.05  $2.83 
   
Weighted-average number of diluted common shares and equivalents
   62,435   62,404 
The accompanying notes are an integral part of the interim consolidated financial statements.
5

Table of Contents
WATERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
 
   
Three Months Ended
  
Six Months Ended
 
   
June 27,
2020
  
June 29,
2019
  
June 27,
2020
  
June 29,
2019
 
 
(In thousands)
  
(In thousands)
 
Net income
 $
122,929
  $
144,410
  $
176,491
  $
253,396
 
Other comprehensive income (loss):
            
Foreign currency translation
  
11,587
   
(7,031
)  
(7,757
)  
491
 
Unrealized gains on investments before income taxes
  
—  
   
710
   
—  
   
3,054
 
Income tax expense
  
—  
   
(157
)  
—  
   
(704
)
                 
Unrealized gains on investments, net of tax
  
—  
   
553
   
—  
   
2,350
 
Retirement liability adjustment before reclassifications
  
(522
)  
(41
)  
(226
  
(102
)
Amounts reclassified to other income
  
336
   
90
   
676
   
183
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Retirement liability adjustment before income taxes
  
(186
)  
49
   
450
   
81
 
Income tax
benefit (
expense
)
  
126
   
(23
)  
(112
)  
(47
)
  
 
 
  
 
 
  
 
 
  
 
 
 
Retirement liability adjustment, net of tax
  
(60
)  
26
   
338
   
34
 
Other comprehensive income (loss)
  
11,527
   
(6,452
)  
(7,419
)  
2,875
 
                 
Comprehensive income
 $
134,456
  $
137,958
  $
169,072
  $
256,271
 
                 
   
Three Months Ended
  
Six Months Ended
 
   
July 3,

2021
  
June 27,

2020
  
July 3,

2021
  
June 27,

2020
 
   
(In thousands)
  
(In thousands)
 
Net income
  $167,292  $122,929  $315,419  $176,491 
     
Other comprehensive income (loss):
                 
     
Foreign currency translation
   (9  11,587   5,816   (7,757
     
Unrealized losses on investments before income taxes
   (5  0     (15  0   
   
 
 
  
 
 
  
 
 
  
 
 
 
Unrealized losses on investments, net of tax
   (5  0     (15  0   
     
Retirement liability adjustment before reclassifications
   (260)  (522  794   (226
Amounts reclassified to other income
   218   336   434   676 
   
 
 
  
 
 
  
 
 
  
 
 
 
Retirement liability adjustment before income taxes
   (42)  (186  1,228   450 
Income tax benefit (expense)
   83   126   (265  (112
   
 
 
  
 
 
  
 
 
  
 
 
 
Retirement liability adjustment, net of tax
   41   (60  963   338 
     
Other comprehensive income (loss)
   27   11,527   6,764   (7,419
   
 
 
  
 
 
  
 
 
  
 
 
 
Comprehensive income
  $167,319  $134,456  $322,183  $169,072 
   
 
 
  
 
 
  
 
 
  
 
 
 
The accompanying notes are an integral part of the interim consolidated financial statements.
 
6

Table of Contents
WATERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 
 
Six Months Ended
 
   
June 27, 2020
  
June 29, 2019
 
 
 
 
   
(In thousands)
 
Cash flows from operating activities:
   
Net income
 $
176,491
  $
253,396
 
Adjustments to reconcile net income to net cash provided by operating activities:
      
Stock-based compensation
  
18,122
 
  
19,255
 
Deferred income taxes
  
(777
)
  
1,632
 
Depreciation
  
33,220
   
28,704
 
Amortization of intangibles
  
26,983
   
24,911
 
Change in operating assets and liabilities:
      
Decrease in accounts receivable
  
86,978
   
52,508
 
Increase in inventories
  
(27,089
  
(62,200
)
Increase in other current assets
  
(14,699
  
(11,627
)
Decrease (increase) in other assets
  
8,238
   
(15,060
)
Increase (decrease) in accounts payable and other current liabilities
  
34,714
   
(10,439
)
Increase in deferred revenue and customer advances
  
37,558
   
54,672
 
Effect of the 2017 Tax Cuts & Jobs Act
  
—  
   
(3,229
)
Decrease in other liabilities
  
(29,293
)  
(29,720
)
 
         
Net cash provided by operating activities
  
350,446
   
302,803
 
Cash flows from investing activities:
      
Additions to property, plant, equipment and software capitalization
  
(97,029
)  
(65,188
)
Business acquisitions, net of cash acquired
  
(76,664
)  
—  
 
Investment in unaffiliated companies
  
(3,350
)
  
(4,750
)
Purchases of investments
  
(16,828
)  
(35,523
)
Maturities and sales of investments
  
1,536
   
890,524
 
         
Net cash (used in) provided by investing activities
  
(192,335
)  
785,063
 
Cash flows from financing activities:
      
Proceeds from debt issuances
  
315,000
   
363
 
Payments on debt
  
(300,366
)  
(245
)
Proceeds from stock plans
  
14,739
   
30,129
 
Purchases of treasury shares
  
(196,297
  
(1,329,635
)
Proceeds from derivative contracts
  
7,558
   
4,654
 
         
Net cash used in financing activities
  
(159,366
  
(1,294,734
)
Effect of exchange rate changes on cash and cash equivalents
  
4,576
   
(1,414
)
         
Increase (decrease) in cash and cash equivalents
  
3,321
   
(208,282
)
Cash and cash equivalents at beginning of period
  
335,715
   
796,280
 
         
Cash and cash equivalents at end of period
 $
339,036
  $
587,998
 
         
   
Six Months Ended
 
   
July 3, 2021
  
June 27, 2020
 
   
(In thousands)
 
Cash flows from operating activities:
     
Net income
  $315,419  $176,491 
Adjustments to reconcile net income to net cash provided by operating activities:
         
Stock-based compensation
   15,596   18,122 
Deferred income taxes
   6,107   (777
Depreciation
   34,891   33,220 
Amortization of intangibles
   29,852   26,983 
Change in operating assets and liabilities:
         
Decrease in accounts receivable
   18,985   86,978 
Increase in inventories
   (50,873  (27,089
Increase in other current assets
   (10,600  (14,699
(Increase) decrease in other assets
   (9,263  8,238 
(Decrease) increase in accounts payable and other current liabilities
   (35,328  34,714 
Increase in deferred revenue and customer advances
   91,631   37,558 
Decrease in other liabilities
   (44,973  (29,293
   
 
 
  
 
 
 
Net cash provided by operating activities
   361,444   350,446 
Cash flows from investing activities:
         
Additions to property, plant, equipment and software capitalization
   (76,889  (97,029
Business acquisitions, net of cash acquired
   0     (76,664
Investment in unaffiliated companies
   0     (3,350
Payments for intellectual property licenses
   (7,000  —   
Purchases of investments
   (215,140  (16,828
Maturities and sales of investments
   17,923   1,536 
   
 
 
  
 
 
 
Net cash used in investing activities
   (281,106  (192,335
Cash flows from financing activities:
         
Proceeds from debt issuances
   500,000   315,000 
Payments on debt
   (250,000  (300,366
Payments of debt issuance costs
   (3,637  0   
Proceeds from stock plans
   45,036   14,739 
Purchases of treasury shares
   (341,507  (196,297
Proceeds from derivative contracts
   1,917   7,558 
   
 
 
  
 
 
 
Net cash used in financing activities
   (48,191  (159,366
Effect of exchange rate changes on cash and cash equivalents
   (8,786  4,576 
   
 
 
  
 
 
 
Increase in cash and cash equivalents
   23,361   3,321 
Cash and cash equivalents at beginning of period
   436,695   335,715 
   
 
 
  
 
 
 
Cash and cash equivalents at end of period
  $460,056  $339,036 
   
 
 
  
 
 
 
The accompanying notes are an integral part of the interim consolidated financial statements.
7

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’
Equity
 
Balance March 30, 2019
  
160,825
  $
1,608
  $
1,872,216
  $
6,104,191
  $
(6,901,629
) $
(108,644
) $
967,742
 
Net income
  
—  
   
—  
   
—  
   
144,410
   
—  
   
—  
   
144,410
 
Other comprehensive loss
  
—  
   
—  
   
—  
   
—  
   
—  
   
(6,452
)  
(6,452
)
Issuance of common stock for employees:
                     
Employee Stock Purchase Plan
  
15
   
—  
   
2,498
   
—  
   
—  
   
—  
   
2,498
 
Treasury stock
  
—  
   
—  
   
—  
   
—  
   
(561,197
)  
—  
   
(561,197
)
 
Stock-based compensation
  
1
   
—  
   
9,244
   
—  
   
—  
   
—  
   
9,244
 
                     
Balance June 29, 2019
  
160,841
  $
1,608
  $
1,883,958
  $
6,248,601
  $
(7,462,826
) $
(115,096
) $
556,245
 
                     
               
  
Number
of
Common
Shares
   
Common
Stock
   
Additional
Paid-In

Capital
   
Retained
Earnings
   
Treasury
Stock
 
Accumulated
Other
Comprehensive
Incom
e
(
Loss
)
 
Total
Stockholders’
Deficit
   
Number

of

Common

Shares
   
Common

Stock
   
Additional
Paid-In

Capital
   
Retained

Earnings
   
Treasury

Stock
 
Accumulated

Other

Comprehensive

Loss
 
Total
Stockholders’
Deficit
 
Balance March 28, 2020
  
161,253
  $
1,613
  $
1,947,626
  $
6,639,980
  $
(8,788,801
) $
(138,417
) $
(337,999
)   161,253   $1,613   $1,947,626   $6,639,980   $(8,788,801 $(138,417 $(337,999
Net income
  
—  
   
—  
   
—  
   
122,929
   
—  
   
—  
   
122,929
    —      —      —      122,929    —     —     122,929 
Other comprehensive income
  
—  
   
—  
   
—  
   
—  
   
—  
   
11,527
   
11,527
    —      —      —      —      —     11,527   11,527 
Issuance of common stock for employees:
                                        
Employee Stock Purchase Plan
  
12
   
—  
   
2,216
   
—  
   
—  
   
—  
   
2,216
    12    —      2,216    —      —     —     2,216 
Stock options exercised
  
6
   
—  
   
779
   
—  
   
—  
   
—  
   
779
    6    —      779    —      —     —     779 
Treasury stock
  
—  
   
—  
   
—  
   
—  
   
(71
)  
—  
   
(71
)   —      —      —      —      (71  —     (71
Stock-based compensation
  
2
      
8,877
   
—  
   
—  
   
—  
   
8,877
    2    —      8,877    —      —     —     8,877 
                       
 
   
 
   
 
   
 
   
 
  
 
  
 
 
Balance June 27, 2020
  
161,273
  $
1,613
  $
1,959,498
  $
6,762,909
  $
(8,788,872
) $
(126,890
) $
(191,742
)   161,273   $1,613   $1,959,498   $6,762,909   $(8,788,872 $(126,890 $(191,742
                       
 
   
 
   
 
   
 
   
 
  
 
  
 
 
   
Number

of

Common

Shares
   
Common

Stock
   
Additional

Paid-In

Capital
   
Retained

Earnings
   
Treasury

Stock
  
Accumulated
Other
Comprehensive
Loss
  
Total
Stockholders’
Equity
 
Balance April 3, 2021
   161,859   $1,619   $2,054,076   $7,256,116   $(8,969,643 $(111,206 $230,962 
Net income
   —      —      —      167,292    —     —     167,292 
Other comprehensive income
   —      —      —      —      —     27   27 
Issuance of common stock for employees:
                                 
Employee Stock Purchase Plan
   22    —      5,156    —      —     —     5,156 
Stock options exercised
   135    1    23,584    —      —     —     23,585 
Treasury stock
   —      —      —      —      (165,985  —     (165,985
Stock-based compensation
   1         7,236    —      —     —     7,236 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
 
Balance July 3, 2021
   162,017   $1,620   $2,090,052   $7,423,408   $(9,135,628 $(111,179 $268,273 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
 
The accompanying notes are an integral part of the consolidated financial statements.
8

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
Income (Loss)
 
Total
Stockholders’
Equity
 
Balance December 31, 2018
  
160,472
  $
1,605
  $
1,834,741
  $
5,995,205
  $
(6,146,322
) $
(117,971
) $
1,567,258
 
Net income
  
—  
   
—  
   
—  
   
253,396
   
—  
   
—  
   
253,396
 
Other comprehensive income
  
—  
   
—  
   
—  
   
—  
   
—  
   
2,875
   
2,875
 
Issuance of common stock for employees:
                     
Employee Stock Purchase Plan
  
25
   
—  
   
4,168
   
—  
   
—  
   
—  
   
4,168
 
Stock options exercised
  
239
   
2
   
26,097
   
—  
   
—  
   
—  
   
26,099
 
Treasury stock
  
—  
   
—  
   
—  
   
—  
   
(1,316,504
)  
—  
   
(1,316,504
)
 
Stock-based compensation
  
105
   
1
   
18,952
   
—  
   
—  
   
—  
   
18,953
 
                     
Balance June 29, 2019
  
160,841
  $
1,608
  $
1,883,958
  $
6,248,601
  $
(7,462,826
) $
(115,096
) $
556,245
 
                     
               
  
Number
of
Common
Shares
   
Common
Stock
   
Additional
Paid-In

Capital
   
Retained
Earnings
 
Treasury
Stock
 
Accumulated
Other
Comprehensive
Loss
 
Total
Stockholders’
Deficit
   
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
  
161,030
  $
1,610
  $
1,926,753
  $
6,587,403
  $
(8,612,576
) $
(119,471
) $
(216,281
)   161,030   $1,610   $1,926,753   $6,587,403  $(8,612,576 $(119,471 $(216,281
Net income
  
—  
   
—  
   
—  
   
176,491
   
—  
   
—  
   
176,491
    —      —      —      176,491   —     —     176,491 
Adoption of new accounting pronouncement
  
—  
   
—  
   
—  
   
(985
)  
—  
   
—  
   
(985
)   —      —      —      (985  —     —     (985
Other comprehensive loss
  
—  
   
—  
   
—  
   
—  
   
—  
   
(7,419
)  
(7,419
)   —      —      —      —     —     (7,419  (7,419
Issuance of common stock for employees:
                                       
Employee Stock Purchase Plan
  
21
      
3,952
   
—  
   
—  
   
—  
   
3,952
    21    —      3,952    —     —     —     3,952 
Stock options exercised
  
87
   
1
   
10,904
   
—  
   
—  
   
—  
   
10,905
    87    1    10,904    —     —     —     10,905 
Treasury stock
  
—  
   
—  
   
—  
   
—  
   
(176,296
)  
—  
   
(176,296
)   —      —      —      —     (176,296  —     (176,296
Stock-based compensation
  
135
   
2
   
17,889
   
—  
   
—  
   
—  
   
17,891
    135    2    17,889    —     —     —     17,891 
                       
 
   
 
   
 
   
 
  
 
  
 
  
 
 
Balance June 27, 2020
  
161,273
  $
1,613
  $
1,959,498
  $
6,762,909
  $
(8,788,872
) $
(126,890
) $
(191,742
)   161,273   $1,613   $1,959,498   $6,762,909  $(8,788,872 $(126,890 $(191,742
                       
 
   
 
   
 
   
 
�� 
 
  
 
  
 
 
   
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
   161,666   $1,617   $2,029,465   $7,107,989   $(8,788,984 $(117,943 $232,144 
Net income
   —      —      —      315,419    —     —     315,419 
Other comprehensive income
   —      —      —      —      —     6,764   6,764 
Issuance of common stock for employees:
                                 
Employee Stock Purchase Plan
   32         7,011    —      —     —     7,011 
Stock options exercised
   230    2    38,713    —      —     —     38,715 
Treasury stock
   —      —      —      —      (346,644  —     (346,644
Stock-based compensation
   89    1    14,863    —      —     —     14,864 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
 
Balance July 3, 2021
   162,017   $1,620   $2,090,052   $7,423,408   $(9,135,628 $(111,179 $268,273 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
 
The accompanying notes are an integral part of the consolidated financial statements.
9

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
TM
” 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
TM
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.
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 second fiscal quarters for 20202021 and 20192020 ended on July 3, 2021 and June 27, 2020, and June 29, 2019, respectively.
The accompanying unaudited interim consolidated financial statements have been prepared in accordance with the instructions to the Quarterly Report on Form
10-Q
and do not include all of the information and footnote disclosures required for annual financial statements prepared in accordance with generally accepted accounting principles (“U.S. GAAP”) in the United States of America. The consolidated financial statements include the accounts of the Company and its subsidiaries, which are wholly owned. All inter-company balances and transactions have been eliminated.
The preparation of consolidated financial statements in conformity with U.S. GAAP requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities at the dates of the financial statements. Actual amounts may differ from these estimates under different assumptions or conditions.
It is management’s opinion that the accompanying interim consolidated financial statements reflect all adjustments (which are normal and recurring) that are necessary for a fair statement of the results for the interim periods. The interim consolidated financial statements should be read in conjunction with the consolidated financial statements included in the Company’s Annual Report on Form
10-K
for the year ended December 31, 2019,2020, as filed with the U.S. Securities and Exchange Commission (“SEC”) on February 25, 2020.24, 2021.
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 adversely affected by the ongoing global COVID-19 pandemic of a novel strain of coronavirus
(“COVID-19”)
and the resulting volatility and uncertainty it has caused in the U.S. and international markets. In March 2020,The Company operates in over 35 countries, including those in regions most impacted by the World Health Organization declared
COVID-19
a pandemic and recommended containment and mitigation measures worldwide. On March 13, 2020, President Trump announced a National Emergency relating to the disease. Since then,
COVID-19
has continued to spread
pandemic. 
10

CONDENSED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(unaudited)
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 the regions most impacted by the
COVID-19
pandemic.
In the six months ended June 27, 2020 as compared to the six months ended June 29, 2019, the Company experienced a decline in net sales of 12% due in large part to the
COVID-19
pandemic and related economic uncertainty; however, throughThrough 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 toof the Company’s employees, suppliers, manufacturing, or customers could result in a materialmaterially impact to its consolidated financial position, results of operations or cash flows in the future.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 most of the Company’s foreign operations, assets and liabilities are translated into U.S. dollars at exchange rates prevailing on the balance sheet date, while revenues and expenses are translated at average exchange rates prevailing during the respective period. Any resulting translation gains or losses are included in accumulated other comprehensive income in the consolidated balance sheets.
Cash, Cash Equivalents and Investments
Cash equivalents represent highly liquid investments, with original maturities of 90 days or less, while investments with longer maturities are classified as investments. The Company maintains cash balances in various operating accounts in excess of federally insured limits, and in foreign subsidiary accounts in currencies other than the U.S. dollar. As of June 27, 2020July 3, 2021 and December 31, 2019, $2882020, $353 million out of $356$664 million and $249$364 million out of $337$443 million, respectively, of the Company’s total cash, cash equivalents and investments were held by foreign subsidiaries. In addition, $204$267 million out of $356$664 million and $176$254 million out of $337$443 million of cash, cash equivalents and investments were held in currencies other than the U.S. dollar at June 27, 2020July 3, 2021 and December 31, 2019,2020, respectively.
Accounts Receivable and Allowance for Credit Losses
The Company adopted new accounting guidance regarding the accounting for credit losses as of January 1, 2020 using a modified retrospective transition approach that was applied to the trade receivable balance as of January 1, 2020. This new accounting guidance required the Company to move from an incurred loss model to a current expected credit loss (“CECL”) model. Upon adoption, the Company recorded a net decrease of approximately $1 million to the Company’s stockholders’ deficit as of January 1, 2020. The adoption of this standard did not have a material impact on the Company’s balance sheets, results of operations or cash flows.
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
11

CONDENSED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(unaudited) – (Continued)
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.
Any recovery of amounts that were written off prior to adoption of the new CECL standard that are received after adoption are recorded in income in the period in which they are received.
The following is a summary of the activity of the Company’s allowance for doubtful accountscredit losses for the three and six months ended July 3, 2021 and June 27, 2020 and June 29, 2019 (in thousands). The June 27, 2020 balance is calculated using the CECL method and the June 29, 2019 balance is calculated using the incurred loss method under legacy GAAP::
   
Balance at

Beginning

of Period
   
Impact of

CECL
Adoption
   
Additions
  
Deductions
  
Balance at
End of

Period
 
Allowance for Credit Losses
                       
July 3, 2021
  $14,381   $—     $3,042  $(2,625 $14,798 
June 27, 2020
  $9,560   $985   $6,664  $(3,901 $13,308 
11
   
Balance at
Beginning

of Period
   
Impact of
CECL

Adoption
   
Additions
   
Deduction
  
Balance at
End of

Period
 
 
 
Allowance for Doubtful Accounts
               
June 27, 2020
 $
9,560
  $
985
  $
6,664
  $
(3,901
) $
13,308
 
June 29, 2019
 $
7,663
  $
—  
  $
3,793
  $
(3,426
) $
8,030
 

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)
Other Investments
During the six months ended June 27, 2020, and June 29, 2019, the Company made investments in unaffiliated companies of $3 million and $5 million, respectively.million.
During the six months ended July 3, 2021, the Company recorded an unrealized gain on an equity security still held at the reporting date of approximately $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.
During the three and
six months ended June 27, 2020, the Company recorded an unrealized loss on an equity security still held at the reporting date of approximately $1 $
1
million within other expenseincome (expense) on the income statement. This unrealized loss was recorded as a downward price adjustment to the carrying value of the investment due to an observable price change of a similar security issued during the current period.
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 June 27, 2020July 3, 2021 and December 31, 2019.2020. 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.
12

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 June 27, 2020July 3, 2021 (in thousands):
   
Total at
June 27,
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
 $
16,720
  $
—  
  $
16,720
  $
—  
 
Waters 401(k) Restoration Plan assets
  
33,453
   
33,453
   
—  
   
—  
 
Foreign currency exchange contracts
  
366
   
—  
   
366
   
—  
 
Interest rate cross-currency swap agreements
  
4,392
   
—  
   
4,392
   
—  
 
                 
Total
 $
54,931
  $
33,453
  $
21,478
  $
—  
 
  
 
 
   
 
 
   
 
 
   
 
 
 
Liabilities:
            
Contingent consideration
 $
2,787
  $
—  
  $
—  
  $
2,787
 
Foreign currency exchange contracts
  
733
   
—  
   
733
   
—  
 
                 
Total
 $
3,520
  $
—  
  $
733
  $
2,787
 
                 
   
Total at

July 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
  $12,051   $0     $12,051   $0   
Corporate debt securities
   130,231    0      130,231    0   
Time deposits
   75,897    0      75,897    0   
Waters 401(k) Restoration Plan assets
   40,965    40,965    0      0   
Foreign currency exchange contracts
   223    0      223    0   
   
 
 
   
 
 
   
 
 
   
 
 
 
Total
  $259,367   $40,965   $218,402   $0   
   
 
 
   
 
 
   
 
 
   
 
 
 
     
Liabilities:
                    
Contingent consideration
  $1,266   $0     $0     $1,266 
Foreign currency exchange contracts
   142    0      142    0   
Interest rate cross-currency swap agreements
   22,457    0      22,457    0   
   
 
 
   
 
 
   
 
 
   
 
 
 
Total
  $23,865   $0     $22,599   $1,266 
   
 
 
   
 
 
   
 
 
   
 
 
 
The following table represents the Company’s assets and liabilities measured at fair value on a recurring basis at December 31, 20192020 (in thousands):
   
Total at
December 31,
2019
   
Quoted Prices
in Active
Markets
for Identical
Assets

(Level 1)
   
Significant
Other
Observable
Inputs
(Level 2)
   
Significant
Unobservable
Inputs

(Level 3)
 
Assets:
            
Time deposits
 $
1,642
  $
—  
  $
1,642
  $
—  
 
Waters 401(k) Restoration Plan assets
  
30,158
   
30,158
   
—  
   
—  
 
Foreign currency exchange contracts
  
16
   
—  
   
16
   
—  
 
Interest rate cross-currency swap agreements
  
4,485
      
4,485
    
                 
Total
 $
36,301
  $
30,158
  $
6,143
  $
—  
 
                 
Liabilities:
            
Contingent consideration
 $
2,557
  $
—  
  $
—  
  $
2,557
 
Foreign currency exchange contracts
  
1,028
   
—  
   
1,028
   
—  
 
                 
Total
 $
3,585
  $
—  
  $
1,028
  $
2,557
 
                 
   
Total at

December 31,
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
  $6,451   $—     $6,451   $—   
Waters 401(k) Restoration Plan assets
   38,988    38,988    —      —   
Foreign currency exchange contracts
   836    —      836    —   
   
 
 
   
 
 
   
 
 
   
 
 
 
Total
  $46,275   $38,988   $7,287   $—   
   
 
 
   
 
 
   
 
 
   
 
 
 
Liabilities:
                    
Contingent consideration
  $1,185   $—     $—     $1,185 
Foreign currency exchange contracts
   185    —      185    —   
Interest rate cross-currency swap agreements
   44,996    —      44,996    —   
   
 
 
   
 
 
   
 
 
   
 
 
 
Total
  $46,366   $—     $45,181   $1,185 
   
 
 
   
 
 
   
 
 
   
 
 
 
13

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
13

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)
have been initially valued at the transaction price and subsequently valued, typically utilizing third-party pricing services. The pricing services use many inputs to determine value, including reportable trades, benchmark yields, credit spreads, broker/dealer quotes, current spot rates and other industry and economic events. The Company validates the prices provided by third-party pricing services by reviewing their pricing methods and obtaining market values from other pricing sources.
Fair Value of Contingent Consideration
The fair value of the Company’s liability for contingent consideration relates to earnout payments in connection with the July 2014December 2020 acquisition of Medimass Research, Development and Service Kft.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. Although there is no contractual limit, the
The fair value of future contingent consideration payments related to the December 2020 acquisition of ISS was estimated to be $3$1 million at both June 27, 2020July 3, 2021 and December 31, 2019,2020. The fair value is based on the Company’s best estimate, as the earnout is based on future salesachievement of certain products, some of which are currently in development, through 2034.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 $1.3 billion and $910 million and $1.0 billion at June 27, 2020July 3, 2021 and December 31, 2019,2020, 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 $938 million$1.3 billion and $1.0 billion at June 27, 2020July 3, 2021 and December 31, 2019,2020, respectively, using Level 2 inputs.
Derivative Transactions
The Company is a global company that operates in over 35 countries and, as a result, the Company’s net sales, cost of sales, operating expenses and balance sheet amounts are significantly impacted by fluctuations in foreign currency exchange rates. The Company is exposed to currency price risk on foreign currency exchange rate fluctuations when it translates 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.
14

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. 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.
14

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)
Interest Rate Cross-Currency Swap Agreements
As of June 27, 2020,July 3, 2021, the Company had entered into three-year interest rate cross-currency swap derivative agreements with an aggregate notional value of $560$490 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) equity until the sale or substantial liquidation of the foreign operation. The difference between the interest rate received and paid under the interest rate cross-currency swap derivative agreement is recorded in interest income in the statement of operations.
The Company’s foreign currency exchange contracts and interest rate cross-currency swap agreements included in the consolidated balance sheets are classified as follows (in thousands):
 
 
June 27, 2020
 
December 31, 2019
   
July 3, 2021
   
December 31, 2020
 
 
Notional Value
  
Fair Value
  
Notional Value
  
Fair Value
   
Notional Value
   
Fair Value
   
Notional Value
   
Fair Value
 
Foreign currency exchange contracts:
                        
Other current assets
 $
29,735
  $
366
  $
119,576
  $
16
   $21,000   $223   $66,690   $836 
Other current liabilities
 $
91,393
  $
733
  $
29,495
  $
1,028
   $40,030   $142   $20,000   $185 
Interest rate cross-currency swap agreements:
                        
Other assets
 $
560,000
  $
4,392
  $
560,000
  $
4,485
 
Accumulated other comprehensive income
    $
(4,392
)    $
(4,485
)
 
Other liabilities
  $490,000   $(22,457  $560,000   $(44,996
Accumulated other comprehensive loss
     $27,981      $44,996 
The following is a summary of the activity included in the consolidated statements of operations and statements of comprehensive income related to the foreign currency exchange contracts and interest rate cross-currency swap agreements (in thousands):
   
Financial
Statement
Classification
  
Three Months Ended
  
Six Months Ended
 
  
July 3,
2021
  
June 27,
2020
  
July 3,
2021
  
June 27,
2020
 
 
Foreign currency exchange contracts:
                 
Realized (losses) gains on closed contracts
  Cost of sales  $(213 $1,823  $1,455  $(1,157)
Unrealized (losses) gains on open contracts  Cost of sales   (569  (678  (1,323  646 
      
 
 
  
 
 
  
 
 
  
 
 
 
Cumulative net
pre-tax
(losses) gains
  Cost of sales  $(782 $1,145  $132  $(511
      
 
 
  
 
 
  
 
 
  
 
 
 
Interest rate cross-currency swap agreements:
                 
Interest earned
  Interest income  $3,373  $3,784  $7,200  $7,498 
Unrealized (losses) gains on open contracts
  Stockholders’ equity (deficit)  $(4,229 $(5,615 $17,015  $(93
 
 
Financial
 
Three Months Ended
  
Six Months Ended
 
 
Statement
 
June 27,
2020
  
June 29,
2019
  
June 27,
2020
  
June 29,
2019
 
 
Classification
Foreign currency exchange contracts:
            
Realized gains (losses) on closed contracts
 
Cost of sales
 $
1,823
  $
136
  $
(1,157
) $
(407
)
Unrealized (losses) gains on open contracts
 
Cost of sales
  
(678
  
(3,044
  
646
   
(2,518
)
                   
Cumulative net
pre-tax
gains (losses)
 
Cost of sales
 $
1,145
  $
(2,908
) $
(511
) $
(2,925
)
  
 
 
  
 
 
  
 
 
  
 
 
 
Interest rate cross-currency swap agreements:
            
Interest earned
 
Interest income
 $
3,784
  $
2,923
  $
7,498
  $
5,150
 
Unrealized (losses) gains on open contracts
 
Stockholders’ equity
 $
(5,615
 $
(6,022
) $
(93
 $
1,098
 
15

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 $4 billion of its outstanding common stock over a
two-year
period. This program replaced the remaining amounts available from the
pre-existing
program. During the six months ended July 3, 2021 and June 27, 2020, and June 29, 2019, the Company repurchased 0.81.2 million and 5.90.8 million shares of the Company’s outstanding common stock at a cost of $167$339 million and $1.3 billion,$167 million, respectively, under the January 2019 authorization and other previously announced programs. As of June 27, 2020, the Company had repurchased an aggregate of 11.1 million shares at a cost of $2.5 billion under the January 2019 repurchase program and had a total of $1.5 billion authorized for future repurchases. In addition, the Company repurchased $9$8 million and $8$9 million of common stock related to the vesting of restricted stock units during the six months ended July 3, 2021 and June 27, 2020, and June 29, 2019, respectively.
While As of July 3, 2021, the Company believeshad repurchased an aggregate of 12.3 million shares at a cost of $2.8 billion under the January 2019 repurchase program and had a total of $1.2 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 $5 million of treasury stock purchases that it haswere accrued and unsettled at July 3, 2021. These transactions were settled in July 2021, during the financial flexibility to fund these share repurchases given current cash levels and debt borrowing capacity, as well as to invest in research, technology and business acquisitions, the Company has temporarily suspended its share repurchases due to the uncertain business conditions caused by the
COVID-19
pandemic.
15

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)
Company’s third quarter. The Company had $20 million of treasury stock purchases that were accrued and unsettled at December 31, 2019. These transactions were settled in January 2020. There were 0The Company did 0t have any unsettled treasury stock purchases as of December 31, 2020 or June 27, 2020, while the Company had accrued $10 million for such purchases as of June 29, 2019, which settled in the subsequent quarter.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 six months ended July 3, 2021 and June 27, 2020 and June 29, 2019 (in thousands):
 
   
Balance at
Beginning
of Period
   
Accruals for
Warranties
   
Settlements
Made
   
Balance at
End of
Period
 
Accrued warranty liability:
            
June 27, 2020
 $
11,964
  $
3,577
  $
(5,428
) $
10,113
 
June 29, 2019
 $
12,300
  $
3,571
  $
(4,288
) $
11,583
 
   
Balance at

Beginning

of Period
   
Accruals for

Warranties
   
Settlements

Made
   
Balance at

End of

Period
 
Accrued warranty liability:
                    
July 3, 2021
  $10,950   $4,719   $(4,859  $10,810 
June 27, 2020
  $11,964   $3,577   $(5,428  $10,113 
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 3%
of the Company’s employees. During the three and six months ended June 27, 2020, the Company incurred
$
18
$21 million and $3 million, respectively, of severance-related costs, lease termination costs and other related costs. The Company did not incur any restructuring charges during the six months ended July 3, 2021.
Other Items
The
During the three and six months ended July 3, 2021, the Company expectsexecuted a settlement agreement to incur an additionalresolve patent infringement litigation with Bruker Corporation and Bruker Daltronik GmbH regarding their timsTOF product line. In connection with the settlement, the Company is entitled to receive $
610
 million in guaranteed payments, including minimum royalty payments, which was recognized within other income in our consolidated statement of costs foroperations. During the remainderthree and six months ended July 3, 2021, the Company received $3 million in guaranteed payments, net of the year.applicable withholding taxes. 
2 Revenue Recognition
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.
16

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 six months ended July 3, 2021 and June 27, 2020 and June 29, 2019 (in thousands):
 
 
June 27, 2020
  
June 29, 2019
 
Balance at the beginning of the period
 $
213,695
  $
204,257
 
Recognition of revenue included in balance at beginning of the period
  
(141,297
)  
(172,949
)
 
Revenue deferred during the period, net of revenue recognized
  
195,444
   
229,162
 
         
Balance at the end of the period
 $
267,842
  $
260,470
 
         
   
July 3, 2021
   
June 27, 2020
 
Balance at the beginning of the period
  $239,759   $213,695 
Recognition of revenue included in balance at beginning of the period
   (159,393   (141,297
Revenue deferred during the period, net of revenue recognized
   251,065    195,444 
   
 
 
   
 
 
 
Balance at the end of the period
  $331,431   $267,842 
   
 
 
   
 
 
 
The Company classified $54$47 million and $38$42 million of deferred revenue and customer advances in other long-term liabilities at June 27, 2020July 3, 2021 and December 31, 2019,2020, respectively.
16

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)
The amount of deferred revenue and customer advances equals the transaction price allocated to unfulfilled performance obligations for the period presented. Such amounts are expected to be recognized in the future as follows (in thousands):
 
 
June 27, 2020
 
Deferred revenue and customer advances expected to be recognized in:
   
One year or less
 $
213,402
 
13-24
months
  
34,151
 
25 months and beyond
  
20,289
 
     
Total
 $
267,842
 
     
   
July 3, 2021
 
Deferred revenue and customer advances expected to be recognized in:
     
One year or less
  $284,765 
13
-24
months
   28,343 
25
months and beyond
   18,323 
   
 
 
 
Total
  $331,431 
   
 
 
 
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):
 
 
June 27, 2020
   
July 3, 2021
 
  
Amortized
Cost
   
Unrealized
Gain
   
Unrealized
Loss
   
Fair
Value
   
Amortized

Cost
   
Unrealized

Gain
   
Unrealized

Loss
   
Fair

Value
 
U.S. Treasury securities
  $12,050   $1   $—     $12,051 
Corporate debt securities
   130,246    3    (18   130,231 
Time deposits
  
16,720
   
—  
   
—  
   
16,720
    75,897    —      —      75,897 
              
 
   
 
   
 
   
 
 
Total
 $
16,720
  $
—  
  $
—  
  $
16,720
   $218,193   $4   $(18  $218,179 
              
 
   
 
   
 
   
 
 
Amounts included in:
                        
Cash equivalents
  $14,614   $0     $(1  $14,613 
Investments
  
16,720
   
—  
   
—  
   
16,720
    203,579    4    (17   203,566 
              
 
   
 
   
 
   
 
 
Total
 $
16,720
  $
—  
  $
—  
  $
16,720
   $218,193   $4   $(18  $218,179 
            
  
 
   
 
   
 
   
 
 
 
 
December 31, 2019
   
December 31, 2020
 
  
Amortized
Cost
   
Unrealized
Gain
   
Unrealized
Loss
   
Fair
Value
   
Amortized

Cost
   
Unrealized

Gain
   
Unrealized

Loss
   
Fair

Value
 
Time deposits
  
1,642
   
—  
   
—  
   
1,642
    6,451    —      —      6,451 
              
 
   
 
   
 
   
 
 
Total
 $
1,642
  $
—  
  $
—  
  $
1,642
   $6,451   $—     $—     $6,451 
              
 
   
 
   
 
   
 
 
Amounts included in:
                        
Cash equivalents
 $
213
  $
—  
  $
—  
  $
213
 
Investments
  
1,429
   
—  
   
—  
   
1,429
    6,451    —      —      6,451 
              
 
   
 
   
 
   
 
 
Total
 $
1,642
  $
—  
  $
—  
  $
1,642
   $6,451   $—     $—     $6,451 
              
 
   
 
   
 
   
 
 
17

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STAEMENTS (unaudited) – (Continued)
The estimated fair value of marketable debt securities by maturity date is as follows (in thousands):
 
 
June 27, 2020
  
December 31, 2019
 
Due in one year or less
 $
16,720
  $
1,642
 
         
Total
 $
16,720
  $
1,642
 
         
17

CONDENSED NOTES TO CONSOLIDATED
FINANCIAL
STATEMENTS (unaudited) – (Continued)
   
July 3, 2021
   
December 31, 2020
 
Due in one year or less
  $203,368   $6,451 
Due after one year through three years
   14,811    —   
   
 
 
   
 
 
 
Total
  $218,179   $6,451 
   
 
 
   
 
 
 
4
 Inventories
Inventories are classified as follows (in thousands):
 
 
June 27, 2020
  
December 31, 2019
 
Raw materials
 $
139,452
  $
126,850
 
Work in progress
  
15,878
   
15,457
 
Finished goods
  
188,679
   
178,244
 
         
Total inventories
 $
344,009
  $
320,551
 
         
   
July 3, 2021
   
December 31, 2020
 
Raw materials
  $149,562   $133,490 
Work in progress
   23,224    18,678 
Finished goods
   175,984    152,113 
   
 
 
   
 
 
 
Total inventories
  $348,770   $304,281 
   
 
 
   
 
 
 
5
 Acquisitions
On January 15, 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.
Andrew Alliance offers lab workflow automation solutions with the combination of its software platform and smart, connected laboratory equipment and accessories.
The Company allocated $7 million of the purchase price to intangible assets comprised of developed technology, trade name and customer relationships. The developed technology and customer relationships will be amortized over ten years and the trade name will be amortized over 3 years. The Company allocated $72 million of the purchase price to goodwill, which is not deductible for tax purposes. The principal factor that resulted in recognition of goodwill in the acquisition was that the purchase price was based, in part, on cash flow projections assuming the integration of any acquired technology, distribution channels and products with the Company’s products, which are higher than if the acquired companies’ technology, customer access or products were utilized on a stand-alone basis. The goodwill also includes value assigned to assembled workforce, which cannot be recognized as an intangible asset.
In addition, the sellers provided the Company with customary representations, warranties and indemnification, which would be settled in the future if and when a breach of the contractual representation or warranty condition occurs.
The fair values of the assets and liabilities acquired were determined using various income-approach valuation techniques, which use Level 3 inputs. The following table presents the fair values as of the acquisition date, as determined by the Company, of 100% of the assets and liabilities owned and recorded in connection with the acquisition of Andrew Alliance (in thousands):
Cash
 $
713
 
Accounts receivable and current other assets
  
806
 
Inventory
  
669
 
Prepaid and other assets
  
611
 
Property, plant and equipment, net
  
757
 
Operating lease assets
  
847
 
Intangible assets
  
6,960
 
Goodwill
  
71,632
 
     
Total assets acquired
  
82,995
 
Accrued expenses and other liabilities
  
2,093
 
     
Total consideration
  
80,902
 
     
Fair value of minority investment
  
3,525
 
     
Cash consideration paid
 $
77,377
 
     


CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)
The impact of the Andrew Alliance acquisition on the Company’s revenues and net income during the quarter was immaterial. The pro forma effect on the ongoing operations of the Company as though this acquisition had occurred at the beginning of the periods covered by this report was also immaterial
.
6
 Goodwill and Other Intangibles
The carrying amount of goodwill was $427$440 million and $356$444 million at June 27, 2020July 3, 2021 and December 31, 2019,2020, respectively. The acquisition of Andrew Alliance increased goodwill by $72 million while the effect of foreign currency translation decreased goodwill by $1$4 million.
The Company’s intangible assets included in the consolidated balance sheets are detailed as follows (dollars in thousands):
 
 
June 27, 2020
 
December 31, 2019
   
July 3, 2021
   
December 31, 2020
 
  
Gross
Carrying
Amount
   
Accumulated
Amortization
   
Weighted-
Average
Amortization
Period
   
Gross
Carrying
Amount
   
Accumulated
Amortization
   
Weighted-
Average
Amortization
Period
   
Gross
Carrying
Amount
   
Accumulated
Amortization
   
Weighted-
Average
Amortization
Period
   
Gross
Carrying
Amount
   
Accumulated
Amortization
   
Weighted-
Average
Amortization
Period
 
Capitalized software
 $
512,047
  $
356,036
   
5
 years
  $
481,986
  $
333,255
   
5
 years
   $578,641   $418,409    5    years   $584,452   $409,847    5    years 
Purchased intangibles
  
207,733
   
156,065
   
11
 years
   
200,523
   
151,722
   
11
 years
    203,421    162,312    11    years    205,585    160,342    11    years 
Trademarks and IPR&D
  
13,601
   
—  
   
—  
   
13,782
   
—  
   
—  
 
Trademarks
   9,680    —      —         9,680    —      —      
Licenses
  
5,483
   
5,195
   
6
 years
   
5,669
   
5,298
   
6
 years
    12,882    5,803    7    years    5,923    5,697    6    years 
Patents and other intangibles
  
84,453
   
57,028
   
8
 years
   
83,035
   
54,517
   
8
 years
    94,043    65,307    8    years    90,699    61,808    8    years 
                    
 
   
 
         
 
   
 
       
Total
 $
823,317
  $
574,324
   
7
 years
  $
784,995
  $
544,792
   
7
 years
   $898,667   $651,831    7    years   $896,339   $637,694    7    years 
                    
 
   
 
         
 
   
 
       
In June 2021, the Company paid $7 million in connection with an existing licensing arrangement. The payment was tied to the commercial launch of Waters
SELECT SERIES
MRT, a high-resolution mass spectrometer and was capitalized as an intangible asset on our consolidated balance sheet as of July 3, 2021. 
The gross carrying value of intangible assets and accumulated amortization for intangible assets
in
creased decreased by $4$
21
 million and $3$
15
 million, respectively, in the
six
months ended June 27, 2020 July 
3
,
2021
due to the effects of foreign currency translation. Amortization expense for intangible assets was $14$
15
 million and $12$
14
 million for the
three
months ended June 27, 2020 July 
3
,
2021
and June 29, 2019,
27
,
2020
, respectively. Amortization expense for intangible assets was $27$
30
 million
and $25$
27
 million
for the
six
months ended June 27, 2020 July 
3
,
2021
and June 29, 2019
27
,
2020
, respectively.
Amortization expense for intangible assets is estimated to be $51$
62
 million per year for each of the next
five
years.
718

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STAEMENTS (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
   5 years    1.68 $100    March 2026 
Series O
   10 years    2.25 $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 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. 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 $1.5 billion revolving facility and a $300 million term loan. TheAs of July 3, 2021 and December 31, 2020, the revolving facility and term loan bothhad a total of $300 million and $400 million, respectively, outstanding and mature on November 30, 2022 and require no scheduled prepayments before that date.
The interest rates applicable to the 2017 Credit Agreement are, at the Company’s option, equal to either the alternate base rate (which is a rate per annum equal to the greatest of (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. 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.
19

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)
As of June 27, 2020July 3, 2021 and December 31, 2019,2020, the Company had a total of $960 million$1.3 billion and $1.1$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. The Company may prepay all or some of the senior unsecured notes at any time in an amount not less than 10% of the aggregate principal amount outstanding, plus the applicable make-whole amount or prepayment premium for 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. These senior unsecured notes require that the Company comply with an interest coverage ratio test of not less than 3.50:1 for any period of four consecutive fiscal quarters and a leverage ratio test of not more than 3.50:1 as of the end of any fiscal quarter. In addition, these senior unsecured notes include customary negative covenants, affirmative covenants, representations and warranties and events of default.
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.
19

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STAEMENTS (unaudited) – (Continued)
The Company had the following outstanding debt at June 27, 2020July 3, 2021 and December 31, 20192020 (in thousands):
 
   
June 27, 2020
   
December 31, 2019
 
Foreign subsidiary lines of credit
 $
—  
  $
366
 
Senior unsecured notes
 
-
Series B
 -
5.00%, due February 2020
  
—  
   
100,000
 
Senior unsecured notes
 -
Series E
 -
3.97%, due March 2021
  
50,000
   
—  
 
Senior unsecured notes
 -
Series F
 -
3.40%, due June 2021
  
100,000
   
—  
 
         
Total notes payable and debt, current
  
150,000
   
100,366
 
Senior unsecured notes
 -
Series E
 -
3.97%, due March 2021
  
—  
   
50,000
 
Senior unsecured notes
 -
Series F
 -
3.40%, due June 2021
  
—  
   
100,000
 
Senior unsecured notes
 -
Series G
 -
3.92%, due June 2024
  
50,000
   
50,000
 
Senior unsecured notes
 -
Series H
 -
floating rate*, due June 2024
  
50,000
   
50,000
 
Senior unsecured notes
 -
Series I
 -
3.13%, due May 2023
  
50,000
   
50,000
 
Senior unsecured notes
 -
Series K
 -
3.44%, due May 2026
  
160,000
   
160,000
 
Senior unsecured notes
 -
Series L
 -
3.31%, due September 2026
  
200,000
   
200,000
 
Senior unsecured notes
 -
Series M
 -
3.53%, due September 2029
  
300,000
   
300,000
 
Credit agreement
  
740,000
   
625,000
 
Unamortized debt issuance costs
  
(3,841
)  
(4,203
)
 
         
Total long-term debt
  
1,546,159
   
1,580,797
 
         
Total debt
 $
1,696,159
  $
1,681,163
 
         
   
July 3, 2021
   
December 31, 2020
 
Senior unsecured notes—Series E—3.97%, due March 2021
   —      50,000 
Senior unsecured notes—Series F—3.40%, due June 2021
   0      100,000 
   
 
 
   
 
 
 
Total notes payable and debt, current
   0      150,000 
Senior unsecured notes—Series G—3.92%, due June 2024
   50,000    50,000 
Senior unsecured notes—Series H—floating rate*, due June 2024
   50,000    50,000 
Senior unsecured notes—Series I—3.13%, due May 2023
   50,000    50,000 
Senior unsecured notes—Series K—3.44%, due May 2026
   160,000    160,000 
Senior unsecured notes—Series L—3.31%, due September 2026
   200,000    200,000 
Senior unsecured notes—Series M—3.53%, due September 2029
   300,000    300,000 
Senior unsecured notes—Series N—1.68%, due March 2026
   100,000    —   
Senior unsecured notes—Series O—2.25%, due March 2031
   400,000    —   
Credit agreement
   300,000    400,000 
Unamortized debt issuance costs
   (6,633   (3,485
   
 
 
   
 
 
 
Total long-term debt
   1,603,367    1,206,515 
   
 
 
   
 
 
 
Total debt
  $1,603,367   $1,356,515 
   
 
 
   
 
 
 
 
*
Series H senior unsecured notes bear interest at a
3-month
LIBOR for that floating rate interest period plus 1.25%.
As of June 27, 2020July 3, 2021 and December 31, 2019,2020, the Company had a total amount available to borrow under the 2017 Credit Agreement of $1.1 
b
illion$1.5 billion and $1.2$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 2.62%2.71% and 3.39%2.92% at June 27, 2020July 3, 2021 and December 31, 2019,2020, respectively. As of June 27, 2020,July 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 $105$122 million and $109 million at each of June 27, 2020July 3, 2021 and December 31, 2019,2020, respectively, for the purpose of short-term borrowing and issuance of commercial guarantees. The weighted-average interest rate applicable to these short-term borrowings was 1.48% for December 31, 2019. None of the Company’s foreign subsidiaries had outstanding short-term borrowings as of June 27,July 3, 2021 or December 31, 2020.
20

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)
As of June 27, 2020,July 3, 2021, the Company had entered into three-year interest rate cross-currency swap derivative agreements with an aggregate notional value of $560$490 million to hedge the variability in the movement of foreign currency exchange rates on a portion of its Euro-denominated net asset investments.
87 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 June 27, 2020.July 3, 2021. The Company hasha
d
 a contractual tax rate of 0% on qualifying activities in Singapore through March 2021, based upon the achievement of certain contractual milestones, whichmilestones. 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 Company expects to meet.period April 1, 2021 through March 31, 2026. The effect of applying the contractualconcessionary income tax raterates rather than the statutory tax rate to income from qualifying activities in Singapore increased the Company’s net income for the six months ended July 3, 2021 and June 27, 2020 and June 29, 2019 by $7$9 million and $9$7 million, respectively, and increased the Company’s net income per diluted share by $0.14 and $0.11, and $0.13, respectively.
The Company’s effective tax rate for the three months ended July 3, 2021 and June 27, 2020 was 15.3% and June 29, 2019 was 15.4% and 15.9%, respectively. The decrease in the effective income tax rate can be attributed to differences in the proportionate amounts of
pre-tax
income recognized in jurisdictions with different effective tax rates.
20

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STAEMENTS (unaudited) – (Continued)
The Company’s effective tax rate for the six months ended July 3, 2021 and June 27, 2020 was 15.0% and 13.2%, respectively. The effective tax rate for the six months ended July 3, 2021 includes a $4 million tax benefit related to stock-based compensation. This income tax benefit decreased the effective tax rate by 1.1 percentage points for the six months ended July 3, 2021. The effective tax rate for the six months ended June 27, 2020 and June 29, 2019 was 13.2% and 12.4%, respectively. The effective tax rate for the six months ended June 27, 2020
includes a $5 million income tax benefit related to certain restructuring charges and a $2 million tax benefit related to stock-based compensation. These income tax benefits decreased the effective tax rate by 2.4 percentage points and 1.2 percentage points, respectively, for the six months ended June 27, 2020, respectively. The effective tax rate for the six months ended June 29, 2019
includes a $
3
 million income tax benefit related to the finalization of certain regulations relating to the Tax
Cuts a
nd Jobs
Act
 of 2017 and a $7 million
income tax benefit
related to stock-based compensation. These income tax benefits
decreased the effective tax rate by
1.0
percentage
 point and
2.3
percentage points for the six months ended June 29, 2019
, respectively
.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.
The Company accounts for its uncertain tax return reporting positions in accordance with the accounting standards for income taxes, which require financial statement reporting of the expected future tax consequences of uncertain tax reporting positions on the presumption that all concerned tax authorities possess full knowledge of those tax reporting positions, as well as all of the pertinent facts and circumstances, but prohibit any discounting of unrecognized tax benefits associated with those reporting positions for the time value of money. The Company 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 six months ended July 3, 2021 and June 27, 2020 and June 29, 2019 (in thousands):
 
   
June 27, 2020
   
June 29, 2019
 
Balance at the beginning of the period
 $
27,790
  $
26,108
 
Net reductions for lapse of statutes taken during the period
  
(252
)  
(105
)
Net additions for tax positions taken during the current period
  
536
   
801
 
         
Balance at the end of the period
 $
28,074
  $
26,804
 
         
   
July 3, 2021
  
June 27, 2020
 
Balance at the beginning of the period
  $28,666  $27,790 
Net reductions for settlement of tax audits
   (593  0   
Net reductions for lapse of statutes taken during the period
   (198  (252
Net additions for tax positions taken during the current period
   653   536 
   
 
 
  
 
 
 
Balance at the end of the period
  $28,528  $28,074 
   
 
 
  
 
 
 
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, 2014.2015. 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 June 27, 2020,July 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 $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.
21

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)
98 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 s
tock
holdersstockholders approved the Company’s 2020 Equity Incentive Plan (“2020 Plan”). As of June 27, 2020,July 3, 2021, the 2020 Plan ha
d
had 6.6 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 ten years after 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 June 27, 2020,July 3, 2021, the Company had stock options, restricted stock, and restricted and performance stock unit awards outstanding under the 2020 Plan.
 under t
he 2020 Plan
.
21

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 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 and six months ended July 3, 2021 and June 27, 2020 and June 29, 2019 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
  
Six Months Ended
 
   
June 27, 2020
   
June 29, 2019
   
June 27, 2020
   
June 29, 2019
 
Cost of sales
 $
635
  $
567
  $
1,205
  $
1,142
 
Selling and administrative expenses
  
7,352
   
7,402
   
14,725
   
15,527
 
Research and development expenses
  
939
   
1,345
   
2,192
   
2,586
 
                 
Total stock-based compensation
 $
8,926
  $
9,314
  $
18,122
  $
19,255
 
                 
   
Three Months Ended
   
Six Months Ended
 
   
July 3, 2021
   
June 27, 2020
   
July 3, 2021
   
June 27, 2020
 
Cost of sales
  $727   $635   $1,360   $1,205 
Selling and administrative expenses
   5,274    7,352    11,694    14,725 
Research and development expenses
   1,290    939    2,542    2,192 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total stock-based compensation
  $7,291   $8,926   $15,596   $18,122 
   
 
 
   
 
 
   
 
 
   
 
 
 
22

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)
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. The relevant data used to determine the value of the stock options granted during the six months ended July 3, 2021 and June 27, 2020 and June 29, 2019 are as follows:
 
Six Months Ended
 
Options Issued and Significant Assumptions Used to Estimate Option Fair Values
  
June 27, 2020
  
June 29, 2019
 
Options issued in thousands
  
227
   
139
 
Risk-free interest rate
  
1.4
%  
2.5
%
 
Expected life in years
  
6
   
5
 
Expected volatility
  
26.5
%  
24.3
%
 
Expected dividends
  
—  
   
—  
 
   
Six Months Ended
 
Options Issued and Significant Assumptions Used to Estimate Option Fair Values
  
July 3, 2021
  
June 27, 2020
 
Options issued in thousands
   159   227 
Risk-free interest rate
   0.8  1.4
Expected life in years
   6   6 
Expected volatility
   32.5  26.5
Expected dividends
   0     —   
   
Six Months Ended
 
Weighted-Average Exercise Price and Fair Value of Options on the Date of Grant
  
July 3, 2021
   
June 27, 2020
 
Exercise price
  $280.92   $216.08 
Fair value
  $91.42   $61.70 
22

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STAEMENTS (unaudited) – (Continued)
 
Six Months Ended
 
Weighted-Average Exercise Price and Fair Value of Options on the Date of Grant
  
June 27, 2020
  
June 29, 2019
 
Exercise price
 $
216.08
   $
231.30
 
 
 
Fair value
 $
61.70
  $
61.85
 
The following table summarizes stock option activity for the plans for the six months ended June 27, 2020July 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, 2019
  
1,455
  $
61.63
  
to
 
 $
238.52
  $
158.61
 
Granted
  
227
  $
203.37
  
to
 
 $
235.06
  $
216.08
 
Exercised
  
(87
) $
61.63
  
to
 
 $
208.47
  $
125.50
 
Canceled
  
(148
) $
128.93
  
to
 
 $
238.52
  $
172.91
 
                   
Outstanding at June 27, 2020
  
1,447
  $
75.94
  
to
 
 $
238.52
  $
168.15
 
                   
   
Number of Shares
   
Exercise Price per Share
   
Weighted-Average

Exercise Price per
Share
 
Outstanding at December 31, 2020
   1,067   $75.94    to   $238.52   $179.59 
Granted
   159   $250.15    to   $346.56   $280.92 
Exercised
   (230  $99.22    to   $238.52   $168.39 
Canceled
   (228  $139.51    to   $224.37   $194.59 
   
 
 
                     
Outstanding at July 3, 2021
   768   $75.94    to   $346.56   $199.21 
   
 
 
                     
Restricted Stock
During the six months ended June 27, 2020,July 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 $235.06.
$250.15.
Restricted Stock Units
The following table summarizes the unvested restricted stock unit award activity for the six months ended June 27, 2020July 3, 2021 (in thousands, except per share data):
   
Shares
   
Weighted-Average

Grant Date Fair

Value per Share
 
Unvested at December 31, 2019
  
260
  $
184.70
 
Granted
  
105
  $
206.73
 
Vested
  
(86
) $
161.84
 
Forfeited
  
(15
) $
185.91
 
         
Unvested at June 27, 2020
  
264
  $
200.84
 
         
   
Shares
   
Weighted-Average

Grant Date Fair
Value per Share
 
Unvested at December 31, 2020
   271   $202.00 
Granted
   88   $282.94 
Vested
   (81  $182.26 
Forfeited
   (14  $220.23 
   
 
 
      
Unvested at July 3, 2021
   264   $234.07 
   
 
 
      
Restricted stock units are generally granted annually in February and vest in equal annual installments over a
five-year
period.
23

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)
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 0% to 200% of the target shares awarded. Beginning with the
grants mad
emade 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. The relevant data used to determine the value of the performance stock units granted during the six months ended July 3, 2021 and June 27, 2020 and June 29, 2019 are as follows:
 
  
Six Months Ended
 
Performance Stock Units Issued and Significant Assumptions Used to Estimate Fair Values
 
June 27, 2020
  
June 29, 2019
 
Performance stock units issued (in thousands)
  
58
   
13
 
Risk-free interest rate
  
1.3
%  
2.4
%
 
Expected life in years
  
2.9
   
2.8
 
Expected volatility
  
25.1
%   
23.5
%
Average volatility of peer companies
  
26.1
%  
26.2
%
Correlation coefficient
  
36.6
%  
34.2
%
Expected dividends
  
—  
   
—  
 
23

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STAEMENTS (unaudited) – (Continued)
   
Six Months Ended
 
Performance Stock Units Issued and Significant Assumptions Used to Estimate Fair Values
  
July 3,
2021
  
June 27,
2020
 
Performance stock units issued (in thousands)
   41   58 
Risk-free interest rate
   0.2  1.3
Expected life in years
   2.9   2.9 
Expected volatility
   38.7  25.1
Average volatility of peer companies
   34.7  26.1
Correlation coefficient
   45.8  36.6
Expected dividends
   0     —   
The following table summarizes the unvested performance stock unit award activity for the six months ended June 27, 2020July 3, 2021 (in thousands, except per share data):
 
   
Shares
   
Weighted-Average

Fair Value per
Share
 
Unvested at December 31, 2019
  
105
  $
233.11
 
Granted
  
58
  $
190.45
 
Vested
  
(37
) $
184.51
 
Forfeited
  
(24
) $
233.31
 
         
Unvested at June 27, 2020
  
102
  $
226.44
 
         
   
Shares
   
Weighted-Average

Fair Value per
Share
 
Unvested at December 31, 2020
   95   $230.36 
Granted
   41   $315.98 
Vested
   (5  $242.94 
Forfeited
   (39  $229.78 
   
 
 
      
Unvested at July 3, 2021
   92   $268.08 
   
 
 
      
24

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)
109 Earnings Per Share
Basic and diluted EPS calculations are detailed as follows (in thousands, except per share data):
 
Three Months Ended June 27, 2020
 
   
Net Income
(Numerator)
   
Weighted-
Average Shares
(Denominator)
   
Per Share
Amount
 
Net income per basic common share
 $
122,929
   
61,944
  $
1.98
 
Effect of dilutive stock option, restricted stock, performance stock unit and restricted stock unit securities
  
—  
   
240
   
—  
 
             
Net income per diluted common share
 $
122,929
   
62,184
  $
1.98
 
             
   
Three Months Ended July 3, 2021
 
   
Net Income
(Numerator)
   
Weighted-
Average Shares
(Denominator)
   
Per Share
Amount
 
Net income per basic common share
  $167,292    61,685   $2.71 
Effect of dilutive stock option, restricted stock, performance stock unit and restricted stock unit securities
   0      472    (0.02
   
 
 
   
 
 
   
 
 
 
Net income per diluted common share
  $167,292    62,157   $2.69 
   
 
 
   
 
 
   
 
 
 
  
   
Three Months Ended June 27, 2020
 
   
Net Income
(Numerator)
   
Weighted-
Average Shares
(Denominator)
   
Per Share
Amount
 
Net income per basic common share
  $122,929    61,944   $1.98 
Effect of dilutive stock option, restricted stock, performance stock unit and restricted stock unit securities
   —      240    —   
   
 
 
   
 
 
   
 
 
 
Net income per diluted common share
  $122,929    62,184   $1.98 
   
 
 
   
 
 
   
 
 
 
24

 
Three Months Ended June 29, 2019
 
   
Net Income
(Numerator)
   
Weighted-
Average Shares
(Denominator)
   
Per Share
Amount
 
Net income per basic common share
 $
144,410
   
68,989
  $
2.09
 
Effect of dilutive stock option, restricted stock, performance stock unit and restricted stock unit securities
  
—  
   
505
   
(0.01
)
             
Net income per diluted common share
 $
144,410
   
69,494
  $
2.08
 
             
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)
 
Six Months Ended June 27, 2020
 
   
Net Income
(Numerator)
   
Weighted-
Average Shares
(Denominator)
   
Per Share
Amount
 
Net income per basic common share
 $
176,491
   
62,085
  $
2.84
 
Effect of dilutive stock option, restricted stock, performance stock unit and restricted stock unit securities
  
—  
   
319
   
(0.01
)
             
Net income per diluted common share
 $
176,491
   
62,404
  $
2.83
 
             
   
Six Months Ended July 3, 2021
 
   
Net Income

(Numerator)
   
Weighted-
Average Shares

(Denominator)
   
Per Share

Amount
 
Net income per basic common share
  $315,419    61,979   $5.09 
Effect of dilutive stock option, restricted stock, performance stock unit and restricted stock unit securities
   0      456    (0.04
   
 
 
   
 
 
   
 
 
 
Net income per diluted common share
  $315,419    62,435   $5.05 
   
 
 
   
 
 
   
 
 
 
  
   
Six Months Ended June 27, 2020
 
   
Net Income

(Numerator)
   
Weighted-

Average Shares

(Denominator)
   
Per Share

Amount
 
Net income per basic common share
  $176,491    62,085   $2.84 
Effect of dilutive stock option, restricted stock, performance stock unit and restricted stock unit securities
   0      319    (0.01
   
 
 
   
 
 
   
 
 
 
Net income per diluted common share
  $176,491    62,404   $2.83 
   
 
 
   
 
 
   
 
 
 
 
Six Months Ended June 29, 2019
 
   
Net Income
(Numerator)
   
Weighted-
Average Shares
(Denominator)
   
Per Share
Amount
 
Net income per basic common share
 $
253,396
   
70,331
  $
3.60
 
Effect of dilutive stock option, restricted stock, performance
s
to
ck unit and restricted stock unit securities
  
—  
   
573
   
(0.03
)
             
Net income per diluted common share
 $
253,396
   
70,904
  $
3.57
 
             
For the three and six months ended July 3, 2021 and June 27, 2020, the Company had 0.7fewer than 1 million
and 0.4
million
stock options that were antidilutive due to having higher exercise prices than the Company’s average stock price during the applicable period. For both the three and six months ended June 29, 2019, the Company had 0.1 million stock options that were antidilutive. These securities were not included in the computation of diluted EPS. The effect of dilutive securities was calculated using the treasury stock method.​​​​​​​
10 Accumulated Other Comprehensive Income
The components of accumulated other comprehensive loss are detailed as follows (in thousands):
   
Currency
Translation
   
Unrealized Gain
(Loss) on
Retirement Plans
   
Unrealized Loss
on Investments
   
Accumulated Other
Comprehensive
Loss
 
Balance at December 31, 2020
  $(98,082  $(19,861  $0     $(117,943
Other comprehensive income (loss), net of tax   5,816    963    (15   6,764 
   
 
 
   
 
 
   
 
 
   
 
 
 
Balance at July 3, 2021
  $(92,266  $(18,898  $(15  $(111,179
   
 
 
   
 
 
   
 
 
   
 
 
 
25

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)
11 Accumulated Other Comprehensive Income
The components of accumulated other comprehensive income (loss) are detailed as follows (in thousands):
   
Currency Translation
   
Unrealized Gain (Loss)
on Retirement Plans
   
Accumulated Other
Comprehensive Loss
 
Balance at December 31, 2019
 $
(104,066
) $
(15,405
) $
(119,471
)
Other comprehensive income (loss), net of tax
  
(7,757
  
338
   
(7,419
)
             
Balance at June 27, 2020
 $
(111,822
 $
(15,067
 $
(126,890
)
             
1
2
 Retirement Plans
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. The summary of the components of net periodic pension costs for the plans for the three and six months ended July 3, 2021 and June 27, 2020 and June 29, 2019 is as follows (in thousands):
 
Three Months Ended
 
 
June 27, 2020
  
June 29, 2019
 
   
U.S.
Pension
Plans
   
U.S. Retiree
Healthcare
Plan
  
Non-U.S.

Pension
Plans
  
U.S.
Pension
Plans
   
U.S. Retiree
Healthcare
Plan
  
Non-U.S.

Pension
Plans
 
Service cost
 $
—  
  $
151
  $
1,095
  $
—  
  $
108
  $
1,075
 
Interest cost
  
—  
   
177
   
338
   
10
   
230
   
430
 
Expected return on plan assets
  
—  
   
(220
)  
(454
)  
—  
   
(177
)  
(538
)
Net amortization:
                  
Prior service credit
  
—  
   
(5
)  
(41
)  
—  
   
(5
)  
(37
)
Net actuarial loss
  
—  
   
—  
   
382
   
—  
   
—  
   
132
 
                         
Net periodic pension cost
 $
—  
  $
103
  $
1,320
  $
10
  $
156
  $
1,062
 
                         
 
Six Months Ended
 
 
June 27, 2020
  
June 29, 2019
 
   
U.S.
Pension
Plans
   
U.S. Retiree
Healthcare
Plan
  
Non-U.S.

Pension
Plans
  
U.S.
Pension
Plans
   
U.S. Retiree
Healthcare
Plan
  
Non-U.S.

Pension
Plans
 
Service cost
 $
—  
  $
302
  $
2,194
  $
—  
  $
250
  $
2,157
 
Interest cost
  
—  
   
353
   
683
   
23
   
389
   
864
 
Expected return on plan assets
  
—  
   
(439
)  
(910
)  
—  
   
(354
)  
(1,081
)
Net amortization:
                  
Prior service credit
  
—  
   
(10
)  
(81
)  
—  
   
(10
)  
(74
)
Net actuarial loss
  
—  
   
—  
   
767
   
—  
   
—  
   
267
 
                         
Net periodic pension cost
 $
—  
  $
206
  $
2,653
  $
23
  $
275
  $
2,133
 
                         
In 2019, the Company completed the termination of the Waters Retirement Restoration Plan.
 
26

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)
   
Three Months Ended
 
   
July 3, 2021
   
June 27, 2020
 
   
U.S. Retiree

Healthcare

Plan
   
Non-U.S.

Pension

Plans
   
U.S. Retiree

Healthcare

Plan
   
Non-U.S.

Pension

Plans
 
Service cost
  $232   $1,147   $151   $1,095 
Interest cost
   139    312    177    338 
Expected return on plan assets
   (255   (464   (220   (454
Net amortization:
                    
Prior service credit
   (4   (39   (5   (41
Net actuarial loss
   0      261    —      382 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net periodic pension cost
  $112   $1,217   $103   $1,320 
   
 
 
   
 
 
   
 
 
   
 
 
 
  
   
Six Months Ended
 
   
July 3, 2021
   
June 27, 2020
 
   
U.S. Retiree

Healthcare

Plan
   
Non-U.S.

Pension

Plans
   
U.S. Retiree

Healthcare

Plan
   
Non-U.S.

Pension

Plans
 
Service cost
  $465   $2,307   $302   $2,194 
Interest cost
   278    627    353    683 
Expected return on plan assets
   (510   (930   (439   (910
Net amortization:
                    
Prior service credit
   (9   (80   (10   (81
Net actuarial loss
   0      523    —      767 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net periodic pension cost
  $224   $2,447   $206   $2,653 
   
 
 
   
 
 
   
 
 
   
 
 
 
During fiscal year 2020,2021, the Company expects to contribute a total of approximately $3 million to $6 million to the Company’s defined benefit plans.
1
3
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 2 operating segments: Waters
TM
and TA
TM
.
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 1 reportable1reportable segment of the Company.
26

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)
Net sales for the Company’s products and services are as follows for the three and six months ended July 3, 2021 and June 27, 2020 and June 29, 2019 (in thousands):
 
 
Three Months Ended
  
Six Months Ended
 
   
June 27, 2020
   
June 29, 2019
   
June 27, 2020
   
June 29, 2019
 
Product net sales:
            
Waters instrument systems
 $
181,399
  $
238,777
  $
324,228
  $
423,389
 
Chemistry consumables
  
95,105
   
100,292
   
192,350
   
199,545
 
TA instrument systems
  
38,416
   
48,196
   
72,525
   
84,834
 
                 
Total product sales
  
314,920
   
387,265
   
589,103
   
707,768
 
Service net sales:
            
Waters service
  
189,205
   
192,048
   
363,342
   
368,097
 
TA service
  
15,859
   
19,849
   
32,478
   
37,159
 
                 
Total service sales
  
205,064
   
211,897
   
395,820
   
405,256
 
                 
Total net sales
 $
519,984
  $
599,162
  $
984,923
  $
1,113,024
 
                 
2
7

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (
Continued
)
   
Three Months Ended
   
Six Months Ended
 
   
July 3, 2021
   
June 27, 2020
   
July 3, 2021
   
June 27, 2020
 
Product net sales:
                    
Waters instrument systems
  $261,363   $181,399   $477,435   $324,228 
Chemistry consumables
   126,459    95,105    245,433    192,350 
TA instrument systems
   53,133    38,416    100,109    72,525 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total product sales
   440,955    314,920    822,977    589,103 
     
Service net sales:
                    
Waters service
   219,502    189,205    426,334    363,342 
TA service
   21,190    15,859    40,881    32,478 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total service sales
   240,692    205,064    467,215    395,820 
   
 
 
   
 
 
   
 
 
   
 
 
 
     
Total net sales
  $681,647   $519,984   $1,290,192   $984,923 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net sales are attributable to geographic areas based on the region of destination. Geographic sales information is presented below for the three and six months ended July 3, 2021 and June 27, 2020 and June 29, 2019 (in thousands):
 
Three Months Ended
  
Six Months Ended
 
   
June 27, 2020
   
June 29, 2019
   
June 27, 2020
   
June 29, 2019
 
Net Sales:
            
Asia:
            
China
 $
89,816
  $
112,796
  $
137,047
  $
202,887
 
Japan
  
41,230
   
45,958
   
86,319
   
89,462
��
Asia Other
  
77,163
   
80,081
   
143,923
   
146,998
 
                 
Total Asia
  
208,209
   
238,835
   
367,289
   
439,347
 
Americas:
            
United States
   148,928    173,940    292,826    323,097 
Americas Other
  
25,854
   
32,835
   
54,132
   
65,546
 
                 
Total Americas
  
174,782
   
206,775
   
346,958
   
388,643
 
Europe
  
136,993
   
153,552
   
270,676
   
285,034
 
                 
Total net sales
 $
519,984
  $
599,162
  $
984,923
  $
1,113,024
 
                 
   
Three Months Ended
   
Six Months Ended
 
   
July 3, 2021
   
June 27, 2020
   
July 3, 2021
   
June 27, 2020
 
Net Sales:
                    
Asia:
                    
China
  $127,225   $89,816   $230,144   $137,047 
Japan
   45,113    41,230    95,409    86,319 
Asia Other
   97,609    77,163    173,936    143,923 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total Asia
   269,947    208,209    499,489    367,289 
Americas:
                    
United States
   186,915    148,928    349,348    292,826 
Americas Other
   37,979    25,854    72,903    54,132 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total Americas
   224,894    174,782    422,251    346,958 
Europe
   186,806    136,993    368,452    270,676 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total net sales
  $681,647   $519,984   $1,290,192   $984,923 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net sales by customer class are as follows for the three and six months ended July 3, 2021 and June 27, 2020 and June 29, 2019 (in thousands):
 
Three Months Ended
  
Six Months Ended
 
   
June 27, 2020
   
June 29, 2019
   
June 27, 2020
   
June 29, 2019
 
Pharmaceutical
 $
311,018
  $
350,145
  $
583,581
  $
644,657
 
Industrial
  
152,110
   
176,109
   
295,464
   
331,327
 
Academic and governmental
  
56,856
   
72,908
   
105,878
   
137,040
 
                 
Total net sales
 $
519,984
  $
599,162
  $
984,923
  $
1,113,024
 
                 
   
Three Months Ended
   
Six Months Ended
 
   
July 3, 2021
   
June 27, 2020
   
July 3, 2021
   
June 27, 2020
 
Pharmaceutical
  $416,705   $311,018   $776,853   $583,581 
Industrial
   202,579    152,110    385,852    295,464 
Academic and government
   62,363    56,856    127,487    105,878 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total net sales
  $681,647   $519,984   $1,290,192   $984,923 
   
 
 
   
 
 
   
 
 
   
 
 
 
27

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)
Net sales for the Company recognized at a point in time versus over time are as follows for the three and six months ended July 3, 2021 and June 27, 2020 and June 29, 2019 (in thousands):
 
Three Months Ended
  
Six Months Ended
 
   
June 27, 2020
   
June 29, 2019
   
June 27, 2020
   
June 29, 2019
 
Net sales recognized at a point in time:
            
Instrument systems
 $
219,815
  $
286,973
  $
396,753
  $
508,223
 
Chemistry consumables
  
95,105
   
100,292
   
192,350
   
199,545
 
Service sales recognized at a point in time (time & materials)
  
78,867
   
84,807
   
146,609
   
157,566
 
  
 
 
   
 
 
   
 
 
   
 
 
 
Total net sales recognized at a point in time
  
393,787
   
472,072
   
735,712
   
865,334
 
  
 
 
   
 
 
   
 
 
   
 
 
 
Net sales recognized over time:
            
Service and software maintenance sales recognized over time (contracts)
  
126,197
   
127,090
   
249,211
   
247,690
 
                 
Total net sales
 $
519,984
  $
599,162
  $
984,923
  $
1,113,024
 
                 
   
Three Months Ended
   
Six Months Ended
 
   
July 3, 2021
   
June 27, 2020
   
July 3, 2021
   
June 27, 2020
 
Net sales recognized at a point in time:
                    
Instrument systems
  $314,496   $219,815   $577,544   $396,753 
Chemistry consumables
   126,459    95,105    245,433    192,350 
Service sales recognized at a point in time (time & materials)
   88,832    78,867    168,119    146,609 
Total net sales recognized at a point in time
   529,787    393,787    991,096    735,712 
   
 
 
   
 
 
   
 
 
   
 
 
 
     
Net sales recognized over time:
                    
Service and software maintenance sales recognized over time (contracts)
   151,860    126,197    299,096    249,211 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total net sales
  $681,647   $519,984   $1,290,192   $984,923 
   
 
 
   
 
 
   
 
 
   
 
 
 
1
4
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
28

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)
financial assets that have the contractual right to receive cash. CurrentPrior guidance requiresrequired the recognition of a credit loss when it iswas considered probable that a loss event hashad occurred. The newcurrent 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 $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 ana material 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
28

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)
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.
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 August 2018, accounting guidance was issued that modifies the disclosure requirements of retirement benefit plans. The amendments remove disclosures that are no longer considered cost beneficial, clarify the specific requirements of disclosure and add disclosure requirement identified as relevant. This guidance is effective for annual and interim periods beginning after December 15, 2020 and early adoption is permitted. The Company does not expect that the adoption of this standard will have a material impact on the Company’s financial position, results of operations and cash flows.
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 and early adoption is permitted. The Company does not expect that the adoption of this standard will have a material impact on the Company’s financial position, results of operations and cash flows.
In 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 and early adoption is permitted. The Company does not expect that the adoption of this standard will have a material impact on the Company’s financial position, results of operations and cash flows.
29

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)
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.
In March 2020, the U.S. federal government enacted the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). The CARES Act is an emergency economic stimulus package in response to the
COVID-1929
outbreak which, among other things, contains numerous income tax provisions. While the Company continues to evaluate the impact of the CARES Act, it does not currently believe it will have a material impact on the Company’s consolidated financial statements or related disclosures.
3
0

Item 2:
 Management’s Discussion and Analysis of Financial Condition and
Results of Operations
Business and Financial Overview
The Company has two operating segments: Waters
TM
and TA
TM
. Waters products and
services
primarily consist of high performance liquid chromatography (“HPLC”), ultra performance liquid chromatography (“UPLC
TM
” and, together with HPLC, referred to as “LC”), mass spectrometry (“MS”) and precision chemistry consumable products and related services. TA products and services primarily consist of thermal analysis, rheometry and calorimetry instrument systems and service sales. The Company’s products are used by pharmaceutical, biochemical, industrial, nutritional safety, environmental, academic and governmental 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.
Both the Company’s domestic and international operations have been and continue to be adversely affected by the ongoing global pandemic of a novel strain of coronavirus
(“COVID-19”)
and the resulting volatility and uncertainty it has caused 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.
To date, the
COVID-19
pandemic has not materially impacted our manufacturing facilities or those of the third parties to whom we outsource certain manufacturing processes, the distribution centers where our inventory is managed or the operations of our logistics and other service providers. We have also not seen material disruptions or delays in shipments of certain materials or components of our products.
At every stage of the pandemic, we have taken decisive and appropriate actions, including a mandatory remote work policy for all employees with the exception of those in manufacturing, distribution, and certain laboratory environments, as well as bans on
non-essential
travel and visitors into our facilities. Early on, we engaged a medical advisor to guide our policy deployment, and we continue to take proactive measures to guard the health of our global employee base, and the safety of all customer interactions. We have implemented rigorous protocols to promote a safe work environment in all of our locations around the world and late in the quarter we began implementation of the first phase of a multi-phase process for the safe return of employees to our physical workplaces as social distancing requirements allow.
The vast majority of the markets we serve, most notably the pharmaceutical, biomedical research, food/environmental and clinical markets, have continued to operate at various levels, and we are working closely with these customers to facilitate their seamless operation. Over the last several years, we have executed on a digital workplace strategy focused on providing modern connectivity and collaboration tools to our employees. Our strategic technology investments have enabled us to swiftly meet remote working needs as the
COVID-19
situation has escalated and evolved. From a customer-facing perspective, we are leveraging digital demand generation activities, including virtual demos across all regions in which we operate, remote instrument installations, virtual sales seminars, online product training, and a rapid acceleration in
one-on-one
communications over emails, phone and video conferencing.
While we initially anticipated that the
COVID-19
pandemic would have the biggest impact on the Company’s financial results in the second quarter of 2020, and future quarters would improve as countries lifted their business restrictions, the new outbreaks of
COVID-19
in the U.S. and elsewhere have demonstrated that the
COVID-19
pandemic continues to be fluid with uncertainties and risks remaining across the global economy. The Company is taking a proactive approach to managing through this unpredictability and has implemented a series of cost reduction actions that include salary reductions, furloughs and reductions in
non-essential
spending and other working capital reductions in order to preserve liquidity and enhance financial flexibility. A significant portion of these cost reduction actions are expected to expire at the end of July 2020, and the Company’s costs of sales and operating expenses are expected to gradually increase to
pre-COVID-19
levels as we move through the remainder of 2020.
These expected cost reductions reflect our core assumptions that the business moves through the recovery phase, and business conditions improve in the second half of 2020; however, our plan will be adjusted accordingly depending on the pace of the recovery.
31

The Company’s operating results are as follows for the three and six months ended June 27, 2020 and June 29, 2019 (dollars in thousands, except per share data):
   
Three Months Ended
  
Six Months Ended
 
   
June 27,
2020
  
June 29,
2019
  
% change
  
June 27,
2020
  
June 29,
2019
  
% change
 
Revenues:
       
Product sales
  $314,920  $387,265  
 
(19
%) 
 $589,103  $707,768  
 
(17
%) 
Service sales
   205,064   211,897  
 
(3
%) 
  395,820   405,256  
 
(2
%) 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total net sales
   519,984   599,162  
 
(13
%) 
  984,923   1,113,024  
 
(12
%) 
Costs and operating expenses:
       
Cost of sales
   213,134   249,546  
 
(15
%) 
  423,778   470,577  
 
(10
%) 
Selling and administrative expenses
   117,449   133,208  
 
(12
%) 
  265,184   267,547  
 
(1
%) 
Research and development expenses
   31,155   36,490  
 
(15
%) 
  66,144   71,550  
 
(8
%) 
Purchased intangibles amortization
   2,618   2,264  
 
16
  5,243   4,545  
 
15
Litigation provision
   514   —    
 
—  
 
  1,180   —    
 
—  
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Operating income
   155,114   177,654  
 
(13
%) 
  223,394   298,805  
 
(25
%) 
Operating income as a % of sales
  
 
29.8
 
 
29.7
  
 
22.7
 
 
26.8
 
Other expense
   (736  (342 
 
115
  (1,110  (867 
 
28
Interest expense, net
   (9,015  (5,577 
 
62
  (19,058  (8,825 
 
116
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Income before income taxes
   145,363   171,735  
 
(15
%) 
  203,226   289,113  
 
(30
%) 
Provision for income taxes
   22,434   27,325  
 
(18
%) 
  26,735   35,717  
 
(25
%) 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Net income
  $122,929  $144,410  
 
(15
%) 
 $176,491  $253,396  
 
(30
%) 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Net income per diluted common share
  $1.98  $2.08  
 
(5
%) 
 $2.83  $3.57  
 
(21
%) 
In the second quarter of 2020, the Company’s sales decreased 13% as compared to the second quarter of 2019 and decreased 12% for the first half of 2020 as compared to the first half of 2019. This decline in sales in the 2020 periods can be attributed to the interruption in business activities caused by the uncertainties from the
COVID-19
pandemic across the world. Foreign currency translation decreased sales by 1% for both the second quarter and first half of 2020. Unless otherwise noted, sales growth or decline percentages are presented as compared with the same period in the prior year.
Instrument system sales decreased 23% for the second quarter and 22% for the first half of 2020 as a result of weaker demand for our products by our customers due to interruption of business activities and the uncertainty caused by the
COVID-19
pandemic. Foreign currency translation decreased instrument system sales by 1% for the first half of 2020. Recurring revenues (combined sales of precision chemistry consumables and services) decreased 4% and 3% for the second quarter and first half of 2020, respectively, also as a result of interruption of business activities and the uncertainty caused by the
COVID-19
pandemic. Chemistry consumable sales decreased 5% and 4% in the second quarter and first half of 2020, respectively, while service sales declined 3% and 2% in the second quarter and first half of 2020, respectively. Recurring revenues were negatively impacted by foreign currency translation which lowered sales by 1% in both the second quarter and first half of 2020, as well as the first half of 2020 having one less calendar day as compared to the first half of 2019.
In both the second quarter and first half of 2020, the Company’s sales declined across all major geographies. The broad-based decline in sales was a result of the weaker demand and disruption of business activities caused be the
COVID-19
lockdowns. In the second quarter of 2020, the Company’s sales decreased 13% in Asia, 15% in the Americas, and 11% in Europe. For the first half of 2020, the Company’s sales decreased 16% in Asia, 11% in the Americas, and 5% in Europe. Foreign currency translation decreased Asia’s sales by 1% in both the second quarter and first half of 2020 and decreased Europe’s sales by 2% in both the second quarter and first half of 2020.
In the second quarter of 2020, the Company’s sales decreased 20% in China, 14% in the U.S., 4% in Asia Other, and 10% in Japan, with foreign currency translation negatively impacting Asia Other sales by 1% and benefiting Japan sales by 1%. In the first half of 2020, sales decreased 32% in China, 9% in the U.S., 2% in Asia Other and 4% in Japan, with foreign currency translation negatively impacting China sales by 1%, Asia Other sales by 2%, and benefiting Japan sales by 1%.
32

Sales in China declined 20% in the second quarter of 2020, improving from the 48% decline experienced in the first quarter of 2020, as the
COVID-19
business restrictions in China were slowly lifted. Excluding China, the Company’s sales in the first half of 2020 declined 7%, with foreign currency translation negatively impacting sales by 1%.
Sales to pharmaceutical customers decreased 11% for the second quarter and 9% for the first half of 2020, primarily due to the disruption in business activities caused by
COVID-19,
with the effect of foreign currency translation decreasing sales by 1% for both the second quarter and first half of 2020. Combined sales to industrial customers, which include material characterization, food, environmental and fine chemical markets, declined 14% in the second quarter and 11% in the first half of 2020, primarily due to lower demand caused by the
COVID-19
pandemic, with the effect of foreign currency translation decreasing sales by 1% for both the second quarter and first half of 2020. Similarly, TA sales declined 20% and 14% in the second quarter and first half of 2020, respectively. For the first half of 2020, the most significant decline in academic and governmental sales occurred in China where sales were 48% lower than the comparable 2019 period on mandated governmental spending reductions. Combined sales to academic and governmental customers decreased 22% and 23% in the second quarter and first half of 2020, respectively, as governmental customers adjusted their spending to mitigate the effects of the
COVID-19
pandemic. Foreign currency translation decreased academic and governmental sales by 1% for both the second quarter and first half of 2020. Sales to our academic and governmental 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 decreased 13% and 25% for the second quarter and first half of 2020, respectively. The decreases were primarily a result of the decline in sales volumes caused by the
COVID-19
pandemic and were somewhat mitigated by a series of cost reduction actions that included salary reductions, furloughs and reductions in
non-essential
spending that increased operating income by approximately $60 million for the first half of 2020 versus our operating plan. In addition, operating income in the second quarter and first half of 2020 also included $3 million and $21 million, respectively, of severance-related costs in connection with a reduction in workforce and lease termination costs. The Company’s plan was to reduce its expenses by approximately $100 million compared to our internal operating plan during 2020 to improve its financial position and liquidity to mitigate the impact of the decline in sales caused by
COVID-19.
The Company was able to realize approximately 60% of the cost action and restructuring savings in the first half of 2020 and the Company anticipates the remaining 40% of this savings plan will be achieved in the second half of 2020 when the Company currently expects its spending to gradually return to
pre-COVID-19
levels. This plan reflects our core assumptions that the business moves through the recovery phase, and business conditions improve in the second half of 2020; however, our plan will be adjusted accordingly depending on the pace of the recovery.
The Company generated $350 million and $303 million of net cash flows from operations in the first half of 2020 and 2019, respectively. This increase in operating cash flow was primarily a result of the $54 million reduction in expense from the cost actions implemented during the second quarter of 2020.
Cash flows used in investing activities included capital expenditures related to property, plant, equipment and software capitalization of $97 million and $65 million in the first half of 2020 and 2019, respectively. 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. This acquisition is not expected to have a material effect on the Company’s sales and expenses. The cash flows from investing activities in the first half of 2020 also included $43 million of capital expenditures related to the expansion of the Company’s precision chemistry consumable operations in the U.S. The Company has incurred $123 million on this facility through the end of the first half of 2020 and anticipates spending a total of $215 million to build and equip this new
state-of-the-art
manufacturing facility. Due to the uncertain business conditions caused by the
COVID-19
pandemic, in the second quarter of 2020 the Company temporarily slowed down the remaining construction and buildout of this facility.
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 half of 2020 and 2019, the Company repurchased $167 million and $1.3 billion of the Company’s outstanding common stock, respectively, under authorized share repurchase programs. While the Company believes that it has the financial flexibility to fund these share repurchases given current cash and investment levels and debt borrowing capacity, as well as to invest in research, technology and business acquisitions to further grow the Company’s sales and profits, the Company has temporarily suspended its share repurchases due to the uncertain business conditions caused by the
COVID-19
pandemic.
33

Results of Operations
Business Overview
The Company has two operating segments: Waters
TM
and TA
TM
. Waters products and services primarily consist of high performance liquid chromatography (“HPLC”), ultra performance liquid chromatography (“UPLC
TM
” and, together with HPLC, referred to as “LC”), mass spectrometry (“MS”) and precision chemistry consumable products and related services. TA products and services primarily consist of thermal analysis, rheometry and calorimetry instrument systems and service sales. The Company’s products are used by pharmaceutical, biochemical, industrial, nutritional safety, environmental, academic and government customers. These customers use the Company’s products to detect, identify, monitor and measure the chemical, physical and biological composition of materials and to predict the suitability and stability of fine chemicals, pharmaceuticals, water, polymers, metals and viscous liquids in various industrial, consumer goods and healthcare products.
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, including the effect of the emergence of variants of the virus, or the related response, or the extent to which the disruption may materially impact the Company’s business, consolidated financial position, consolidated results of operations or consolidated cash flows in the future.
During the six months ended July 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 second half of 2021 from a normalization of these costs.
30

Financial Overview
The Company’s operating results are as follows for the three and six months ended July 3, 2021 and June 27, 2020 (dollars in thousands, except per share data):
   
Three Months Ended
  
Six Months Ended
 
   
July 3,
2021
  
June 27,
2020
  
% change
  
July 3, 2021
  
June 27,
2020
  
% change
 
Revenues:
                         
Product sales
  $440,955  $314,920  
 
40
 $822,977  $589,103  
 
40
Service sales
   240,692   205,064  
 
17
  467,215   395,820  
 
18
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total net sales
   681,647   519,984  
 
31
  1,290,192   984,923  
 
31
Costs and operating expenses:
                         
Cost of sales
   280,254   213,134  
 
31
  534,401   423,778  
 
26
Selling and administrative expenses
   158,213   117,449  
 
35
  301,409   265,184  
 
14
Research and development expenses
   44,949   31,155  
 
44
  83,041   66,144  
 
26
Purchased intangibles amortization
   1,809   2,618  
 
(31
%) 
  3,649   5,243  
 
(30
%) 
Litigation provision
   —     514  
 
(100
%) 
  —     —    
 
—  
 
Acquired
in-process
research and development
   —     —    
 
—  
 
  —     1,180  
 
(100
%) 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Operating income
   196,422   155,114  
 
27
  367,692   223,394  
 
65
Operating income as a % of sales
  
 
28.8
 
 
29.8
     
 
28.5
 
 
22.7
    
       
Other income (expense)
   9,321   (736 
 
*
  18,680   (1,110 
 
*
Interest expense, net
   (8,329  (9,015 
 
(8
%) 
  (15,174  (19,058 
 
(20
%) 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Income before income taxes
   197,414   145,363  
 
36
  371,198   203,226  
 
83
Provision for income taxes
   30,122   22,434  
 
34
  55,779   26,735  
 
109
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Net income
  $167,292  $122,929  
 
36
 $315,419  $176,491  
 
79
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
       
Net income per diluted common share
  $2.69  $1.98  
 
36
 $5.05  $2.83  
 
78
**
Percentage not meaningful
Despite the various ongoing challenges caused by the
COVID-19
pandemic, the Company’s net sales increased 31% in both the second quarter and first half of 2021 as compared to the second quarter and first half of 2020. The sales growth in the 2021 periods was driven by strong sales growth across all major geographies, end markets, and product categories. Overall, 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 42% and 68% in the second quarter and first half of 2021, respectively. Foreign currency translation increased total sales by 4% in both the second quarter and first half of 2021. In addition, the Company’s first half of 2021 included five more calendar days than the first half of 2020.
Instrument system sales increased 43% and 46% for the second quarter and first half of 2021, respectively, due to customer demand continuing to increase to
pre-pandemic
levels as customer laboratories and manufacturing facilities continued to return 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 3% and 4% in the second quarter and first half of 2021, respectively. Recurring revenues (combined sales of precision chemistry consumables and services) increased 22% and 21% for the second quarter and first half of 2021, respectively, with foreign currency translation increasing sales by 4% in both the quarter and first half of the year. In the first half of 2021, recurring revenues benefited from five additional calendar days as compared to the first half of 2020.
Geographically, the Company’s sales growth in the second quarter and first half of 2021 was broad-based across all major regions. During the second quarter of 2021, sales increased 30% in Asia, 29% in the Americas, and 36% in Europe, with the effect of foreign currency translation increasing sales in those regions by 2%, 1%, and 11%, respectively. During the first half of 2021, sales increased 36% in Asia, 22% in the Americas, and 36% in Europe, with the effect of foreign currency translation increasing sales in those regions by 2%, 1%, and 11%, respectively.
In the second quarter and first half of 2021, China sales increased 42% and 68%, respectively, driven by stronger demand due to customers resuming laboratory and manufacturing operations as well as the
pent-up
demand caused by the 32% decline in China’s sales in the first half of 2020 when the negative impact of the pandemic lockdowns was occurring. Foreign currency translation increased China sales growth by 5% and 6% in the quarter and first half of 2021, respectively. Sales increased 26% in the U.S., 9% in Japan and 47% in India in the quarter. Foreign currency translation decreased sales growth by 2% in Japan and 11% in India in the second quarter of 2021.
31

During the second quarter of 2021, sales to pharmaceutical customers increased 34%, driven by growth in all regions, including 48% in China, 49% in India, and 33% in Europe as strong customer demand continued to recover to
pre-pandemic
levels. Foreign currency translation increased pharmaceutical sales growth by 3%. Combined sales to industrial customers, which include material characterization, food, environmental and fine chemical markets, increased 33%, with the effect of foreign currency translation increasing sales growth by 5%. During the second quarter of 2021, combined sales to academic and government customers increased 10%, as customers continued to ramp up their spending in the first half of the year following lower spending levels throughout 2020 due to the
COVID-19
pandemic. Foreign currency translation increased academic and government sales growth by 3%. Sales to our academic and government customers are highly dependent on when institutions receive funding to purchase our instrument systems and, as such, sales can vary significantly from period to period.
During the first half of 2021, sales to pharmaceutical customers increased 33%, driven by growth in all regions 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 increased 31%, with the effect of foreign currency translation increasing sales growth by 5%. During the first half of 2021, combined sales to academic and government customers increased 20%, as customers ramped up their spending in the first half of the year following lower spending levels throughout 2020 due to the
COVID-19
pandemic. Foreign currency translation increased academic and government sales growth by 3%.
Operating income increased 27% and 65% for the second quarter and first half of 2021, respectively. These increases were primarily a result of the increase in sales volumes caused by our customers continuing to resume laboratory and manufacturing operations throughout the world. Both the quarter and
year-to-date
operating income increases were partially offset by the restoration of expenses that had been decreased in the 2020 periods which consisted of a series of cost reduction actions that included salary reductions, furloughs and reductions in
non-essential
spending that increased operating income by approximately $54 million in 2020. In addition, operating income in the second quarter and first half of 2020 also included $3 million and $21 million, respectively, of severance-related costs in connection with a reduction in workforce and lease termination costs.
The Company generated $361 million and $350 million of net cash flows from operations in the first half of 2021 and 2020, respectively. This increase in operating cash flow was primarily a result of the increase in sales volumes being offset by the $54 million benefit from the reduction in expenses from the COVID-19 pandemic cost actions implemented and working capital improvement during the second quarter of 2020.
Cash flows used in investing activities included capital expenditures related to property, plant, equipment and software capitalization of $77 million and $97 million in the first half of 2021 and 2020, respectively. The cash flows from investing activities in the first half of 2021 also included $28 million of capital expenditures related to the expansion of the Company’s precision chemistry consumable operations in the U.S. The Company has incurred $182 million on this facility through the end of the first half 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 half of 2021 and 2020, the Company repurchased $339 million and $167 million of the Company’s outstanding common stock, respectively, under authorized share repurchase programs. While the Company believes that it has the financial flexibility to fund these share repurchases given current cash and investment levels and debt borrowing capacity, as well as to invest in research, technology and business acquisitions to further grow the Company’s sales and profits. In December 2020, the Company’s Board of Directors authorized the extension of the share repurchase program through January 21, 2023.
32

Results of Operations
Sales by Geography
Geographic sales information is presented below for the three and six months ended July 3, 2021 and June 27, 2020 and June 29, 2019 (dollars in thousands):
 
   
Three Months Ended
  
Six Months Ended
 
   
June 27,
2020
   
June 29,
2019
   
%
change
  
June 27,
2020
   
June 29,
2019
   
%
change
 
Net Sales:
           
Asia:
           
China
  $89,816   $112,796   
 
(20
%) 
 $137,047   $202,887   
 
(32
%) 
Japan
   41,230    45,958   
 
(10
%) 
  86,319    89,462   
 
(4
%) 
Asia Other
   77,163    80,081   
 
(4
%) 
  143,923    146,998   
 
(2
%) 
  
 
 
   
 
 
   
 
 
  
 
 
   
 
 
   
 
 
 
Total Asia
   208,209    238,835   
 
(13
%) 
  367,289    439,347   
 
(16
%) 
Americas:
           
United States
   148,928    173,940   
 
(14
%) 
  292,826    323,097   
 
(9
%) 
Americas Other
   25,854    32,835   
 
(21
%) 
  54,132    65,546   
 
(17
%) 
  
 
 
   
 
 
   
 
 
  
 
 
   
 
 
   
 
 
 
Total Americas
   174,782    206,775   
 
(15
%) 
  346,958    388,643   
 
(11
%) 
Europe
   136,993    153,552   
 
(11
%) 
  270,676    285,034   
 
(5
%) 
  
 
 
   
 
 
   
 
 
  
 
 
   
 
 
   
 
 
 
Total net sales
  $519,984   $599,162   
 
(13
%) 
 $984,923   $1,113,024   
 
(12
%) 
  
 
 
   
 
 
   
 
 
  
 
 
   
 
 
   
 
 
 
   
Three Months Ended
  
Six Months Ended
 
   
July 3, 2021
   
June 27,
2020
   
% change
  
July 3, 2021
   
June 27,
2020
   
% change
 
Net Sales:
                             
Asia:
                             
China
  $127,225   $89,816   
 
42
 $230,144   $137,047   
 
68
Japan
   45,113    41,230   
 
9
  95,409    86,319   
 
11
Asia Other
   97,609    77,163   
 
26
  173,936    143,923   
 
21
   
 
 
   
 
 
   
 
 
  
 
 
   
 
 
   
 
 
 
Total Asia
   269,947    208,209   
 
30
  499,489    367,289   
 
36
Americas:
                             
United States
   186,915    148,928   
 
26
  349,348    292,826   
 
19
Americas Other
   37,979    25,854   
 
47
  72,903    54,132   
 
35
   
 
 
   
 
 
   
 
 
  
 
 
   
 
 
   
 
 
 
Total Americas
   224,894    174,782   
 
29
  422,251    346,958   
 
22
Europe
   186,806    136,993   
 
36
  368,452    270,676   
 
36
   
 
 
   
 
 
   
 
 
  
 
 
   
 
 
   
 
 
 
Total net sales
  $681,647   $519,984   
 
31
 $1,290,192   $984,923   
 
31
   
 
 
   
 
 
   
 
 
  
 
 
   
 
 
   
 
 
 
In the second quarter and first half 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
COVID-19
pandemic, disrupted businesses throughoutparticularly in China, where sales grew 42% and 68%, respectively. The sales strength was broad-based, driven by continued growth in recurring revenues and the worldstrong sales growth in instruments, particularly in LC and negatively impacted the Company’s
LC-MS
instrument system sales which grew double-digits across all major geographies. SalesRecurring revenues sales growth was favorably impacted by the five additional calendar days in China declined 20% and 32% in the second quarter and first half of 2020, respectively, and sales in2021 as compared to the U.S. declined 14% and 9% in the second quarter and first half of 2020, respectively, due to the2020.
COVID-19
Sales by Trade Class
pandemic.
Net sales by customer class are presented below for the three and six months ended July 3, 2021 and June 27, 2020 and June 29, 2019 (dollars in thousands):
 
   
Three Months Ended
  
Six Months Ended
 
   
June 27,
2020
   
June 29,
2019
   
%
change
  
June 27,
2020
   
June 29,
2019
   
%
change
 
Pharmaceutical
  $311,018   $350,145   
 
(11
%) 
 $583,581   $644,657   
 
(9
%) 
Industrial
   152,110    176,109   
 
(14
%) 
  295,464    331,327   
 
(11
%) 
Academic and governmental
   56,856    72,908   
 
(22
%) 
  105,878    137,040   
 
(23
%) 
  
 
 
   
 
 
   
 
 
  
 
 
   
 
 
   
 
 
 
Total net sales
  $519,984   $599,162   
 
(13
%) 
 $984,923   $1,113,024   
 
(12
%) 
  
 
 
   
 
 
   
 
 
  
 
 
   
 
 
   
 
 
 
   
Three Months Ended
  
Six Months Ended
 
   
July 3, 2021
   
June 27,
2020
   
% change
  
July 3, 2021
   
June 27,
2020
   
% change
 
Pharmaceutical
  $416,705   $311,018   
 
34
 $776,853   $583,581   
 
33
Industrial
   202,579    152,110   
 
33
  385,852    295,464   
 
31
Academic and government
   62,363    56,856   
 
10
  127,487    105,878   
 
20
   
 
 
   
 
 
   
 
 
  
 
 
   
 
 
   
 
 
 
Total net sales
  $681,647   $519,984   
 
31
 $1,290,192   $984,923   
 
31
   
 
 
   
 
 
   
 
 
  
 
 
   
 
 
   
 
 
 
In the second quarter and first half of 2020,2021, the declineincrease in sales to pharmaceutical customers was broad-based with double-digit sales growth across all major geographies, primarily due to the disruption in business activities caused by
COVID-19,
despite increasedstronger demand for our products and services as a result of our customers continuing to resume laboratory and manufacturing operations. Sales also benefited from the demand from certain pharmaceutical customers who are involved
with
COVID-19
diagnostic testing and the increase in the development of new drugs and therapies. Foreign currency translation decreasedincreased sales to pharmaceutical customers by 1% in both the second quarter and first half of 2020. The decline in sales to industrial customers in the quarter was primarily due to the lower demand caused by
the COVID-19 pandemic.
Similarly, TA sales declined of 20% and 14%3% in the second quarter and 4% in the first half of 2020, respectively. The decreases in sales2021. Sales to industrial and academic and governmental customers were broad-based across all product classes as governmental customers adjusted their spending to mitigate the effects of the
COVID-19 pandemic.
government
 
3433

customers increased double-digits in both the second quarter and first half of 2021, primarily due to customers continuing to resume laboratory and manufacturing operations during the year. Foreign currency translation increased sales to industrial customers by 5% in both the second quarter and first half of 2021, and increased sales to academic and government customers by 3% in both the second quarter and first half of 2021.
Waters Products and Services Net Sales
Net sales for Waters products and services were as follows for the three and six months ended July 3, 2021 and June 27, 2020 and June 29, 2019 (dollars in thousands):
 
   
Three Months Ended
 
   
June 27, 2020
   
% of
Total
  
June 29, 2019
   
% of
Total
  
% change
 
Waters instrument systems
  $181,399   
 
39
 $238,777   
 
45
 
 
(24
%) 
Chemistry consumables
   95,105   
 
20
  100,292   
 
19
 
 
(5
%) 
  
 
 
   
 
 
  
 
 
   
 
 
  
 
 
 
Total Waters product sales
   276,504   
 
59
  339,069   
 
64
 
 
(18
%) 
Waters service
   189,205   
 
41
  192,048   
 
36
 
 
(1
%) 
  
 
 
   
 
 
  
 
 
   
 
 
  
 
 
 
Total Waters net sales
  $465,709   
 
100
 $531,117   
 
100
 
 
(12
%) 
  
 
 
   
 
 
  
 
 
   
 
 
  
 
 
 
   
Three Months Ended
 
   
July 3, 2021
   
% of
Total
  
June 27, 2020
   
% of
Total
  
% change
 
Waters instrument systems
  $261,363   
 
43
 $181,399   
 
39
 
 
44
Chemistry consumables
   126,459   
 
21
  95,105   
 
20
 
 
33
   
 
 
   
 
 
  
 
 
   
 
 
  
 
 
 
Total Waters product sales
   387,822   
 
64
  276,504   
 
59
 
 
40
Waters service
   219,502   
 
36
  189,205   
 
41
 
 
16
   
 
 
   
 
 
  
 
 
   
 
 
  
 
 
 
Total Waters net sales
  $607,324   
 
100
 $465,709   
 
100
 
 
30
   
 
 
   
 
 
  
 
 
   
 
 
  
 
 
 
 
  
Six Months Ended
 
  
June 27, 2020
   
% of
Total
 
June 29, 2019
   
% of
Total
 
% change
   
Six Months Ended
 
  
July 3, 2021
   
% of
Total
 
June 27, 2020
   
% of
Total
 
% change
 
Waters instrument systems
  $324,228   
 
37
 $423,389   
 
43
 
 
(23
%) 
  $477,435   
 
42
 $324,228   
 
37
 
 
47
Chemistry consumables
   192,350   
 
22
 199,545   
 
20
 
 
(4
%) 
   245,433   
 
21
  192,350   
 
22
 
 
28
  
 
   
 
  
 
   
 
  
 
   
 
   
 
  
 
   
 
  
 
 
Total Waters product sales
   516,578   
 
59
 622,934   
 
63
 
 
(17
%) 
   722,868   
 
63
  516,578  ��
 
59
 
 
40
Waters service
   363,342   
 
41
 368,097   
 
37
 
 
(1
%) 
   426,334   
 
37
  363,342   
 
41
 
 
17
  
 
   
 
  
 
   
 
  
 
   
 
   
 
  
 
   
 
  
 
 
Total Waters net sales
  $879,920   
 
100
 $991,031   
 
100
 
 
(11
%) 
  $1,149,202   
 
100
 $879,920   
 
100
 
 
31
  
 
   
 
  
 
   
 
  
 
   
 
   
 
  
 
   
 
  
 
 
The effect of foreign currency translation decreased Waters products and service sales by 1% for the first half of 2020. Precision chemistry consumables sales decreasedincreased 30% and 31% in the second quarter and first half of 2020, primarily driven by decreased sales in2021, respectively, with the U.S., as the demand for chemistry consumables was impacted by the disruption and uncertainty caused by
the COVID-19 pandemic,
while demand in China increased in the second quarter which resulted in 23% growth in the quarter and 5% growth for the first half of 2020. Waters service sales decreased on lower service demand billings due
to COVID-19 business
closures, particularly in Europe and India. Waters recurring revenues were also negatively impacted by one less calendar day in the first half of 2020 and the negative impacteffect of foreign currency translation which loweredincreasing Waters sales by 1%3% and 4% in both the second quarter and first half of 2020.2021, respectively. Chemistry consumables sales increased double-digits in both the quarter and first half of the year driven by the strong demand in China, where sales grew 45%
year-to-date,
in addition to increased demand in the U.S., 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 restrictions began to ease, particularly in China and Europe. Waters recurring revenues also benefited by five additional calendar days in the first half of the year. Waters instrument system sales (LC and MS technology-based) decreasedincreased in all major geographical regions primarily due to lowerhigher sales as a result of weakerstronger demand for our products and services byas our customers duecontinued to resume laboratory and manufacturing operations throughout the disruption and uncertainty caused byworld.
the COVID-19 pandemic.
In the second quarter of 2020,2021, Waters sales decreased 8%growth was broad-based and increased 34% in Europe, 13%27% in the U.S.Americas and 21%30% in Asia, with sales in China due to the impact of the
COVID-19
pandemic.growing 44%. Foreign currency translation increased Waters sales by 11% and 4% in Europe and China, were also negatively impacted byrespectively, and 1% in both the effect of foreign currency translation by 2%Americas and 1%, respectively. In the first half of 2020, Waters sales decreased 3% in Europe, 9% in the U.S. and 34% in China due to the impact of the
COVID-19Asia.
pandemic. Waters sales in Europe and China were also both negatively impacted by the effect of foreign currency translation by 2%.
 
3534

TA Product and Services Net Sales
Net sales for TA products and services were as follows for the three and six months ended July 3, 2021 and June 27, 2020 and June 29, 2019 (dollars in thousands):
 
   
Three Months Ended
 
   
June 27, 2020
   
% of
Total
  
June 29, 2019
   
% of
Total
  
% change
 
TA instrument systems
  $38,416   
 
71
 $48,196   
 
71
 
 
(20
%) 
TA service
   15,859   
 
29
  19,849   
 
29
 
 
(20
%) 
  
 
 
   
 
 
  
 
 
   
 
 
  
 
 
 
Total TA net sales
  $54,275   
 
100
 $68,045   
 
100
 
 
(20
%) 
  
 
 
   
 
 
  
 
 
   
 
 
  
 
 
 
   
Three Months Ended
 
   
July 3, 2021
   
% of
Total
  
June 27, 2020
   
% of
Total
  
% change
 
TA instrument systems
  $53,133   
 
71
 $38,416   
 
71
 
 
38
TA service
   21,190   
 
29
  15,859   
 
29
 
 
34
   
 
 
   
 
 
  
 
 
   
 
 
  
 
 
 
Total TA net sales
  $74,323   
 
100
 $54,275   
 
100
 
 
37
   
 
 
   
 
 
  
 
 
   
 
 
  
 
 
 
 
  
Six Months Ended
   
Six Months Ended
 
  
June 27, 2020
   
% of
Total
 
June 29, 2019
   
% of
Total
 
% change
   
July 3, 2021
   
% of
Total
 
June 27, 2020
   
% of
Total
 
% change
 
TA instrument systems
  $72,525   
 
69
 $84,834   
 
70
 
 
(15
%) 
  $100,109   
 
71
 $72,525   
 
69
 
 
38
TA service
   32,478   
 
31
 37,159   
 
30
 
 
(13
%) 
   40,881   
 
29
  32,478   
 
31
 
 
26
  
 
   
 
  
 
   
 
  
 
   
 
   
 
  
 
   
 
  
 
 
Total TA net sales
  $105,003   
 
100
 $121,993   
 
100
 
 
(14
%) 
  $140,990   
 
100
 $105,003   
 
100
 
 
34
  
 
   
 
  
 
   
 
  
 
   
 
   
 
  
 
   
 
  
 
 
The decline in TA instrument system and service sales growth in the second quarter and first half of 20202021 was broad-based across all major geographies increasing 37% and 34%, respectively, and was primarily duedriven by stronger demand as a result of our customers continuing to lower customer demand due to the
COVID-19
pandemic. The effect of foreign currency translation had minimal impact on sales for the second quarter of 2020resume laboratory and decreased TA sales 1% for the first half of 2020.manufacturing operations.
TA sales declined in all major regions of the world due to the impact from
COVID-19,
except for Asia Other, where sales grew over 10% in bothIn the second quarter and first half of 2020.2021, the increase in TA instrument system sales was primarily driven by strength in all major regions and the increase in TA service sales was mostly due to customers continuing to resume their operations after the restrictions caused
by COVID-19 during
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 5% and 4% in the second quarter and first half of 2021, respectively.
Cost of Sales
Cost of sales for the second quarter and first half of 2020 decreased 15%2021 increased 31% and 10%26%, respectively, primarily due to a decreasethe increase in sales volume from lower customer demand caused byvolumes during the
year, as well as the restoration in 2021 of expenses that had been reduced as a result of the COVID-19
pandemic which was mitigated by a $12 million reductionthat consisted of planned expenses from salary reductions, furloughs and reductions
in
non-essential spending.
spending. In addition, cost of sales was also negatively impacted by foreign currency translation. 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 negatively impactincrease gross profit slightly for the remainder of 2020.2021. To date, the Company has not had significant issues with its supply chain; however, the prolonged impact
of
COVID-19 on
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 12%increased 35% and 1%14% for the second quarter and first half of 2020,2021, respectively. SellingThe increase in selling and administrative expenses decreased in these periods primarily fromcan be attributed to the salary merit and incentive compensation increases compared to 2020 which was impacted by the $33 million reduction in expenses from salary reductions, furloughs and reductions
in
non-essential
spending. These savings were partially offset by $3 million and $21 million for the second quarter and first half of 2020, respectively, of
one-time
severance-related costs in connection with a reduction in workforce and lease-terminations. Excluding these expenses, selling and administrative expenses declined 9%
year-to-date.
The Company anticipates incurring approximately $6 million of severance-related and lease termination expenses over the remainder of 2020. In addition, the effect of foreign currency translation decreasedincreased selling and administrative expenses by 1%3% for both the second quarter and first half of 2020.2021.
As a percentage of net sales, selling and administrative expenses were 22.6%23.2% and 26.9% for the second quarter of 2020 and
year-to-date,
respectively, and 22.2% and 24.0%23.4% for the second quarter and first half of 2019,2021, and 22.6% and 26.9% for the second quarter and first half of 2020, respectively. The increase in this percentage is attributable to the decline in sales and the $21 million
of one-time severance-related
and lease termination costs.
 
3635

Research and Development Expenses
Research and development expenses decreased 15%increased 44% and 8%26% in the second quarter and first half of 2020,2021, respectively. These expenses decreasedThe increase in expense in these periods primarily fromwas impacted by the $9 million reduction in expenses from salary reductions, furloughs and reductions
in
non-essential spending
spendingin 2020. The impact of foreign currency exchange was neutral in the second quarter of 2020.2021 and decreased expenses by approximately 1% in the first half of 2021.
Other Income (Expense), net
In the second quarter of 2021, the Company executed a settlement agreement to resolve patent infringement litigation with Bruker Corporation and Bruker Daltronik GmbH regarding their timsTOF product line. In connection with the settlement, the Company is entitled to receive $10 million in guaranteed payments, including minimum royalty payments, which were recognized within other income in our consolidated statement of operations. In the first quarter and first half 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 increasesdecrease in net interest expense in the second quarter and first half of 2020 were2021 was primarily attributable to higher outstanding debt balances and lower interest incomeearned on lowerhigher cash, cash equivalents and investment balances.
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 June 27, 2020.July 3, 2021. The Company hashad a contractual tax rate of 0% on qualifying activities in Singapore through March 2021, based upon the achievement of certain contractual milestones, whichmilestones. 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 Company expects to continue to meet.period April 1, 2021 through March 31, 2026. The effect of applying the contractualconcessionary income tax raterates rather than the statutory tax rate to income from qualifying activities in Singapore increased the Company’s net income for the halffirst six months of 2021 and 2020 and 2019 by $7$9 million and $9$7 million, respectively, and increased the Company’s net income per diluted share by $0.11$0.14 and $0.13,$0.11, respectively.
The Company’s effective tax rate for the second quarter of 2021 and 2020 was 15.3% and 2019 was 15.4% and 15.9%, respectively. The decrease in the effective income tax rate can be attributed to differences in the proportionate amounts
of pre-tax income
recognized in jurisdictions with different effective tax rates.
The Company’s effective tax rate for the first halfsix months of 2021 and 2020 was 15.0% and 2019 was 13.2% and 12.4%, respectively. The effective tax rate for the first halfsix months of July 3, 2021 includes a $4 million tax benefit related to stock-based compensation. This income tax benefit decreased the effective tax rate by 1.1 percentage points for the first six months of July 3, 2021. The effective tax rate for the first six months of June 27, 2020 includedincludes a $5 million income tax benefit related to certain restructuring charges and a $2 million income tax benefit related to stock-based compensation. These income tax benefits decreased the effective tax rate by 2.4 percentage points and 1.2 percentage points, respectively, for the first halfsix months of 2020, respectively. The effective tax rate for the first half of 2019 included a $3 million income tax benefit related to the finalization of certain regulations relating to the Tax Cuts and Jobs Act of 2017 and a $7 million income tax benefit related to stock-based compensation. These income tax benefits decreased the effective tax rate by 1.0 percentage point and 2.3 percentage points for the first half of 2019, respectively.June 27, 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.
 
3736

Liquidity and Capital Resources
Condensed Consolidated Statements of Cash Flows (in thousands):
 
   
Six Months Ended
 
   
June 27, 2020
   
June 29, 2019
 
Net income
  $176,491   $253,396 
Depreciation and amortization
   60,203    53,615 
Stock-based compensation
   18,122    19,255 
Deferred income taxes
   (777   1,632 
Change in accounts receivable
   86,978    52,508 
Change in inventories
   (27,089   (62,200
Change in accounts payable and other current liabilities
   34,714    (10,439
Change in deferred revenue and customer advances
   37,558    54,672 
Effect of the 2017 Tax Cuts & Jobs Act
   —      (3,229
Other changes
   (35,754   (56,407
  
 
 
   
 
 
 
Net cash provided by operating activities
   350,446    302,803 
Net cash (used in) provided by investing activities
   (192,335   785,063 
Net cash used in financing activities
   (159,366   (1,294,734
Effect of exchange rate changes on cash and cash equivalents
   4,576    (1,414
  
 
 
   
 
 
 
Increase (decrease) in cash and cash equivalents
  $3,321   $(208,282
  
 
 
   
 
 
 
   
Six Months Ended
 
   
July 3, 2021
   
June 27, 2020
 
Net income
  $315,419   $176,491 
Depreciation and amortization
   64,743    60,203 
Stock-based compensation
   15,596    18,122 
Deferred income taxes
   6,107    (777
Change in accounts receivable
   18,985    86,978 
Change in inventories
   (50,873   (27,089
Change in accounts payable and other current liabilities
   (35,328   34,714 
Change in deferred revenue and customer advances
   91,631    37,558 
Other changes
   (64,836   (35,754
   
 
 
   
 
 
 
Net cash provided by operating activities
   361,444    350,446 
Net cash used in investing activities
   (281,106   (192,335
Net cash used in financing activities
   (48,191   (159,366
Effect of exchange rate changes on cash and cash equivalents
   (8,786   4,576 
   
 
 
   
 
 
 
Increase in cash and cash equivalents
  $23,361   $3,321 
   
 
 
   
 
 
 
Cash Flow from Operating Activities
Net cash provided by operating activities was $350$361 million and $303$350 million during the first six months ended June 27,of 2021 and 2020, and June 29, 2019, respectively. This increase in operating cash flow was primarily a result of the $54 million reduction in expense from the cost actions implementedhigher sales volumes in the second quarterfirst six months of 2021 compared to the first six months 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 increaseddecreased to 73 days at July 3, 2021 as compared to 87 days at June 27, 2020 as compared to 79 days at June 29, 2019.2020.
The changes in inventory were primarily attributable to the reduction in the inventory build plan to adjust inventory levels for lower anticipated sales volume due to the
COVID-19
pandemic.
 
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. The Company also paid $38 million of tax payments in the first half of 2021 associated with 2017 tax reform.
 
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 $281 million and $192 million in the six months ended July 3, 2021 and June 27, 2020, compared to net cash provided by investing activities that totaled $785 million in the six months ended June 29, 2019.respectively. Additions to fixed assets and capitalized software were $97$77 million and $65$97 million in the six months ended July 3, 2021 and June 27, 2020, and June 29, 2019, 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 $38$31 million of costs associated with the construction of this facility during the six months ended June 27, 2020.July 3, 2021. The Company has incurred $123$182 million on this facility through the end of the second quarter of 2020. Due to the uncertain business conditions caused by the
COVID-192021.
pandemic, the Company temporarily slowed down the completion of the remaining construction and buildout of this facility.
 
3837

During the six months ended July 3, 2021 and June 27, 2020, and June 29, 2019, the Company purchased $17$215 million and $36$17 million of investments, respectively, while $2$18 million and $891$2 million of investments matured, respectively, and were used for financing activities described below.
OnIn January 15,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
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% 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 six months ended July 3, 2021 and June 27, 2020, the Company’s net debt borrowings increased by $250 million and $15 million, while they remained flat during the six months ended June 29, 2019. During the six months ended June 29, 2019, the Company reduced its outstanding debt using cash repatriated under the 2017 Tax Act.respectively. As of June 27, 2020,July 3, 2021, the Company had a total of $1.7$1.6 billion in outstanding debt, which consisted of $960 million$1.3 billion in outstanding senior unsecured notes and $740$300 million borrowed under a term loan under the credit agreement dated November 2017 (“2017 Credit Agreement”). As of June 27, 2020,July 3, 2021, the Company had a total amount available to borrow under the 2017 Credit Agreement of $1.1$1.5 billion after outstanding letters of credit. As of June 27, 2020,July 3, 2021, the Company was in compliance with all debt covenants.
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.
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 six months of 2021, $70 million of the Company’s interest rate cross-currency swaps had matured and resulted in total payments of $4 million upon settlement. As of July 3, 2021, the Company had a total of $490 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 first half ofsix months ended July 3, 2021 and June 27, 2020, and 2019, the Company repurchased $167$339 million and $1.3 billion,$167 million, respectively, of the Company’s outstanding common stock under authorized share repurchase programs. In addition, the Company repurchased $9$8 million and $8$9 million of common stock related to the vesting of restricted stock units during both the six months ended July 3, 2021 and June 27, 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 had $5 million of treasury stock purchases that were accrued and unsettled at July 3, 2021. These transactions were settled in July 2021, during the Company’s third quarter. The Company had $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 not have any unsettled treasury stock purchases as of December 31, 2020 or June 29, 2019, respectively.27, 2020.
The Company received $15$45 million and $30$15 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 six months ended July 3, 2021 and June 27, 2020, and June 29, 2019, respectively.
The Company had cash, and cash equivalents and investments of $356$664 million as of June 27, 2020.July 3, 2021. The majority of the Company’s cash and cash equivalents are generated from foreign operations, with $288$353 million held by foreign subsidiaries at June 27, 2020,July 3, 2021, of which $204$267 million was held in currencies other than U.S. dollars. While the Company believes it has sufficient levels of cash flow and access to its existing cash and cash equivalents, as well as the ability to raise funds from external sources and the borrowing capacity from existing, committed credit facilities, to fund operations and capital expenditures, service debt interest, finance potential acquisitions and continue the authorized stock repurchase program in the U.S., we have temporarily suspended our share repurchases due to the uncertain business conditions caused by the
COVID-19
pandemic.
Management believes, despite the impact of
COVID-19
on our business, 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.
39

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, 2019,2020, as filed with the SEC on February 25, 2020.24, 2021. The Company reviewed its contractual obligations and commercial commitments as of June 27, 2020July 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.10-K,
with the exception of the recently issued senior unsecured notes as described in Note 6, “Debt.”
38

From time to time, the Company and its subsidiaries are involved in various litigation matters arising in the ordinary course of business. The Company believes that it has meritorious arguments in its current litigation matters and that any outcome, either individually or in the aggregate, will not be material to the Company’s financial position or results of operations.
During fiscal year 2020,2021, 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, 2019,2020, as filed with the SEC on February 25, 2020,24, 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 six months ended June 27, 2020.July 3, 2021. The Company did not make any changes in those policies during the six months ended June 27, 2020.July 3, 2021.
New Accounting Pronouncements
Please refer to Note 14,13, Recent Accounting Standard Changes and Developments, in the Condensed Notes to Consolidated Financial Statements.
40

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
39

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; 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 U.K. voting toUnited 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.
 
41

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.
 
40

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.
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, 2019,2020, as filed with the SEC on February 25, 2020.24, 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 June 27, 2020,July 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 June 27, 2020July 3, 2021 and December 31, 2019, $2882020, $353 million out of $356$664 million and $249$364 million out of $337$443 million, respectively, of the Company’s total cash, cash equivalents and investments were held by foreign subsidiaries. In addition, $204$267 million out of $356$664 million and $176$254 million out of $337$443 million of cash, cash equivalents and investments were held in currencies other than the U.S. dollar at June 27, 2020July 3, 2021 and December 31, 2019,2020, respectively. As of June 27, 2020,July 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 June 27, 2020July 3, 2021 would decrease by approximately $18$25 million, of which the majority would be recorded to foreign currency translation in other comprehensive income within stockholders’ (deficit) equity.
There have been no other material changes in the Company’s market risk during the six months ended June 27, 2020.July 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, 2019,2020, as filed with the SEC on February 25, 2020.24, 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 June 27, 2020July 3, 2021 (1) to ensure that information required to be disclosed by the
42

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 June 27, 2020July 3, 2021 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
41

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 June 27, 2020July 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, 2019,2020, as filed with the SEC on February 25, 2020.24, 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, 2019,2020, as filed with the SEC on February 25, 2020.24, 2021. The Company reviewed its risk factors as of June 27, 2020July 3, 2021 and determined that there were no material changes from the ones set forth in the Form
10-K,10-K.
other than those included below. 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.
The Company’s business has been and may continue to be negatively affected by outbreaks of disease, such as epidemics or pandemics, including the ongoing
COVID-19
pandemic
.
Outbreaks of disease, such as epidemics or pandemics, have and could continue to negatively affect the Company’s business. Both the Company’s domestic and international operations have been and continue to be adversely affected by the ongoing global
COVID-19
pandemic and the resulting volatility and uncertainty it has caused in the U.S. and international markets. In March 2020, the World Health Organization declared
COVID-19
a pandemic and recommended containment and mitigation measures worldwide. On March 13, 2020, President Trump announced a National Emergency relating to the disease. Since then,
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 the regions most impacted by the
COVID-19
pandemic. Many countries, including the U.S. have implemented measures such as quarantine,
shelter-in-place,
curfew and similar isolation measures, including government orders and other restrictions on the conduct of business operations. Such measures have had and are expected to continue to have adverse impacts on the U.S. and foreign economies of uncertain severity and duration and have had and may continue to have a negative impact on the Company’s operations, including the Company’s sales, supply chain and cash flow. Additionally, the widespread pandemic has caused and is expected to continue to cause significant disruption of global financial markets, which may reduce the Company’s ability to access capital.
The
COVID-19
pandemic also has the potential to significantly impact our supply chain if our manufacturing facilities or those of third parties to whom we outsource certain manufacturing processes, the distribution centers where our inventory is managed or the operations of our logistics and other service providers are disrupted, temporarily closed or experience worker shortages. We may also see disruptions or delays in shipments of certain materials or components of our products.
As a result of the ongoing
COVID-19
pandemic, the Company has transitioned the majority of its workforce to a temporary remote working model, which may result in the Company experiencing lower workforce efficiency and productivity, which in turn may adversely affect the Company’s business, results of operations and financial condition.
43

As Company employees work from home and access the Company’s system remotely, the Company may be subject to heightened security risks, including the risks of cyber attacks. Additionally, if any of the Company’s key management employees are unable to perform their duties for a period of time, including as the result of illness, the Company’s business, results of operations and financial condition could be adversely affected.
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 continue to impact the Company’s business, financial position, results of operations and cash flows. Ultimately, the
COVID-19
pandemic could have a material adverse impact on the Company’s business, financial positions, results of operations and cash flows.
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 June 27, 2020July 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)
 
March 29, 2020 to April 25, 2020
   —     $—      —     $1,524,905 
April 26, 2020 to May 23, 2020
   —     $—      —     $1,524,905 
May 24, 2020 to June 27, 2020
   —     $—      —     $1,524,905 
  
 
 
     
 
 
   
Total
   —     $—      —     $1,524,905 
    
 
 
     
 
 
   
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)
 
April 4, 2021 to May 1, 2021
   188   $301.59    188   $1,295,113 
May 2, 2021 to May 29, 2021
   153   $314.28    153   $1,247,189 
May 30, 2021 to July 3, 2021
   183   $334.37    183   $1,185,905 
   
 
 
        
 
 
      
Total
   524   $316.76    524   $1,185,905 
   
 
 
        
 
 
      
 
(1)
The Company repurchased lessfewer than one thousand shares of common stock at a cost of less than $1 million related to the vesting of restricted stock during the three months ended June 27, 2020.July 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 new program replaced the remaining amounts available under the
pre-existing
authorization. During the second quarter ofIn December 2020, the Company has temporarily suspended itsCompany’s Board of Directors authorized the extension of the share repurchases due to the uncertain business conditions caused by the
COVID-19
pandemic.repurchase program through January 21, 2023.
 
4442

Item 6:
 Exhibits
 
Exhibit
Number
  
Description of Document
10.1  Chief Executive Officer TransitionEmployment Offer Letter, dated April 16, 2021, between Waters Corporation and Separation Agreement.Amol Chaubal (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended April 3, 2021 (File No. 001-140010)).
10.2  PresidentChange of Control Agreement, dated April 16, 2021, between Waters Corporation and Chief Executive Employment Agreement.Amol Chaubal (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended April 3, 2021 (File No. 001-140010)).
10.3  Change of Control/SeveranceTransition and Consulting Agreement, dated July 14, 2020April 16, 2021, between Waters Corporation and Udit Batra.Michael C. Harrington (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended April 3, 2021 (File No. 001-140010)).
10.4  Employee Form of Stock Option AwardTransition and Consulting Agreement, under thedated April 19, 2021, between Waters Corporation 2020 Equity Incentive Plan.and Ian S. King (incorporated by reference to Exhibit 10.25 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended April 3, 2021 (File No. 001-140010)).
10.5  Director Form of Stock Option AwardLetter Agreement, under thedated April 18, 2021, between Waters Corporation 2020 Equity Incentive Plan.
10.6Form of RSU Agreement under the Waters Corporation 2020 Equity Incentive Plan.
10.7CEO Form of PSU Agreement under the Waters Corporation 2020 Equity Incentive Plan.
10.8Employee (non-CEO) Form of PSU Agreement under the Waters Corporation 2020 Equity Incentive Plan.
10.9Director Form of RSA Agreement under the Waters Corporation 2020 Equity Incentive Plan.
10.10Waters Corporation 2020 Equity Incentive Planand Jonathan M. Pratt (incorporated by reference to Exhibit 4.110.6 to the Company’s Quarterly Report on Form S-8 dated June 8, 202010-Q for the quarterly period ended April 3, 2021 (File No. 333-239020)001-140010)).
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 June 27, 2020,July 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.
 
W
ATERS
C
ORPORATION
WATERS CORPORATION
/s/ Sherry L. Buck        Amol Chaubal
Sherry L. BuckAmol Chaubal
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
(Principal Accounting Officer)
Date: July 29, 2020August 5, 2021
 
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