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 OctoberJuly 2, 20212022
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 OctoberJuly 29, 2021: 61,036,2692022: 59,875,919
 
 
 

WATERS CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM
10-Q
INDEX
 
Page
PART I FINANCIAL INFORMATION
  
FINANCIAL INFORMATION
Page
Item 1.   3 
3
   4 
   5 
   6 
   7 
   8 
   9 
   10 
   3428 
   4839 
   4939 
OTHER INFORMATION
  
   4940 
   5040 
   5040 
   5141 
   5242 

Item 1:
 Financial Statements
WATERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
 
   
October 2, 2021
  
December 31, 2020
 
   
(In thousands, except per share data)
 
ASSETS
     
Current assets:
         
Cash and cash equivalents
  $524,702  $436,695 
Investments
   130,490   6,451 
Accounts receivable, net
   532,957   573,316 
Inventories
   388,756   304,281 
Other current assets
   81,171   80,290 
   
 
 
  
 
 
 
Total current assets
   1,658,076   1,401,033 
Property, plant and equipment, net
   530,061   494,003 
Intangible assets, net
   246,080   258,645 
Goodwill
   436,754   444,362 
Operating lease assets
   84,845   93,252 
Other assets
   160,099   148,625 
   
 
 
  
 
 
 
Total assets
  $3,115,915  $2,839,920 
   
 
 
  
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
         
Current liabilities:
         
Notes payable and debt
  $0    $150,000 
Accounts payable
   88,904   72,212 
Accrued employee compensation
   76,182   72,166 
Deferred revenue and customer advances
   262,758   198,240 
Current operating lease liabilities
   26,839   27,764 
Accrued income taxes
   61,404   76,558 
Accrued warranty
   10,496   10,950 
Other current liabilities
   145,306   197,093 
   
 
 
  
 
 
 
Total current liabilities
   671,889   804,983 
Long-term liabilities:
         
Long-term debt
   1,613,618   1,206,515 
Long-term portion of retirement benefits
   72,664   72,620 
Long-term income tax liabilities
   319,161   357,493 
Long-term operating lease liabilities
   58,381   68,197 
Other long-term liabilities
   84,980   97,968 
   
 
 
  
 
 
 
Total long-term liabilities
   2,148,804   1,802,793 
   
 
 
  
 
 
 
Total liabilities
   2,820,693   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 October 2, 2021 and December 31, 2020
   0     0—   
Common stock, par value $0.01 per share, 400,000 shares authorized, 162,075 and 161,666 shares issued, 61,167 and 62,309 shares outstanding at October 2, 2021 and December 31, 2020, respectively
   1,621   1,617 
Additional
paid-in
capital
   2,106,301   2,029,465 
Retained earnings
   7,584,593   7,107,989 
Treasury stock, at cost, 100,908 and 99,357 shares at October 2, 2021 and December 31, 2020, respectively
   (9,281,679  (8,788,984
Accumulated other comprehensive loss
   (115,614  (117,943
   
 
 
  
 
 
 
Total stockholders’ equity
   295,222   232,144 
   
 
 
  
 
 
 
Total liabilities and stockholders’ equity
  $3,115,915  $2,839,920 
   
 
 
  
 
 
 
  
         
   
July 2, 2022
  
December 31, 2021
 
        
   
(In thousands, except per share data)
 
ASSETS
     
Current assets:         
Cash and cash equivalents  $418,897  $501,234 
Investments   897   68,051 
Accounts receivable, net   639,451   612,648 
Inventories   409,922   356,095 
Other current assets   95,160   90,914 
          
Total current assets   1,564,327   1,628,942 
Property, plant and equipment, net   545,813   547,913 
Intangible assets, net   225,101   242,401 
Goodwill   428,005   437,865 
Operating lease assets   86,102   84,734 
Other assets   191,222   153,077 
          
Total assets  $3,040,570  $3,094,932 
          
LIABILITIES AND STOCKHOLDERS’ EQUITY
         
Current liabilities:         
Notes payable and debt  $50,000  $—   
Accounts payable   97,980   96,799 
Accrued employee compensation   44,956   101,192 
Deferred revenue and customer advances   282,342   227,561 
Current operating lease liabilities   25,199   27,906 
Accrued income taxes   104,982   61,278 
Accrued warranty   10,156   10,718 
Other current liabilities   130,948   155,054 
          
Total current liabilities   746,563   680,508 
Long-term liabilities:         
Long-term debt   1,434,374   1,513,870 
Long-term portion of retirement benefits   51,675   64,027 
Long-term income tax liabilities   247,950   319,547 
Long-term operating lease liabilities   60,579   59,623 
Other long-term liabilities   107,305   89,803 
          
Total long-term liabilities   1,901,883   2,046,870 
          
Total liabilities   2,648,446   2,727,378 
Commitments and contingencies (Notes 6, 7, 8 and 1
2
)
0   0   
Stockholders’ equity:         
Preferred stock, par value $0.01 per share, 5,000 shares authorized, NaN issued at July 2, 2022 and December 31, 2021   —     —   
Common stock, par value $0.01 per share, 400,000 shares authorized, 162,348 and 162,084 shares issued, 59,988 and 60,728 shares outstanding at July 2, 2022 and December 31, 2021, respectively   1,623   1,621 
Additional
paid-in
capital
   2,166,221   2,114,880 
Retained earnings   8,125,527   7,800,832 
Treasury stock, at cost, 102,360 and 101,356 shares at July 2, 2022 and December 31, 2021, respectively   (9,759,858  (9,437,914
Accumulated other comprehensive loss   (141,389  (111,865
          
Total stockholders’ equity   392,124   367,554 
          
Total liabilities and stockholders’ equity  $3,040,570  $3,094,932 
          
The accompanying notes are an integral part of the interim consolidated financial statements.
 
3


WATERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)

 
   
Three Months Ended
 
   
October 2, 2021
  
September 26, 2020
 
   
(In thousands, except per share data)
 
Revenues:
         
Product sales
  $419,133  $376,239 
Service sales
   240,100   217,545 
   
 
 
  
 
 
 
Total net sales
   659,233   593,784 
Costs and operating expenses:
         
Cost of product sales
   171,364   166,330 
Cost of service sales
   99,764   96,012 
Selling and administrative expenses
   152,545   135,430 
Research and development expenses
   41,986   34,971 
Purchased intangibles amortization
   1,759   2,657 
   
 
 
  
 
 
 
Total costs and operating expenses
   467,418   435,400 
   
 
 
  
 
 
 
Operating income
   191,815   158,384 
Other expense
   (607  (1,039
Interest expense
   (11,081  (10,915
Interest income
   2,548   4,007 
   
 
 
  
 
 
 
Income before income taxes
   182,675   150,437 
Provision for income taxes
   21,490   23,668 
   
 
 
  
 
 
 
Net income
  $161,185  $126,769 
   
 
 
  
 
 
 
Net income per basic common share
  $2.63  $2.04 
Weighted-average number of basic common shares
   61,359   62,002 
Net income per diluted common share
  $2.60  $2.03 
Weighted-average number of diluted common shares and equivalents
   61,888   62,303 
   
Three Months Ended
 
   
July 2, 2022
  
July 3, 2021
 
        
   
(In thousands, except per share data)
 
         
Revenues:         
Product sales  $469,630  $440,955 
Service sales   244,689   240,692 
          
Total net sales   714,319   681,647 
Costs and operating expenses:         
Cost of product sales   202,356   176,745 
Cost of service sales   104,850   103,509 
Selling and administrative expenses   161,877   158,213 
Research and development expenses   44,006   44,949 
Purchased intangibles amortization   1,598   1,809 
          
Total costs and operating expenses   514,687   485,225 
          
Operating income   199,632   196,422 
Other income, net   1,535   9,321 
Interest expense   (11,419  (12,027
Interest income   2,526   3,698 
          
Income before income taxes   192,274   197,414 
Provision for income taxes   27,410   30,122 
          
Net income  $164,864  $167,292 
          
Net income per basic common share  $2.74  $2.71 
Weighted-average number of basic common shares   60,206   61,685 
Net income per diluted common share  $2.72  $2.69 
Weighted-average number of diluted common shares and equivalents   60,510   62,157 
The accompanying notes are an integral part of the interim consolidated financial statements.
 
4


WATERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)

(unaudited)
  
Six Months Ended
 
  
July 2, 2022
 
July 3, 2021
 
  
Nine Months Ended
       
  
October 2, 2021
 
September 26, 2020
   
(In thousands, except per share data)
 
  
(In thousands, except per share data)
     
Revenues:
        
Product sales
  $1,242,110  $965,342   $920,470  $822,977 
Service sales
   707,315   613,365    484,421   467,215 
  
 
  
 
        
Total net sales
   1,949,425   1,578,707    1,404,891   1,290,192 
Costs and operating expenses:
        
Cost of product sales
   506,985   420,971    393,966   335,621 
Cost of service sales
   298,544   265,149    198,925   198,780 
Selling and administrative expenses
   453,954   400,614    319,352   301,409 
Research and development expenses
   125,027   101,115    84,478   83,041 
Purchased intangibles amortization
   5,408   7,900    3,271   3,649 
Litigation provision
   0     1,180 
Acquired
in-process
research and development
   9,797   —   
  
 
  
 
        
Total costs and operating expenses
   1,389,918   1,196,929    1,009,789   922,500 
  
 
  
 
        
Operating income
   559,507   381,778    395,102   367,692 
Other income (expense), net
   18,073   (2,149
Other income, net   1,705  18,680 
Interest expense
   (34,054  (38,012   (22,478 (22,973
Interest income
   10,347   12,046    4,640  7,799 
  
 
  
 
        
Income before income taxes
   553,873   353,663    378,969   371,198 
Provision for income taxes
   77,269   50,403    54,274  55,779 
  
 
  
 
        
Net income
  $476,604  $303,260   $324,695  $315,419 
  
 
  
 
        
Net income per basic common share
  $7.72  $4.89   $5.38  $5.09 
Weighted-average number of basic common shares
   61,771   62,057    60,399  61,979 
Net income per diluted common share
  $7.66  $4.86   $5.35  $5.05 
Weighted-average number of diluted common shares and equivalents
   62,244   62,371    60,744   62,435 
The accompanying notes are an integral part of the interim consolidated financial statements.
 
5

WATERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)

 
   
Three Months Ended
  
Nine Months Ended
 
   
October 2,
2021
  
September 26,
2020
  
October 2,
2021
  
September 26,
2020
 
   
(In thousands)
  
(In thousands)
 
Net income
  $161,185  $126,769  $476,604  $303,260 
Other comprehensive (loss) income:
                 
Foreign currency translation
   (4,560  601   1,256   (7,156
Unrealized gains on investments before income taxes
   17   0     2   0   
   
 
 
  
 
 
  
 
 
  
 
 
 
Unrealized gains on investments, net of tax
   17   0     2   0   
Retirement liability adjustment before reclassifications
   (103)  (654  691   (880
Amounts reclassified to other income
   248   352   682   1,028 
   
 
 
  
 
 
  
 
 
  
 
 
 
Retirement liability adjustment before income taxes
   145  (302  1,373   148 
Income tax expense
   (37  (85  (302  (197
   
 
 
  
 
 
  
 
 
  
 
 
 
Retirement liability adjustment, net of tax
   108   (387  1,071   (49
Other comprehensive (loss) income
   (4,435  214   2,329   (7,205
   
 
 
  
 
 
  
 
 
  
 
 
 
Comprehensive income
  $156,750  $126,983  $478,933  $296,055 
   
 
 
  
 
 
  
 
 
  
 
 
 
   
Three Months Ended
  
Six Months Ended
 
   
July 2, 2022
  
July 3, 2021
  
July 2, 2022
  
July 3, 2021
 
              
   
(In thousands)
  
(In thousands)
 
                 
              
Net income  $164,864  $167,292  $324,695  $315,419 
Other comprehensive (loss) income:                 
Foreign currency translation   (24,307  (9  (30,476  5,816 
Unrealized gains (losses) on investments before income taxes   11   (5  26   (15
Income tax expense   
(2
)  —     (6  —   
                  
Unrealized gains (losses) on investments, net of tax   9   (5  20   (15
Retirement liability adjustment before reclassifications   720   (260  988   794 
Amounts reclassified to other income, net   
120

   218   247   434 
                  
Retirement liability adjustment before income taxes   840   (42  1,235   1,228 
Income tax (expense) benefit

   
(206

)

  83   (303  (265
                  
Retirement liability adjustment, net of tax   634   41   932   963 
Other comprehensive (loss) income   (23,664  27   (29,524  6,764 
                  
Comprehensive income  $141,200  $167,319  $295,171  $322,183 
                  
The accompanying notes are an integral part of the interim consolidated financial statements.
 
6


WATERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 
   
Nine Months Ended
 
   
October 2, 2021
  
September 26, 2020
 
   
(In thousands)
 
Cash flows from operating activities:
     
Net income
  $476,604  $303,260 
Adjustments to reconcile net income to net cash provided by operating activities:
         
Stock-based compensation
   21,949   27,715 
Deferred income taxes
   9,219   1,089 
Depreciation
   52,760   49,407 
Amortization of intangibles
   45,166   41,684 
Change in operating assets and liabilities:
         
Decrease in accounts receivable
   23,472   96,955 
Increase in inventories
   (93,878  (8,139
Increase in other current assets
   (9,123  (16,776
I
ncrease in other assets
   (6,116)  (2,612
(Decrease) increase in accounts payable and other current liabilities
   (4,768  46,721 
Increase in deferred revenue and customer advances
   71,889   32,053 
Decrease in other liabilities
   (57,838  (48,332
   
 
 
  
 
 
 
Net cash provided by operating activities
   529,336   523,025 
Cash flows from investing activities:
         
Additions to property, plant, equipment and software capitalization
   (116,614  (125,340
Business acquisitions, net of cash acquired
   0     (76,664
Investment in unaffiliated companies
   (867  (3,850
Payments for intellectual property licenses
   (7,000  0   
Purchases of investments
   (241,230  (22,458
Maturities and sales of investments
   117,283   1,751 
   
 
 
  
 
 
 
Net cash used in investing activities
   (248,428  (226,561
Cash flows from financing activities:
         
Proceeds from debt issuances
   510,000   315,000 
Payments on debt
   (250,000  (425,366
Payments of debt issuance costs
   (8,537  0   
Proceeds from stock plans
   55,000   28,421 
Purchases of treasury shares
   (492,695  (196,353
Proceeds from derivative contracts
   2,325   10,330 
   
 
 
  
 
 
 
Net cash used in financing activities
   (183,907  (267,968
Effect of exchange rate changes on cash and cash equivalents
   (8,994  10,723 
   
 
 
  
 
 
 
Increase in cash and cash equivalents
   88,007   39,219 
Cash and cash equivalents at beginning of period
   436,695   335,715 
   
 
 
  
 
 
 
Cash and cash equivalents at end of period
  $524,702  $374,934 
   
 
 
  
 
 
 
         
   
Six Months Ended
 
   
July 2, 2022
  
July 3, 2021
 
        
   
(In thousands)
 
Cash flows from operating activities:     
Net income  $324,695  $315,419 
Adjustments to reconcile net income to net cash provided by operating activities:         
Stock-based compensation   20,722   15,596 
Deferred income taxes   (12,523)  6,107 
Depreciation   36,956   34,891 
Amortization of intangibles   29,935   29,852 
Acquired
in-process
research and development and other
non-cash
items
   7,903   —   
Change in operating assets and liabilities:         
(Increase) decrease in accounts receivable   (57,377  18,985 
Increase in inventories   (65,070  (50,873
Increase in other current assets   (9,199  (10,600
Increase in other assets   4,658   (9,263
Increase (decrease) in accounts payable and other current liabilities   (32,197)  (35,328
Increase in deferred revenue and customer advances   70,027   91,631 
Decrease in other liabilities   (63,667)  (44,973
          
Net cash provided by operating activities   254,863   361,444 
Cash flows from investing activities:         
Additions to property, plant, equipment and software capitalization   (74,746  (76,889
Proceeds from sale of equity investment, net   5,646   —   
Payments for intellectual property licenses   (4,897  (7,000
Purchases of investments   (10,959  (215,140
Maturities and sales of investments   77,553   17,923 
          
Net cash used investing activitie
s
   (7,403)  (281,106
Cash flows from financing activities:         
Proceeds from debt issuances   105,000   500,000 
Payments on debt   (135,000  (250,000
Payments of debt issuance costs   —     (3,637
Proceeds from stock plans   30,914   45,036 
Purchases of treasury shares   (321,944  (341,507
Proceeds from derivative contracts   10,849   1,917 
          
Net cash used in financing activities   (310,181  (48,191
Effect of exchange rate changes on cash and cash equivalents   (19,616  (8,786
          
(Decrease) increase in cash and cash equivalents   (82,337  23,361 
Cash and cash equivalents at beginning of period   501,234   436,695 
          
Cash and cash equivalents at end of period  $418,897  $460,056 
          
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’
Deficit
 
Balance June 27, 2020
   161,273   $1,613   $1,959,498   $6,762,909   $(8,788,872 $(126,890 $(191,742
Net income
   —      —      —      126,769    —     —     126,769 
Other comprehensive income
   —      —      —      —      —     214   214 
Issuance of common stock for employees:
                                 
Employee Stock Purchase Plan
   10    —      1,641    —      —     —     1,641 
Stock options exercised
   97    1    12,040    —      —     —     12,041 
Treasury stock
   —      —      —      —      (56  —     (56
Stock-based compensation
   1    —      9,552    —      —     —     9,552 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
 
Balance September 26, 2020
   161,381   $1,614   $1,982,731   $6,889,678   $(8,788,928 $(126,676 $(41,581
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
 
   
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 
                                  
 
   
Number
of
Common
Shares
   
Common
Stock
   
Additional
Paid-In

Capital
   
Retained
Earnings
   
Treasury

Stock
  
Accumulated
Other
Comprehensive
Loss
  
Total
Stockholders’
Equity
 
Balance July 3, 2021
   162,017   $1,620   $2,090,052   $7,423,408   $(9,135,628 $(111,179 $268,273 
Net income
   —      —      —      161,185    —     —     161,185 
Other comprehensive loss
   —      —      —      —      —     (4,435  (4,435
Issuance of common stock for employees:
                                 
Employee Stock Purchase Plan
   8    —      2,567    —      —     —     2,567 
Stock options exercised
   45    1    7,396    —      —     —     7,397 
Treasury stock
   —      —      —      —      (146,051  —     (146,051
Stock-based compensation
   5    —      6,286    —      —     —     6,286 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
 
Balance October 2, 2021
   162,075   $1,621   $2,106,301   $7,584,593   $(9,281,679 $(115,614 $295,222 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
 
   
Number
of
Common
Shares
   
Common
Stock
   
Additional
Paid-In

Capital
   
Retained
Earnings
   
Treasury
Stock
  
Accumulated
Other
Comprehensive
Loss
  
Total
Stockholders’
Equity
 
                             
Balance April 2, 2022   162,252   $1,623   $2,138,426   $7,960,663   $(9,608,050 $(117,725 $374,937 
Net income   —      —      —      164,864    —     —     164,864 
Other comprehensive loss   —      —      —      —      —     (23,664  (23,664
Issuance of common stock for employees:                                 
Employee Stock Purchase Plan   11    —      3,559    —      —     —     3,559 
Stock options exercised   81    —      14,523    —      —     —     14,523 
Treasury stock   —      —      —      —      (151,808  —     (151,808
Stock-based compensation   4    —      9,713    —      —     —     9,713 
                                  
Balance July 2, 2022   162,348   $1,623   $2,166,221   $8,125,527   $(9,759,858 $(141,389 $392,124 
                                  
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
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
Net income
   —      —      —      303,260   —     —     303,260 
Adoption of new accounting pronouncement
   —      —      —      (985  —     —     (985
Other comprehensive loss
   —      —      —      —     —     (7,205  (7,205
Issuance of common stock for employees:
                                
Employee Stock Purchase Plan
   31    —      5,593    —     —     —     5,593 
Stock options exercised
   184    2    22,944    —     —     —     22,946 
Treasury stock
   —      —      —      —     (176,352  —     (176,352
Stock-based compensation
   136    2    27,441    —     —     —     27,443 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
 
Balance September 26, 2020
   161,381   $1,614   $1,982,731   $6,889,678  $(8,788,928 $(126,676 $(41,581
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
 
                             
   
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 
                                  
 
                             
   
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
   —      —      —      476,604    —     —     476,604 
Other comprehensive income
   —      —      —      —      —     2,329   2,329 
Issuance of common stock for employees:
                                 
Employee Stock Purchase Plan
   40         9,578    —      —     —     9,578 
Stock options exercised
   275    3    46,109    —      —     —     46,112 
Treasury stock
   —      —      —      —      (492,695  —     (492,695
Stock-based compensation
   94    1    21,149    —      —     —     21,150 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
 
Balance October 2, 2021
   162,075   $1,621   $2,106,301   $7,584,593   $(9,281,679 $(115,614 $295,222 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
 
                             
   
Number
of
Common
Shares
   
Common
Stock
   
Additional
Paid-In

Capital
   
Retained
Earnings
   
Treasury
Stock
  
Accumulated
Other
Comprehensive
Loss
  
Total
Stockholders’
Equity
 
Balance December 31, 2021   162,084   $1,621   $2,114,880   $7,800,832   $(9,437,914 $(111,865 $367,554 
Net income   —      —      —      324,695    —     —     324,695 
Other comprehensive loss   —      —      —      —      —     (29,524  (29,524
Issuance of common stock for employees:                                 
Employee Stock Purchase Plan   19    —      5,886    —      —     —     5,886 
Stock options exercised   150    1    25,614    —      —     —     25,615 
Treasury stock   —      —      —      —      (321,944  —     (321,944
Stock-based compensation   95    1    19,841    —      —     —     19,842 
                                  
Balance July 2, 2022   162,348   $1,623   $2,166,221   $8,125,527   $(9,759,858 $(141,389 $392,124 
                                  
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 performancehigh-performance liquid chromatography (“HPLC”), ultra performanceultra-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 thirdsecond fiscal quarters for 20212022 and 20202021 ended on OctoberJuly 2, 2022 and July 3, 2021, and September 26, 2020, respectively.
The accompanying unaudited interim consolidated financial statements have been prepared in accordance with the instructions to the Quarterly Report on Form
10-Q
and do not include all of the information and footnote disclosures required for annual financial statements prepared in accordance with generally accepted accounting principles (“U.S. GAAP”) in the United States of America. 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
.
10

Table of Contents
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
conditions.
It is management’s opinion that the accompanying interim consolidated financial statements reflect all adjustments (which are normal and recurring) that are necessary for a fair statement of the results for the interim periods. The interim consolidated financial statements should be read in conjunction with the consolidated financial statements included in the Company’s Annual Report on Form
10-K
for the year ended December 31, 2020,2021, as filed with the U.S. Securities and Exchange Commission (“SEC”) on February 24, 2021.2022.
Risks and Uncertainties
The Company is subject to risks common to companies in the analytical instrument industry, including, but not limited to, global economic and financial market conditions, fluctuations in foreign currency exchange rates, fluctuations in customer demand, development by its competitors of new technological innovations, costs of developing new technologies, levels of debt and debt service requirements, risk of disruption, dependence on key personnel, protection and litigation of proprietary technology, shifts in taxable income between tax jurisdictions and compliance with regulations of the U.S. Food and Drug Administration and similar foreign regulatory authorities and agencies.
Both the Company’s domestic and international operations have been and continue to be affected by the ongoing global
COVID-19
pandemic and the resulting volatility and uncertainty it has caused in the U.S. and international markets. The Company operates in over 35 countries, including those in regions most impacted by the
COVID-19
pandemic.
10


Table of Contents
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)
Through the date of the issuance of these financial statements, the Company’s consolidated financial position, results of operations and cash flows have not been materially impacted and, thus, the Company concluded that no interim goodwill or long-lived asset impairment analyses were required. Further, there have been no violations of debt covenants. Any prolonged material disruption ofto the Company’s employees, suppliers, manufacturing, or customers could materiallyresult in a material impact to its consolidated financial position, results of operations or cash flows.
flows in the future.
Translation of Foreign Currencies
The functional currency of each of the Company’s foreign operating subsidiaries is the local currency of its country of domicile, except for the Company’s subsidiaries in Hong Kong, Singapore and the Cayman Islands, where the underlying transactional cash flows are denominated in currencies other than the respective local currency of domicile. The functional currency of the Hong Kong, Singapore and Cayman Islands subsidiaries is the U.S. dollar, based on the respective entity’s cash flows.
For the Company’s foreign operations, assets and liabilities are translated into U.S. dollars at exchange rates prevailing on the balance sheet date, while revenues and expenses are translated at average exchange rates prevailing during the respective period. Any resulting translation gains or losses are included in accumulated other comprehensive incomeloss in the consolidated balance sheets.
11

Table of Contents
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)
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 OctoberJuly 2, 20212022 and December 31, 2020, $3712021, $399 million out of $655$420 million and $364$440 million out of $443$569 million, respectively, of the Company’s total cash, cash equivalents and investments were held by foreign subsidiaries. In addition, $240$270 million out of $655$420 million and $254$298 million out of $443$569 million of cash, cash equivalents and investments were held in currencies other than the U.S. dollar at OctoberJuly 2, 20212022 and December 31, 2020,2021, respectively.
Accounts Receivable and Allowance for
Credit Losses
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The Company has very limited use of rebates and other cash considerations payable to customers and, as a result, the transaction price determination does not have any material variable consideration. The Company does not consider there to be significant concentrations of credit risk with respect to trade receivables due to the short-term nature of the balances, the Company having a large and diverse customer base, and the Company having a strong historical experience of collecting receivables with minimal defaults. As a result, credit risk is considered low across territories and trade receivables are considered to be a single class of financial asset. The allowance for credit losses is based on a number of factors and is calculated by applying a historical loss rate to trade receivable aging balances to estimate a general reserve balance along with an additional adjustment for any specific receivables with known or anticipated issues affecting the likelihood of recovery. Past due balances with a probability of default based on historical data as well as relevant available forward-looking information are included in the specific adjustment. The historical loss rate is reviewed on at least an annual basis and the allowance for credit losses is reviewed quarterly for any required adjustments. The Company does not have any
off-balance
sheet credit exposure related to its customers.
Trade receivables related to instrument sales are collateralized by the instrument that is sold. If there is a risk of default related to a receivable that is collateralized, then the fair value of the collateral is calculated and adjusted for the cost to
re-possess,
refurbish and
re-sell
the instrument. This adjusted fair value is compared to the receivable balance and the difference would be recorded as the expected credit loss.
11


Table of Contents
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)
The following is a summary of the activity of the Company’s allowance for credit losses for the ninesix months ended OctoberJuly 2, 20212022 and September 26, 2020July 3, 2021 (in thousands):
 
   
Balance at
Beginning
of Period
   
Impact of
CECL
Adoption
   
Additions
   
Deductions
  
Balance at
End of
Period
 
Allowance for Credit Losses
                        
October 2, 2021
  $14,381   $—     $3,388   $(4,107 $13,662 
September 26, 2020
  $9,560   $985   $7,826   $(5,784 $12,587 

   
Balance at
Beginning
           
Balance at End
of
 
   
of Period
   
Additions
   
Deductions
   
Period
 
                 
Allowance for Credit Losses                    
July 2, 2022  $13,228   $3,690   $(3,571  $13,347 
July 3, 2021  $14,381   $3,042   $(2,625  $14,798 
Other Investments
During the six months ended July 2, 2022, the Company sold an equity investment for $7 million in cash and recorded a gain on the sale of approximately $4 million in other income, net on the statement of operations. The Company also recorded an
other-than-temporary
 impairment loss on an equity method investment still held at the reporting date of approximately $4 million within other income, net on the statement of operations as the company entered into a sale process and we adjusted the carrying value of our investment based on our portion of the total proceeds we expect to receive.
During the ninesix months ended October 2, 2021 and September 26, 2020, the Company made investments in unaffiliated companies of $1 million and $4 million, respectively.
12

Table of Contents
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)
During the nine months ended October 2,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 nine months ended September 26, 2020, the Company recorded an unrealized loss on an equity security still held at the reporting date of approximately $1 million within other income (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 OctoberJuly 2, 20212022 and December 31, 2020.2021. Fair values determined by Level 1 inputs utilize observable data, such as quoted prices in active markets. Fair values determined by Level 2 inputs utilize data points other than quoted prices in active markets that are observable either directly or indirectly. Fair values determined by Level 3 inputs utilize unobservable data points for which there is little or no market data, which require the reporting entity to develop its own assumptions.
The following table represents the Company’s assets and liabilities measured at fair value on a recurring basis at July 2, 2022 (in thousands):
 
       
Quoted Prices
         
       
in Active
   
Significant
     
       
Markets
   
Other
   
Significant
 
   
Total at
   
for Identical
   
Observable
   
Unobservable
 
   
July 2,
   
Assets
   
Inputs
   
Inputs
 
   
2022
   
(Level 1)
   
(Level 2)
   
(Level 3)
 
                 
Assets:                    
Time deposits   897    —      897    —   
Waters 401(k) Restoration Plan assets   26,560    26,560    —      —   
Foreign currency exchange contracts   76    —      76    —   
Interest rate cross-currency swap agreements   31,173    —      31,173    —   
                     
Total  $58,706   $26,560   $32,146   $—   
                     
Liabilities:                    
Contingent consideration  $1,428   $—     $—     $1,428 
Foreign currency exchange contracts   322    —      322    —   
Interest rate cross-currency swap agreements   58    —      58    —   
                     
Total  $1,808   $—     $380   $1,428 
                     
13
12

Table of Contents
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)
The following table represents the Company’s assets and liabilities measured at
fair value on a recurring basis at October 2, 2021 (in thousands):
 
   
Total at
October 2,
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
  $12,043   $0     $12,043   $0   
Corporate debt securities
   83,045    0      83,045    0   
Time deposits
   35,803    0      35,803    0   
Waters 401(k) Restoration Plan assets
   38,587    38,587    0      0   
Foreign currency exchange contracts
   93    0      93    0   
   
 
 
   
 
 
   
 
 
   
 
 
 
Total
  $169,571   $38,587   $130,984   $0   
   
 
 
   
 
 
   
 
 
   
 
 
 
Liabilities:
                    
Contingent consideration
  $1,307   $0     $0     $1,307 
Foreign currency exchange contracts
   375    0      375    0   
Interest rate cross-currency swap agreements
   12,322    0      12,322    0   
   
 
 
   
 
 
   
 
 
   
 
 
 
Total
  $14,004   $0     $12,697   $1,307 
   
 
 
   
 
 
   
 
 
   
 
 
 
The following table represents the Company’s assets and liabilities measured at fair value on a recurring basis at December 31, 20202021 (in thousands):

 
   
Total at
December 31,
2020
   
Quoted Prices
in Active
Markets
for Identical
Assets
(Level 1)
   
Significant
Other
Observable
Inputs
(Level 2)
   
Significant
Unobservable
Inputs
(Level 3)
 
Assets:
        
Time deposits
  $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 
   
 
 
   
 
 
   
 
 
   
 
 
 
14

Table of Contents
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)
       
Quoted Prices
         
       
in Active
   
Significant
     
       
Markets
   
Other
   
Significant
 
   
Total at
   
for Identical
   
Observable
   
Unobservable
 
   
December 31,
   
Assets
   
Inputs
   
Inputs
 
   
2021
   
(Level 1)
   
(Level 2)
   
(Level 3)
 
                 
Assets:                    
U.S. Treasury securities  $13,917   $—     $13,917    —   
Corporate debt securities   39,121    —      39,121    —   
Time deposits   19,030    —      19,030   $—   
Waters 401(k) Restoration Plan assets   38,729    38,729    —      —   
Foreign currency exchange contracts   504    —      504    —   
                     
Total  $111,301   $38,729   $72,572   $—   
                     
Liabilities:                    
Contingent consideration  $1,347   $—     $—     $1,347 
Foreign currency exchange contracts   195    —      195    —   
Interest rate cross-currency swap agreements   5,363    —      5,363    —   
                     
Total  $6,905   $—     $5,558   $1,347 
                     
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, foreign currency exchange contracts and interest rate cross-currency swap agreements are determined through market and observable sources and have been classified as Level 2. These assets and liabilities have been initially valued at the transaction price and subsequently valued, typically utilizing third-party pricing services. The pricing services use many inputs to determine value, including reportable trades, benchmark yields, credit spreads, broker/dealer quotes, current spot rates and other industry and economic events. The Company validates the prices provided by third-party pricing services by reviewing their pricing methods and obtaining market values from other pricing sources.
Fair Value of Contingent Consideration
The fair value of the Company’s liability for contingent consideration relates to earnout payments in connection with the December 2020 acquisition of Integrated Software Solutions (“ISS”) and is determined using a probability-weighted discounted cash flow model, which uses significant unobservable inputs, and has been classified as Level 3. Subsequent changes in the fair value of the contingent consideration liability are recorded in the results of operations. The fair value of the contingent consideration liability associated with future earnout payments is based on several factors, including the achievement of certain revenue and customer account milestones over the two years after the acquisition date and a discount rate that reflects both the likelihood of achieving the estimated future results and the Company’s creditworthiness. A change in any of these unobservable inputs can significantly change the fair value of the contingent consideration.
The fair value of future contingent consideration payments related to the December 2020 acquisition of ISS was estimated to be $1 million at both OctoberJuly 2, 20212022 and December 31, 2020.2021.
13

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)
Fair Value of Other Financial Instruments

The Company’s accounts receivable and accounts payable are recorded at cost, which approximates fair value due to their short-term nature. The carrying value of the Company’s variable interest rate debt approximates fair value due to the variable nature of the interest rate. The carrying value of the Company’s fixed interest rate debt was
$1.3 $1.3 billion and $910 million at Octoberboth July 2, 20212022 and December 31, 2020, respectively.2021. 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 $1.2 billion and $1.3 billion and $963 million at OctoberJuly 2, 20212022 and December 31, 2020,2021, respectively, using Level 2 inputs.
15

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)
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.
Foreign Currency Exchange Contracts
The Company does not specifically enter into any derivatives that hedge foreign-currency-denominated operating assets, liabilities or commitments on its balance sheet, other than a portion of certain third-party accounts receivable and accounts payable, and the Company’s net worldwide intercompany receivables and payables, which are eliminated in consolidation. The Company periodically aggregates its net worldwide balances by currency and then enters into foreign currency exchange contracts that mature within 90 days to hedge a portion of the remaining balance to minimize some of the Company’s currency price risk exposure. The foreign currency exchange contracts are not designated for hedge accounting treatment. Principal hedged currencies include the Euro, Japanese yen, British pound, Mexican peso and Brazilian real.
Interest Rate Cross-Currency Swap Agreements
As of OctoberJuly 2, 2021,2022, the Company had entered
into three-year interest rate cross-currency swap derivative agreements with an aggregate notional value of $340$560 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 incomeloss in stockholders’ equity (deficit) until the sale or substantial liquidation of the foreign operation. The difference between the interest rate received and paid under the interest rate cross-currency swap derivative agreement is recorded in interest income in the statement of operations.
 
16
14

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)
 
The Company’s foreign currency exchange contracts and interest rate cross-currency swap agreements included in the consolidated balance sheets are classified as follows (in thousands):
 
        
  
October 2, 2021
   
December 31, 2020
   
July 2, 2022
   
December 31, 2021
 
  
Notional Value
   
Fair Value
   
Notional Value
   
Fair Value
   
Notional Value
   
Fair Value
   
Notional Value
   
Fair Value
 
Foreign currency exchange contracts:
                        
Other current assets
  $19,000   $93   $66,690   $836   $17,000   $76   $55,309   $504 
Other current liabilities
  $46,772   $375   $20,000   $185   $42,640   $322   $9,000   $195 
Interest rate cross-currency swap agreements:
                        
Other assets  $520,000   $31,173   $—     $—   
Other liabilities
  $340,000   $12,322   $560,000   $44,996    40,000    58    230,000    5,363 
Accumulated other comprehensive loss
     $20,219      $44,996 
Accumulated other comprehensive income (loss)     $26,761      $(15,944
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
  
Three Months Ended
  
Six Months Ended
 
   
Statement
  
July 2, 2022
  
July 3, 2021
  
July 2, 2022
  
July 3, 2021
 
   
Classification
                   
Foreign currency exchange contracts:                    
Realized (losses) gains on closed contracts  Cost of sales  $(1,292  $(213  $(2,791  $1,455 
Unrealized losses on open contracts  Cost of sales   (66   (569   (555   (1,323
                        
Cumulative net
pre-tax
(losses) gains
  Cost of sales  $(1,358  $(782  $(3,346  $132 
                        
Interest rate cross-currency swap agreements:                    
Interest earned  Interest income  $2,077   $3,373   $3,852   $7,200 
Unrealized gains (losses) on open contracts  Other comprehensive income  $30,516   $(4,229  $42,704   $17,015 
   
Financial

Statement

Classification
 
Three Months Ended
   
Nine Months Ended
 
  
October 2,
2021
  
September 26,
2020
   
October 2,
2021
  
September 26,
2020
 
Foreign currency exchange contracts:
                 
Realized (losses) gains on closed contracts
  Cost of sales $(774 $1,113   $681  $(45
Unrealized (losses) gains on open contracts
  Cost of sales  (933  808    (2,256  1,455 
     
 
 
  
 
 
   
 
 
  
 
 
 
Cumulative net
pre-tax
(losses) gains
  Cost of sales $(1,707 $1,921   $(1,575 $1,410 
     
 
 
  
 
 
   
 
 
  
 
 
 
Interest rate cross-currency swap agreements:
                 
Interest earned
  Interest income $2,305  $3,777   $9,505  $11,275 
Unrealized gains on open contracts
  Other comprehensive
income
 $7,762  $19,582   $24,777  $19,675 
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 ninesix months ended OctoberJuly 2, 20212022 and September 26, 2020,July 3, 2021, the Company repurchased 1.51.0 million and 0.81.2 million shares of the Company’s outstanding common stock at a cost of $484$312 million and $167$339 million, respectively, under the January 2019 authorization and other previously announced programs. In addition, the Company repurchased $9$10 million and $10$8 million of common stock related to the vesting of restricted stock units during the ninesix months ended OctoberJuly 2, 20212022 and September 26, 2020,July 3, 2021, respectively. As of OctoberJuly 2, 2021,2022, the Company had repurchased an aggregate of 12.714.1 million shares at a cost of $3.0$3.4 billion under the January 2019 repurchase program and had a total of $1.0$0.6 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.
17

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)
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 0t have any unsettled treasury stock purchases as of December 31, 2020 or October 2, 2021.
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.
15

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)
The following is a summary of the activity of the Company’s accrued warranty liability for the ninesix months ended OctoberJuly 2, 20212022 and September 26, 2020July 3, 2021 (in thousands):
 
   
Balance at
Beginning
of Period
   
Accruals for
Warranties
   
Settlements
Made
   
Balance at
End of
Period
 
Accrued warranty liability:
                    
October 2, 2021
  $10,950   $6,537   $(6,991  $10,496 
September 26, 2020
  $11,964   $5,442   $(7,145  $10,261 
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 nine months ended September 26, 2020, the Company incurred $6 million and
$27 
million of severance-related costs, lease termination costs and other related costs. Restructuring charges incurred during the three and nine months ended October 2, 2021 were immaterial.
   
Balance at
           
Balance at
 
   
Beginning
   
Accruals for
   
Settlements
   
End of
 
   
of Period
   
Warranties
   
Made
   
Period
 
Accrued warranty liability:                    
July 2, 2022  $10,718   $4,084   $(4,646  $10,156 
July 3, 2021  $10,950   $4,719   $(4,859  $10,810 
Other Items
During the ninesix months ended OctoberJuly 2, 2021,2022, 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 withcompleted an asset acquisition in which the settlement, the Company is entitled to receive
$10 
charge detection mass spectrometry technology (“CDMS technology”) assets of Megadalton Solutions, Inc. (“Megadalton”) were acquired for approximately $10 million in guaranteed payments, including minimum royalty payments,total purchase price, of which $5 million was recognized within other incomepaid at closing and the remaining $4 million will be paid in the future at various dates through 2029. This CDMS technology makes it possible to analyze extremely large proteins and protein complexes used in cell and gene therapies that would otherwise be difficult to analyze with conventional mass spectrometry. Once this technology is further developed, it will extend the capabilities of our consolidatedmass spectrometry portfolio for a broader set of applications and as such the cost of this technology asset has been accounted for as Acquired
In-Process
Research and Development and expensed in costs and operating expenses in the statement of operations. During the nine months ended October 2, 2021, the Company received
$3 
million in guaranteed payments, net of 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.
18

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 ninesix months ended OctoberJuly 2, 20212022 and September 26, 2020July 3, 2021 (in thousands):
 
    
  
October 2, 2021
   
September 26, 2020
   
July 2, 2022
   
July 3, 2021
 
Balance at the beginning of the period
  $239,759   $213,695   $273,598   $239,759 
Recognition of revenue included in balance at beginning of the period
   (197,279   (177,667   (173,606   (159,393
Revenue deferred during the period, net of revenue recognized
   264,184    213,895    240,928    251,065 
  
 
   
 
         
Balance at the end of the period
  $306,664   $249,923   $340,920   $331,431 
  
 
   
 
         
The Company classified $44$60 million and $42$46 million of deferred revenue and customer advances in other long-term liabilities at OctoberJuly 2, 20212022 and December 31, 2020,2021, respectively.
The amount of deferred revenue and customer advances equals the transaction price allocated to unfulfilled performance obligations for the period presented. Such amounts are expected to be recognized in the future as follows (in thousands):
     
   
July 2, 2022
 
Deferred revenue and customer advances expected to be recognized in:     
One year or less  $282,342 
13-24
months
   36,568 
25 months and beyond   22,010 
      
Total  $340,920 
      
 
   
October 2, 2021
 
Deferred revenue and customer advances expected to be recognized in:
     
One year or less
  $262,758 
13-24
months
   25,076 
25 months and beyond
   18,830 
   
 
 
 
Total
  $306,664 
   
 
 
 
16

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)
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):
 
   
October 2, 2021
 
   
Amortized
Cost
   
Unrealized
Gain
   
Unrealized
Loss
   
Fair
 
Value
 
U.S. Treasury securities
  $12,040   $3   $—     $12,043 
Corporate debt securities
   83,045    8    (8   83,045 
Time deposits
   35,803    —      —      35,803 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total
  $130,888   $11   $(8  $130,891 
   
 
 
   
 
 
   
 
 
   
 
 
 
Amounts included in:
                    
Cash equivalents
  $401   $0     $0     $401 
Investments
   130,487    11    (8   130,490 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total
  $130,888   $11   $(8  $130,891 
   
 
 
   
 
 
   
 
 
   
 
 
 
   
December 31, 2020
 
   
Amortized
Cost
   
Unrealized
Gain
   
Unrealized
Loss
   
Fair
 
Value
 
Time deposits
   6,451    —      —      6,451 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total
  $6,451   $—     $—     $6,451 
   
 
 
   
 
 
   
 
 
   
 
 
 
Amounts included in:
                    
Investments
   6,451    —      —      6,451 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total
  $6,451   $—     $—     $6,451 
   
 
 
   
 
 
   
 
 
   
 
 
 
   
July 2, 2022
 
   
Amortized
   
Unrealized
   
Unrealized
   
Fair
 
   
Cost
   
Gain
   
Loss
   
Value
 
                 
Time deposits   897    —      —      897 
                     
Total  $897   $—     $—     $897 
                     
Amounts included in:                    
Investments   897    —      —      897 
                     
Total  $897   $—     $—     $897 
                     
19

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)
   
December 31, 2021
 
   
Amortized
   
Unrealized
   
Unrealized
   
Fair
 
   
Cost
   
Gain
   
Loss
   
Value
 
                 
U.S. Treasury securities  $13,929   $—     $(12  $13,917 
Corporate debt securities   39,135    —      (14   39,121 
Time deposits   19,030    —      —      19,030 
                     
Total  $72,094   $—     $(26  $72,068 
                     
Amounts included in:                    
Cash equivalents  $4,017   $—     $—     $4,017 
Investments   68,077    —      (26   68,051 
                     
Total  $72,094   $—     $(26  $72,068 
                     
The estimated fair value of marketable debt securities by maturity date is as follows (in thousands):
         
   
July 2, 2022
   
December 31, 2021
 
Due in one year or less  $897   $71,066 
Due after one year through three years   —      1,002 
           
Total  $897   $72,068 
           
   
October 2, 2021
   
December 31, 2020
 
Due in one year or less
  $128,149   $6,451 
Due after one year through three years
   2,742    —   
   
 
 
   
 
 
 
Total
  $130,891   $6,451 
   
 
 
   
 
 
 
4 Inventories
Inventories are classified as follows (in thousands):
 
    
  
October 2, 2021
   
December 31, 2020
   
July 2, 2022
   
December 31, 2021
 
Raw materials
  $158,529   $133,490   $180,658   $165,240 
Work in progress
   25,296    18,678    24,285    19,726 
Finished goods
   204,931    152,113    204,979    171,129 
  
 
   
 
         
Total inventories
  $388,756   $304,281   $409,922   $356,095 
  
 
   
 
         
5 Goodwill and Other Intangibles
The carrying amount of goodwill was $437$428 million and $444$438 million at OctoberJuly 2, 20212022 and December 31, 2020,2021, respectively. The effect of foreign currency translation decreased goodwill by $7$10 million.
17

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)
The Company’s intangible assets included in the consolidated balance sheets are detailed as follows (dollars in thousands):
 
   
October 2, 2021
   
December 31, 2020
 
   
Gross
Carrying
Amount
   
Accumulated
Amortization
   
Weighted-
Average
Amortization
Period
   
Gross
Carrying
Amount
   
Accumulated
Amortization
   
Weighted-
Average
Amortization
Period
 
Capitalized software
  $576,988   $419,736    5 years   $584,452   $409,847    5 years 
Purchased intangibles
   202,094    162,895    11 years    205,585    160,342    11 years 
Trademarks
   9,680    —      —      9,680    —      —   
Licenses
   12,616    5,944    7 years    5,923    5,697    6 years 
Patents and other intangibles
   99,906    66,629    8 years    90,699    61,808    8 years 
   
 
 
   
 
 
        
 
 
   
 
 
      
Total
  $901,284   $655,204    7 years   $896,339   $637,694    7 years 
   
 
 
   
 
 
        
 
 
   
 
 
      
   
July 2, 2022
   
December 31, 2021
 
           
Weighted-
           
Weighted-
 
   
Gross
       
Average
   
Gross
       
Average
 
   
Carrying
   
Accumulated
   
Amortization
   
Carrying
   
Accumulated
   
Amortization
 
   
Amount
   
Amortization
   
Period
   
Amount
   
Amortization
   
Period
 
                         
Capitalized software  $555,602   $411,492    5 years   $575,658   $420,862    5 years 
Purchased intangibles   196,887    162,839    11 years    201,302    163,752    11 years 
Trademarks   9,680    —      —      9,680    —      —   
Licenses   11,484    6,091    7 years    12,635    6,199    7 years 
Patents and other intangibles   101,679    69,809    8 years    102,353    68,414    8 years 
                               
Total  $875,332   $650,231    7 years   $901,628   $659,227    7 years 
                               
DuringThe Company capitalized intangible assets in the nineamounts of $12 million and $19 mill
i
on in the three months ended OctoberJuly 2, 2022 and July 3, 2021, the Company paid $7respectively, and $24 million and $27 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 spectrometersix months ended July 2, 2022 and was capitalized as an intangible asset on our consolidated balance sheet in 2021.July 3, 2021, respectively. The gross carrying value of intangible assets and accumulated amortization for intangible assets decreased by $36$50 million and $27$38 million, respectively, in the ninesix months ended OctoberJuly 2, 20212022 due to the effects of foreign
20

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)
currency translation. Amortization expense for intangible assets was $15 million for both the three months ended OctoberJuly 2, 20212022 and September 26, 2020.July 3, 2021. Amortization expense for intangible assets was $45 million and $42$30 million for both the ninesix months ended OctoberJuly 2, 20212022 and September 26, 2020, respectively.July 3, 2021. Amortization expense for intangible assets is estimated to be $62 million per year for each of the next five years.
6 Debt
On September 17, 2021, theThe Company entered into an amended and restateda credit agreement in September 2021 (the “2021 Credit Agreement”), which amended governing the Company’s existing credit agreement entered into in 2017 (the “2017 Credit Agreement”). The 2021 Credit Agreement provides for afive-year, $1.8 billion revolving facility (the “2021 Credit Facility”) and converted the $300 million term loan under the 2017 Credit Agreement into part of the new revolving facility.that expires in September 2026. As of OctoberJuly 2, 2022 and December 31, 2021, the 2021 Credit Facility had a total of $310 million outstanding. As of December 31, 2020, the revolving credit facility and the term loan governed by the 2017 Credit Agreement had a total of $100$180 million and $300$210 million respectively, outstanding. The 2021 Credit Facility matures on September 17, 2026 and requires no scheduled prepayments before that date.outstanding, respectively.
The interest rates applicable to the 2021 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, 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 2021 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 2021 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 2021 Credit Agreement includes negative covenants, affirmative covenants, representations and warranties and events of default that are customary for investment grade credit facilities.
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.
21

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)
As of Octoberboth July 2, 20212022 and December 31, 2020,2021, the Company had a total of $1.3 billion and $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.
18

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)
The Company had the following outstanding debt at OctoberJuly 2, 20212022 and December 31, 20202021 (in thousands):
 
   
October 2, 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
   310,000    400,000 
Unamortized debt issuance costs
   (6,382   (3,485
   
 
 
   
 
 
 
Total long-term debt
   1,613,618    1,206,515 
   
 
 
   
 
 
 
Total debt
  $1,613,618   $1,356,515 
   
 
 
   
 
 
 
         
   
July 2, 2022
   
December 31, 2021
 
Senior unsecured notes - Series I - 3.13%, due May 2023  $50,000   $—   
           
Total notes payable and debt, current   50,000    —   
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 
Senior unsecured notes - Series K - 3.44%, due May 2026   160,000    160,000 
Senior unsecured notes - Series L - 3.31%, due September 2026   200,000    200,000 
Senior unsecured notes - Series M - 3.53%, due September 2029   300,000    300,000 
Senior unsecured notes - Series N - 1.68%, due March 2026   100,000    100,000 
Senior unsecured notes - Series O - 2.25%, due March 2031   400,000    400,000 
Credit agreement   180,000    210,000 
Unamortized debt issuance costs   (5,626   (6,130
           
Total long-term debt   1,434,374    1,513,870 
           
Total debt  $1,484,374   $1,513,870 
           
 
*
Series H senior unsecured notes bear interest at a
3-month
LIBOR for that floating rate interest period plus 1.25%.
As of October
 both
July 2, 20212022 and December 31, 2020,2021, the Company had a total amount available to borrow under the 2021 or 2017 Credit Agreement of $1.5$1.6 billion, and $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 2.67%3.02% and 2.92%2.74% at OctoberJuly 2, 20212022 and December 31, 2020,2021, respectively. As of OctoberJuly 2, 2021,2022, the Company was in compliance with all debt covenants.
The Company and its foreign subsidiaries also had available short-term lines of credit totaling $122$113 million and $109$121 million at OctoberJuly 2, 20212022 and December 31, 2020,2021, respectively, for the purpose of short-term borrowing and issuance of commercial guarantees. None of the Company’s foreign subsidiaries had outstanding short-term borrowings as of OctoberJuly 2, 20212022 or December 31, 2020.2021.
22

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)
As of OctoberJuly 2, 2021,2022, the Company had entered into three-year interest rate cross-currency swap derivative agreements with an aggregate notional value of $340$560 million to hedge the variability in the movement of foreign currency exchange rates on a portion of its Euro-denominated net asset investments.
7 Income Taxes
The four principal jurisdictions in which the Company manufactures are the U.S., Ireland, the U.K. and Singapore, where the statutory tax rates were 21%, 12.5%, 19% and 17%, respectively, as of OctoberJuly 2, 2021.2022. The Company had a contractual tax rate of 0% on qualifying activities in Singapore through March 2021, based upon the achievement of certain contractual milestones. The Company has a new Development and Expansion Incentive in Singapore that provides a concessionary income tax rate of 5% on certain types of income for the period April 1, 2021 through March 31, 2026. The effect of applying the concessionary income tax rates rather than the statutory tax rate to income from qualifying activities in Singapore increased the Company’s net income for the ninesix months ended OctoberJuly 2, 2022 and July 3, 2021 and September 26, 2020 by $13$10 million and $12$9 million, respectively, and increased the Company’s net income per diluted share by $0.20
for both periods.
$0.16 and $0.14, respectively.
The Company’s effective tax rate for the three months ended OctoberJuly 2, 2022 and July 3, 2021 was 14.3% and September 26, 2020 was 11.8% and 15.7%15.3%, respectively. The decrease in the effective income tax rate can be attributed to the impact of quarter-specific adjustments and differences in the proportionate amounts of
pre-tax
income recognized in jurisdictions with different effective
tax rates.
19

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)
The Company’s effective tax rate for the ninesix months ended OctoberJuly 2, 2022 and July 3, 2021 was 14.3% and September 26, 2020 was 14.0% and 14.3%15.0%, respectively. The effective tax rate for the ninesix months ended OctoberJuly 2, 2022 includes a $5 million tax benefit related to stock-based compensation. This income tax benefit decreased the effective tax rate by 1.4 percentage points for the six months ended July 2, 2022. The effective tax rate for the six months ended July 3, 2021 includes a $6$4 million income tax benefit related to stock-based compensation. This income tax benefit decreased the effective tax rate by 1.1 percentage points for the ninesix months ended October 2,July 3, 2021. The effective tax rate for the nine months ended September 26, 2020 includes a $6 million income tax benefit related to certain restructuring charges and a $3 million tax benefit related to stock-based compensation. These income tax benefits decreased the effective tax rate by 1.8 percentage points and 0.9 percentage points, respectively, for the nine months ended September 26, 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 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.
23

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)
The following is a summary of the activity of the Company’s gross unrecognized tax benefits, excluding interest and penalties, for both the ninesix months ended OctoberJuly 2, 2022 and July 3, 2021 and September 26, 2020 (in thousands):
   
October 2, 2021
   
September 26, 2020
 
Balance at the beginning of the period
  $28,666   $27,790 
Net reductions for settlement of tax audits
   (878   0   
Net reductions for lapse of statutes taken during the period
   (292   (427
Net additions for tax positions taken during the current period
   966    907 
   
 
 
   
 
 
 
Balance at the end of the period
  $28,462   $28,270 
  
 
 
   
 
 
 
were $29 million. 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, 2015.2016. 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 OctoberJuly 2, 2021,2022, the Company expects to record reductions in the measurement of its unrecognized tax benefits and related net interest and penalties of $18 million within the next twelve months due to potential tax audit settlements and the lapsing of statutes of limitations on potential tax assessments. The Company does not expect to record any other material reductions in the measurement of its unrecognized tax benefits within the next twelve months.
8 Other Commitments and Contingencies
The Company licenses certain technology and software from third parties in the course of ordinary business. Future minimum license fees payable under existing license agreements as of July 2, 2022 are immaterial for the years ended December 31, 2022 and thereafter. The Company enters into licensing arrangements with third parties that require future milestone or royalty payments contingent upon future events. Upon the achievement of certain milestones in existing agreements, the Company could make additional future payments of up to $2 million.
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.
8
9 Stock-Based Compensation
The Company maintains various stockholder-approved, stock-based compensation plans which allow for the issuance of incentive or
non-qualified
stock options, stock appreciation rights, restricted stock or other types of awards (e.g. restricted stock units and performance stock units).
In May 2020, the Company’s stockholders approved the Company’s 2020 Equity Incentive Plan (“2020 Plan”). As of OctoberJuly 2, 2021,2022, the 2020 Plan had 6.76.4 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

20

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)
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 OctoberJuly 2, 2021,2022, the Company had stock options, restricted stock, and restricted and performance stock unit awards outstanding under the 2020 Plan.
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​​​​​​​
24

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)
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 ninesix months ended OctoberJuly 2, 20212022 and September 26, 2020July 3, 2021 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
 
   
July 2, 2022
   
July 3, 2021
   
July 2, 2022
   
July 3, 2021
 
Cost of sales  $915   $727   $1,942   $1,360 
Selling and administrative expenses   7,264    5,274    15,433    11,694 
Research and development expenses   1,610    1,290    3,347    2,542 
                     
Total stock-based compensation  $9,789   $7,291   $20,722   $15,596 
                     
   
Three Months Ended
   
Nine Months Ended
 
   
October 2, 2021
   
September 26,
2020
   
October 2, 2021
   
September 26,
2020
 
Cost of sales
  $468   $645   $1,828   $1,850 
Selling and administrative expenses
   4,116    7,747    15,810    22,472 
Research and development expenses
   1,769    1,201    4,311    3,393 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total stock-based compensation
  $6,353   $9,593   $21,949   $27,715 
   
 
 
   
 
 
   
 
 
   
 
 
 
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-tradedpublicly 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 ninesix months ended OctoberJuly 2, 20212022 and September 26, 2020July 3, 2021 are as follows:
         
   
Six Months Ended
 
Options Issued and Significant Assumptions Used to Estimate Option Fair Values
  
July 2, 2022
  
July 3, 2021
 
Options issued in thousands   127   159 
Risk-free interest rate   1.9  0.8
Expected life in years   6   6 
Expected volatility   30.9  32.5
Expected dividends   0—     —   
 
   
Nine Months Ended
 
Options Issued and Significant Assumptions Used to Estimate Option Fair Values
  
October 2, 2021
  
September 26,

2020
 
Options issued in thousands
   160   267 
Risk-free interest rate
   0.8  1.2
Expected life in years
   6   6 
Expected volatility
   32.4  27.8
Expected dividends
   0     —   
   
Nine Months Ended
 
Weighted-Average Exercise Price and Fair Value of Options on the Date of Grant
  
October 2, 2021
   
September 26,

2020
 
Exercise price
  $281.23   $215.12 
Fair value
  $91.46   $62.93 
25
21

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

   
Six Months Ended
 
Weighted-Average Exercise Price and Fair Value of Options on the Date of Grant
  
July 2, 2022
   
July 3, 2021
 
         
Exercise price  $321.91   $280.92 
Fair value  $107.76   $91.42 
The following table summarizes stock option activity for the plans for the ninesix months ended OctoberJuly 2, 20212022 (in thousands, except per share data):
 
   
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
   160   $250.15 to $
 
 
371.64
   $281.23 
Exercised
   (275  $99.22 to $
 
 
238.52
   $167.89 
Canceled
   (251  $139.51 to $
 
 
280.80
   $197.05 
   
 
 
           
Outstanding at October 2, 2021
   701   $75.94 to $
 
 
371.64
   $200.84 
   
 
 
           
   
Number of Shares
   
Exercise Price per Share
   
Weighted-Average

Exercise Price per

Share
 
Outstanding at December 31, 2021   691   $88.71   to $371.64   $202.24 
Granted   127   $314.98   to $364.59   $321.91 
Exercised   (150  $88.71   to $279.90   $170.44 
Canceled   (18  $203.37   to $364.59   $250.27 
                        
Outstanding at July 2, 2022   650   $88.71   to $371.64   $231.63 
                        
Restricted Stock
During the ninesix months ended OctoberJuly 2, 2021,2022, the Company granted fourthree thousand shares of restricted stock. The weighted-average fair value per share of these awards on the grant date was $254.51.$364.59.
Restricted Stock Units
The following table summarizes the unvested restricted stock unit award activity for the ninesix months ended OctoberJuly 2, 20212022 (in thousands, except per share data):
 
   
Shares
   
Weighted-Average

Grant Date Fair
Value per Share
 
Unvested at December 31, 2020
   271   $202.00 
Granted
   88   $283.10 
Vested
   (86  $183.94 
Forfeited
   (22  $221.64 
   
 
 
      
Unvested at October 2, 2021
   251   $234.90 
   
 
 
      
   
Shares
   
Weighted-Average

Grant Date Fair

Value per Share
 
Unvested at December 31, 2021   245   $234.97 
Granted   94   $323.65 
Vested   (71  $220.07 
Forfeited   (16  $256.66 
           
Unvested at July 2, 2022   252   $270.87 
           
Restricted stock units are generally granted annually in February and vest in equal annual installments over a five-year period.
Performance Stock Units
The Company’s performance stock units are equity compensation awards with a market vesting condition based on the Company’s Total Shareholder Return (“TSR”) relative to the TSR of the components of the S&P Health Care Index. TSR is the change in value of a stock price over time, including the reinvestment of dividends. The vesting schedule ranges from 0% to 200% of the target shares awarded. Beginning with the grants made in 2020, the vesting conditions for performance stock units now include a performance condition based on future
sales growth.
22

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)
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-tradedpublicly traded options as the basis for its estimate of expected volatility. The Company believes that implied
26

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)
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 ninesix months ended OctoberJuly 2, 20212022 and September 26, 2020July 3, 2021 are as follows:
 
   
Nine Months Ended
 
Performance Stock Units Issued and Significant Assumptions Used to Estimate
Fair Values
  
October 2, 2021
  
September 26, 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     —   
   
Six Months Ended
 
Performance Stock Units Issued and Significant Assumptions Used to Estimate Fair Values
  
July 2, 2022
  
July 3, 2021
 
         
Performance stock units issued (in thousands)   40   41 
Risk-free interest rate   1.6  0.2
Expected life in years   2.9   2.9 
Expected volatility   25.4  38.7
Average volatility of peer companies   34.5  34.7
Correlation coefficient   43.0  45.8
Expected dividends   0—     —   
The following table summarizes the unvested performance stock unit award activity for the ninesix months ended OctoberJuly 2, 20212022 (in thousands, except per share data):
 
    
  
Shares
   
Weighted-Average

Fair Value per
Share
   
Shares
   
Weighted-Average

Fair Value per
Share
 
Unvested at December 31, 2020
   95   $230.36 
Unvested at December 31, 2021   87   $285.73 
Granted
   41   $315.98    40   $313.21 
Vested
   (5  $242.94    (24  $308.71 
Forfeited
   (44  $199.22    10   $370.15 
  
 
           
Unvested at October 2, 2021
   87   $285.73 
Unvested at July 2, 2022   113   $298.05 
  
 
           
910 Earnings Per Share
Basic and diluted EPS calculations are detailed as follows (in thousands, except per share data):
 
   
Three Months Ended October 2, 2021
 
   
Net Income
   
Weighted-
Average Shares
   
Per Share
 
   
(Numerator)
   
(Denominator)
   
Amount
 
Net income per basic common share
  $161,185    61,359   $2.63 
Effect of dilutive stock option, restricted stock, performance stock unit and restricted stock unit securities
   0      529    (0.03
   
 
 
   
 
 
   
 
 
 
Net income per diluted common share
  $161,185    61,888   $2.60 
   
 
 
   
 
 
   
 
 
 
   
Three Months Ended July 2, 2022
 
   
Net Income
   
Weighted-
Average Shares
   
Per Share
 
   
(Numerator)
   
(Denominator)
   
Amount
 
             
Net income per basic common share  $164,864    60,206   $2.74 
Effect of dilutive stock option, restricted stock, performance stock unit and restricted stock unit securities   —      304    (0.02
                
Net income per diluted common share  $164,864    60,510   $2.72 
                
 
27
23

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)
 
   
Three Months Ended September 26, 2020
 
   
Net Income
(Numerator)
   
Weighted-
Average Shares
(Denominator)
   
Per Share
Amount
 
Net income per basic common share
  $126,769    62,002   $2.04 
Effect of dilutive stock option, restricted stock, performance stock unit and restricted stock unit securities
   —      301    (0.01
   
 
 
   
 
 
   
 
 
 
Net income per diluted common share
  $126,769    62,303   $2.03 
   
 
 
   
 
 
   
 
 
 

   
Three Months Ended July 3, 2021
 
   
Net Income
   
Weighted-
Average Shares
   
Per Share
 
   
(Numerator)
   
(Denominator)
   
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 
                
 
   
Nine Months Ended October 2, 2021
 
   
Net Income
(Numerator)
   
Weighted-
Average Shares
(Denominator)
   
Per Share
Amount
 
Net income per basic common share
  $476,604    61,771   $7.72 
Effect of dilutive stock option, restricted stock, performance stock unit and restricted stock unit securities
   0      473    (0.06
   
 
 
   
 
 
   
 
 
 
Net income per diluted common share
  $476,604    62,244   $7.66 
   
 
 
   
 
 
   
 
 
 
   
Six Months Ended July 2, 2022
 
   
Net Income
   
Weighted-
Average Shares
   
Per Share
 
   
(Numerator)
   
(Denominator)
   
Amount
 
             
Net income per basic common share  $324,695    60,399   $5.38 
Effect of dilutive stock option, restricted stock, performance stock unit and restricted stock unit securities   —      345    (0.03
                
Net income per diluted common share  $324,695    60,744   $5.35 
                
 
  
Six Months Ended July 3, 2021
 
  
Net Income
   
Weighted-
Average Shares
   
Per
Share
 
  
Nine Months Ended September 26, 2020
   
(Numerator)
   
(Denominator)
   
Amount
 
  
Net Income
(Numerator)
   
Weighted-
Average Shares
(Denominator)
   
Per Share
Amount
       
Net income per basic common share
  $303,260    62,057   $4.89   $315,419    61,979   $5.09 
Effect of dilutive stock option, restricted stock, performance stock unit and restricted stock unit securities
   0      314    (0.03   0—      456    (0.04
  
 
   
 
   
 
             
Net income per diluted common share
  $303,260    62,371   $4.86   $315,419    62,435   $5.05 
  
 
   
 
   
 
             
For the three and ninesix months ended OctoberJuly 2, 20212022 and September 26, 2020,July 3, 2021, the Company had fewer than 1 million stock options that were antidilutive due to having higher exercise prices than the Company’s average stock price during the applicable period. These securities were not included in the computation of diluted EPS. The effect of dilutive securities was calculated using the treasury stock method.
1011 Accumulated Other Comprehensive IncomeLoss
The components of accumulated other comprehensive loss are detailed as follows (in thousands):
 
   
Currency
Translation
   
Unrealized Gain
(Loss) on
Retirement Plans
   
Unrealized Gain 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
   1,256    1,071    2    2,329 
   
 
 
   
 
 
   
 
 
   
 
 
 
Balance at October 2, 2021
  $(96,826  $(18,790  $2   $(115,614
   
 
 
   
 
 
   
 
 
   
 
 
 
                 
   
Currency
Translation
   
Unrealized Gain
(Loss) on
Retirement Plans
   
Unrealized Gain
(Loss) on
Investments
   
Accumulated Other
Comprehensive
Loss
 
Balance at December 31, 2021  $(99,985  $(11,860  $(20  $(111,865
Other comprehensive (loss) income, net of tax   (30,476   932    20    (29,524
                     
Balance at July 2, 2022  $(130,461  $(10,928  $   $(141,389
                     
28
24

Table of Contents
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)
 
1112 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 expenseincome, net in the consolidated statements of operations. The summary of the components of net periodic pension costs for the plans for the three and ninesix months ended OctoberJuly 2, 20212022 and September 26, 2020July 3, 2021 is as follows (in thousands):
                 
   
Three Months Ended
 
   
July 2, 2022
   
July 3, 2021
 
   
U.S. Retiree
   
Non-U.S.
   
U.S. Retiree
   
Non-U.S.
 
   
Healthcare
   
Pension
   
Healthcare
   
Pension
 
   
Plan
   
Plans
   
Plan
   
Plans
 
Service cost  $226   $1,003   $232   $1,147 
Interest cost   146    341    139    312 
Expected return on plan assets   (269   (496   (255   (464
Net amortization:                    
Prior service credit   (5   (32   (4   (39
Net actuarial loss   —      157    —      261 
                     
Net periodic pension cost  $98   $973   $112   $1,217 
                     
   
Three Months Ended
 
   
October 2, 2021
   
September 26, 2020
 
   
U.S. Retiree
Healthcare
Plan
   
Non-U.S.

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

Pension
Plans
 
Service cost
  $198   $1,140   $197   $1,140 
Interest cost
   141    309    180    353 
Expected return on plan assets
   (248   (459   (214   (476
Settlement loss
   0      102    0      0   
Net amortization:
                    
Prior service (credit) cost
   (5   13    (4   (41
Net actuarial loss
   8    130    —      397 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net periodic pension cost
  $94   $1,235   $159   $1,373 
   
 
 
   
 
 
   
 
 
   
 
 
 
  
Six Months Ended
 
  
July 2, 2022
   
July 3, 2021
 
  
Nine Months Ended
   
U.S. Retiree
   
Non-U.S.
   
U.S. Retiree
   
Non-U.S.
 
  
October 2, 2021
   
September 26, 2020
   
Healthcare
   
Pension
   
Healthcare
   
Pension
 
  
U.S. Retiree
Healthcare
Plan
   
Non-U.S.

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

Pension
Plans
   
Plan
   
Plans
   
Plan
   
Plans
 
Service cost
  $663   $3,447   $499   $3,334   $452   $2,085   $465   $2,307 
Interest cost
   419    936    533    1,036    291    707    278    627 
Expected return on plan assets
   (758   (1,389   (653   (1,386   (538   (1,030   (510   (930
Settlement loss
   0      102    0      0   
Net amortization:
                        
Prior service credit
   (14   (67   (14   (122   (10   (69   (9   (80
Net actuarial loss
   8    653    —      1,164    —      326    —      523 
  
 
   
 
   
 
   
 
                 
Net periodic pension cost
  $318   $3,682   $365   $4,026   $195   $2,019   $224   $2,447 
  
 
   
 
   
 
   
 
                 
During fiscal year 2021,2022, the Company expects to contribute a total of approximately $3 million to $6 million to the Company’s defined benefit plans.
1213 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
.
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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)
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 one1 reporting segment for financial statement purposes. Please refer to the consolidated financial statements for financial information
regarding the 1one reportable segment of the Company.

25

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)
Net sales for the Company’s products and services are as follows for the three and ninesix months ended OctoberJuly 2, 20212022 and September 26, 2020July 3, 2021 (in thousands):
 
  
Three Months Ended
   
Nine Months Ended
   
Three Months Ended
   
Six Months Ended
 
  
October 2, 2021
   
September 26,
2020
   
October 2, 2021
   
September 26,
2020
   
July 2, 2022
   
July 3, 2021
   
July 2, 2022
   
July 3, 2021
 
Product net sales:
                        
Waters instrument systems
  $240,475   $225,790   $717,910   $550,018   $280,846   $261,363   $550,808   $477,435 
Chemistry consumables
   123,045    108,175    368,478    300,525    131,947    126,459    257,565    245,433 
TA instrument systems
   55,613    42,274    155,722    114,799    56,837    53,133    112,097    100,109 
  
 
   
 
   
 
   
 
                 
Total product sales
   419,133    376,239    1,242,110    965,342    469,630    440,955    920,470    822,977 
Service net sales:
                        
Waters service
   218,291    199,501    644,625    562,843    222,359    219,502    439,935    426,334 
TA service
   21,809    18,044    62,690    50,522    22,330    21,190    44,486    40,881 
  
 
   
 
   
 
   
 
                 
Total service sales
   240,100    217,545    707,315    613,365    244,689    240,692    484,421    467,215 
  
 
   
 
   
 
   
 
                 
Total net sales
  $659,233   $593,784   $1,949,425   $1,578,707   $714,319   $681,647   $1,404,891   $1,290,192 
  
 
   
 
   
 
   
 
                 
Net sales are attributable to geographic areas based on the region of destination. Geographic sales information is presented below for the three and ninesix months ended OctoberJuly 2, 20212022 and September 26, 2020July 3, 2021 (in thousands):
 
   
Three Months Ended
   
Nine Months Ended
 
   
October 2, 2021
   
September 26,
2020
   
October 2, 2021
   
September 26,
2020
 
Net Sales:
                    
Asia:
                    
China
  $115,886   $115,666   $346,030   $252,713 
Japan
   44,293    44,779    139,702    131,098 
Asia Other
   94,423    75,737    268,359    219,660 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total Asia
   254,602    236,182    754,091    603,471 
Americas:
                    
United States
   194,776    172,267    544,124    465,093 
Americas Other
   36,225    27,180    109,128    81,312 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total Americas
   231,001    199,447    653,252    546,405 
Europe
   173,630    158,155    542,082    428,831 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total net sales
  $659,233   $593,784   $1,949,425   $1,578,707 
   
 
 
   
 
 
   
 
 
   
 
 
 
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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)
   
Three Months Ended
   
Six Months Ended
 
   
July 2, 2022
   
July 3, 2021
   
July 2, 2022
   
July 3, 2021
 
Net Sales:                    
Asia:                    
China  $138,740   $127,225   $259,772   $230,144 
Japan   37,504    45,113    86,127    95,409 
Asia Other   101,766    97,609    186,445    173,936 
                     
Total Asia   278,010    269,947    532,344    499,489 
Americas:                    
United States   213,815    186,915    422,528    349,348 
Americas Other   43,456    37,979    83,580    72,903 
                     
Total Americas   257,271    224,894    506,108    422,251 
Europe   179,038    186,806    366,439    368,452 
                     
Total net sales  $714,319   $681,647   $1,404,891   $1,290,192 
                     
Net sales by customer class are as follows for the three and ninesix months ended OctoberJuly 2, 20212022 and September 26, 2020July 3, 2021 (in thousands):
   
Three Months Ended
   
Six Months Ended
 
   
July 2, 2022
   
July 3, 2021
   
July 2, 2022
   
July 3, 2021
 
Pharmaceutical  $437,171   $416,705   $852,943   $776,853 
Industrial   208,517    202,579    417,914    385,852 
Academic and government   68,631    62,363    134,034    127,487 
                     
Total net sales  $714,319   $681,647   $1,404,891   $1,290,192 
                     
26

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)
 
   
Three Months Ended
   
Nine Months Ended
 
   
October 2, 2021
   
September 26,
2020
   
October 2, 2021
   
September 26,
2020
 
Pharmaceutical
  $398,338   $343,001   $1,175,191   $926,582 
Industrial
   196,032    179,128    581,884    474,592 
Academic and government
   64,863    71,655��   192,350    177,533 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total net sales
  $659,233   $593,784   $1,949,425   $1,578,707 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net sales for the Company recognized at a point in time versus over time are as follows for the three and ninesix months ended OctoberJuly 2, 20212022 and September 26, 2020July 3, 2021 (in thousands):
   
Three Months Ended
   
Six Months Ended
 
   
July 2, 2022
   
July 3, 2021
   
July 2, 2022
   
July 3, 2021
 
Net sales recognized at a point in time:                    
Instrument systems  $337,683   $314,496   $662,905   $577,544 
Chemistry consumables   131,947    126,459    257,565    245,433 
Service sales recognized at a point in time (time & materials)   91,571    88,832    177,350    168,119 
                     
Total net sales recognized at a point in time   561,201    529,787    1,097,820    991,096 
Net sales recognized over time:                    
Service and software maintenance sales recognized over time (contracts)   153,118    151,860    307,071    299,096 
                     
Total net sales  $714,319   $681,647   $1,404,891   $1,290,192 
                     
   
Three Months Ended
   
Nine Months Ended
 
   
October 2,
2021
   
September 26,
2020
   
October 2,
2021
   
September 26,
2020
 
Net sales recognized at a point in time:
                    
Instrument systems
  $296,088   $268,064   $873,632   $664,817 
Chemistry consumables
   123,045    108,175    368,478    300,525 
Service sales recognized at a point in time (time & materials)
   85,093    92,145    253,212    238,754 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total net sales recognized at a point in time
   504,226    468,384    1,495,322    1,204,096 
Net sales recognized over time:
                    
Service and software maintenance sales recognized over time (contracts)
   155,007    125,400    454,103    374,611 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total net sales
  $659,233   $593,784   $1,949,425   $1,578,707 
   
 
 
   
 
 
   
 
 
   
 
 
 
13
14 Recent Accounting Standard Changes and Developments
Recently Adopted Accounting Standards
31

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)
In December 2019, accounting guidance was issued that simplifies the accounting for income taxes by removing certain exceptions within the current guidance, including the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The amendment also improves consistent application by clarifying and amending existing guidance related to aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step up in the tax basis of goodwill. This guidance is effective for annual and interim periods beginning after December 15, 2020. The Company adopted this standard on January 1, 2021. The adoption of this standard did not have a material impact on the Company’s financial position, results of operations and cash flows.
In January 2020, accounting guidance
was issued that clarifies the accounting guidance for equity method investments, joint ventures, and derivatives and hedging. The update clarifies the interaction between different sections of the accounting guidance that could be applicable and helps clarify which guidance should be applied in certain situations which should increase relevance and comparability of financial statement information. This guidance is effective for annual and interim periods beginning after December 15, 2020. The Company adopted this standard on January 1, 2021. The adoption of this standard did not have a material impact on the Company’s financial position, results of operations and cash flows.
Recently Issued Accounting Standards
In March 2020, accounting guidance was issued that facilitates the effects of reference rate reform
on financial reporting. The amendments in the update provide optional guidance for a limited period of time to ease the potential burden in accounting for or recognizing the effects of reference rate reform on financial reporting and apply to all entities, subject to meeting certain criteria, that have contracts, hedging relationships, and other transactions that
32

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) – (Continued)
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 does not believe that it has material reference rate exposure which would require utilizing the guidance under this accounting pronouncement and if adopted does not believe that this standard would have a material impact on the Company’s financial position, results of operations and cash flows.
In October 2021, accounting guidance was issued that requires acquirers in a business combination to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. The new guidance requires that at the acquisition date, the acquirer should account for the related revenue contracts in accordance with 606 as if it had originated the contracts. This guidance differs from current GAAP which requires an acquirer to recognize assets acquired and liabilities assumed in a business combination, including contract assets and contract liabilities arising from revenue contracts with customers and other similar contracts that are accounted for in accordance with 606, at fair value on the acquisition date. This guidance is still evaluatingeffective for public business entities for fiscal years beginning after December 15, 2022, including interim periods within those years. The amendments within this update should be applied prospectively to business combinations on or after the effective date of the amendments. Early adoption of the amendment is permitted, including adoption in an interim period. The applicability of this standard is dependent on there being a business combination activity and therefore the Company will evaluate the impact of reference rate reform and whether this guidance will be adopted.when and if there is applicable activity.
 
2
337

Item 2:
 Management
s Discussion and Analysis of Financial Condition and
Results of Operations
Business Overview
The Company has two operating segments: Waters
TM
and TA
TM
. Waters products and services primarily consist of high performancehigh-performance liquid chromatography (“HPLC”), ultra performanceultra-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.
The
COVID-19
pandemic has not materially impactedhad a material impact on the Company’s manufacturing facilities or those of the third parties to whom it outsources certain manufacturing processes, the distribution centers where itsthe inventory is managed or the operations of its logistics and other service providers. The
In the second quarter of 2022, the Company also did not see material disruptions or delayssuccessfully managed a significant delay in shipmentsthe receipt of certain materials orand components of its products. However,from a supplier that was directly related to the current logistic and supply chain issues being experienced throughout the world have made it more difficult for us to manage our operations and as such weCOVID-19 pandemic lockdown in China. The Company cannot provide any assurances that any further disruptions in theits logistics and supply chains will not have a materialsignificant impact on ourits future financial results and cashflows.
The Company has taken decisive and appropriate actions throughout the
COVID-19
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.
 
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Table of Contents
The
COVID-19
pandemic continues to be fluid with uncertainties and risks 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 79% of these savings being realized by the end of the third quarter of 2020 and approximately 21% of the savings being realized in the fourth quarter 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 fourth quarter of 2021 from a normalization of these costs.
Financial Overview
The Company’s operating results are as follows for the three and ninesix months ended OctoberJuly 2, 20212022 and September 26, 2020July 3, 2021 (dollars in thousands, except per share data):
 
  
Three Months Ended
 
Nine Months Ended
   
Three Months Ended
 
Six Months Ended
 
  
October 2,
2021
 
September 26,
2020
 
% change
 
October 2,
2021
 
September 26,
2020
 
% change
   
July 2, 2022
 
July 3, 2021
 
% change
 
July 2, 2022
 
July 3, 2021
 
% change
 
Revenues:
              
Product sales
  $419,133  $376,239  
 
11
 $1,242,110  $965,342  
 
29
  $469,630  $440,955  
 
7
 $920,470  $822,977  
 
12
Service sales
   240,100   217,545  
 
10
  707,315   613,365  
 
15
   244,689   240,692  
 
2
  484,421   467,215  
 
4
  
 
  
 
  
 
  
 
  
 
  
 
   
 
  
 
  
 
  
 
  
 
  
 
 
Total net sales
   659,233   593,784  
 
11
  1,949,425   1,578,707  
 
23
   714,319   681,647  
 
5
  1,404,891   1,290,192  
 
9
Costs and operating expenses:
              
Cost of sales
   271,128   262,342  
 
3
  805,529   686,120  
 
17
   307,206   280,254  
 
10
  592,891   534,401  
 
11
Selling and administrative expenses
   152,545   135,430  
 
13
  453,954   400,614  
 
13
   161,877   158,213  
 
2
  319,352   301,409  
 
6
Research and development expenses
   41,986   34,971  
 
20
  125,027   101,115  
 
24
   44,006   44,949  
 
(2
%) 
  84,478   83,041  
 
2
Purchased intangibles amortization
   1,759   2,657  
 
(34
%) 
  5,408   7,900  
 
(32
%) 
   1,598   1,809  
 
(12
%) 
  3,271   3,649  
 
(10
%) 
Litigation provision
   —     —    
 
—  
 
  —     1,180  
 
(100
%) 
Acquired
in-process
research and development (Note 1)
   —     —    
 
—  
 
  9,797   —    
 
—  
 
  
 
  
 
  
 
  
 
  
 
  
 
   
 
  
 
  
 
  
 
  
 
  
 
 
Operating income
   191,815   158,384  
 
21
  559,507   381,778  
 
47
   199,632   196,422  
 
2
  395,102   367,692  
 
7
Operating income as a % of sales
  
 
29.1
 
 
26.7
  
 
28.7
 
 
24.2
   
 
27.9
 
 
28.8
  
 
28.1
 
 
28.5
 
Other expense
   (607  (1,039 
 
(42
%) 
  18,073   (2,149 
 
*
Other income, net
   1,535   9,321  
 
(84
%)
  1,705   18,680  
 
(91
%) 
Interest expense, net
   (8,533  (6,908 
 
24
  (23,707  (25,966 
 
(9
%) 
   (8,893  (8,329 
 
7
  (17,838  (15,174 
 
18
  
 
  
 
  
 
  
 
  
 
  
 
   
 
  
 
  
 
  
 
  
 
  
 
 
Income before income taxes
   182,675   150,437  
 
21
  553,873   353,663  
 
57
   192,274   197,414  
 
(3
%) 
  378,969   371,198  
 
2
Provision for income taxes
   21,490   23,668  
 
(9
%) 
  77,269   50,403  
 
53
   27,410   30,122  
 
(9
%) 
  54,274   55,779  
 
(3
%) 
  
 
  
 
  
 
  
 
  
 
  
 
   
 
  
 
  
 
  
 
  
 
  
 
 
Net income
  $161,185  $126,769  
 
27
 $476,604  $303,260  
 
57
  $164,864  $167,292  
 
(1
%) 
 $324,695  $315,419  
 
3
  
 
  
 
  
 
  
 
  
 
  
 
   
 
  
 
  
 
  
 
  
 
  
 
 
Net income per diluted common share
  $2.60  $2.03  
 
28
 $7.66  $4.86  
 
58
  $2.72  $2.69  
 
1
 $5.35  $5.05  
 
6
      ** Percentage not meaningful 
** Percentage not meaningful
The Company’s net sales increased 11%5% and 23%9% in the thirdsecond quarter and first nine monthshalf of 2021,2022, respectively, as compared to the thirdsecond quarter and first nine monthshalf of 2020.2021. The sales growth in the 2021these periods was driven by strong sales growthcustomer demand across most major geographies, end markets, and product categories. Overall, sales benefited
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Table of Contents
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 except in China, where the Company’s sales were flat due to third-party shipping logistic execution issues and in Japan. Foreign currency translation had minimal impact ondecreased total sales growth by 5% in the thirdsecond quarter and increased sales by 2%4% in the first nine monthshalf of 2021.2022 as the U.S. dollar strengthened significantly against all currencies in the world, which negatively impacted our sales and operating profits. In addition, the Company’s first nine monthshalf of 20212022 included five moreone less calendar daysday than the first nine monthshalf of 2020.2021.
Instrument system sales increased 10%7% and 31%15% for the thirdsecond quarter and first nine monthshalf of 2021,2022, respectively, due to the broad-based increase in customer demand continuing to increase to
pre-pandemic
levels as customer laboratoriesacross all existing and manufacturing facilities continued to return to normal operations. This strength in the first nine months was broad-based, particularly innewly introduced LC,
LC-MS
and TAThermal Analysis instrument system sales. Foreign currency translation had minimal impact ondecreased instrument system sales growth by 5% and 4% in the thirdsecond quarter and increased sales by 2% in the first nine monthshalf of 2021.2022, respectively. Recurring revenues (combined sales of precision chemistry consumables and services) increased 11%3% and 18%4% for the thirdsecond quarter and first nine monthshalf of 2021,2022, respectively, with foreign currency translation being neutral indecreasing sales growth by 5% for both the second quarter and increasing sales by 3% in the first nine monthshalf of the year. In
Operating income increased 2% and 7% for the first nine months of 2021, recurring revenues benefited from five additional calendar days as compared to the first nine months of 2020.
Geographically, the Company’s sales growth in the thirdsecond quarter and first nine monthshalf of 2021 was broad-based. During the third quarter of 2021, sales increased 8% in Asia, 16% in the Americas, and 10% in Europe, with the effect of foreign currency translation increasing sales in Europe by 2%. During the first nine months of 2021, sales increased 25% in Asia, 20% in the Americas, and 26% in Europe, with the effect of foreign currency translation increasing sales by 1% in both Asia and the Americas, and 7% in Europe.
In the third quarter and first nine months of 2021, China sales were flat and increased 37%, respectively, driven by stronger demand due to customers resuming laboratory and manufacturing operations as well as the
pent-up
demand caused by the 20% decline in China’s sales in the first nine months of 2020 when the negative impact of the
COVID-19
pandemic lockdowns was occurring. China’s sales growth in the third quarter was negatively impacted by the third-party shipping logistic issues in China that resulted in flat sales growth. Foreign currency translation increased China sales growth by 3% and 5% in the quarter and first nine months of 2021, respectively. Sales increased 13% in the U.S. and 32% in India, while sales decreased by 1% in Japan in the quarter. Foreign currency translation decreased sales growth by 10% in India and 4% in Japan in the third quarter of 2021.
During the third quarter of 2021, sales to pharmaceutical customers increased 16%, driven by growth in all regions, including 14% in China, 41% in India, 16% in the Americas and 10% in Europe as strong customer demand continued to recover to
pre-pandemic
levels. Foreign currency translation had minimal impact on pharmaceutical sales growth in the quarter. Combined sales to industrial customers, which include material characterization, food, environmental and fine chemical markets, increased 9%, with the effect of foreign currency translation having minimal impact on sales growth in the quarter. During the third quarter of 2021, combined sales to academic and government customers decreased 9%, with foreign currency translation increasing academic and government sales by 2%. Sales to our academic customers declined 15% while sales to our government customers increased by 1%. Sales to our academic and government customers are highly dependent on when institutions receive funding to purchase our instrument systems and, as such, sales can vary significantly from period to period.
During the first nine months of 2021, sales to pharmaceutical customers increased 27%, 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 3%. Combined sales to industrial customers increased 23%, with the effect of foreign currency translation increasing sales growth by 4%. During the first nine months of 2021, combined sales to academic and government customers increased 8%, as customers ramped up their spending in the first nine months 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 2%.
Operating income increased 21% and 47% for the third quarter and first nine months of 2021,2022, 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 incomeprice increases werebeing partially offset by an increase in electronic component and freight inflationary costs and the restorationnegative impact 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 $81 million in 2020. In addition, operating income in the third quarter and first nine months of 2020 also included $6 million and $27 million, respectively, of severance-related costs in connection with a reduction in workforce and lease termination costs.
foreign currency translation.
36

The Company generated $529$255 million and $523$361 million of net cash flows from operations in the first nine monthshalf of 20212022 and 2020,2021, respectively. This increasedecrease in operating cash flow can primarily be attributed to the delay in the timing of shipments in the second quarter caused a delay in the receipt of certain materials and components from a supplier that was primarily a result ofdirectly related to the COVID-19 pandemic lockdown in China, as well as an increase in inventory levels due to the higher sales volumes, being offset byhigher material inflation cost and the $81 million benefit from the reduction
build-up
of safety stock in expenses from the
COVID-19
pandemic cost actions implemented and working capital improvement during the first nine months of 2020.
an attempt to mitigate future supply chain issues. Cash flows used in investing activities included capital expenditures related to property, plant, equipment and software capitalization of $117$75 million and $125$77 million in the first nine monthshalf of 2022 and 2021, andrespectively.
29

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. In December 2020, respectively. The cash flows from investing activities inthe Company’s Board of Directors authorized the extension of the share repurchase program through January 21, 2023. During the first nine monthshalf of 2022 and 2021, and 2020 also included $40the Company repurchased $312 million and $50$339 million respectively, of capital expenditures related to the expansion of the Company’s precision chemistry consumable operations in the U.S.outstanding common stock, respectively, under authorized share repurchase programs. The Company believes that it has incurred $191 million on this facility through the end of the first nine months of 2021financial flexibility to fund these share repurchases given current cash and anticipates spending a total of $215 millioninvestment levels and debt borrowing capacity, as well as to buildinvest in research, technology and equip this new
state-of-the-art
manufacturing facility.
On September 17, 2021, the Company entered into an amended and restated credit agreement (the “2021 Credit Agreement”), which amendedbusiness acquisitions to further grow the Company’s existing credit agreement entered into in 2017 (the “2017 Credit Agreement”). The 2021 Credit Agreement provides for a $1.8 billion revolving facility (the “2021 Credit Facility”)sales and converted the $300 million term loan under the 2017 Credit Agreement into part of the new revolving facility. As of October 2, 2021, the 2021 Credit Facility had a total of $310 million outstanding. As of December 31, 2020, the revolving credit facility and the term loan governed by the 2017 Credit Agreement had a total of $100 million and $300 million, respectively, outstanding. The 2021 Credit Facility matures on September 17, 2026 and requires no scheduled prepayments before that date.
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%.profits.
Results of Operations
Sales by Geography
Geographic sales information is presented below for the three and ninesix months ended OctoberJuly 2, 20212022 and September 26, 2020July 3, 2021 (dollars in thousands):
 
  
Three Months Ended
 
Nine Months Ended
   
Three Months Ended
 
Six Months Ended
 
  
October 2,
2021
   
September 26,
2020
   
% change
 
October 2,
2021
   
September 26,
2020
   
% change
   
July 2, 2022
   
July 3, 2021
   
% change
 
July 2, 2022
   
July 3, 2021
   
% change
 
Net Sales:
                      
Asia:
                      
China
  $115,886   $115,666   
 
—  
 
 $346,030   $252,713   
 
37
  $138,740   $127,225   
 
9
 $259,772   $230,144   
 
13
Japan
   44,293    44,779   
 
(1
%) 
  139,702    131,098   
 
7
   37,504    45,113   
 
(17
%) 
  86,127    95,409   
 
(10
%) 
Asia Other
   94,423    75,737   
 
25
  268,359    219,660   
 
22
   101,766    97,609   
 
4
  186,445    173,936   
 
7
  
 
   
 
   
 
  
 
   
 
   
 
   
 
   
 
   
 
  
 
   
 
   
 
 
Total Asia
   254,602    236,182   
 
8
  754,091    603,471   
 
25
   278,010    269,947   
 
3
  532,344    499,489   
 
7
Americas:
                      
United States
   194,776    172,267   
 
13
  544,124    465,093   
 
17
   213,815    186,915   
 
14
  422,528    349,348   
 
21
Americas Other
   36,225    27,180   
 
33
  109,128    81,312   
 
34
   43,456    37,979   
 
14
  83,580    72,903   
 
15
  
 
   
 
   
 
  
 
   
 
   
 
   
 
   
 
   
 
  
 
   
 
   
 
 
Total Americas
   231,001    199,447   
 
16
  653,252    546,405   
 
20
   257,271    224,894   
 
14
  506,108    422,251   
 
20
Europe
   173,630    158,155   
 
10
  542,082    428,831   
 
26
   179,038    186,806   
 
(4
%) 
  366,439    368,452   
 
(1
%) 
  
 
   
 
   
 
  
 
   
 
   
 
   
 
   
 
   
 
  
 
   
 
   
 
 
Total net sales
  $659,233   $593,784   
 
11
 $1,949,425   $1,578,707   
 
23
  $714,319   $681,647   
 
5
 $1,404,891   $1,290,192   
 
9
  
 
   
 
   
 
  
 
   
 
   
 
   
 
   
 
   
 
  
 
   
 
   
 
 
In
Geographically, the thirdCompany’s sales growth in the second quarter and first nine monthshalf of 2021,2022 was broad-based across most major regions. Foreign currency translation decreased total sales benefited from strongergrowth by 5% in the second quarter and 4% in the first half of 2022 as the U.S. dollar strengthened significantly against all currencies in the world. The geographies that were the most negatively impacted by the strengthening of the U.S. dollar were Europe and Japan. The Company’s sales in these geographies typically represent over 30% of our sales in a period, and the weakening of the Euro and Japanese Yen lowered sales growth in Europe and Japan by 11% and 16% for the second quarter, respectively, and 9% and 13% for the first half, respectively.
During the second quarter of 2022, sales increased 3% in Asia and 14% in the Americas, but decreased 4% in Europe, with the effect of foreign currency translation decreasing sales growth in Asia by 6% and in Europe by 11%. During the first half of 2022, sales increased 7% in Asia, 20% in the Americas, and decreased 1% in Europe, with the effect of foreign currency translation decreasing sales growth by 4% in Asia, and 9% in Europe. China sales increased 9% and 13% in the second quarter and first half of 2022, respectively, driven by strong customer demand for our products and services across most major geographiesservices. The latest COVID-19 pandemic lockdown in China has made it difficult to conduct normal business operations in 2022 and customer classes asmay have a result of our customers continuing to resume laboratory and manufacturing operations, as well asnegative impact on the
pent-up
demand from 2020 caused by the
COVID-19
pandemic. The sales strength was broad-based, driven by continued growth in recurring revenues and the strong Company’s future sales growth if future lockdowns were to occur for a prolonged period. Sales increased 14% and 21% in instruments, particularlythe U.S. and 12% and 15% in LC instrument system sales. Recurring revenuesIndia, respectively in the quarter and for the first half of 2022, while sales decreased by 17% and 10% in Japan due to foreign currency translation, which decreased sales growth was favorably impacted by the five additional calendar days16% and 13% in Japan, respectively in the first nine months of 2021 as compared tosecond quarter and for the first nine monthshalf of 2020.2022.
 
3730

Sales by Trade Class
Net sales by customer class are presented below for the three and ninesix months ended OctoberJuly 2, 20212022 and September 26, 2020July 3, 2021 (dollars in thousands):
 
  
Three Months Ended
 
Nine Months Ended
   
Three Months Ended
   
Six Months Ended
 
  
October 2,
2021
   
September 26,
2020
   
% change
 
October 2,
2021
   
September 26,
2020
   
% change
   
July 2, 2022
   
July 3, 2021
   
July 2, 2022
   
July 3, 2021
 
Pharmaceutical
  $398,338   $343,001   
 
16
 $1,175,191   $926,582   
 
27
  $437,171   $416,705   $852,943   $776,853 
Industrial
   196,032    179,128   
 
9
  581,884    474,592   
 
23
   208,517    202,579    417,914    385,852 
Academic and government
   64,863    71,655   
 
(9
%) 
  192,350    177,533   
 
8
   68,631    62,363    134,034    127,487 
  
 
   
 
   
 
  
 
   
 
   
 
   
 
   
 
   
 
   
 
 
Total net sales
  $659,233   $593,784   
 
11
 $1,949,425   $1,578,707   
 
23
  $714,319   $681,647   $1,404,891   $1,290,192 
  
 
   
 
   
 
  
 
   
 
   
 
   
 
   
 
   
 
   
 
 
In
During the thirdsecond quarter and first nine months of 2021, the increase in2022, sales to pharmaceutical customers was broad-based with double-digit salesincreased 5%, driven by growth across allin most major geographies, primarily due to stronger demand for our productsregions, including 14% in China, 4% in India, 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 involved
with COVID-19
diagnostic testing and the increase12% in the development of new drugs and therapies.Americas on strong customer demand. Foreign currency translation had minimal impact ondecreased pharmaceutical sales to pharmaceutical customersgrowth by 5% in the thirdsecond quarter and increased sales by 3% in the first nine months of 2021. Sales to industrial customers increased 9% and 23% in the third quarter and first nine months of 2021, respectively, primarily due to customers continuing to resume laboratory and manufacturing operations during the year. Foreign currency translation increased2022. Combined sales to industrial customers, which include material characterization, food, environmental and fine chemical markets, increased 3%, with foreign currency translation decreasing sales growth by 4%5% in the first nine monthsquarter. During the second quarter of 2021. Sales2022, combined sales to academic and government customers decreased 9% in the third quarter and increased 8% in the first nine months of 2021,10%, with foreign currency translation increasingdecreasing academic and government sales growth by 2%6%. 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 2022, sales to pharmaceutical customers increased 10%, driven by growth in bothall regions on strong customer demand. Foreign currency translation decreased pharmaceutical sales growth by 4%. Combined sales to industrial customers increased 8%, with the third quartereffect of foreign currency translation decreasing sales growth by 4%. During the first half of 2022, combined sales to academic and first nine months of 2021.government customers increased 5%, with foreign currency translation decreasing sales growth by 5%.
Waters Products and Services Net Sales
Net sales for Waters products and services were as follows for the three and ninesix months ended OctoberJuly 2, 20212022 and September 26, 2020July 3, 2021 (dollars in thousands):
 
  
Three Months Ended
                                                                                      
  
October 2, 2021
   
% of
Total
 
September 26, 2020
   
% of
Total
 
% change
   
Three Months Ended
 
  
July 2, 2022
   
% of
Total
 
July 3, 2021
   
% of
Total
 
% change
 
Waters instrument systems
  $240,475   
 
41
 $225,790   
 
42
 
 
7
  $280,846   
 
44
 $261,363   
 
43
 
 
7
Chemistry consumables
   123,045   
 
21
  108,175   
 
21
 
 
14
   131,947   
 
21
  126,459   
 
21
 
 
4
  
 
   
 
  
 
   
 
  
 
   
 
   
 
  
 
   
 
  
 
 
Total Waters product sales
   363,520   
 
62
  333,965   
 
63
 
 
9
   412,793   
 
65
  387,822   
 
64
 
 
6
Waters service
   218,291   
 
38
  199,501   
 
37
 
 
9
   222,359   
 
35
  219,502   
 
36
 
 
1
  
 
   
 
  
 
   
 
  
 
   
 
   
 
  
 
   
 
  
 
 
Total Waters net sales
  $581,811   
 
100
 $533,466   
 
100
 
 
9
  $635,152   
 
100
 $607,324   
 
100
 
 
5
  
 
   
 
  
 
   
 
  
 
   
 
   
 
  
 
   
 
  
 
 
                                                                                     
   
Six Months Ended
 
   
July 2, 2022
   
% of
Total
  
July 3, 2021
   
% of
Total
  
% change
 
Waters instrument systems
  $550,808   
 
44
 $477,435   
 
42
 
 
15
Chemistry consumables
   257,565   
 
21
  245,433   
 
21
 
 
5
  
 
 
   
 
 
  
 
 
   
 
 
  
 
 
 
Total Waters product sales
   808,373   
 
65
  722,868   
 
63
 
 
12
Waters service
   439,935   
 
35
  426,334   
 
37
 
 
3
  
 
 
   
 
 
  
 
 
   
 
 
  
 
 
 
Total Waters net sales
  $1,248,308   
 
100
 $1,149,202   
 
100
 
 
9
  
 
 
   
 
 
  
 
 
   
 
 
  
 
 
 
Waters products and service sales increased 5% and 9% in the second quarter and first half of 2022, respectively, with the effect of foreign currency translation decreasing Waters sales growth by 5% and 4% in the second quarter and first half of 2022, respectively. Waters instrument systems grew 7% and 15% for the second quarter and first half of 2022,
 
3831

   
Nine Months Ended
 
   
October 2, 2021
   
% of
Total
  
September 26, 2020
   
% of
Total
  
% change
 
Waters instrument systems
  $717,910   
 
41
 $550,018   
 
39
 
 
31
Chemistry consumables
   368,478   
 
22
  300,525   
 
21
 
 
23
  
 
 
   
 
 
  
 
 
   
 
 
  
 
 
 
Total Waters product sales
   1,086,388    63  850,543   
 
60
  28
Waters service
   644,625   
 
37
  562,843   
 
40
 
 
15
  
 
 
   
 
 
  
 
 
   
 
 
  
 
 
 
Total Waters net sales
  $1,731,013   
 
100
 $1,413,386   
 
100
  22
  
 
 
   
 
 
  
 
 
   
 
 
  
 
 
 
Waters productsrespectively, with foreign currency translation lowering sales growth by 5% and service sales increased 9% and 22% in4% for the thirdsecond quarter and first nine monthshalf of 2021, respectively, with the effect of foreign
currency translation increasing Waters sales by 2%2022, respectively. The increase in the first nine months of 2021. ChemistryWaters instrument system sales can be attributed to the strong customer demand for our existing products as well as our newer Arc
TM
HPLC and ACQUITY
TM
Premier product introductions. The increase in Waters chemistry consumables sales increased double-digits in both the quarter and first nine months of the yearwas primarily due to the strong demand in the U.S., Europe, China 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 closuresbilling, particularly in India and restrictions began to ease.the United States. Waters recurring revenues were also benefitednegatively impacted by five additionalone less calendar daysday in the first nine monthshalf of the year. Waters instrument system sales (LC and MS technology-based) increased in the quarter across most major geographical regions, primarily due to higher sales as a result of stronger demand for our products and services as our customers continued to resume laboratory and manufacturing operations throughout the world.
In the thirdsecond quarter of 2021,2022, Waters sales growth increased 7% in Europe, 15%16% in the Americas and 6%2% in Asia, with sales in China decreasing 1% as a result of third-party shipping logistic execution issues.increasing 8%, while sales in Europe and Japan decreased by 4% and 17%, respectively. Foreign currency translation increaseddecreased Waters sales growth by 10% in Europe and 15% in Japan.
In the first half of 2022, Waters sales decreased 1% in both Europe, and sales increased 22% in the Americas and 3%5% in China.Asia, with sales in China increasing 11%. Foreign currency translation decreased Waters sales growth by 8% in Europe and 4% in Asia.
TA Product and Services Net Sales
Net sales for TA products and services were as follows for the three and ninesix months ended OctoberJuly 2, 20212022 and September 26, 2020July 3, 2021 (dollars in thousands):
 
  
Three Months Ended
   
Three Months Ended
 
  
October 2, 2021
   
% of
Total
 
September 26, 2020
   
% of
Total
 
% change
   
July 2, 2022
   
% of
Total
 
July 3, 2021
   
% of
Total
 
% change
 
TA instrument systems
  $55,613   
 
72
 $42,274   
 
70
 
 
32
  $56,837   
 
72
 $53,133   
 
71
 
 
7
TA service
   21,809   
 
28
  18,044   
 
30
 
 
21
   22,330   
 
28
  21,190   
 
29
 
 
5
  
 
   
 
  
 
   
 
  
 
   
 
   
 
  
 
   
 
  
 
 
Total TA net sales
  $77,422   
 
100
 $60,318   
 
100
 
 
28
  $79,167   
 
100
 $74,323   
 
100
 
 
7
  
 
   
 
  
 
   
 
  
 
   
 
   
 
  
 
   
 
  
 
 
 
  
Nine Months Ended
   
Six Months Ended
 
  
October 2, 2021
   
% of
Total
 
September 26, 2020
   
% of
Total
 
% change
   
July 2, 2022
   
% of
Total
 
July 3, 2021
   
% of
Total
 
% change
 
TA instrument systems
  $155,722   
 
71
 $114,799   
 
69
 
 
36
  $112,097   
 
72
 $100,109   
 
71
 
 
12
TA service
   62,690   
 
29
  50,522   
 
31
 
 
24
   44,486   
 
28
  40,881   
 
29
 
 
9
  
 
   
 
  
 
   
 
  
 
   
 
   
 
  
 
   
 
  
 
 
Total TA net sales
  $218,412   
 
100
 $165,321   
 
100
 
 
32
  $156,583    100 $140,990    100  11
  
 
   
 
  
 
   
 
  
 
   
 
   
 
  
 
   
 
  
 
 
TA instrument system and service sales growth in the thirdsecond quarter and first nine monthshalf of 20212022 was broad-based across allmost major geographies increasing 28%7% and 32%11%, respectively, and was primarily driven by strongerstrong customer demand as a result offor our customers continuing to resume laboratorythermal analysis instruments and manufacturing operations.
39

Table of Contents
In the third quarter and first nine months of 2021, the increase in TA instrument system sales was primarily driven by strength in all major regions and theservices. The increase in TA service sales was mostlyprimarily 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 increaseddecreased TA’s sales growth by 1%5% and 3%4% in the thirdsecond quarter and first nine monthshalf of 2021,2022, respectively.
Cost of Sales
Cost of sales increased 10% and 11% for the thirdsecond quarter and first nine monthshalf of 2021 increased 3% and 17%, respectively,2022, respectively. The increase in cost of sales in these periods is primarily due to the increase in sales volumes during the year,volume as well as the restorationan increase in 2021 of expenses that had been reduced as a result of the
COVID-19
pandemic that consisted of salary reductions, furloughselectronic component and reductions
in non-essential spending.
freight inflationary costs. 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 significantly decrease gross profit slightly for the remainder of 2021. To date, the Company has not had significant issues with its supply chain; however, the prolonged impact
of COVID-19 on2022.
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 increased 13%2% and 6% for both the thirdsecond quarter and first nine monthshalf of 2021.2022, respectively. The increase in selling and administrative expenses in these periods can be attributed to the salary merit and incentiveadditional compensation increases compareddue to 2020, which was impacted byan increase in the reduction in expenses from salary reductions, furloughs and reductions
in non-essential
spendingnumber of $16 million and $54 million for the third quarter and first nine months of 2020, respectively. The third quarter and first nine months of 2020 also included severance and lease termination and exit costs of $6 million and $27 million, respectively. Severance and lease termination and exit costs incurred during the third quarter and first nine months of 2021 were immaterial.employees. In addition, the effect of foreign currency translation increaseddecreased selling and administrative expenses by 1%4% and 2%3% for the thirdsecond quarter and first nine monthshalf of 2021,2022, respectively.
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Table of Contents
As a percentage of net sales, selling and administrative expenses were 23.1% and 23.3%22.7% for both the thirdsecond quarter and first nine monthshalf of 2021,2022 and 22.8%23.2% and 25.4%23.4% for the thirdsecond quarter and first nine monthshalf of 2020,2021, respectively.
40

Table of Contents
Research and Development Expenses
Research and development expenses increased 20% and 24%decreased 2% in the thirdsecond quarter andof 2022, while increasing by 2% in the first nine monthshalf of 2021, respectively. The increase in expense in these periods was impacted by the reduction in expenses from salary reductions, furloughs and reductions
in non-essential spending
of $5 million and $14 million for the third quarter and first nine months of 2020, respectively.2022. The impact of foreign currency exchange decreased expenses by 1%3% in the thirdsecond quarter of 20212022 and was neutral2% in the first nine monthshalf of 2021.2022.
Acquired
In-Process
Research & Development
During the first half of 2022, the Company completed an asset acquisition in which the CDMS technology assets of Megadalton were acquired for approximately $10 million in total purchase price of which $5 million was paid at closing and the remaining $4 million will be paid in the future at various dates through 2029. This CDMS technology makes it possible to analyze extremely large proteins and protein complexes used in cell and gene therapies that would otherwise be difficult to analyze with conventional mass spectrometry. Once this technology is further developed, we anticipate that it will extend the capabilities of our mass spectrometry portfolio for a broader set of applications and as such the cost of this technology asset has been accounted for as Acquired
In-Process
Research and Development and expensed as part of costs and operating expenses in the statement of operations.
Other Income, (Expense), net
In the second quarter and for
During the first nine monthshalf of 2021,2022, 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 $10sold an equity investment for $7 million in guaranteed payments, including minimum royalty payments, which were recognizedcash and recorded a gain on sale of approximately $4 million in other income, net on the statement of operations. The Company also recorded an other than temporary impairment loss on an equity method investment still held at the reporting date of approximately $4 million within other income, in our consolidatednet on the statement of operations. Inoperations as the company entered into a sale process and we adjusted the carrying value of our investment based on our portion of the total proceeds we expect to receive.
During the first quarter and first nine monthshalf 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, Netnet
NetThe net interest expense in the thirdsecond quarter and first half of 20212022 increased by approximately $1 million and $3 million, respectively, as compared to the third quarter of 2020,same periods in the prior year. The increase in both periods can be primarily dueattributable to the lower interest income earned on cash and investments. Netbenefit from the lower notional amount of interest expense for the first nine months of 2021 decreased compared to the first nine months of 2020, primarily due to lower interest expense on lower average debt balances, offset by lower interest income on cash and investments.rate cross currency swap agreements.
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 OctoberJuly 2, 2021.2022. The Company had a contractual tax rate of 0% on qualifying activities in Singapore through March 2021, based upon the achievement of certain contractual milestones. The Company has a new Development and Expansion Incentive in Singapore that provides a concessionary income tax rate of 5% on certain types of income for the period April 1, 2021 through March 31, 2026. The effect of applying the concessionary income tax rates rather than the statutory tax rate to income from qualifying activities in Singapore increased the Company’s net income for the first nine monthshalf of 2022 and 2021 and 2020 by $13$10 million and $12$9 million, respectively, and increased the Company’s net income per diluted share by $0.20$0.16 and $0.14 for both periods.the first half of 2022 and 2021, respectively.
The Company’s effective tax rate for the thirdsecond quarter of 2022 and 2021 was 14.3% and 2020 was 11.8% and 15.7%15.3%, respectively. The decrease in the effective income tax rate can be attributed to the impact of quarter-specific adjustments, as discussed below, and differences in the proportionate amounts
of pre-tax income
recognized in jurisdictions with different effective tax rates.
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Table of Contents
The Company’s effective tax rate for the first nine monthshalf of 2022 and 2021 was 14.3% and 2020 was 14.0% and 14.3%15.0%, respectively. The effective tax rate for the first nine monthshalf of OctoberJuly 2, 2022 includes a $5 million tax benefit related to stock-based compensation. This income tax benefit decreased the effective tax rate by 1.4 percentage points for the first half of July 2, 2022. The effective tax rate for the first half of July 3, 2021 includes a $6$4 million income tax benefit related to stock-based compensation. This income tax benefit decreased the effective tax rate by 1.1 percentage points for the first nine monthshalf of October 2,July 3, 2021. The effective tax rate for the first nine months of September 26, 2020 includes a $6 million income
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tax benefit related to certain restructuring charges and a $3 million income tax benefit related to stock-based compensation. These income tax benefits decreased the effective tax rate by 1.8 percentage points and 0.9 percentage points, respectively, for the first nine months of September 26, 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.
 
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Liquidity and Capital Resources
Condensed Consolidated Statements of Cash Flows (in thousands):
 
   
Nine Months Ended
 
   
October 2, 2021
   
September 26, 2020
 
Net income
  $476,604   $303,260 
Depreciation and amortization
   97,926    91,091 
Stock-based compensation
   21,949    27,715 
Deferred income taxes
   9,219    1,089 
Change in accounts receivable
   23,472    96,955 
Change in inventories
   (93,878   (8,139
Change in accounts payable and other current liabilities
   (4,768   46,721 
Change in deferred revenue and customer advances
   71,889    32,053 
Other changes
   (73,077   (67,720
  
 
 
   
 
 
 
Net cash provided by operating activities
   529,336    523,025 
Net cash used in investing activities
   (248,428   (226,561
Net cash used in financing activities
   (183,907   (267,968
Effect of exchange rate changes on cash and cash equivalents
   (8,994   10,723 
  
 
 
   
 
 
 
Increase in cash and cash equivalents
  $88,007   $39,219 
  
 
 
   
 
 
 
   
Six Months Ended
 
   
July 2, 2022
   
July 3, 2021
 
Net income  $324,695   $315,419 
Depreciation and amortization   66,891    64,743 
Stock-based compensation   20,722    15,596 
Deferred income taxes   (12,523   6,107 
Acquired
in-process
research and development and other
non-cash
items
   7,903    —   
Change in accounts receivable   (57,377   18,985 
Change in inventories   (65,070   (50,873
Change in accounts payable and other current liabilities   (32,197   (35,328
Change in deferred revenue and customer advances   70,027    91,631 
Other changes   (68,208   (64,836
          
Net cash provided by operating activities   254,863    361,444 
Net cash used in investing activities   (7,403   (281,106
Net cash used in financing activities   (310,181   (48,191
Effect of exchange rate changes on cash and cash equivalents   (19,616   (8,786
          
(Decrease) increase in cash and cash equivalents  $(82,337  $23,361 
          
Cash Flow from Operating Activities
Net cash provided by operating activities was $529$255 million and $523$361 million during the first nine monthshalf of 20212022 and 2020,2021, respectively. This increasedecrease in operating cash flow was primarily a result of higher inventory levels due to higher sales volumes and higher incentive compensation payments in the first nine monthshalf of 20212022 compared to the first nine monthshalf of 2020.2021. 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 decreasedincreased to 7181 days at OctoberJuly 2, 20212022 as compared to 7673 days at September 26, 2020.July 3, 2021. This increase is days sales outstanding is primarily due to delays in the timing of shipments to our customers from a supply chain issue caused by the
COVID-19
pandemic lockdowns in China.
The increase in inventory can be primarily attributed to higher material costs as well as an increase in safety stock levels to help mitigate any future supply chain issues.
 
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 nine months of 2021 and 2020 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 $248$7 million and $227$281 million in the first nine monthshalf of October 2,2022 and 2021, and September 26, 2020, respectively. Additions to fixed assets and capitalized software were $117$75 million and $125$77 million in the nine months ended Octoberfirst half July 2, 2022 and July 3, 2021, and September 26, 2020, respectively. In February 2018,The cash flows from investing activities in 2022 also included $17 million of capital expenditures related to the expansion of the Company’s Board of Directors approved expanding its precision chemistry consumable manufacturing operations in the United States. The Company has incurred costs of $215 million on this facility through the end of the first half of 2022 and anticipates spending approximately $30 million to complete this new
state-of-the-art
facility in 2022.
 
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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 $40 million and $50 million of costs associated with the construction of this facility during the nine months ended October 2, 2021 and September 26, 2020, respectively. The Company has incurred $191 million on this facility through the end of the third quarter of 2021.
During the nine months ended October 2,first half of 2022 and 2021, and September 26, 2020, the Company purchased $241$11 million and $22$215 million of investments, respectively, while $117$78 million and $2$18 million of investments matured, respectively, and were used for financing activities described below.
In JanuaryDuring the first half of 2020,2022, the Company acquired all ofpaid $5 million for the outstanding stock of Andrew Alliance, S.A.CDMS technology and its two operating subsidiaries, Andrew Alliance USA, Inc.intellectual property right asset from Megadalton, and Andrew Alliance France, SASU (collectively “Andrew Alliance”), for $80 million, net of cash acquired. Thethe Company hadis required to make an equity investment in Andrew Alliance that was valued atadditional $4 million of guaranteed payments at various dates in the future through 2029. The total purchase price of approximately $10 million was accounted for as Acquired
In-Process
Research and includedDevelopment and expensed as part of costs and operating expenses in the total consideration.
statement of operations in the first half of 2022.
Cash Flow from Financing Activities
On September 17, 2021, the
The Company amended the existingentered into a credit agreement from November 2017, providing for a
5-year
$1.8in September 2021 governing the Company’s five-year, $1.8 billion revolving facility which includes a letter of credit
sub-facility.
All commitments under the amended agreement mature onthat matures in September 17, 2026. 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 nine months ended October 2, 2021 and September 26, 2020, the Company’s net debt borrowings increased by $260 million and decreased by $110 million, respectively. As of OctoberJuly 2, 2021,2022, the Company had a total of $1.6$1.5 billion in outstanding debt, which consisted of $1.3 billion in outstanding senior unsecured notes and $310$180 million borrowed under a term loan under the credit agreement dated September 2021 (“2021 Credit Agreement”).Agreement. During the first half of 2022 and 2021, the Company’s net debt borrowings decreased by $30 million and increased by $250 million, respectively.
In 2018 and 2019,
As of July 2, 2022, the Company has entered into a total of $560 million of
U.S.-to-Euro
three-year interest rate cross-currency swap derivative agreements thatwith a notional value $560 million to hedge the Company’svariability in the movement of foreign currency exchange rates on a portion of its Euro-denominated net investment in its Euro denominated net assets.asset investments. As a result of entering into these agreements, the Company anticipates lowering net interest expense by approximately $12$7 million annually over the three-year term of the agreements. During the first nine months of 2021, $220 million of the Company’s interest rate cross-currency swaps had matured and resulted in total payments of $5 million upon settlement. As of October 2, 2021, the Company had a total of $340 million of interest rate cross-currency swaps agreements outstanding.2022.
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 nine months ended October 2, 2021 and September 26, 2020, the Company repurchased $484 million and $167 million, respectively, of the Company’s outstanding common stock under authorized share repurchase programs. In addition, the Company repurchased $9 million and $10 million of common stock related to the vesting of restricted stock units during both the nine months ended October 2, 2021 and September 26, 2020, respectively. In December 2020, the Company’s Board of Directors authorized the extension of the share repurchase program through January 21, 2023.
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Table During the first half of Contents
The2022 and 2021, the Company had $20repurchased $312 million and $339 million, respectively, of the Company’s outstanding common stock under authorized share repurchase programs. In addition, the Company repurchased $10 million and $8 million of treasurycommon stock purchases that were accruedrelated to the vesting of restricted stock units during the first half of 2022 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 October 2, 2021, December 31, 2020 or September 26, 2020.
respectively.
The Company received $55$31 million and $28$45 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 nine months ended October 2,first half 2022 and 2021, and September 26, 2020, respectively.
The Company had cash, cash equivalents and investments of $655$420 million as of OctoberJuly 2, 2021.2022. The majority of the Company’s cash and cash equivalents are generated from foreign operations, with $371$399 million held by foreign subsidiaries at OctoberJuly 2, 2021,2022, of which $240$270 million was held in currencies other than U.S. dollars.
Management believes, as of the date of this report, that the Company’s financial position, along with expected future cash flows from earnings based on historical trends and the ability to raise funds from external sources and the borrowing capacity from existing, committed credit facilities, will be sufficient to service debt and fund working capital and capital spending requirements, authorized share repurchase amounts and potential acquisitions for at least the next twelve months.
Contractual Obligations, Commercial Commitments, Contingent Liabilities and Dividends
A summary of the Company’s contractual obligations and commercial commitments is included in the Company’s Annual Report on Form
10-K
for the year ended December 31, 2020,2021, as filed with the SEC on February 24, 2021.2022. The Company reviewed its contractual obligations and commercial commitments as of OctoberJuly 2, 20212022 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.”
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 2021,2022, 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.
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Table of Contents
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
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unconsolidated entities whereby it has subordinated retained interests, derivative instruments or other contingent arrangements that expose the Company to material continuing risks, contingent liabilities or any other obligation under a variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to the Company.
The Company enters into standard indemnification agreements in its ordinary course of business. Pursuant to these agreements, the Company indemnifies, holds harmless and agrees to reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally the Company’s business partners or customers, in connection with patent, copyright or other intellectual property infringement claims by any third party with respect to its current products, as well as claims relating to property damage or personal injury resulting from the performance of services by the Company or its subcontractors. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited. Historically, the Company’s costs to defend lawsuits or settle claims relating to such indemnity agreements have been minimal and management accordingly believes the estimated fair value of these agreements is immaterial.
Critical Accounting Policies and Estimates
In the Company’s Annual Report on Form
10-K
for the year ended December 31, 2020,2021, as filed with the SEC on February 24, 2021,2022, 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 ninesix months ended OctoberJuly 2, 2021.2022. The Company did not make any changes in those policies during the ninesix months ended OctoberJuly 2, 2021.2022.
New Accounting Pronouncements
Please refer to Note 13,14, Recent Accounting Standard Changes and Developments, in the Condensed Notes to Consolidated Financial Statements.
Special Note Regarding Forward-Looking Statements
Certain of the statements in this Quarterly Report on Form
10-Q,
including the information incorporated by reference herein, may contain forward-looking statements with respect to future results and events, including any statements regarding, among other items, anticipated trends or growth in the Company’s business, including, but not limited to, the impact of the ongoing
COVID-19
pandemic; the impact of new or proposed tariff or trade regulations or changes in the interpretation or enforcement of existing regulations; the impact of foreign currency translation on financial results; development of products by acquired businesses; the growth rate of sales and research and development expenses; the impact of costs associated with developing new technologies and bringing these new technologies to market; the impact of new product launches and the associated costs, such as the amortization expense related to software platforms; geographic sales mix of business; development of products by acquired businesses and the amount of contingent payments to the sellers of an acquired business; anticipated expenses,
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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.
37

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
COVID-19
pandemic, increased risks of cyber attacks resulting from our temporary remote working model, disruptions in our manufacturing capabilities or to our supply chain and distribution network, including the impact from the lockdown in China, 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.products and current global economic, sovereign and political conditions and uncertainties regarding the effect of the
COVID-19
pandemic.
 
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;uncertainties; new or proposed tariffs or trade regulations or changes in the interpretation or enforcement of existing regulations; the United Kingdom’s exit from the European Union as well as the Chinese government’s ongoing tightening of restrictions on procurement by government-funded customers; the Company’s ability to access capital and maintain liquidity in volatile market conditions; rising interest rates; 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.
47

competitive obstacles to new product introductions; lack of acceptance of new products; expansion of our business in developing markets; spending by certain
end-markets;
ability to obtain alternative sources for components and modules; and the possibility that future sales of new products related to acquisitions, which trigger contingent purchase payments, may exceed the Company’s expectations.
 
Increased regulatory burdens as the Company’s business evolves, especially with respect to the United States Food and Drug Administration and the United States Environmental Protection Agency, among others, as well as regulatory, environmental and logistical obstacles affecting the distribution of the Company’s products, completion of purchase order documentation by our customers and ability of customers to obtain letters of credit or other financing alternatives.
 
Risks associated with lawsuits, particularly involving claims for infringement of patents and other intellectual property rights.
 
The impact and costs incurred from changes in accounting principles and practices; the impact and costs of changes in statutory or contractual tax rates in jurisdictions in which the Company operates, specifically as it relates to the 2017 Tax Act in the U.S.; shifts in taxable income among jurisdictions with different effective tax rates; and the outcome of and costs associated with ongoing and future tax audit examinations or changes in respective country legislation affecting the Company’s effective rates.
The impact and costs of war, in particular as a result of the ongoing conflict between Russia and Ukraine, and the possibility of further escalation resulting in a new geopolitical and regulatory instability.
38

Certain of these and other factors are discussed under the heading “Risk Factors” under Part I, Item 1A of the Company’s Annual Report on Form
10-K
for the year ended December 31, 2020,2021, as filed with the SEC on February 24, 2021.2022. 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 OctoberJuly 2, 2021,2022, 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 OctoberJuly 2, 20212022 and December 31, 2020, $3712021, $399 million out of $655$420 million and $364$440 million out of $443$569 million, respectively, of the Company’s total cash, cash equivalents and investments were held by foreign subsidiaries. In addition, $240$270 million out of $655$420 million and $254$298 million out of $443$569 million of cash, cash equivalents and investments were held in currencies other than the U.S. dollar at OctoberJuly 2, 20212022 and December 31, 2020,2021, respectively. As of OctoberJuly 2, 2021,2022, the Company had no holdings in auction rate securities or commercial paper issued by structured investment vehicles.
48

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 OctoberJuly 2, 20212022 would decrease by approximately $25$30 million, of which the majority would be recorded to foreign currency translation in other comprehensive income within stockholders’ equity.
There have been no other material changes in the Company’s market risk during the nine months ended Octoberfirst half July 2, 2021.2022. For information regarding the Company’s market risk, refer to Item 7A of Part II of the Company’s Annual Report on Form
10-K
for the year ended December 31, 2020,2021, as filed with the SEC on February 24, 2021.2022.
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 OctoberJuly 2, 20212022 (1) to ensure that information required to be disclosed by the Company, including its consolidated subsidiaries, in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its chief executive officer and chief financial officer, to allow timely decisions regarding the required disclosure and (2) to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
Changes in Internal Control Over Financial Reporting
No change was identified in the Company’s internal control over financial reporting (as defined in
Rules 13a-15(f)
and
15d-15(f)
under the Exchange Act) during the quarter ended OctoberJuly 2, 20212022 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
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Part II: 
Other Information
Item 1:
 Legal Proceedings
There have been no material changes in the Company’s legal proceedings during the three months ended OctoberJuly 2, 20212022 as described in Item 3 of Part I of the Company’s Annual Report on Form
10-K
for the year ended December 31, 2020,2021, as filed with the SEC on February 24, 2021.2022.
49

Item 1A:
 Risk Factors
Information regarding risk factors of the Company is set forth under the heading “Risk Factors” under Part I, Item 1A in the Company’s Annual Report on Form
10-K
for the year ended December 31, 2020,2021, as filed with the SEC on February 24, 2021.2022. The Company reviewed its risk factors as of OctoberJuly 2, 20212022 and determined that there were no material changes from the ones set forth in the Form
10-K.
Note, however, the discussion of certain factors under the subheading “Special Note Regarding Forward-Looking Statements” in Part I, Item 2 of this Quarterly Report on Form
10-Q.
These risks are not the only ones facing the Company. Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial may have a material adverse effect on the Company’s business, financial condition and operating results.
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 OctoberJuly 2, 20212022 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)
 
July 4, 2021 to July 31, 2021
   130   $373.27    130   $1,137,305 
August 1, 2021 to August 28, 2021
   107   $404.75    107   $1,094,259 
August 29, 2021 to October 2, 2021
   135   $401.66    133   $1,040,647 
  
 
 
     
 
 
   
Total
   372   $392.61    370   $1,040,647 
    
 
 
     
 
 
   
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 3, 2022 to April 30, 2022
   166   $302.44    166   $673,941 
May 1, 2022 to May 28, 2022
   156   $320.74    155   $624,106 
May 29, 2022 to July 2, 2022
   158   $326.65    158   $572,627 
  
 
 
     
 
 
   
Total
   480   $316.36    479   $572,627 
  
 
 
     
 
 
   
 
(1)
The Company repurchased approximately twoone 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 OctoberJuly 2, 2021.2022.
(2)
In January 2019, the Company’s Board of Directors authorized the Company to repurchase up to $4 billion of its outstanding common stock in open market or private transactions over a
two-year
period. This program replaced the remaining amounts available under the
pre-existing
authorization. In December 2020, the Company’s Board of Directors authorized the extension of the share repurchase program through January 21, 2023. The size and timing of these purchases, if any, will depend on our stock price and market and business conditions, andas well as other factors.
 
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Item 6:
 Exhibits
 
Exhibit
Number
  
Description of Document
10.1Amendment and Restatement Agreement, dated as of September 17, 2021, by and among the Company, Waters Technologies Corporation, TA Instruments—Waters L.L.C., Waters Asia Limited, Environmental Resource Associates, Inc., the lenders party thereto, the issuing banks party thereto and JPMorgan Chase Bank, N.A., as administrative agent. (1)
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 OctoberJuly 2, 2021,2022, 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).
 
(1)
Incorporated by reference to the Registrant’s Report on Form 8-K dated September 20, 2021 (File
No. 001-14010).
(*)
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.
 
5141

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
/s/ Amol Chaubal
Amol Chaubal
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
(Principal Accounting Officer)
Date: NovemberAugust 4, 20212022
 
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