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 October ~~2, 2021~~1, 2022

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

For the transition period from

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)

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)~~file

s). Yes

☑

☒ No ☐

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

non-accelerated

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

Rule 12b-2

of the Exchange

Act.

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

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

Rule 12b-2

of the Act).

Yes ☐ No ☑

☒

Indicate the number of shares outstanding of the registrant’s common stock as of October ~~29, 2021: 61,036,269~~28, 2022: 59,407,575

Table of Contents

WATERS CORPORATION AND SUBSIDIARIES

QUARTERLY REPORT ON FORM

10-Q

INDEX


		Page
PART I	FINANCIAL INFORMATION	~~Page~~
Item 1.	Financial Statements
	Consolidated Balance Sheets (unaudited) as of October 1, 2022 and December 31, 2021		3
	~~Consolidated Balance Sheets (unaudited) as of October 2, 2021 and December 31, 2020~~		3
	Consolidated Statements of Operations (unaudited) for the three months ended October 1, 2022 and October 2, 2021 ~~and September 26, 2020~~		4
	Consolidated Statements of Operations (unaudited) for the nine months ended October 1, 2022 and October 2, 2021 ~~and September 26, 2020~~		5
	Consolidated Statements of Comprehensive Income (unaudited) for the three and nine months ended October 1, 2022 and October 2, 2021 ~~and September 26, 2020~~		6
	Consolidated Statements of Cash Flows (unaudited) for the nine months ended October 1, 2022 and October 2, 2021 ~~and September 26, 2020~~		7
	Consolidated Statements of Stockholders’ Equity ~~(Deficit)~~ (unaudited) for the three months ended October 1, 2022 and October 2, 2021 ~~and September 26, 2020~~		8
	Consolidated Statements of Stockholders’ Equity ~~(Deficit)~~ (unaudited) for the nine months ended October 1, 2022 and October 2, 2021 ~~and September 26, 2020~~		9
	Condensed Notes to Consolidated Financial Statements (unaudited)		10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		3428
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		4839
Item 4.	Controls and Procedures		4939

PART II	OTHER INFORMATION
Item 1.	Legal Proceedings		4940
Item 1A.	Risk Factors		5040
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		5040
Item 6.	Exhibits		5141
	Signature		5242

Table of Contents

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)
   0 0
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


	October 1, 2022			December 31, 2021

	(In thousands, except per share data)
ASSETS
Current assets:
Cash and cash equivalents	$	443,637		$	501,234
Investments		876			68,051
Accounts receivable, net		600,924			612,648
Inventories		442,236			356,095
Other current assets		87,912			90,914

Total current assets		1,575,585			1,628,942
Property, plant and equipment, net		547,386			547,913
Intangible assets, net		213,429			242,401
Goodwill		420,257			437,865
Operating lease assets		86,285			84,734
Other assets		227,111			153,077

Total assets	$	3,070,053		$	3,094,932

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Notes payable and debt	$	50,000		$	—
Accounts payable		96,567			96,799
Accrued employee compensation		64,554			101,192
Deferred revenue and customer advances		248,884			227,561
Current operating lease liabilities		24,231			27,906
Accrued income taxes		116,819			61,278
Accrued warranty		10,661			10,718
Other current liabilities		120,254			155,054

Total current liabilities		731,970			680,508
Long-term liabilities:
Long-term debt		1,494,626			1,513,870
Long-term portion of retirement benefits		48,798			64,027
Long-term income tax liabilities		248,111			319,547
Long-term operating lease liabilities		61,470			59,623
Other long-term liabilities		99,842			89,803

Total long-term liabilities		1,952,847			2,046,870

Total liabilities		2,684,817			2,727,378
Commitments and contingencies (Notes 6, 7, 8 and 12)

Stockholders’ equity:
Preferred stock, par value $0.01 per share, 5,000 shares authorized, no ne issued at October 1, 2022 and December 31, 2021		—			—
Common stock, par value $0.01 per share, 400,000 shares authorized, 162,379 and 162,084 shares issued, 59,534 and 60,728 shares outstanding at October 1, 2022 and December 31, 2021, respectively		1,624			1,621
Additional paid-in capital		2,181,558			2,114,880
Retained earnings		8,281,525			7,800,832
Treasury stock, at cost, 102,845 and 101,356 shares at October 1, 2022 and December 31, 2021, respectively		(9,915,081	)		(9,437,914	)
Accumulated other comprehensive loss		(164,390	)		(111,865	)

Total stockholders’ equity		385,236			367,554

Total liabilities and stockholders’ equity	$	3,070,053		$	3,094,932

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

Table of Contents

WATERS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

Three Months Ended


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
	October 1, 2022			October 2, 2021

	(In thousands, except per share data)
Revenues:
Product sales	$	464,923		$	419,133
Service sales		243,632			240,100

Total net sales		708,555			659,233
Costs and operating expenses:
Cost of product sales		199,918			171,364
Cost of service sales		107,183			99,764
Selling and administrative expenses		164,417			152,545
Research and development expenses		43,435			41,986
Purchased intangibles amortization		1,592			1,759

Total costs and operating expenses		516,545			467,418

Operating income		192,010			191,815
Other income (expense), net		895			(607	)
Interest expense		(12,420	)		(11,081	)
Interest income		2,896			2,548

Income before income taxes		183,381			182,675
Provision for income taxes		27,383			21,490

Net income	$	155,998		$	161,185

Net income per basic common share	$	2.61		$	2.63
Weighted-average number of basic common shares		59,801			61,359
Net income per diluted common share	$	2.60		$	2.60
Weighted-average number of diluted common shares and equivalents		60,081			61,888

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

Table of Contents

WATERS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

Nine Months Ended


October 2, 2021

September 26, 2020


(In thousands, except per share data)

Revenues:

Product sales
   $ 1,242,110 $ 965,342
Service sales
   707,315 613,365


Total net sales
   1,949,425 1,578,707
Costs and operating expenses:

Cost of product sales
   506,985 420,971
Cost of service sales
   298,544 265,149
Selling and administrative expenses
   453,954 400,614
Research and development expenses
   125,027 101,115
Purchased intangibles amortization
   5,408 7,900
Litigation provision
   0   1,180


Total costs and operating expenses
   1,389,918 1,196,929


Operating income
   559,507 381,778
Other income (expense), net
   18,073 (2,149 )
Interest expense
   (34,054 ) (38,012 )
Interest income
   10,347 12,046


Income before income taxes
   553,873 353,663
Provision for income taxes
   77,269 50,403


Net income
   $ 476,604 $ 303,260


Net income per basic common share
   $ 7.72 $ 4.89
Weighted-average number of basic common shares
   61,771 62,057
Net income per diluted common share
   $ 7.66 $ 4.86
Weighted-average number of diluted common shares and equivalents
   62,244 62,371


	Nine Months Ended
	October 1, 2022			October 2, 2021

	(In thousands, except per share data)
Revenues:
Product sales	$	1,385,393		$	1,242,110
Service sales		728,053			707,315

Total net sales		2,113,446			1,949,425
Costs and operating expenses:
Cost of product sales		593,884			506,985
Cost of service sales		306,108			298,544
Selling and administrative expenses		483,769			453,954
Research and development expenses		127,913			125,027
Purchased intangibles amortization		4,863			5,408
Acquired in-process research and development		9,797			—

Total costs and operating expenses		1,526,334			1,389,918

Operating income		587,112			559,507
Other income, net		2,600			18,073
Interest expense		(34,898	)		(34,054	)
Interest income		7,536			10,347

Income before income taxes		562,350			553,873
Provision for income taxes		81,657			77,269

Net income	$	480,693		$	476,604

Net income per basic common share	$	7.98		$	7.72
Weighted-average number of basic common shares		60,200			61,771
Net income per diluted common share	$	7.94		$	7.66
Weighted-average number of diluted common shares and equivalents		60,521			62,244

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

Table of Contents

WATERS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

Three Months Ended

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						Nine Months Ended
	October 1, 2022			October 2, 2021			October 1, 2022			October 2, 2021

	(In thousands)						(In thousands)
Net income	$	155,998		$	161,185		$	480,693		$	476,604
Other comprehensive (loss) income:
Foreign currency translation		(23,779	)		(4,560	)		(54,255	)		1,256
Unrealized gains on investments before income taxes		—			17			26			2
Income tax expense		—			—			(6	)		—

Unrealized gains on investments, net of tax		—			17			20			2
Retirement liability adjustment before reclassifications		767			(103	)		1,755			691
Amounts reclassified to other income, net		254			248			501			682

Retirement liability adjustment before income taxes		1,021			145			2,256			1,373
Income tax expense		(243	)		(37	)		(546	)		(302	)

Retirement liability adjustment, net of tax		778			108			1,710			1,071
Other comprehensive (loss) income		(23,001	)		(4,435	)		(52,525	)		2,329

Comprehensive income	$	132,997		$	156,750		$	428,168		$	478,933

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

Table of Contents

WATERS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

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


	Nine Months Ended
	October 1, 2022			October 2, 2021

	(In thousands)
Cash flows from operating activities:
Net income	$	480,693		$	476,604
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation		30,929			21,949
Deferred income taxes		(20,836	)		9,219
Depreciation		54,306			52,760
Amortization of intangibles		44,799			45,166
Acquired in-process research and development and other non-cash items		10,003			—
Change in operating assets and liabilities:
(Increase) decrease in accounts receivable		(39,098	)		23,472
Increase in inventories		(113,211	)		(93,878	)
Increase in other current assets		(6,861	)		(9,123	)
Increase in other assets		(3,881	)		(6,116	)
Decrease in accounts payable and other current liabilities		(4,952	)		(4,768	)
Increase in deferred revenue and customer advances		47,060			71,889
Decrease in other liabilities		(65,999	)		(57,838	)

Net cash provided by operating activities		412,952			529,336
Cash flows from investing activities:
Additions to property, plant, equipment and software capitalization		(113,737	)		(116,614	)
Proceeds from (investments in) equity investments, net		8,903			(867	)
Payments for intellectual property licenses		(7,535	)		(7,000	)
Purchases of investments		(11,407	)		(241,230	)
Maturities and sales of investments		77,993			117,283

Net cash used in investing activities		(45,783	)		(248,428	)
Cash flows from financing activities:
Proceeds from debt issuances		165,000			510,000
Payments on debt		(135,000	)		(250,000	)
Payments of debt issuance costs		—			(8,537	)
Proceeds from stock plans		36,136			55,000
Purchases of treasury shares		(477,167	)		(492,695	)
Proceeds from derivative contracts		12,844			2,325

Net cash used in financing activities		(398,187	)		(183,907	)
Effect of exchange rate changes on cash and cash equivalents		(26,579	)		(8,994	)

(Decrease) increase in cash and cash equivalents		(57,597	)		88,007
Cash and cash equivalents at beginning of period		501,234			436,695

Cash and cash equivalents at end of period	$	443,637		$	524,702

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

Table of Contents

WATERS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited, in thousands)


	Number of Common Shares		Common Stock		Additional Paid-In Capital		Retained Earnings		Treasury Stock			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity
Balance 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 July 2, 2022		162,348	$	1,623	$	2,166,221	$	8,125,527	$	(9,759,858	)	$	(141,389	)	$	392,124
Net income		—		—		—		155,998		—			—			155,998
Other comprehensive loss		—		—		—		—		—			(23,001	)		(23,001	)
Issuance of common stock for employees:
Employee Stock Purchase Plan		9		—		2,488		—		—			—			2,488
Stock options exercised		17		—		2,506		—		—			—			2,506
Treasury stock		—		—		—		—		(155,223	)		—			(155,223	)
Stock-based compensation		5		1		10,343		—		—			—			10,344

Balance October 1, 2022		162,379	$	1,624	$	2,181,558	$	8,281,525	$	(9,915,081	)	$	(164,390	)	$	385,236

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

Table of Contents

WATERS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY ~~(DEFICIT)~~

(unaudited, in thousands)

Number
of
Common
Shares

Common
Stock

Additional
Paid-In

Capital

Retained
Earnings

Treasury
Stock

Accumulated
Other
Comprehensive
Loss

Total
Stockholders’
Deficit

Balance 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 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 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		—		—		—		480,693		—			—			480,693
Other comprehensive loss		—		—		—		—		—			(52,525	)		(52,525	)
Issuance of common stock for employees:
Employee Stock Purchase Plan		28		—		8,374		—		—			—			8,374
Stock options exercised		167		2		28,121		—		—			—			28,123
Treasury stock		—		—		—		—		(477,167	)		—			(477,167	)
Stock-based compensation		100		1		30,183		—		—			—			30,184

Balance October 1, 2022		162,379	$	1,624	$	2,181,558	$	8,281,525	$	(9,915,081	)	$	(164,390	)	$	385,236

The accompanying notes are an ~~integral~~ i

ntegral

part of the consolidated financial statements.

Table of Contents

~~WATERS CORPORATION AND SUBSIDIARIES~~

~~CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)~~

~~(unaudited, in thousands)~~

Number
of
Common
Shares

Common
Stock

Additional
Paid-In

Capital

Retained
Earnings

Treasury
Stock

Accumulated
Other
Comprehensive
Loss

Total
Stockholders’
Deficit

Balance December 31, 2019
   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
   —      —      —      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

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

~~Table of Contents~~

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1 Basis of Presentation and Summary of Significant Accounting ~~Policies~~P

olicies

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

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

(“LC-MS”)

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

LC-MS

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

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

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 third fiscal quarters for ~~2021~~2022 and ~~2020~~2021 ended on October 1, 2022 and October 2, 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~~

~~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.

Table of Contents

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Through the date of the issuance of these financial statements, the Company’s consolidated financial position, results of operations and cash flows have not been materially impacted and, thus, the Company concluded that no 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 ~~materially~~result 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 ~~income~~loss in the consolidated balance sheets.

~~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 October ~~2, 2021~~1, 2022 and December 31, ~~2020, $371~~2021, $409 million out of ~~$655~~$445 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~~$445 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 October ~~2, 2021~~1, 2022 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.

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 nine months ended October 1, 2022 and October 2, 2021 ~~and September 26, 2020~~ (in thousands):


	Balance at Beginning of Period		Impact of CECL Adoption		Additions		Deductions			Balance at End of Period		Balance at Beginning of Period		Additions		Deductions			Balance at End of Period
Allowance for Credit Losses
October 1, 2022												$	13,228	$	4,980	$	(4,973	)	$	13,235
October 2, 2021	$	14,381	$	—	$	3,388	$	(4,107	)	$	13,662	$	14,381	$	3,388	$	(4,107	)	$	13,662
September 26, 2020	$	9,560	$	985	$	7,826	$	(5,784	)	$	12,587

Other Investments

During the nine months ended October ~~2, 2021 and September 26, 2020,~~1, 2022, the Company ~~made~~sold equity investments for $10 million in ~~unaffiliated companies~~cash and recorded gains on the sales of $1approximately $7 million ~~and $4~~in other income, net on the statement of operations. The Company also incurred $6 million ~~respectively.~~

~~Table~~in losses on equity investments recorded within other income, net on the statement of ~~Contents~~operations.

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

During the nine months ended October 2, 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)~~net on the ~~income statement.~~statement of operations. 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.~~

security.

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 October ~~2, 2021~~1, 2022 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 October 1, 2022 (in thousands):


	Total at October 1, 2022		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Time deposits		876		—		876		—
Waters 401(k) Restoration Plan assets		24,099		24,099		—		—
Foreign currency exchange contracts		278		—		278		—
Interest rate cross-currency swap agreements		62,223		—		62,223		—

Total	$	87,476	$	24,099	$	63,377	$	—

Liabilities:
Contingent consideration	$	1,469	$	—	$	—	$	1,469
Foreign currency exchange contracts		63		—		63		—

Total	$	1,532	$	—	$	63	$	1,469

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, ~~2020~~2021 (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

~~Table of Contents~~

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


	Total at December 31, 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	$	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 October ~~2, 2021~~1, 2022 and December 31, ~~2020.~~2021.

Table of Contents

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 both October ~~2, 2021~~1, 2022 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 $1.1 billion and $1.3 billion ~~and $963 million~~ at October ~~2, 2021~~1, 2022 and December 31, ~~2020,~~2021, respectively, using Level 2 inputs.

~~Table of Contents~~

~~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 and

Yen-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 October ~~2, 2021,~~1, 2022, the Company had ~~entered~~

~~into~~ three-year interest rate cross-currency swap derivative agreements with an aggregate notional value of ~~$340~~$585 million to hedge the variability in the movement of foreign currency exchange rates on a portion of its Euro-denominated and

Yen-denominated

net asset investments. Under hedge accounting, the change in fair value of the derivative that relates to changes in the foreign currency spot rate are recorded in the currency translation adjustment in other comprehensive income and remain in accumulated comprehensive ~~income~~loss 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.

Table of Contents

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				October 1, 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	$	42,690	$	278	$	55,309	$	504
Other current liabilities	$	46,772	$	375	$	20,000	$	185	$	17,000	$	63	$	9,000	$	195
Interest rate cross-currency swap agreements:
Other assets									$	585,000	$	62,223	$	—	$	—
Other liabilities	$	340,000	$	12,322	$	560,000	$	44,996		—		—		230,000		5,363
Accumulated other comprehensive loss			$	20,219			$	44,996
Accumulated other comprehensive income (loss)											$	57,869			$	(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

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


	Financial Statement Classification	Three Months Ended						Nine Months Ended
	Financial Statement Classification	October 1, 2022			October 2, 2021			October 1, 2022			October 2, 2021
Foreign currency exchange contracts:
Realized (losses) gains on closed contracts	Cost of sales	$	(3,811	)	$	(774	)	$	(6,603	)	$	681
Unrealized gains (losses) on open contracts	Cost of sales		461			(933	)		(93	)		(2,256	)

Cumulative net pre-tax losses	Cost of sales	$	(3,350	)	$	(1,707	)	$	(6,696	)	$	(1,575	)

Interest rate cross-currency swap agreements:
Interest earned	Interest income	$	2,362		$	2,305		$	6,214		$	9,505
Unrealized gains on open contracts	Other comprehensive income	$	31,108		$	7,762		$	73,812		$	24,777

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. In Dec

mber 2020, the Company’s Board of Directors authorized the extension of the share repurchase program through January 21, 2023. During both the nine

months ended October 1, 2022 and October 2, 2021, ~~and September 26, 2020,~~ the Company repurchased 1.5 ~~million and 0.8~~ million shares of the Company’s outstanding common stock at a cost of ~~$484~~$467 million and ~~$167~~$484 million, respectively, under the January 2019 authorization and other previously announced programs. In addition, the Company repurchased $9$11 million and ~~$10~~$9 million of common stock related to the vesting of restricted stock units during the nine months ended October 1, 2022 and October 2, 2021, ~~and September 26, 2020,~~ respectively. As of October ~~2, 2021,~~1, 2022, the Company had repurchased an aggregate of ~~12.7~~14.6 million shares at a cost of ~~$3.0~~$3.6 billion under the January 2019 repurchase program and had a total of ~~$1.0 billion~~$418 million 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.~~

~~Table of Contents~~

Product Warr

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

nty Cost

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 Compan

~~The Company~~y 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~~en

ages 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.

Table of Contents

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 nine months ended October 1, 2022 and October 2, 2021 ~~and September 26, 2020~~ (in thousands):


	Balance at Beginning of Period		Accruals for Warranties		Settlements Made			Balance at End of Period		Balance at Beginning of Period		Accruals for Warranties		Settlements Made			Balance at End of Period
Accrued warranty liability:
October 1, 2022										$	10,718	$	6,606	$	(6,663	)	$	10,661
October 2, 2021	$	10,950	$	6,537	$	(6,991	)	$	10,496	$	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.~~

Other Items

During the nine months ended October ~~2, 2021,~~1, 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~~completed 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 income~~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, it will extend the capabilities of our ~~consolidated~~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 in costs and operating expenses in the statement of operations. ~~During the nine months ended October 2, 2021, the Company received~~

~~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.

~~Table of Contents~~

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

The following is a summary of the activity of the Company’s deferred revenue and customer advances for the nine months ended October 1, 2022 and October 2, 2021 ~~and September 26, 2020~~ (in thousands):


	October 2, 2021			September 26, 2020			October 1, 2022			October 2, 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	)		(213,527	)		(197,279	)
Revenue deferred during the period, net of revenue recognized		264,184			213,895			243,853			264,184

Balance at the end of the period	$	306,664		$	249,923		$	303,924		$	306,664

The Company classified ~~$44~~$55 million and ~~$42~~$46 million of deferred revenue and customer advances in other long-term liabilities at October ~~2, 2021~~1, 2022 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):


	October 1, 2022
Deferred revenue and customer advances expected to be recognized in:
One year or less	$	248,884
13 -24 months		31,632
25 months and beyond		23,408

Total	$	303,924

Table of Contents

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

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

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


	October 1, 2022
	Amortized Cost		Unrealized Gain		Unrealized Loss		Fair Value
Time deposits		876		—		—		876

Total	$	876	$	—	$	—	$	876

Amounts included in:
Investments		876		—		—		876

Total	$	876	$	—	$	—	$	876

~~Table of Contents~~

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


	December 31, 2021
	Amortized Cost		Unrealized Gain		Unrealized Loss			Fair 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):


	October 2, 2021		December 31, 2020		October 1, 2022		December 31, 2021
Due in one year or less	$	128,149	$	6,451	$	876	$	71,066
Due after one year through three years		2,742		—		—		1,002

Total	$	130,891	$	6,451	$	876	$	72,068

4 Inventories

Inventories are classified as follows (in thousands):


	October 2, 2021		December 31, 2020		October 1, 2022		December 31, 2021
Raw materials	$	158,529	$	133,490	$	186,958	$	165,240
Work in progress		25,296		18,678		23,577		19,726
Finished goods		204,931		152,113		231,701		171,129

Total inventories	$	388,756	$	304,281	$	442,236	$	356,095

5 Goodwill and Other Intangibles

The carrying amount of goodwill was ~~$437~~$420 million and ~~$444~~$438 million at October ~~2, 2021~~1, 2022 and December 31, ~~2020,~~2021, respectively. The effect of foreign currency translation decreased goodwill by $7$18 million.

Table of Contents

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						October 1, 2022						December 31, 2021
	Gross Carrying Amount		Accumulated Amortization		Weighted- Average Amortization Period		Gross Carrying Amount		Accumulated Amortization		Weighted- Average Amortization Period		Gross Carrying Amount		Accumulated Amortization		Weighted- Average Amortization Period		Gross Carrying Amount		Accumulated Amortization		Weighted- Average Amortization Period
Capitalized software	$	576,988	$	419,736		5 years	$	584,452	$	409,847		5 years	$	525,196	$	391,250		5 years	$	575,658	$	420,862		5 years
Purchased intangibles		202,094		162,895		11 years		205,585		160,342		11 years		193,056		160,972		11 years		201,302		163,752		11 years
Trademarks		9,680		—		—		9,680		—		—		9,680		—		—		9,680		—		—
Licenses		12,616		5,944		7 years		5,923		5,697		6 years		12,739		5,848		6 years		12,635		6,199		7 years
Patents and other intangibles		99,906		66,629		8 years		90,699		61,808		8 years		100,255		69,427		8 years		102,353		68,414		8 years

Total	$	901,284	$	655,204		7 years	$	896,339	$	637,694		7 years	$	840,926	$	627,497		7 years	$	901,628	$	659,227		7 years

~~During~~The Company capitalized intangible assets in the amounts of $14 million and $18 million in the three months ended October 1, 2022 and October 2, 2021, respectively, and $38 million and $45 million in the nine months ended October 1, 2022 and October 2, 2021, ~~the Company paid $7 million in connection with an existing licensing arrangement. The payment was tied to the commercial launch of Waters~~

™

~~SELECT SERIES~~

™

~~MRT, a high-resolution mass spectrometer and was capitalized as an intangible asset on our consolidated balance sheet in 2021.~~respectively. The gross carrying value of intangible assets and accumulated amortization for intangible assets decreased by ~~$36~~$98 million and ~~$27~~$76 million, respectively, in the nine months ended October ~~2, 2021~~1, 2022 due to the effects of foreign

~~Table of Contents~~

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

currency translation. Amortization expense for intangible assets was $15 million for

both

the three months ended October 1, 2022 and October 2, ~~2021 and September 26, 2020.~~2021. Amortization expense for intangible assets was $45 million ~~and $42 million~~ for both the nine months ended October 1, 2022 and October 2, ~~2021 and September 26, 2020, respectively.~~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, the~~The Company entered into ~~an amended and restated~~a 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 a~~five-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 October 2,1, 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~~$240 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.

~~Table of Contents~~

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

As of both October ~~2, 2021~~1, 2022 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

Table of Contents

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

for

any period of four consecutive fiscal quarters and a leverage ratio test of not more than ~~3.50:~~

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.

The

Company had the following

outstanding

debt at October ~~2, 2021~~1, 2022 and December 31, ~~2020~~2021 (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


	October 1, 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		240,000			210,000
Unamortized debt issuance costs		(5,374	)		(6,130	)

Total long-term debt		1,494,626			1,513,870

Total debt	$	1,544,626		$	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 both October ~~2, 2021~~1, 2022 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%~~3.24% and ~~2.92%~~2.74% at October ~~2, 2021~~1, 2022 and December 31, ~~2020,~~2021, respectively. As of October ~~2, 2021,~~1, 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~~$111 million and ~~$109~~$121 million at October ~~2, 2021~~1, 2022 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 October ~~2, 2021~~1, 2022 or December 31, ~~2020.~~2021.

~~Table of Contents~~

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

As of October ~~2, 2021,~~1, 2022, the Company had entered into three-year interest rate cross-currency swap derivative agreements with an aggregate notional value of ~~$340~~$585 million to hedge the variability in the movement of foreign currency exchange rates on a portion of its Euro-denominated and

Yen-denominated

net asset investments.

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 October ~~2, 2021.~~1, 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 nine months ended October 1, 2022 and October 2, 2021 ~~and September 26, 2020~~ by ~~$13~~$15 million and ~~$12~~$13 million, respectively, and increased the Company’s net income per diluted share by $0.25 and $0.20,

~~for both periods.~~

respectively.

The Company’s effective tax rate for the three months ended October 1, 2022 and October 2, 2021 was 14.9% and ~~September 26, 2020 was~~ 11.8% ~~and 15.7%~~, respectively. The ~~decrease~~increase in the effective income tax rate can be attributed to the impact of favorable quarter-specific adjustments in the prior year and differences in the proportionate amounts of

pre-tax

income recognized in jurisdictions with different effective tax rates.

Table of Contents

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

The Company’s effective tax rate for the nine months ended October ~~2, 2021~~1, 2022 and ~~September 26, 2020 was 14.0% and 14.3%, respectively. The effective tax rate for the nine months ended~~ October 2, 2021 ~~includes a $6 million tax benefit related to stock-based compensation. This income tax benefit decreased the effective tax rate by 1.1 percentage points for the nine months ended October 2, 2021.~~was 14.5% and 14.0%, respectively. 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.

~~Table of Contents~~

~~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 nine months ended October 1, 2022 and October 2, 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 October ~~2, 2021,~~1, 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 October 1, 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.

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 October ~~2, 2021,~~1, 2022, the 2020 Plan had ~~6.7~~6.5 million shares available for grant in the form of incentive or

non-qualified

stock options, stock appreciation rights (“SARs”), restricted stock, restricted stock units or other types of awards (e.g. restricted stock units and performance stock units). The Company issues new shares of common stock upon exercise of stock options or restricted stock unit conversion. Under the 2020 Plan, the exercise price for stock options may not be less than the fair market value of the underlying stock at the date of grant. The 2020 Plan is scheduled to terminate on May 13, 2030. Options generally will expire no later than 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

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

2020 Plan for such consideration as is determined by the Compensation Committee of the Board of Directors. As of October ~~2, 2021,~~1, 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~~

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~~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 nine months ended October 1, 2022 and October 2, 2021 ~~and September 26, 2020~~ include the following stock-based compensation expense related to stock option awards, restricted stock awards, restricted stock unit awards, performance stock unit awards and the employee stock purchase plan (in thousands):


	Three Months Ended				Nine Months Ended				Three Months Ended				Nine Months Ended
	October 2, 2021		September 26, 2020		October 2, 2021		September 26, 2020		October 1, 2022		October 2, 2021		October 1, 2022		October 2, 2021
Cost of sales	$	468	$	645	$	1,828	$	1,850	$	478	$	468	$	2,420	$	1,828
Selling and administrative expenses		4,116		7,747		15,810		22,472		8,174		4,116		23,607		15,810
Research and development expenses		1,769		1,201		4,311		3,393		1,555		1,769		4,902		4,311

Total stock-based compensation	$	6,353	$	9,593	$	21,949	$	27,715	$	10,207	$	6,353	$	30,929	$	21,949

Stock Options

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

non-qualified

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

zero-coupon

issues with a remaining term approximating the expected term used as the input to the Black-Scholes model. The relevant data used to determine the value of the stock options granted during the nine months ended October 1, 2022 and October 2, 2021 ~~and September 26, 2020~~ are as follows:


	Nine Months Ended
Options Issued and Significant Assumptions Used to Estimate Option Fair Values	October 1, 2022			October 2, 2021
Options issued in thousands		138			160
Risk-free interest rate		2.0	%		0.8	%
Expected life in years		6			6
Expected volatility		30.7	%		32.4	%
Expected dividends		—			—

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 1, 2022		October 2, 2021
Exercise price	$	321.12	$	281.23
Fair value	$	107.95	$	91.46

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

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

The following table summarizes stock option activity for the plans for the nine months ended October ~~2, 2021~~1, 2022 (in thousands, except per share data):


	Number of Shares			Exercise Price per Share		Weighted-Average Exercise Price per Share		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
Outstanding at December 31, 2021									691		$	88.71 to $371.64	$	202.24
Granted		160		$	250.15 to $ 371.64	$	281.23		138		$	270.49 to $364.59	$	321.12
Exercised		(275	)	$	99.22 to $ 238.52	$	167.89		(167	)	$	88.71 to $279.90	$	168.37
Canceled		(251	)	$	139.51 to $ 280.80	$	197.05		(40	)	$	188.63 to $364.59	$	253.23

Outstanding at October 2, 2021		701		$	75.94 to $ 371.64	$	200.84
Outstanding at October 1, 2022									622		$	88.71 to $371.64	$	234.43

Restricted Stock

During the nine months ended October ~~2, 2021,~~1, 2022, the Company granted ~~four~~three 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 nine months ended October ~~2, 2021~~1, 2022 (in thousands, except per share data):


	Shares			Weighted-Average Grant Date Fair Value per Share		Shares			Weighted-Average Grant Date Fair Value per Share
Unvested at December 31, 2020		271		$	202.00
Unvested at December 31, 2021							245		$	234.97
Granted		88		$	283.10		98		$	322.99
Vested		(86	)	$	183.94		(76	)	$	219.30
Forfeited		(22	)	$	221.64		(23	)	$	256.22

Unvested at October 2, 2021		251		$	234.90
Unvested at October 1, 2022							244		$	273.20

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.

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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 one reporting segment for financial statement purposes. Please refer to the consolidated financial statements for financial information

regarding the 1one reportable segment of the Company.

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

Net sales for the Company’s products and services are as follows for the three and nine months ended October 1, 2022 and October 2, 2021 ~~and September 26, 2020~~ (in

thousands):

Three Months Ended

Nine Months Ended


October 2, 2021

September 26,
2020

October 2, 2021

September 26,
2020

Product net sales:

Waters instrument systems
   $ 240,475    $ 225,790    $ 717,910    $ 550,018
Chemistry consumables
   123,045    108,175    368,478    300,525
TA instrument systems
   55,613    42,274    155,722    114,799








Total product sales
   419,133    376,239    1,242,110    965,342
Service net sales:

Waters service
   218,291    199,501    644,625    562,843
TA service
   21,809    18,044    62,690    50,522








Total service sales
   240,100    217,545    707,315    613,365








Total net sales
   $ 659,233    $ 593,784    $ 1,949,425    $ 1,578,707


	Three Months Ended				Nine Months Ended
	October 1, 2022		October 2, 2021		October 1, 2022		October 2, 2021
Product net sales:
Waters instrument systems	$	274,869	$	240,475	$	825,677	$	717,910
Chemistry consumables		128,096		123,045		385,661		368,478
TA instrument systems		61,958		55,613		174,055		155,722

Total product sales		464,923		419,133		1,385,393		1,242,110
Service net sales:
Waters service		220,436		218,291		660,371		644,625
TA service		23,196		21,809		67,682		62,690

Total service sales		243,632		240,100		728,053		707,315

Total net sales	$	708,555	$	659,233	$	2,113,446	$	1,949,425

Net sales are attributable to geographic areas based on the region of destination. Geographic sales information is presented below for the three and nine months ended October 1, 2022 and October 2, 2021 ~~and September 26, 2020~~ (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				Nine Months Ended
	October 1, 2022		October 2, 2021		October 1, 2022		October 2, 2021
Net Sales:
Asia:
China	$	140,080	$	115,886	$	399,852	$	346,030
Japan		37,095		44,293		123,222		139,702
Asia Other		102,759		94,423		289,204		268,359

Total Asia		279,934		254,602		812,278		754,091
Americas:
United States		216,380		194,776		638,908		544,124
Americas Other		40,029		36,225		123,609		109,128

Total Americas		256,409		231,001		762,517		653,252
Europe		172,212		173,630		538,651		542,082

Total net sales	$	708,555	$	659,233	$	2,113,446	$	1,949,425

Net sales by customer class are as follows for the three and nine months ended October 1, 2022 and October 2, 2021 ~~and September 26, 2020~~ (in thousands):


	Three Months Ended				Nine Months Ended
	October 1, 2022		October 2, 2021		October 1, 2022		October 2, 2021
Pharmaceutical	$	405,959	$	398,338	$	1,258,902	$	1,175,191
Industrial		223,968		196,032		641,882		581,884
Academic and government		78,628		64,863		212,662		192,350

Total net sales	$	708,555	$	659,233	$	2,113,446	$	1,949,425

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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 nine months ended October 1, 2022 and October 2, 2021 ~~and September 26, 2020~~ (in thousands):

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


	Three Months Ended				Nine Months Ended
	October 1, 2022		October 2, 2021		October 1, 2022		October 2, 2021
Net sales recognized at a point in time:
Instrument systems	$	336,827	$	296,088	$	999,732	$	873,632
Chemistry consumables		128,096		123,045		385,661		368,478
Service sales recognized at a point in time (time & materials)		89,724		85,093		267,074		253,212

Total net sales recognized at a point in time		554,647		504,226		1,652,467		1,495,322
Net sales recognized over time:
Service and software maintenance sales recognized over time (contracts)		153,908		155,007		460,979		454,103

Total net sales	$	708,555	$	659,233	$	2,113,446	$	1,949,425

1314 Recent Accounting Standard Changes and Developments

~~Recently Adopted Accounting Standards~~

~~Table of Contents~~

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

In December 2019, accounting guidance was issued that simplifies the accounting for income taxes by removing certain exceptions within the current guidance, including the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The amendment also improves consistent application by clarifying and amending existing guidance related to aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step up in the tax basis of goodwill. This guidance is effective for annual and interim periods beginning after December 15, 2020. The Company adopted this standard on January 1, 2021. The adoption of this standard did not have a material impact on the Company’s financial position, results of operations and cash flows.

~~In January 2020, accounting guidance~~

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

Recently Issued Accounting Standards

In March 2020, accounting guidance was issued that facilitates the effects of reference rate reform

on financial reporting. The amendments in the update provide optional guidance for a limited period of time to ease the potential burden in accounting for or recognizing the effects of reference rate reform on financial reporting and apply to all entities, subject to meeting certain criteria, that have contracts, hedging relationships, and other transactions that

~~Table of Contents~~

~~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 evaluating~~effective 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

busin

ess combination activity and therefore the Company will evaluate the impact of ~~reference rate reform~~

thi

s guidance when and ~~whether this guidance will be adopted.~~if there is applicable activity.

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Table of Contents

Item 2:

Management

’

s Discussion and Analysis of Financial Condition and

Results of Operations

Business Overview

The Company has two operating segments: Waters

and TA

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

” and, together with HPLC, referred to as “LC”), mass spectrometry (“MS”) and precision chemistry consumable products and related services. TA products and services primarily consist of thermal analysis, rheometry and calorimetry instrument systems and service sales. The Company’s products are used by pharmaceutical, biochemical, industrial, nutritional safety, environmental, academic and government customers. These customers use the Company’s products to detect, identify, monitor and measure the chemical, physical and biological composition of materials and to predict the suitability and stability of fine chemicals, pharmaceuticals, water, polymers, metals and viscous liquids in various industrial, consumer goods and healthcare products.

COVID-19

Pandemic

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

COVID-19

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

COVID-19

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

COVID-19

pandemic, 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 impacted~~had a material impact on the Company’s manufacturing facilities or those of the third parties to whom it outsources certain manufacturing processes, the distribution centers where ~~its~~the inventory is managed or the operations of its logistics and other service providers. ~~The~~

During the second quarter of 2022, the Company ~~also did not see material disruptions or delays~~successfully managed a significant delay in ~~shipments~~the receipt of certain materials orand components from a supplier that was directly related to the

COVID-19

pandemic lockdown in China, and while the Company did not experience these significant delays in the third quarter of ~~its products. However,~~2022, 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 we~~Company cannot provide any assurances that any further disruptions in ~~the~~its logistics and supply chains will not have a ~~material~~significant impact on ~~our~~its 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 nine months ended October 1, 2022 and October 2, 2021 ~~and September 26, 2020~~ (dollars in thousands, except per share data):


	Three Months Ended									Nine Months Ended									Three Months Ended									Nine Months Ended
	October 2, 2021			September 26, 2020			% change			October 2, 2021			September 26, 2020			% change			October 1, 2022			October 2, 2021			% change			October 1, 2022			October 2, 2021			% change
Revenues:
Product sales	$	419,133		$	376,239			11	%	$	1,242,110		$	965,342			29	%	$	464,923		$	419,133			11	%	$	1,385,393		$	1,242,110			12	%
Service sales		240,100			217,545			10	%		707,315			613,365			15	%		243,632			240,100			1	%		728,053			707,315			3	%

Total net sales		659,233			593,784			11	%		1,949,425			1,578,707			23	%		708,555			659,233			7	%		2,113,446			1,949,425			8	%
Costs and operating expenses:
Cost of sales		271,128			262,342			3	%		805,529			686,120			17	%		307,101			271,128			13	%		899,992			805,529			12	%
Selling and administrative expenses		152,545			135,430			13	%		453,954			400,614			13	%		164,417			152,545			8	%		483,769			453,954			7	%
Research and development expenses		41,986			34,971			20	%		125,027			101,115			24	%		43,435			41,986			3	%		127,913			125,027			2	%
Purchased intangibles amortization		1,759			2,657			(34	%)		5,408			7,900			(32	%)		1,592			1,759			(9	%)		4,863			5,408			(10	%)
Litigation provision		—			—			—			—			1,180			(100	%)
Acquired in-process research and development																				—			—			—			9,797			—			*	*

Operating income		191,815			158,384			21	%		559,507			381,778			47	%		192,010			191,815			—			587,112			559,507			5	%
Operating income as a % of sales		29.1	%		26.7	%					28.7	%		24.2	%					27.1	%		29.1	%					27.8	%		28.7	%
Other expense		(607	)		(1,039	)		(42	%)		18,073			(2,149	)		*	*
Other income, net																				895			(607	)		(247	%)		2,600			18,073			(86	%)
Interest expense, net		(8,533	)		(6,908	)		24	%		(23,707	)		(25,966	)		(9	%)		(9,524	)		(8,533	)		12	%		(27,362	)		(23,707	)		15	%

Income before income taxes		182,675			150,437			21	%		553,873			353,663			57	%		183,381			182,675			—			562,350			553,873			2	%
Provision for income taxes		21,490			23,668			(9	%)		77,269			50,403			53	%		27,383			21,490			27	%		81,657			77,269			6	%

Net income	$	161,185		$	126,769			27	%	$	476,604		$	303,260			57	%	$	155,998		$	161,185			(3	%)	$	480,693		$	476,604			1	%

Net income per diluted common share	$	2.60		$	2.03			28	%	$	7.66		$	4.86			58	%	$	2.60		$	2.60			—		$	7.94		$	7.66			4	%

**	Percentage not meaningful

The Company’s net sales increased ~~11%~~7% and ~~23%~~8% in the third quarter and first nine months of ~~2021,~~2022, respectively, as compared to the third quarter and first nine months of ~~2020.~~2021. The sales growth in ~~the 2021~~these periods was driven by strong ~~sales growth~~customer demand across most major geographies, end markets, and product categories. ~~Overall, sales benefited~~

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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 on~~decreased total sales growth by 8% in the third quarter and ~~increased sales by 2%~~6% in the first nine months 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 months of ~~2021~~2022 included ~~five more~~one less calendar ~~days~~day than the first nine months of ~~2020.~~2021.

Instrument system sales increased ~~10% and 31%~~14% for both the third quarter and first nine months of ~~2021, respectively,~~2022, due to the broad-based increase in customer demand ~~continuing to increase to~~

~~pre-pandemic~~

~~levels as customer laboratories~~across all existing and ~~manufacturing facilities continued to return to normal operations. This strength in the first nine months was broad-based, particularly in~~newly introduced LC,

LC-MS

and TAThermal Analysis instrument system sales. Foreign currency translation ~~had minimal impact on~~decreased instrument system sales growth by 7% and 5% in the third quarter and ~~increased sales by 2% in the~~ first nine months of ~~2021.~~2022, respectively. Recurring revenues (combined sales of precision chemistry consumables and services) increased ~~11%~~2% and ~~18%~~4% for the third quarter and first nine months of ~~2021,~~2022, respectively, with foreign currency translation ~~being neutral in the quarter~~decreasing sales growth by 8% and increasing sales by 3% in the first nine months of the year. In 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~~5% in the third quarter and first nine months 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~~respectively.

~~COVID-19~~

~~pandemic. Foreign currency translation increased academic and government sales growth by 2%.~~

Operating income ~~increased 21%~~was flat and ~~47%~~grew 5% for the third quarter and first nine months of ~~2021,~~2022, respectively. ~~These~~The Company’s operating income in the third quarter of 2022 was flat with the prior year as sales volume and pricing increases were offset by higher electronic component and freight inflationary costs and the negative effect of foreign currency translation. The operating income increase for the first nine months was primarily a result of the increase in sales volumes ~~caused by our customers continuing to resume laboratory~~ and ~~manufacturing operations throughout the world. Both the quarter and~~

~~year-to-date~~

~~operating income~~price increases ~~were~~being partially offset by an increase in electronic component and freight inflationary costs and the ~~restoration~~negative 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~~foreign currency translation.

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.

3629

Liquidity and Capital Resources

Condensed Consolidated Statements of Cash Flows (in thousands):


	Nine Months Ended						Nine Months Ended
	October 2, 2021			September 26, 2020			October 1, 2022			October 2, 2021
Net income	$	476,604		$	303,260		$	480,693		$	476,604
Depreciation and amortization		97,926			91,091			99,105			97,926
Stock-based compensation		21,949			27,715			30,929			21,949
Deferred income taxes		9,219			1,089			(20,836	)		9,219
Acquired in-process research and development and other non-cash items								10,003			—
Change in accounts receivable		23,472			96,955			(39,098	)		23,472
Change in inventories		(93,878	)		(8,139	)		(113,211	)		(93,878	)
Change in accounts payable and other current liabilities		(4,768	)		46,721			(4,952	)		(4,768	)
Change in deferred revenue and customer advances		71,889			32,053			47,060			71,889
Other changes		(73,077	)		(67,720	)		(76,741	)		(73,077	)

Net cash provided by operating activities		529,336			523,025			412,952			529,336
Net cash used in investing activities		(248,428	)		(226,561	)		(45,783	)		(248,428	)
Net cash used in financing activities		(183,907	)		(267,968	)		(398,187	)		(183,907	)
Effect of exchange rate changes on cash and cash equivalents		(8,994	)		10,723			(26,579	)		(8,994	)

Increase in cash and cash equivalents	$	88,007		$	39,219
(Decrease) increase in cash and cash equivalents							$	(57,597	)	$	88,007

Cash Flow from Operating Activities

Net cash provided by operating activities was ~~$529~~$413 million and ~~$523~~$529 million during the first nine months of ~~2021~~2022 and ~~2020,~~2021, respectively. This ~~increase~~decrease 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 months of ~~2021~~2022 compared to the first nine months 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 ~~decreased~~increased to 7177 days at October 1, 2022 as compared to 74 days at October 2, ~~2021~~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 that occurred late in the second quarter of 2022.

The increase in inventory can be primarily attributed to higher material costs as ~~compared~~well as an increase in safety stock levels to ~~76 days at September 26, 2020.~~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~~$46 million and ~~$227~~$248 million in the first nine months of ~~October 2,~~2022 and 2021, ~~and September 26, 2020,~~ respectively. Additions to fixed assets and capitalized software were ~~$117~~$114 million and ~~$125~~$117 million in the first nine months ~~ended~~October 1, 2022 and October 2, 2021, ~~and September 26, 2020,~~ respectively. ~~In February 2018,~~The cash flows from investing activities in 2022 also included $24 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 $221 million on this facility through the end of the first nine months of 2022, and anticipates spending approximately $30 million to complete this new

state-of-the-art

facility in 2022.

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During 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 thefirst nine months ~~ended October 2,~~of 2022 and 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, 2021 and September 26, 2020,~~ the Company purchased ~~$241~~$11 million and ~~$22~~$241 million of investments, respectively, while ~~$117~~$78 million and $2$117 million of investments matured, respectively, and were used for financing activities described below.

~~In January~~During the first nine months of ~~2020,~~2022, the Company ~~acquired all of~~paid $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. The~~the Company ~~had~~is required to make an ~~equity investment in Andrew Alliance that was valued at~~additional $4 million of guaranteed payments at various dates in the future through 2029. The total purchase price of approximately $10 million was accounted for as Acquired

In-Process

Research and ~~included~~Development and expensed as part of costs and operating expenses in the ~~total consideration.~~statement of operations in the first nine months of 2022.

During the first nine months of 2022, the Company received $10 million in proceeds and made $1 million of investments in certain equity investments.

Cash Flow from Financing Activities

~~On September 17, 2021, the~~

The Company ~~amended the existing~~entered into a credit agreement ~~from November 2017, providing for a~~

~~5-year~~

~~$1.8~~in 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 on~~that 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 October ~~2, 2021,~~1, 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~~$240 million borrowed under ~~a term loan under~~ the ~~credit agreement dated September 2021 (“~~2021 Credit ~~Agreement”).~~Agreement. During the first nine months of 2022 and 2021, the Company’s net debt borrowings increased by $30 million and increased by $260 million, respectively.

~~In 2018 and 2019,~~As of October 1, 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 ~~that~~with a notional value $585 million to hedge the ~~Company’s~~ variability in the movement of foreign currency exchange rates on a portion of its Euro-denominated and

Yen-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~~$9 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.

~~Table~~ During the first nine months of ~~Contents~~

~~The~~2022 and 2021, the Company ~~had $20~~repurchased $467 million and $484 million, respectively, of the Company’s outstanding common stock under authorized share repurchase programs. In addition, the Company repurchased $11 million and $9 million of ~~treasury~~common stock ~~purchases that were accrued~~related to the vesting of restricted stock units during the first nine months 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~~$36 million and ~~$28~~$55 million of proceeds from the exercise of stock options and the purchase of shares pursuant to the Company’s employee stock purchase plan during the first nine months ~~ended October 2,~~2022 and 2021, ~~and September 26, 2020,~~ respectively.

The Company had cash, cash equivalents and investments of ~~$655~~$445 million as of October ~~2, 2021.~~1, 2022. The majority of the Company’s cash and cash equivalents are generated from foreign operations, with ~~$371~~$409 million held by foreign subsidiaries at October ~~2, 2021,~~1, 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 October ~~2, 2021~~1, 2022 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.

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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.

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.

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 nine months ended October ~~2, 2021.~~1, 2022. The Company did not make any changes in those policies during the nine months ended October ~~2, 2021.~~1, 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

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expenditures, service debt, repay outstanding lines of credit, make authorized share repurchases, fund potential acquisitions and pay any adverse litigation or tax audit liabilities, particularly in the U.S.; future impairment charges; the Company’s contributions to defined benefit plans; the Company’s expectations regarding changes to its financial position; compliance with applicable environmental laws; and the impact of recent acquisitions on sales and earnings.

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

10-Q.

Statements that are not statements of historical fact may be deemed forward-looking statements. You can identify these forward-looking statements by the use of the words “feels”, “believes”, “anticipates”, “plans”, “expects”, “may”, “will”, “would”, “intends”, “suggests”, “appears”, “estimates”, “projects”, “should” and similar expressions, whether in the negative or affirmative. These statements are subject to various risks and uncertainties, many of which are outside the control of the Company, including, and without limitation:

Risks related to the effects of the

COVID-19

pandemic on our business, including: portions of our global workforce being unable to work fully and/or effectively due to working remotely, illness, quarantines, government actions, facility closures or other reasons related to the

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.~~its services.

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.

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~~competitive obstacles to new product introductions; lack of acceptance of new products; expansion of our business in developing markets; spending by certain~~

~~end-markets;~~

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

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

The impact and costs incurred from changes in accounting principles and practices; the impact and costs of changes in statutory or contractual tax rates in jurisdictions in which the Company operates, specifically as it relates to the 2017 Tax Act in the U.S.; shifts in taxable income among jurisdictions with different effective tax rates; and the outcome of and costs associated with ongoing and future tax audit examinations or changes in respective country legislation affecting the Company’s effective rates.

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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.

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 October ~~2, 2021,~~1, 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 October ~~2, 2021~~1, 2022 and December 31, ~~2020, $371~~2021, $409 million out of ~~$655~~$445 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~~$445 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 October ~~2, 2021~~1, 2022 and December 31, ~~2020,~~2021, respectively. As of October ~~2, 2021,~~1, 2022, the Company had no holdings in auction rate securities or commercial paper issued by structured investment vehicles.

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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 October ~~2, 2021~~1, 2022 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 October ~~2, 2021.~~1, 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 October ~~2, 2021~~1, 2022 (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 October ~~2, 2021~~1, 2022 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 October ~~2, 2021~~1, 2022 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.

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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 October ~~2, 2021~~1, 2022 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 October ~~2, 2021~~1, 2022 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)
July 3, 2022 to July 30, 2022		129	$	340.09		129	$	528,840
July 31, 2022 to August 27, 2022		157	$	335.11		157	$	476,337
August 28, 2022 to October 1, 2022		199	$	295.79		197	$	418,055

Total		485	$	320.30		483	$	418,055

(1)	The Company repurchased approximately two 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 October ~~2, 2021.~~1, 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, ~~and~~as well as other factors.

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Item 6:

Exhibits


Exhibit Number		Description of Document

~~10.1~~		Amendment 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 October ~~2, 2021,~~1, 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.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

ATERS

ORPORATION

/s/ Amol Chaubal

Amol Chaubal

Senior Vice President and Chief Financial Officer

(Principal Financial Officer)

(Principal Accounting Officer)

Date: November ~~4, 2021~~3, 2022


	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


	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


	Financial Statement Classification	Three Months Ended					Nine Months Ended
	Financial Statement Classification	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


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


	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


	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			—


	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		8		$	381.32

Unvested at October 2, 2021		87		$	285.73
Unvested at October 1, 2022							111		$	297.55


	Three Months Ended October 2, 2021
	Net Income		Weighted- Average Shares		Per Share			Three Months Ended October 1, 2022
	(Numerator)		(Denominator)		Amount			Net Income (Numerator)		Weighted- Average Shares (Denominator)		Per Share Amount
Net income per basic common share	$	161,185		61,359	$	2.63		$	155,998		59,801	$	2.61
Effect of dilutive stock option, restricted stock, performance stock unit and restricted stock unit securities		0		529		(0.03	)		—		280		(0.01	)

Net income per diluted common share	$	161,185		61,888	$	2.60		$	155,998		60,081	$	2.60


	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


	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


	Nine Months Ended October 1, 2022
	Net Income (Numerator)		Weighted- Average Shares (Denominator)		Per Share Amount
Net income per basic common share	$	480,693		60,200	$	7.98
Effect of dilutive stock option, restricted stock, performance stock unit and restricted stock unit securities		—		321		(0.04	)

Net income per diluted common share	$	480,693		60,521	$	7.94


	Nine Months Ended September 26, 2020							Nine Months Ended October 2, 2021
	Net Income (Numerator)		Weighted- Average Shares (Denominator)		Per Share Amount			Net Income (Numerator)		Weighted- Average Shares (Denominator)		Per Share Amount
Net income per basic common share	$	303,260		62,057	$	4.89		$	476,604		61,771	$	7.72
Effect of dilutive stock option, restricted stock, performance stock unit and restricted stock unit securities		0		314		(0.03	)		—		473		(0.06	)

Net income per diluted common share	$	303,260		62,371	$	4.86		$	476,604		62,244	$	7.66


	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		(54,255	)		1,710			20			(52,525	)

Balance at October 1, 2022	$	(154,240	)	$	(10,150	)	$	—		$	(164,390	)


	Three Months Ended
	October 2, 2021		% of Total			September 26, 2020		% of Total			% change			Three Months Ended
	October 2, 2021		% of Total			September 26, 2020		% of Total			% change			October 1, 2022		% of Total			October 2, 2021		% of Total			% change
Waters instrument systems	$	240,475		41	%	$	225,790		42	%		7	%	$	274,869		44	%	$	240,475		41	%		14	%
Chemistry consumables		123,045		21	%		108,175		21	%		14	%		128,096		21	%		123,045		21	%		4	%

Total Waters product sales		363,520		62	%		333,965		63	%		9	%		402,965		65	%		363,520		62	%		11	%
Waters service		218,291		38	%		199,501		37	%		9	%		220,436		35	%		218,291		38	%		1	%

Total Waters net sales	$	581,811		100	%	$	533,466		100	%		9	%	$	623,401		100	%	$	581,811		100	%		7	%

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