QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware | 13-3668640 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, par value $0.01 per share | WAT | New York Stock Exchange , Inc. |
Large accelerated filer | Accelerated filer | ☐ | ||||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||
Emerging growth company | ☐ |
WATERS CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM
INDEX
Item 1: Financial Statements |
April 2, 2022 | December 31, 2021 | |||||||
(In thousands, except per share data) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 480,070 | $ | 501,234 | ||||
Investments | 23,025 | 68,051 | ||||||
Accounts receivable, net | 607,262 | 612,648 | ||||||
Inventories | 381,902 | 356,095 | ||||||
Other current assets | 92,915 | 90,914 | ||||||
Total current assets | 1,585,174 | 1,628,942 | ||||||
Property, plant and equipment, net | 547,199 | 547,913 | ||||||
Intangible assets, net | 236,408 | 242,401 | ||||||
Goodwill | 435,807 | 437,865 | ||||||
Operating lease assets | 86,944 | 84,734 | ||||||
Other assets | 149,737 | 153,077 | ||||||
Total assets | $ | 3,041,269 | $ | 3,094,932 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | 93,235 | 96,799 | ||||||
Accrued employee compensation | 33,770 | 101,192 | ||||||
Deferred revenue and customer advances | 315,086 | 227,561 | ||||||
Current operating lease liabilities | 26,089 | 27,906 | ||||||
Accrued income taxes | 82,634 | 61,278 | ||||||
Accrued warranty | 10,212 | 10,718 | ||||||
Other current liabilities | 126,803 | 155,054 | ||||||
Total current liabilities | 687,829 | 680,508 | ||||||
Long-term liabilities: | ||||||||
Long-term debt | 1,444,122 | 1,513,870 | ||||||
Long-term portion of retirement benefits | 58,442 | 64,027 | ||||||
Long-term income tax liabilities | 319,896 | 319,547 | ||||||
Long-term operating lease liabilities | 61,129 | 59,623 | ||||||
Other long-term liabilities | 94,914 | 89,803 | ||||||
Total long-term liabilities | 1,978,503 | 2,046,870 | ||||||
Total liabilities | 2,666,332 | 2,727,378 | ||||||
Commitments and contingencies (Notes 6, 7, 8 and 11) | 0 | 0 | ||||||
Stockholders’ equity: | ||||||||
Preferred stock, par value $0.01 per share, 5,000 shares authorized, NaN issued at April 2, 2022 and December 31, 2021 | 0 | 0 | ||||||
Common stock, par value $0.01 per share, 400,000 shares authorized, 162,252 and 162,084 shares issued, 60,372 and 60,728 shares outstanding at April 2, 2022 and December 31, 2021, respectively | 1,623 | 1,621 | ||||||
Additional paid-in capital | 2,138,426 | 2,114,880 | ||||||
Retained earnings | 7,960,663 | 7,800,832 | ||||||
Treasury stock, at cost, 101,880 and 101,356 shares at April 2, 2022 and December 31, 2021, respectively | (9,608,050 | ) | (9,437,914 | ) | ||||
Accumulated other comprehensive loss | (117,725 | ) | (111,865 | ) | ||||
Total stockholders’ equity | 374,937 | 367,554 | ||||||
Total liabilities and stockholders’ equity | $ | 3,041,269 | $ | 3,094,932 | ||||
April 1, 2023 | December 31, 2022 | |||||||
(In thousands, except per share data) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 486,070 | $ | 480,529 | ||||
Investments | 885 | 862 | ||||||
Accounts receivable, net | 683,341 | 722,892 | ||||||
Inventories | 499,422 | 455,710 | ||||||
Other current assets | 103,981 | 103,910 | ||||||
Total current assets | 1,773,699 | 1,763,903 | ||||||
Property, plant and equipment, net | 590,207 | 582,217 | ||||||
Intangible assets, net | 232,715 | 227,399 | ||||||
Goodwill | 431,642 | 430,328 | ||||||
Operating lease assets | 86,076 | 86,506 | ||||||
Other assets | 192,481 | 191,100 | ||||||
Total assets | $ | 3,306,820 | $ | 3,281,453 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Notes payable and debt | $ | 50,040 | $ | 50,000 | ||||
Accounts payable | 93,558 | 93,302 | ||||||
Accrued employee compensation | 25,727 | 103,300 | ||||||
Deferred revenue and customer advances | 306,865 | 227,908 | ||||||
Current operating lease liabilities | 24,470 | 26,429 | ||||||
Accrued income taxes | 150,689 | 132,545 | ||||||
Accrued warranty | 12,311 | 11,949 | ||||||
Other current liabilities | 138,290 | 140,304 | ||||||
Total current liabilities | 801,950 | 785,737 | ||||||
Long-term liabilities: | ||||||||
Long-term debt | 1,430,130 | 1,524,878 | ||||||
Long-term portion of retirement benefits | 42,661 | 38,203 | ||||||
Long-term income tax liabilities | 249,196 | 248,496 | ||||||
Long-term operating lease liabilities | 62,257 | 62,108 | ||||||
Other long-term liabilities | 120,803 | 117,543 | ||||||
Total long-term liabilities | 1,905,047 | 1,991,228 | ||||||
Total liabilities | 2,706,997 | 2,776,965 | ||||||
Commitments and contingencies (Notes 6, 7 and 8) | ||||||||
Stockholders’ equity: | ||||||||
Preferred stock, par value $0.01 per share, 5,000 shares authorized, none issued at April 1, 2023 and December 31, 2022 | — | — | ||||||
Common stock, par value $0.01 per share, 400,000 shares authorized, 162,550 and 162,425 shares issued, 59,020 and 59,104 shares outstanding at April 1, 2023 and December 31, 2022, respectively | 1,626 | 1,624 | ||||||
Additional paid-in capital | 2,214,963 | 2,199,824 | ||||||
Retained earnings | 8,649,510 | 8,508,587 | ||||||
Treasury stock, at cost, 103,530 and 103,321 shares at April 1, 2023 and December 31, 2022, respectively | (10,133,480 | ) | (10,063,975 | ) | ||||
Accumulated other comprehensive loss | (132,796 | ) | (141,572 | ) | ||||
Total stockholders’ equity | 599,823 | 504,488 | ||||||
Total liabilities and stockholders’ equity | $ | 3,306,820 | $ | 3,281,453 | ||||
Three Months Ended | ||||||||
April 2, 2022 | April 3, 2021 | |||||||
(In thousands, except per share data) | ||||||||
Revenues: | ||||||||
Product sales | $ | 450,840 | $ | 382,022 | ||||
Service sales | 239,732 | 226,523 | ||||||
Total net sales | 690,572 | 608,545 | ||||||
Costs and operating expenses: | ||||||||
Cost of product sales | 191,610 | 158,876 | ||||||
Cost of service sales | 94,075 | 95,271 | ||||||
Selling and administrative expenses | 157,475 | 143,196 | ||||||
Research and development expenses | 40,472 | 38,092 | ||||||
Purchased intangibles amortization | 1,673 | 1,840 | ||||||
Acquired in-process research and development | 9,797 | — | ||||||
Total costs and operating expenses | 495,102 | 437,275 | ||||||
Operating income | 195,470 | 171,270 | ||||||
Other income, net | 170 | 9,359 | ||||||
Interest expense | (11,059 | ) | (10,946 | ) | ||||
Interest income | 2,114 | 4,101 | ||||||
Income before income taxes | 186,695 | 173,784 | ||||||
Provision for income taxes | 26,864 | 25,657 | ||||||
Net income | $ | 159,831 | $ | 148,127 | ||||
Net income per basic common share | $ | 2.64 | $ | 2.38 | ||||
Weighted-average number of basic common shares | 60,580 | 62,260 | ||||||
Net income per diluted common share | $ | 2.62 | $ | 2.37 | ||||
Weighted-average number of diluted common shares and equivalents | 60,952 | 62,632 |
Three Months Ended | ||||||||
April 1, 2023 | April 2, 2022 | |||||||
(In thousands, except per share data) | ||||||||
Revenues: | ||||||||
Product sales | $ | 436,457 | $ | 450,840 | ||||
Service sales | 248,217 | 239,732 | ||||||
Total net sales | 684,674 | 690,572 | ||||||
Costs and operating expenses: | ||||||||
Cost of product sales | 180,354 | 191,610 | ||||||
Cost of service sales | 104,026 | 94,075 | ||||||
Selling and administrative expenses | 181,956 | 157,475 | ||||||
Research and development expenses | 42,691 | 40,472 | ||||||
Purchased intangibles amortization | 1,479 | 1,673 | ||||||
Acquired in-process research and development | — | 9,797 | ||||||
Total costs and operating expenses | 510,506 | 495,102 | ||||||
Operating income | 174,168 | 195,470 | ||||||
Other income, net | 1,388 | 170 | ||||||
Interest expense | (14,444 | ) | (11,059 | ) | ||||
Interest income | 4,061 | 2,114 | ||||||
Income before income taxes | 165,173 | 186,695 | ||||||
Provision for income taxes | 24,250 | 26,864 | ||||||
Net income | $ | 140,923 | $ | 159,831 | ||||
Net income per basic common share | $ | 2.39 | $ | 2.64 | ||||
Weighted-average number of basic common shares | 59,023 | 60,580 | ||||||
Net income per diluted common share | $ | 2.38 | $ | 2.62 | ||||
Weighted-average number of diluted common shares and equivalents | 59,317 | 60,952 |
Three Months Ended | ||||||||
April 2, 2022 | April 3, 2021 | |||||||
(In thousands) | ||||||||
Net income | $ | 159,831 | $ | 148,127 | ||||
Other comprehensive (loss) income: | ||||||||
Foreign currency translation | (6,169 | ) | 5,825 | |||||
Unrealized gains (losses) on investments before income taxes | 15 | (10 | ) | |||||
Income tax expense | (4 | ) | — | |||||
Unrealized gains (losses) on investments, net of tax | 11 | (10 | ) | |||||
Retirement liability adjustment before reclassifications | 268 | 1,054 | ||||||
Amounts reclassified to other income | 127 | 216 | ||||||
Retirement liability adjustment before income taxes | 395 | 1,270 | ||||||
Income tax expense | (97 | ) | (348 | ) | ||||
Retirement liability adjustment, net of tax | 298 | 922 | ||||||
Other comprehensive (loss) income | (5,860 | ) | 6,737 | |||||
Comprehensive income | $ | 153,971 | $ | 154,864 | ||||
Three Months Ended | ||||||||
April 1, 2023 | April 2, 2022 | |||||||
(In thousands) | ||||||||
Net income | $ | 140,923 | $ | 159,831 | ||||
Other comprehensive income (loss): | ||||||||
Foreign currency translation | 8,783 | (6,169 | ) | |||||
Unrealized gains on investments before income taxes | — | 15 | ||||||
Income tax expense | — | (4 | ) | |||||
Unrealized gains on investments, net of tax | — | 11 | ||||||
Retirement liability adjustment before reclassifications | 80 | 268 | ||||||
Amounts reclassified to other income | (83 | ) | 127 | |||||
Retirement liability adjustment before income taxes | (3 | ) | 395 | |||||
Income tax expense | (4 | ) | (97 | ) | ||||
Retirement liability adjustment, net of tax | (7 | ) | 298 | |||||
Other comprehensive income (loss) | 8,776 | (5,860 | ) | |||||
Comprehensive income | $ | 149,699 | $ | 153,971 | ||||
Three Months Ended | ||||||||
April 1, 2023 | April 2, 2022 | |||||||
(In thousands) | ||||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 140,923 | $ | 159,831 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Stock-based compensation | 12,805 | 10,933 | ||||||
Deferred income taxes | (5,078 | ) | 4,175 | |||||
Depreciation | 19,411 | 17,209 | ||||||
Amortization of intangibles | 11,743 | 15,455 | ||||||
Acquired in-process research and development and othernon-cash items | — | 9,381 | ||||||
Change in operating assets and liabilities: | ||||||||
Decrease (increase) in accounts receivable | 44,047 | (907 | ) | |||||
Increase in inventories | (42,621 | ) | (26,832 | ) | ||||
Increase in other current assets | (2,123 | ) | (1,805 | ) | ||||
Decrease (increase) in other assets | 6,662 | (13,491 | ) | |||||
Decrease in accounts payable and other current liabilities | (71,257 | ) | (69,548 | ) | ||||
Increase in deferred revenue and customer advances | 77,206 | 91,514 | ||||||
Increase in other liabilities | 5,033 | 2,045 | ||||||
Net cash provided by operating activities | 196,751 | 197,960 | ||||||
Cash flows from investing activities: | ||||||||
Additions to property, plant, equipment and software capitalization | (34,390 | ) | (27,751 | ) | ||||
Proceeds from equity investments, net | — | 6,785 | ||||||
Payments for intellectual property licenses | — | (4,897 | ) | |||||
Purchases of investments | (893 | ) | (9,219 | ) | ||||
Maturities and sales of investments | 877 | 54,074 | ||||||
Net cash (used in) provided by investing activities | (34,406 | ) | 18,992 | |||||
Cash flows from financing activities: | ||||||||
Proceeds from debt issuances | 50,040 | — | ||||||
Payments on debt | (145,000 | ) | (70,000 | ) | ||||
Proceeds from stock plans | 2,378 | 12,832 | ||||||
Purchases of treasury shares | (69,505 | ) | (170,136 | ) | ||||
Proceeds from (payments for) derivative contracts | 2,876 | (107 | ) | |||||
Net cash used in financing activities | (159,211 | ) | (227,411 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents | 2,407 | (10,705 | ) | |||||
Increase (decrease) in cash and cash equivalents | 5,541 | (21,164 | ) | |||||
Cash and cash equivalents at beginning of period | 480,529 | 501,234 | ||||||
Cash and cash equivalents at end of period | $ | 486,070 | $ | 480,070 | ||||
Three Months Ended | ||||||||
April 2, 2022 | April 3, 2021 | |||||||
(In thousands) | ||||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 159,831 | $ | 148,127 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Stock-based compensation | 10,933 | 8,305 | ||||||
Deferred income taxes | 4,175 | 2,787 | ||||||
Depreciation | 17,209 | 16,343 | ||||||
Amortization of intangibles | 15,455 | 15,013 | ||||||
Acquired in-process research and development and othernon-cash items | 9,381 | — | ||||||
Change in operating assets and liabilities: | ||||||||
(Increase) decrease in accounts receivable | (907 | ) | 7,945 | |||||
Increase in inventories | (26,832 | ) | (30,544 | ) | ||||
Increase in other current assets | (1,805 | ) | (3,080 | ) | ||||
Increase in other assets | (13,491 | ) | (4,219 | ) | ||||
Decrease in accounts payable and other current liabilities | (69,548 | ) | (29,758 | ) | ||||
Increase in deferred revenue and customer advances | 91,514 | 89,048 | ||||||
Increase (decrease) in other liabilities | 2,045 | (1,563 | ) | |||||
Net cash provided by operating activities | 197,960 | 218,404 | ||||||
Cash flows from investing activities: | ||||||||
Additions to property, plant, equipment and software capitalization | (27,751 | ) | (39,503 | ) | ||||
Proceeds from sale of equity investment | 6,785 | — | ||||||
Payments for intellectual property licenses | (4,897 | ) | — | |||||
Purchases of investments | (9,219 | ) | (122,640 | ) | ||||
Maturities and sales of investments | 54,074 | 3,139 | ||||||
Net cash provided by (used in) investing activities | 18,992 | (159,004 | ) | |||||
Cash flows from financing activities: | ||||||||
Proceeds from debt issuances | — | 500,000 | ||||||
Payments on debt | (70,000 | ) | (150,000 | ) | ||||
Payments of debt issuance costs | — | (3,637 | ) | |||||
Proceeds from stock plans | 12,832 | 16,295 | ||||||
Purchases of treasury shares | (170,136 | ) | (173,305 | ) | ||||
Payments for derivative contracts | (107 | ) | (578 | ) | ||||
Net cash (used in) provided by financing activities | (227,411 | ) | 188,775 | |||||
Effect of exchange rate changes on cash and cash equivalents | (10,705 | ) | (1,087 | ) | ||||
(Decrease) increase in cash and cash equivalents | (21,164 | ) | 247,088 | |||||
Cash and cash equivalents at beginning of period | 501,234 | 436,695 | ||||||
Cash and cash equivalents at end of period | $ | 480,070 | $ | 683,783 | ||||
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 | — | — | — | 159,831 | — | — | 159,831 | |||||||||||||||||||||
Other comprehensive loss | — | — | — | — | — | (5,860 | ) | (5,860 | ) | |||||||||||||||||||
Issuance of common stock for employees: | ||||||||||||||||||||||||||||
Employee Stock Purchase Plan | 7 | — | 2,327 | — | — | — | 2,327 | |||||||||||||||||||||
Stock options exercised | 69 | 1 | 11,091 | — | — | — | 11,092 | |||||||||||||||||||||
Treasury stock | — | — | — | — | (170,136 | ) | — | (170,136 | ) | |||||||||||||||||||
Stock-based compensation | 92 | 1 | 10,128 | — | — | — | 10,129 | |||||||||||||||||||||
Balance April 2, 2022 | 162,252 | $ | 1,623 | $ | 2,138,426 | $ | 7,960,663 | $ | (9,608,050 | ) | $ | (117,725 | ) | $ | 374,937 | |||||||||||||
Number of Common Shares | Common Stock | Additional Paid-In Capital | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Loss | Total Stockholders’ Equity | Number of Common Shares | Common Stock | Additional Paid-In Capital | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Loss | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||||||||
Balance December 31, 2020 | 161,666 | $ | 1,617 | $ | 2,029,465 | $ | 7,107,989 | $ | (8,788,984 | ) | $ | (117,943 | ) | $ | 232,144 | |||||||||||||||||||||||||||||||||||||||||
Balance December 31, 2022 | 162,425 | $ | 1,624 | $ | 2,199,824 | $ | 8,508,587 | $ | (10,063,975 | ) | $ | (141,572 | ) | $ | 504,488 | |||||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | 148,127 | — | — | 148,127 | — | — | — | 140,923 | — | — | 140,923 | ||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income | — | — | — | — | — | 6,737 | 6,737 | — | — | — | — | — | 8,776 | 8,776 | ||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock for employees: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Employee Stock Purchase Plan | 11 | — | 1,855 | — | — | — | 1,855 | 8 | — | 2,000 | — | — | — | 2,000 | ||||||||||||||||||||||||||||||||||||||||||
Stock options exercised | 95 | 1 | 15,129 | — | — | — | 15,130 | 6 | — | 969 | — | — | — | 969 | ||||||||||||||||||||||||||||||||||||||||||
Treasury stock | — | — | — | — | (180,659 | ) | — | (180,659 | ) | — | — | — | — | (69,505 | ) | — | (69,505 | ) | ||||||||||||||||||||||||||||||||||||||
Stock-based compensation | 87 | 1 | 7,627 | — | — | — | 7,628 | 111 | 2 | 12,170 | — | — | — | 12,172 | ||||||||||||||||||||||||||||||||||||||||||
Balance April 3, 2021 | 161,859 | $ | 1,619 | $ | 2,054,076 | $ | 7,256,116 | $ | (8,969,643 | ) | $ | (111,206 | ) | $ | 230,962 | |||||||||||||||||||||||||||||||||||||||||
Balance April 1, 2023 | 162,550 | $ | 1,626 | $ | 2,214,963 | $ | 8,649,510 | $ | (10,133,480 | ) | $ | (132,796 | ) | $ | 599,823 | |||||||||||||||||||||||||||||||||||||||||
Number of Common Shares | Common Stock | Additional Paid-In Capital | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Loss | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||
Balance December 31, 2021 | 162,084 | $ | 1,621 | $ | 2,114,880 | $ | 7,800,832 | $ | (9,437,914 | ) | $ | (111,865 | ) | $ | 367,554 | |||||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | 159,831 | — | — | 159,831 | |||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | — | (5,860 | ) | (5,860 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock for employees: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Employee Stock Purchase Plan | 7 | — | 2,327 | — | — | — | 2,327 | |||||||||||||||||||||||||||||||||||||||||||||||||
Stock options exercised | 69 | 1 | 11,091 | — | — | — | 11,092 | |||||||||||||||||||||||||||||||||||||||||||||||||
Treasury stock | — | — | — | — | (170,136 | ) | — | (170,136 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | 92 | 1 | 10,128 | — | — | — | 10,129 | |||||||||||||||||||||||||||||||||||||||||||||||||
Balance April 2, 2022 | 162,252 | $ | 1,623 | $ | 2,138,426 | $ | 7,960,663 | $ | (9,608,050 | ) | $ | (117,725 | ) | $ | 374,937 | |||||||||||||||||||||||||||||||||||||||||
Balance at Beginning of Period | Additions | Deductions | Balance at End of Period | |||||||||||||||||||||||||||||
Balance at Beginning of Period | Additions | Deductions | Balance at End of Period | |||||||||||||||||||||||||||||
Allowance for Credit Losses | ||||||||||||||||||||||||||||||||
April 1, 2023 | $ | 14,311 | $ | 1,572 | $ | (1,028 | ) | $ | 14,855 | |||||||||||||||||||||||
April 2, 2022 | $ | 13,228 | $ | 987 | $ | (1,072 | ) | $ | 13,143 | $ | 13,228 | $ | 987 | $ | (1,072 | ) | $ | 13,143 | ||||||||||||||
April 3, 2021 | $ | 14,381 | $ | 775 | $ | (1,561 | ) | $ | 13,595 |
Quoted Prices | ||||||||||||||||||||||||||||||||
in Active | Significant | |||||||||||||||||||||||||||||||
Markets | Other | Significant | ||||||||||||||||||||||||||||||
Total at | for Identical | Observable | Unobservable | |||||||||||||||||||||||||||||
April 2, | Assets | Inputs | Inputs | |||||||||||||||||||||||||||||
2022 | (Level 1) | (Level 2) | (Level 3) | Total at April 1, 2023 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||
U.S. Treasury securities | $ | 4,796 | $ | — | $ | 4,796 | $ | — | ||||||||||||||||||||||||
Corporate debt securities | 5,605 | — | 5,605 | — | ||||||||||||||||||||||||||||
Time deposits | 14,624 | — | 14,624 | — | $ | 885 | $ | — | $ | 885 | $ | — | ||||||||||||||||||||
Waters 401(k) Restoration Plan assets | 32,953 | 32,953 | — | — | 28,310 | 28,310 | — | — | ||||||||||||||||||||||||
Foreign currency exchange contracts | 9 | — | 9 | — | 121 | — | 121 | — | ||||||||||||||||||||||||
Interest rate cross-currency swap agreements | 8,163 | — | 8,163 | — | 13,880 | — | 13,880 | — | ||||||||||||||||||||||||
Total | $ | 66,150 | $ | 32,953 | $ | 33,197 | $ | — | $ | 43,196 | $ | 28,310 | $ | 14,886 | $ | — | ||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||||||
Contingent consideration | $ | 1,388 | $ | — | $ | — | $ | 1,388 | ||||||||||||||||||||||||
Foreign currency exchange contracts | 190 | — | 190 | — | $ | 67 | $ | — | $ | 67 | $ | — | ||||||||||||||||||||
Interest rate cross-currency swap agreements | 635 | — | 635 | — | 6,756 | — | 6,756 | — | ||||||||||||||||||||||||
Total | $ | 2,213 | $ | — | $ | 825 | $ | 1,388 | $ | 6,823 | $ | — | $ | 6,823 | $ | — | ||||||||||||||||
Quoted Prices | ||||||||||||||||
in Active | Significant | |||||||||||||||
Markets | Other | Significant | ||||||||||||||
Total at | for Identical | Observable | Unobservable | |||||||||||||
December 31, | Assets | Inputs | Inputs | |||||||||||||
2021 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Assets: | ||||||||||||||||
U.S. Treasury securities | $ | 13,917 | $ | — | $ | 13,917 | — | |||||||||
Corporate debt securities | 39,121 | — | 39,121 | — | ||||||||||||
Time deposits | 19,030 | — | 19,030 | $ | — | |||||||||||
Waters 401(k) Restoration Plan assets | 38,729 | 38,729 | — | — | ||||||||||||
Foreign currency exchange contracts | 504 | — | 504 | — | ||||||||||||
Total | $ | 111,301 | $ | 38,729 | $ | 72,572 | $ | — | ||||||||
Liabilities: | ||||||||||||||||
Contingent consideration | $ | 1,347 | $ | — | $ | — | $ | 1,347 | ||||||||
Foreign currency exchange contracts | 195 | — | 195 | — | ||||||||||||
Interest rate cross-currency swap agreements | 5,363 | — | 5,363 | — | ||||||||||||
Total | $ | 6,905 | $ | — | $ | 5,558 | $ | 1,347 | ||||||||
Total at December 31, 2022 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||
Assets: | ||||||||||||||||
Time deposits | $ | 862 | $ | — | $ | 862 | $ | — | ||||||||
Waters 401(k) Restoration Plan assets | 25,532 | 25,532 | — | — | ||||||||||||
Foreign currency exchange contracts | 231 | — | 231 | — | ||||||||||||
Interest rate cross-currency swap agreements | 19,163 | — | 19,163 | — | ||||||||||||
Total | $ | 45,788 | $ | 25,532 | $ | 20,256 | $ | — | ||||||||
Liabilities: | ||||||||||||||||
Contingent consideration | $ | 1,509 | $ | — | $ | — | $ | 1,509 | ||||||||
Foreign currency exchange contracts | 98 | — | 98 | — | ||||||||||||
Interest rate cross-currency swap agreements | 4,783 | — | 4,783 | — | ||||||||||||
Total | $ | 6,390 | $ | — | $ | 4,881 | $ | 1,509 | ||||||||
April 2, 2022 | December 31, 2021 | April 1, 2023 | December 31, 2022 | |||||||||||||||||||||||||||||
Notional Value | Fair Value | Notional Value | Fair Value | Notional Value | Fair Value | Notional Value | Fair Value | |||||||||||||||||||||||||
Foreign currency exchange contracts: | ||||||||||||||||||||||||||||||||
Other current assets | $ | 10,509 | $ | 9 | $ | 55,309 | $ | 504 | $ | 31,461 | $ | 121 | $ | 42,047 | $ | 231 | ||||||||||||||||
Other current liabilities | $ | 46,882 | $ | 190 | $ | 9,000 | $ | 195 | $ | 16,968 | $ | 67 | $ | 13,450 | $ | 98 | ||||||||||||||||
Interest rate cross-currency swap agreements: | ||||||||||||||||||||||||||||||||
Other assets | $ | 470,000 | $ | 8,163 | $ | 0 | $ | 0 | $ | 400,000 | $ | 13,880 | $ | 400,000 | $ | 19,163 | ||||||||||||||||
Other liabilities | 80,000 | 635 | 230,000 | 5,363 | $ | 185,000 | $ | 6,756 | $ | 185,000 | $ | 4,783 | ||||||||||||||||||||
Accumulated other comprehensive loss | $ | 3,755 | $ | 15,944 | ||||||||||||||||||||||||||||
Accumulated other comprehensive income | $ | 2,770 | $ | 10,026 |
Financial Statement Classification | Three Months Ended | |||||||||
April 2, 2022 | April 3, 2021 | |||||||||
Foreign currency exchange contracts: | ||||||||||
Realized (losses) gains on closed contracts | Cost of sales | $ | (1,499 | ) | $ | 1,667 | ||||
Unrealized losses on open contracts | Cost of sales | (489 | ) | (753 | ) | |||||
Cumulative net pre-tax (losses) gains | Cost of sales | $ | (1,988 | ) | $ | 914 | ||||
Interest rate cross-currency swap agreements: | ||||||||||
Interest earned | Interest income | $ | 1,775 | $ | 3,827 | |||||
Unrealized gains on contracts, net | Accumulated other comprehensive loss | $ | 12,188 | $ | 21,244 |
Financial Statement Classification | Three Months Ended | |||||||||
April 1, 2023 | April 2, 2022 | |||||||||
Foreign currency exchange contracts: | ||||||||||
Realized gains (losses) on closed contracts | Cost of sales | $ | 30 | $ | (1,499 | ) | ||||
Unrealized losses on open contracts | Cost of sales | (78 | ) | (489 | ) | |||||
Cumulative net pre-tax losses | Cost of sales | $ | (48 | ) | $ | (1,988 | ) | |||
Interest rate cross-currency swap agreements: | ||||||||||
Interest earned | Interest income | $ | 2,655 | $ | 1,775 | |||||
Unrealized (losses) gains on contracts, net | Accumulated other comprehensive loss | $ | (7,256 | ) | $ | 12,188 |
Balance at Beginning of Period | Accruals for Warranties | Settlements Made | Balance at End of Period | |||||||||||||
Accrued warranty liability: | ||||||||||||||||
April 2, 2022 | $ | 10,718 | $ | 1,916 | $ | (2,422 | ) | $ | 10,212 | |||||||
April 3, 2021 | $ | 10,950 | $ | 2,337 | $ | (2,582 | ) | $ | 10,705 |
Balance at Beginning of Period | Accruals for Warranties | Settlements Made | Balance at End of Period | |||||||||||||
Accrued warranty liability: | ||||||||||||||||
April 1, 2023 | $ | 11,949 | $ | 2,177 | $ | (1,815 | ) | $ | 12,311 | |||||||
April 2, 2022 | $ | 10,718 | $ | 1,916 | $ | (2,422 | ) | $ | 10,212 |
April 2, 2022 | April 3, 2021 | April 1, 2023 | April 2, 2022 | |||||||||||||
Balance at the beginning of the period | $ | 273,598 | $ | 239,759 | $ | 285,175 | $ | 273,598 | ||||||||
Recognition of revenue included in balance at beginning of the period | (103,355 | ) | (94,078 | ) | (105,222 | ) | (103,355 | ) | ||||||||
Revenue deferred during the period, net of revenue recognized | 198,036 | 182,384 | 193,286 | 198,036 | ||||||||||||
Balance at the end of the period | $ | 368,279 | $ | 328,065 | $ | 373,239 | $ | 368,279 | ||||||||
April 2, 2022 | April 1, 2023 | |||||||
Deferred revenue and customer advances expected to be recognized in: | ||||||||
One year or less | $ | 315,086 | $ | 306,865 | ||||
13-24 months | 32,877 | 40,785 | ||||||
25 months and beyond | 20,316 | 25,589 | ||||||
Total | $ | 368,279 | $ | 373,239 | ||||
April 2, 2022 | ||||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gain | Loss | Value | |||||||||||||
U.S. Treasury securities | $ | 4,802 | $ | — | $ | (6 | ) | $ | 4,796 | |||||||
Corporate debt securities | 5,610 | — | (5 | ) | 5,605 | |||||||||||
Time deposits | 14,624 | — | — | 14,624 | ||||||||||||
Total | $ | 25,036 | $ | — | $ | (11 | ) | $ | 25,025 | |||||||
Amounts included in: | ||||||||||||||||
Cash equivalents | $ | 2,000 | $ | — | $ | — | $ | 2,000 | ||||||||
Investments | 23,036 | — | (11 | ) | 23,025 | |||||||||||
Total | $ | 25,036 | $ | — | $ | (11 | ) | $ | 25,025 | |||||||
December 31, 2021 | ||||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gain | Loss | Value | |||||||||||||
U.S. Treasury securities | $ | 13,929 | $ | — | $ | (12 | ) | $ | 13,917 | |||||||
Corporate debt securities | 39,135 | — | (14 | ) | 39,121 | |||||||||||
Time deposits | 19,030 | — | — | 19,030 | ||||||||||||
Total | $ | 72,094 | $ | — | $ | (26 | ) | $ | 72,068 | |||||||
Amounts included in: | ||||||||||||||||
Cash equivalents | $ | 4,017 | $ | — | $ | 0 | $ | 4,017 | ||||||||
Investments | 68,077 | — | (26 | ) | 68,051 | |||||||||||
Total | $ | 72,094 | $ | — | $ | (26 | ) | $ | 72,068 | |||||||
April 2, 2022 | December 31, 2021 | |||||||
Due in one year or less | $ | 25,025 | $ | 71,066 | ||||
Due after one year through three years | — | 1,002 | ||||||
Total | $ | 25,025 | $ | 72,068 | ||||
April 2, 2022 | December 31, 2021 | April 1, 2023 | December 31, 2022 | |||||||||||||
Raw materials | $ | 168,324 | $ | 165,240 | $ | 217,120 | $ | 205,760 | ||||||||
Work in progress | 24,087 | 19,726 | 24,380 | 19,899 | ||||||||||||
Finished goods | 189,491 | 171,129 | 257,922 | 230,051 | ||||||||||||
Total inventories | $ | 381,902 | $ | 356,095 | $ | 499,422 | $ | 455,710 | ||||||||
April 1, 2023 | December 31, 2022 | |||||||||||||||||||||||
Gross Carrying Amount | Accumulated Amortization | Weighted- Average Amortization Period | Gross Carrying Amount | Accumulated Amortization | Weighted- Average Amortization Period | |||||||||||||||||||
Capitalized software | $ | 610,668 | $ | 455,952 | 5years | $ | 589,604 | $ | 441,414 | 5years | ||||||||||||||
Purchased intangibles | 198,395 | 168,787 | 11years | 197,805 | 166,735 | 11years | ||||||||||||||||||
Trademarks | 9,680 | — | — | 9,680 | — | — | ||||||||||||||||||
Licenses | 14,339 | 7,186 | 6years | 14,070 | 6,729 | 6years | ||||||||||||||||||
Patents and other intangibles | 106,660 | 75,102 | 8years | 104,139 | 73,021 | 8years | ||||||||||||||||||
Total | $ | 939,742 | $ | 707,027 | 7years | $ | 915,298 | $ | 687,899 | 7years | ||||||||||||||
April 2, 2022 | December 31, 2021 | |||||||||||||||||||||||
Weighted- | Weighted- | |||||||||||||||||||||||
Gross | Average | Gross | Average | |||||||||||||||||||||
Carrying | Accumulated | Amortization | Carrying | Accumulated | Amortization | |||||||||||||||||||
Amount | Amortization | Period | Amount | Amortization | Period | |||||||||||||||||||
Capitalized software | $ | 576,013 | $ | 424,114 | 5 years | $ | 575,658 | $ | 420,862 | 5 years | ||||||||||||||
Purchased intangibles | 200,284 | 164,372 | 11 years | 201,302 | 163,752 | 11 years | ||||||||||||||||||
Trademarks | 9,680 | — | — | 9,680 | — | — | ||||||||||||||||||
Licenses | 12,339 | 6,285 | 7 years | 12,635 | 6,199 | 7 years | ||||||||||||||||||
Patents and other intangibles | 102,493 | 69,630 | 8 years | 102,353 | 68,414 | 8 years | ||||||||||||||||||
Total | $ | 900,809 | $ | 664,401 | 7 years | $ | 901,628 | $ | 659,227 | 7 years | ||||||||||||||
April 2, 2022 | December 31, 2021 | |||||||
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 | 100,000 | ||||||
Senior unsecured notes - Series O - 2.25%, due March 2031 | 400,000 | 400,000 | ||||||
Credit agreement | 140,000 | 210,000 | ||||||
Unamortized debt issuance costs | (5,878 | ) | (6,130 | ) | ||||
Total long-term debt | 1,444,122 | 1,513,870 | ||||||
Total debt | $ | 1,444,122 | $ | 1,513,870 | ||||
April 1, 2023 | December 31, 2022 | |||||||
Foreign subsidiary lines of credit | $ | 40 | $ | — | ||||
Senior unsecured notes—Series I - | 50,000 | 50,000 | ||||||
Total notes payable and debt, current | 50,040 | 50,000 | ||||||
Senior unsecured notes—Series G - | 50,000 | 50,000 | ||||||
Senior unsecured notes—Series H - | 50,000 | 50,000 | ||||||
Senior unsecured notes—Series K - | 160,000 | 160,000 | ||||||
Senior unsecured notes—Series L - | 200,000 | 200,000 | ||||||
Senior unsecured notes—Series M - | 300,000 | 300,000 | ||||||
Senior unsecured notes—Series N - | 100,000 | 100,000 | ||||||
Senior unsecured notes—Series O - | 400,000 | 400,000 | ||||||
Credit agreement | 175,000 | 270,000 | ||||||
Unamortized debt issuance costs | (4,870 | ) | (5,122 | ) | ||||
Total long-term debt | 1,430,130 | 1,524,878 | ||||||
Total debt | $ | 1,480,170 | $ | 1,574,878 | ||||
* | Series H senior unsecured notes bear interest at a 1.25%.3-month LIBOR for that floating rate interest period plus |
Three Months Ended | ||||||||
April 2, 2022 | April 3, 2021 | |||||||
Cost of sales | $ | 1,027 | $ | 633 | ||||
Selling and administrative expenses | 8,169 | 6,420 | ||||||
Research and development expenses | 1,737 | 1,252 | ||||||
Total stock-based compensation | $ | 10,933 | $ | 8,305 | ||||
Three Months Ended | ||||||||
Options Issued and Significant Assumptions Used to Estimate Option Fair Values | April 2, 2022 | April 3, 2021 | ||||||
Options issued in thousands | 127 | 139 | ||||||
Risk-free interest rate | 1.9 | % | 0.8 | % | ||||
Expected life in years | 6 | 6 | ||||||
Expected volatility | 30.9 | % | 33.1 | % | ||||
Expected dividends | 0 | — |
Three Months Ended | ||||||||
Weighted-Average Exercise Price and Fair Value of Options on the Date of Grant | April 2, 2022 | April 3, 2021 | ||||||
Exercise price | $ | 321.91 | $ | 277.32 | ||||
Fair value | $ | 107.76 | $ | 91.63 |
Number of Shares | Exercise Price per Share | Weighted-Average Exercise Price per Share | ||||||||||
Outstanding at December 31, 2021 | 691 | $ | 88.71 to $371.64 | $ | 202.24 | |||||||
Granted | 127 | $ | 314.98 to $364.59 | $ | 321.91 | |||||||
Exercised | (69 | ) | $ | 88.71 to $279.90 | $ | 160.49 | ||||||
Canceled | (6 | ) | $ | 203.37 to $279.90 | $ | 235.95 | ||||||
Outstanding at April 2, 2022 | 743 | $ | 88.71 to $371.64 | $ | 226.30 | |||||||
Shares | Weighted-Average Grant Date Fair Value per Share | |||||||
Unvested at December 31, 2021 | 245 | $ | 234.97 | |||||
Granted | 94 | $ | 323.65 | |||||
Vested | (68 | ) | $ | 217.21 | ||||
Forfeited | (3 | ) | $ | 228.76 | ||||
Unvested at April 2, 2022 | 268 | $ | 270.65 | |||||
Three Months Ended | ||||||||
Performance Stock Units Issued and Significant Assumptions Used to Estimate Fair Values | April 2, 2022 | April 3, 2021 | ||||||
Performance stock units issued (in thousands) | 40 | 41 | ||||||
Risk-free interest rate | 1.6 | % | 0.2 | % | ||||
Expected life in years | 2.9 | 2.9 | ||||||
Expected volatility | 25.4 | % | 38.7 | % | ||||
Average volatility of peer companies | 34.5 | % | 34.7 | % | ||||
Correlation coefficient | 43.0 | % | 45.8 | % | ||||
Expected dividends | 0 | — |
Shares | Weighted-Average Fair Value per Share | |||||||
Unvested at December 31, 2021 | 87 | $ | 285.73 | |||||
Granted | 40 | $ | 325.12 | |||||
Vested | (24 | ) | $ | 308.71 | ||||
Forfeited | 11 | $ | 396.67 | |||||
Unvested at April 2, 2022 | 114 | $ | 305.42 | |||||
Three Months Ended April 1, 2023 | ||||||||||||
Net Income (Numerator) | Weighted- Average Shares (Denominator) | Per Share Amount | ||||||||||
Net income per basic common share | $ | 140,923 | 59,023 | $ | 2.39 | |||||||
Effect of dilutive stock option, restricted stock, performance stock unit and restricted stock unit securities | — | 294 | (0.01 | ) | ||||||||
Net income per diluted common share | $ | 140,923 | 59,317 | $ | 2.38 | |||||||
Three Months Ended April 2, 2022 | ||||||||||||
Net Income | Weighted- Average Shares | Per Share | ||||||||||
(Numerator) | (Denominator) | Amount | ||||||||||
Net income per basic common share | $ | 159,831 | 60,580 | $ | 2.64 | |||||||
Effect of dilutive stock option, restricted stock, performance stock unit and restricted stock unit securities | — | 372 | (0.02 | ) | ||||||||
Net income per diluted common share | $ | 159,831 | 60,952 | $ | 2.62 | |||||||
Three Months Ended April 3, 2021 | ||||||||||||
Net Income | Weighted- Average Shares | Per Share | ||||||||||
(Numerator) | (Denominator) | Amount | ||||||||||
Net income per basic common share | $ | 148,127 | 62,260 | $ | 2.38 | |||||||
Effect of dilutive stock option, restricted stock, performance stock unit and restricted stock unit securities | 0 | 372 | (0.01 | ) | ||||||||
Net income per diluted common share | $ | 148,127 | 62,632 | $ | 2.37 | |||||||
Three Months Ended April 2, 2022 | ||||||||||||
Net Income (Numerator) | Weighted- Average Shares (Denominator) | Per Share Amount | ||||||||||
Net income per basic common share | $ | 159,831 | 60,580 | $ | 2.64 | |||||||
Effect of dilutive stock option, restricted stock, performance stock unit and restricted stock unit securities | — | 372 | (0.02 | ) | ||||||||
Net income per diluted common share | $ | 159,831 | 60,952 | $ | 2.62 | |||||||
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 | (6,169 | ) | 298 | 11 | (5,860 | ) | ||||||||||
Balance at April 2, 2022 | $ | (106,154 | ) | $ | (11,562 | ) | $ | (9 | ) | $ | (117,725 | ) | ||||
Three Months Ended | ||||||||||||||||
April 2, 2022 | April 3, 2021 | |||||||||||||||
U.S. Retiree | Non-U.S. | U.S. Retiree | Non-U.S. | |||||||||||||
Healthcare | Pension | Healthcare | Pension | |||||||||||||
Plan | Plans | Plan | Plans | |||||||||||||
Service cost | $ | 226 | $ | 1,082 | $ | 233 | $ | 1,160 | ||||||||
Interest cost | 145 | 366 | 139 | 315 | ||||||||||||
Expected return on plan assets | (269 | ) | (534 | ) | (255 | ) | (466 | ) | ||||||||
Net amortization: | ||||||||||||||||
Prior service credit | (5 | ) | (37 | ) | (5 | ) | (41 | ) | ||||||||
Net actuarial loss | — | 169 | — | 262 | ||||||||||||
Net periodic pension cost | $ | 97 | $ | 1,046 | $ | 112 | $ | 1,230 | ||||||||
Currency Translation | Unrealized Gain (Loss) on Retirement Plans | Accumulated Other Comprehensive Loss | ||||||||||
Balance at December 31, 2022 | $ | (146,120 | ) | $ | 4,548 | $ | (141,572 | ) | ||||
Other comprehensive (loss) income, net of tax | 8,783 | (7 | ) | 8,776 | ||||||||
Balance at April 1, 2023 | $ | (137,337 | ) | $ | 4,541 | $ | (132,796 | ) | ||||
Three Months Ended | ||||||||
April 2, 2022 | April 3, 2021 | |||||||
Product net sales: | ||||||||
Waters instrument systems | $ | 269,962 | $ | 216,072 | ||||
Chemistry consumables | 125,618 | 118,974 | ||||||
TA instrument systems | 55,260 | 46,976 | ||||||
Total product sales | 450,840 | 382,022 | ||||||
Service net sales: | ||||||||
Waters service | 217,576 | 206,832 | ||||||
TA service | 22,156 | 19,691 | ||||||
Total service sales | 239,732 | 226,523 | ||||||
Total net sales | $ | 690,572 | $ | 608,545 | ||||
Three Months Ended | ||||||||
April 1, 2023 | April 2, 2022 | |||||||
Product net sales: | ||||||||
Waters instrument systems | $ | 244,211 | $ | 269,962 | ||||
Chemistry consumables | 133,515 | 125,618 | ||||||
TA instrument systems | 58,731 | 55,260 | ||||||
Total product sales | 436,457 | 450,840 | ||||||
Service net sales: | ||||||||
Waters service | 224,349 | 217,576 | ||||||
TA service | 23,868 | 22,156 | ||||||
Total service sales | 248,217 | 239,732 | ||||||
Total net sales | $ | 684,674 | $ | 690,572 | ||||
Three Months Ended | ||||||||
April 2, 2022 | April 3, 2021 | |||||||
Net Sales: | ||||||||
Asia: | ||||||||
China | $ | 121,032 | $ | 102,919 | ||||
Japan | 48,623 | 50,296 | ||||||
Asia Other | 84,679 | 76,327 | ||||||
Total Asia | 254,334 | 229,542 | ||||||
Americas: | ||||||||
United States | 208,713 | 162,433 | ||||||
Americas Other | 40,124 | 34,924 | ||||||
Total Americas | 248,837 | 197,357 | ||||||
Europe | 187,401 | 181,646 | ||||||
Total net sales | $ | 690,572 | $ | 608,545 | ||||
Three Months Ended | ||||||||
April 1, 2023 | April 2, 2022 | |||||||
Net Sales: | ||||||||
Asia: | ||||||||
China | $ | 116,065 | $ | 121,032 | ||||
Japan | 46,494 | 48,623 | ||||||
Asia Other | 90,522 | 84,679 | ||||||
Total Asia | 253,081 | 254,334 | ||||||
Americas: | ||||||||
United States | 202,305 | 208,713 | ||||||
Americas Other | 44,116 | 40,124 | ||||||
Total Americas | 246,421 | 248,837 | ||||||
Europe | 185,172 | 187,401 | ||||||
Total net sales | $ | 684,674 | $ | 690,572 | ||||
Three Months Ended | Three Months Ended | |||||||||||||||
April 2, 2022 | April 3, 2021 | April 1, 2023 | April 2, 2022 | |||||||||||||
Pharmaceutical | $ | 415,772 | $ | 360,148 | $ | 384,898 | $ | 415,772 | ||||||||
Industrial | 209,397 | 183,273 | 209,650 | 209,397 | ||||||||||||
Academic and government | 65,403 | 65,124 | 90,126 | 65,403 | ||||||||||||
Total net sales | $ | 690,572 | $ | 608,545 | $ | 684,674 | $ | 690,572 | ||||||||
Three Months Ended | Three Months Ended | |||||||||||||||
April 2, 2022 | April 3, 2021 | April 1, 2023 | April 2, 2022 | |||||||||||||
Net sales recognized at a point in time: | ||||||||||||||||
Instrument systems | $ | 325,222 | $ | 263,048 | $ | 302,942 | $ | 325,222 | ||||||||
Chemistry consumables | 125,618 | 118,974 | 133,515 | 125,618 | ||||||||||||
Service sales recognized at a point in time (time & materials) | 85,778 | 79,287 | 88,207 | 85,778 | ||||||||||||
Total net sales recognized at a point in time | 536,618 | 461,309 | 524,664 | 536,618 | ||||||||||||
Net sales recognized over time: | ||||||||||||||||
Service and software sales recognized over time (contracts) | 153,954 | 147,236 | ||||||||||||||
Service and software maintenance sales recognized over time (contracts) | 160,010 | 153,954 | ||||||||||||||
Total net sales | $ | 690,572 | $ | 608,545 | $ | 684,674 | $ | 690,572 | ||||||||
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations
Business Overview
The Company has two operating segments: Waters
COVID-19
Both the Company’s domestic and international operations have been and continue to be affected by the ongoing global
The
20
Financial Overview
The Company’s operating results are as follows for the three months ended April 2, 20221, 2023 and April 3, 20212, 2022 (dollars in thousands, except per share data):
Three Months Ended | ||||||||||||
April 2, 2022 | April 3, 2021 | % Change | ||||||||||
Revenues: | ||||||||||||
Product sales | $ | 450,840 | $ | 382,022 | 18 | % | ||||||
Service sales | 239,732 | 226,523 | 6 | % | ||||||||
Total net sales | 690,572 | 608,545 | 13 | % | ||||||||
Costs and operating expenses: | ||||||||||||
Cost of sales | 285,685 | 254,147 | 12 | % | ||||||||
Selling and administrative expenses | 157,475 | 143,196 | 10 | % | ||||||||
Research and development expenses | 40,472 | 38,092 | 6 | % | ||||||||
Purchased intangibles amortization | 1,673 | 1,840 | (9 | %) | ||||||||
Acquired in-process research and development | 9,797 | — | — | |||||||||
Operating income | 195,470 | 171,270 | 14 | % | ||||||||
Operating income as a % of sales | 28.3 | % | 28.1 | % | ||||||||
Other income, net | 170 | 9,359 | (98 | %) | ||||||||
Interest expense, net | (8,945 | ) | (6,845 | ) | 31 | % | ||||||
Income before income taxes | 186,695 | 173,784 | 7 | % | ||||||||
Provision for income taxes | 26,864 | 25,657 | 5 | % | ||||||||
Net income | $ | 159,831 | $ | 148,127 | 8 | % | ||||||
Net income per diluted common share | $ | 2.62 | $ | 2.37 | 11 | % |
Three Months Ended | ||||||||||||
April 1, 2023 | April 2, 2022 | % change | ||||||||||
Revenues: | ||||||||||||
Product sales | $ | 436,457 | $ | 450,840 | (3 | %) | ||||||
Service sales | 248,217 | 239,732 | 4 | % | ||||||||
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Total net sales | 684,674 | 690,572 | (1 | %) | ||||||||
Costs and operating expenses: | ||||||||||||
Cost of sales | 284,380 | 285,685 | — | |||||||||
Selling and administrative expenses | 181,956 | 157,475 | 16 | % | ||||||||
Research and development expenses | 42,691 | 40,472 | 5 | % | ||||||||
Purchased intangibles amortization | 1,479 | 1,673 | (12 | %) | ||||||||
Acquired in-process research and development | — | 9,797 | * | * | ||||||||
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Operating income | 174,168 | 195,470 | (11 | %) | ||||||||
Operating income as a % of sales | 25.4 | % | 28.3 | % | ||||||||
Other income, net | 1,388 | 170 | * | * | ||||||||
Interest expense, net | (10,383 | ) | (8,945 | ) | 16 | % | ||||||
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Income before income taxes | 165,173 | 186,695 | (12 | %) | ||||||||
Provision for income taxes | 24,250 | 26,864 | (10 | %) | ||||||||
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Net income | $ | 140,923 | $ | 159,831 | (12 | %) | ||||||
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Net income per diluted common share | $ | 2.38 | $ | 2.62 | (9 | %) |
** | Percentage not meaningful |
The Company’s net sales increased 13%decreased 1% in the first quarter of 20222023 driven by weaker customer demand for our instrument systems as compared to the first quarter of 2021 driven by strong customer demand across most major geographies, end markets, and product categories.2022. Foreign currency translation decreased total sales growth by 3%4% in the first quarter of 2023 as the significant U.S. dollar strengthened versus moststrengthening that began in March of the foreign currencies in the world in the quarter.2022 annualized, negatively impacting our sales and operating profits. In addition, the Company’s first quarter of 20222023 had one less calendar day than the first quarter of 2021.
Instrument system sales increaseddecreased 7% primarily on weaker customer demand in the U.S., Europe and China in the first quarter of 2023 as compared to the instrument system sales increase of 24% in the first quarter due to theof 2022, which was broad-based increase in customer demand across all existing and newly introduced LC,
Operating income was $174 million in the first quarter of 2023, a decrease of 11% as compared to $195 million in the first quarter of 2022. This decrease was primarily a result of higher salary expenses related to merit compensation and additional headcount increases, Wyatt acquisition due diligence costs and the negative effect of foreign currency translation which lowered operating income by approximately $16 million and $4 million during the first quarter of 2023 and 2022, respectively.
The Company generated $197 million and $198 million of net cash flows provided by operating activities in the first quarter of 2023 and 2022, respectively.
Net cash used in investing activities included capital expenditures related to property, plant, equipment and software capitalization of $34 million and $28 million in the first quarter of 2023 and 2022, respectively.
21
On February 14, 2023, the Company entered into an agreement to acquire all issued and outstanding equity interests of Wyatt Technology for $1.4 billion in cash at closing, subject to customary adjustments. Wyatt Technology is a pioneer in innovative light scattering and field-flow fractionation instruments, software, accessories and services. The Company will finance this acquisition through cash on its balance sheet and existing borrowing capacity that is available on its revolving credit facility. The agreement contains certain customary termination rights, including the right of the sellers to terminate this transaction if it has not been completed by June 14, 2023, subject to automatic extension to August 14, 2023 if certain regulatory approvals are not obtained by such date. If this were to occur, the Company would be required to pay the sellers a one-time fee in the amount of $15 million if the agreement is validly terminated and not consummated in accordance with the closing conditions set forth in the agreement. This transaction is expected to close in the second quarter of 2023, subject to regulatory approvals and other customary closing conditions.
In January 2019, the Company’s Board of Directors authorized the Company to repurchase up to $4 billion of its outstanding common stock over a two-year period. In December 2020, the Company’s Board of Directors authorized the extension of the share repurchase program through January 21, 2023. In December 2022, the Company’s Board of Directors amended and extended this repurchase program’s term by one year such that it shall now expire on January 21, 2024 and increased the total authorization level by $750 million to $4.8 billion. During the three months ended April 1, 2023 and April 2, 2022, the Company repurchased $58 million and $160 million of the Company’s outstanding common stock, respectively, under the share repurchase programs. While the Company believes that it has the financial flexibility to fund these share repurchases, as well as to invest in research, technology and business acquisitions, given current cash levels and debt borrowing capacity, it has temporarily suspended its share repurchases due to its recently announced agreement to acquire Wyatt Technology.
On March 3, 2023, the Company entered into an agreement to amend the credit agreement governing its revolving credit facility (the “2023 Amendment”). The 2023 Amendment increases the borrowing capacity by $200 million to an aggregate total borrowing capacity of $2.0 billion.
Results of Operations
Sales by Geography
Geographic sales information is presented below for the three months ended April 1, 2023 and April 2, 2022 (dollars in thousands):
Three Months Ended | ||||||||||||
April 1, 2023 | April 2, 2022 | % change | ||||||||||
Net Sales: | ||||||||||||
Asia: | ||||||||||||
China | $ | 116,065 | $ | 121,032 | (4 | %) | ||||||
Japan | 46,494 | 48,623 | (4 | %) | ||||||||
Asia Other | 90,522 | 84,679 | 7 | % | ||||||||
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Total Asia | 253,081 | 254,334 | — | |||||||||
Americas: | ||||||||||||
United States | 202,305 | 208,713 | (3 | %) | ||||||||
Americas Other | 44,116 | 40,124 | 10 | % | ||||||||
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Total Americas | 246,421 | 248,837 | (1 | %) | ||||||||
Europe | 185,172 | 187,401 | (1 | %) | ||||||||
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Total net sales | $ | 684,674 | $ | 690,572 | (1 | %) | ||||||
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22
Geographically, the Company’s sales decline in the first quarter of 2023 can be attributed to the sales growth in Asia Other and Americas Other being offset by lower customer demand for our instrument systems in the U.S., Europe and China. Sales growth in the first quarter of 2023 was broad-basednegatively impacted by foreign currency translation across most major regions, as sales increased 11% in Asia, 26% in the Americas, and 3% in Europe, with the effect of foreign currency translation decreasing sales by 3% in Asia and 6% in Europe. In addition, sales increased 28% in the U.S. and 17% in India, while sales decreased by 3% in Japan with foreign currency translation decreasing India and Japan’stotal sales growth rates by 6% and 9%, respectively. China sales increased 18%, driven by strong customer demand for our products and service for most the of the first quarter of 2022; however, the new COVID lockdowns in China put in place late4% in the first quarter of 2023 as the impact of the U.S. dollar strengthening that began in March 2022 may have a negative impact on our future sales growth if these lockdowns continue for a prolonged period. Foreign currency translation increased China sales growthannualized. The geographies that were the most negatively impacted by 1%the strengthening of the U.S. dollar in the quarter.
Sales by Trade Class
Net sales by customer class are presented below for the three months ended April 1, 2023 and April 2, 2022 sales(dollars in thousands):
Three Months Ended | ||||||||||||
April 1, 2023 | April 2, 2022 | % change | ||||||||||
Pharmaceutical | $ | 384,898 | $ | 415,772 | (7 | %) | ||||||
Industrial | 209,650 | 209,397 | — | |||||||||
Academic and government | 90,126 | 65,403 | 38 | % | ||||||||
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Total net sales | $ | 684,674 | $ | 690,572 | (1 | %) | ||||||
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Sales to pharmaceutical customers increased 15%, driven by growth in most regions, including 18% in China, 21% in India, and 32%decreased 7% in the Americas onfirst quarter of 2023 primarily due to a 37% sales increase in the United States on strong customer demand. Foreignslower release of capital budgets by our customers and foreign currency translation decreaseddecreasing pharmaceutical sales growth by 4%3%. Combined sales to industrial customers, which include material characterization, food, environmental and fine chemical markets, increased 14%,were flat in the first quarter of 2023, with the effect of foreign currency translation decreasing sales growth by 3%. During the first quarter of 2022, combinedCombined sales to academic and government customers were flat,increased 38% in the first quarter of 2023, with foreign currency translation negatively impactingdecreasing academic and government sales growth by 4%7%. 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.
Three Months Ended | ||||||||||||
April 2, 2022 | April 3, 2021 | % change | ||||||||||
Net Sales: | ||||||||||||
Asia: | ||||||||||||
China | $ | 121,032 | $ | 102,919 | 18 | % | ||||||
Japan | 48,623 | 50,296 | (3 | %) | ||||||||
Asia Other | 84,679 | 76,327 | 11 | % | ||||||||
Total Asia | 254,334 | 229,542 | 11 | % | ||||||||
Americas: | ||||||||||||
United States | 208,713 | 162,433 | 28 | % | ||||||||
Americas Other | 40,124 | 34,924 | 15 | % | ||||||||
Total Americas | 248,837 | 197,357 | 26 | % | ||||||||
Europe | 187,401 | 181,646 | 3 | % | ||||||||
Total net sales | $ | 690,572 | $ | 608,545 | 13 | % | ||||||
Three Months Ended | ||||||||||||
April 2, 2022 | April 3, 2021 | % change | ||||||||||
Pharmaceutical | $ | 415,772 | $ | 360,148 | 15 | % | ||||||
Industrial | 209,397 | 183,273 | 14 | % | ||||||||
Academic and government | 65,403 | 65,124 | — | |||||||||
Total net sales | $ | 690,572 | $ | 608,545 | 13 | % | ||||||
Waters Products and Services Net Sales
Net sales for Waters products and services were as follows for the three months ended April 2, 20221, 2023 and April 3, 20212, 2022 (dollars in thousands):
Three Months Ended | ||||||||||||||||||||
April 2, 2022 | % of Total | April 3, 2021 | % of Total | % change | ||||||||||||||||
Waters instrument systems | $ | 269,962 | 44 | % | $ | 216,072 | 40 | % | 25 | % | ||||||||||
Chemistry consumables | 125,618 | 21 | % | 118,974 | 22 | % | 6 | % | ||||||||||||
Total Waters product sales | 395,580 | 65 | % | 335,046 | 62 | % | 18 | % | ||||||||||||
Waters service | 217,576 | 35 | % | 206,832 | 38 | % | 5 | % | ||||||||||||
Total Waters net sales | $ | 613,156 | 100 | % | $ | 541,878 | 100 | % | 13 | % | ||||||||||
Three Months Ended | ||||||||||||||||||||
April 1, 2023 | % of Total | April 2, 2022 | % of Total | % change | ||||||||||||||||
Waters instrument systems | $ | 244,211 | 41 | % | $ | 269,962 | 44 | % | (10 | %) | ||||||||||
Chemistry consumables | 133,515 | 22 | % | 125,618 | 21 | % | 6 | % | ||||||||||||
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Total Waters product sales | 377,726 | 63 | % | 395,580 | 65 | % | (5 | %) | ||||||||||||
Waters service | 224,349 | 37 | % | 217,576 | 35 | % | 3 | % | ||||||||||||
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Total Waters net sales | $ | 602,075 | 100 | % | $ | 613,156 | 100 | % | (2 | %) | ||||||||||
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Waters products and service sales decreased 2% in the first quarter of 2023, with the effect of foreign currency translation decreaseddecreasing Waters sales growth by 3% for the first quarter.4%. Waters instrument system sales (LC and MS technology-based) increaseddecreased 10% in the first quarter of 2022 driven by the strong broad-based sales performance across all key regions, with double-digit sales growth, primarily2023 due to higher sales as a result of strongerweaker customer demand for our productsin the U.S., Europe and services by our customers.China. The increase in Waters chemistry consumables sales increased in the first quarter of 2022, attributablewas primarily due to the increasedcontinued strong demand in India, Asia Other, and the United States,most major geographies, driven by the uptake in columns and application-specific testing kits to pharmaceutical customers. Waters service sales increased due to higher service demand billings, particularly in India andcustomers, partially offset by the United States. Waters recurring revenues were also negatively impacted by one less calendar day and thenegative impact offrom foreign currency translation which decreased sales growth by 4%. Waters service sales increased in the first quarter of 2022 as compared2023 due to the first quarter of 2021.
23
TA Product and Services Net Sales
Net sales for TA products and services were as follows for the three months ended April 1, 2023 and April 2, 2022 2021 and 2020 (dollars in thousands):
Three Months Ended | ||||||||||||||||||||
April 2, 2022 | % of Total | April 3, 2021 | % of Total | % change | ||||||||||||||||
TA instrument systems | $ | 55,260 | 71 | % | $ | 46,976 | 70 | % | 18 | % | ||||||||||
TA service | 22,156 | 29 | % | 19,691 | 30 | % | 13 | % | ||||||||||||
Total TA net sales | $ | 77,416 | 100 | % | $ | 66,667 | 100 | % | 16 | % | ||||||||||
Three Months Ended | ||||||||||||||||||||
April 1, 2023 | % of Total | April 2, 2022 | % of Total | % change | ||||||||||||||||
TA instrument systems | $ | 58,731 | 71 | % | $ | 55,260 | 71 | % | 6 | % | ||||||||||
TA service | 23,868 | 29 | % | 22,156 | 29 | % | 8 | % | ||||||||||||
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Total TA net sales | $ | 82,599 | 100 | % | $ | 77,416 | 100 | % | 7 | % | ||||||||||
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TA productinstrument system and service sales were broad-based across most major geographies increasing 16%increased 6% and 8% in the first quarter of 2023, respectively, with foreign currency translation decreasing instrument system and service sales growth by 4% and 2%, respectively. The sales growth was primarily driven by strong customer demand for our Thermal Analysisthermal analysis instruments and services. The increaseservices, particularly in TA instrument systemthe U.S. and Europe.
Cost of Sales
Cost of sales were flat in the first quarter of 2022 was primarily driven by strength in China, Korea and Europe. The increase in TA service sales was primarily due2023 compared to customers continuing to resume their operations after the restrictions caused by
Selling and Administrative Expenses
Selling and administrative expenses increased 10%16% in the first quarter of 2022 as compared2023. This increase includes the Wyatt acquisition due diligence costs, which increased expenses by 6%. The remaining increase is attributed to the first quarterinvestment in headcount to support higher-growth adjacencies, annual merit compensation increases, normalization of 2021. In the first quartertravel expenses to pre-COVID levels and timing of 2022, selling and administrative expenses were impacted by higher merit and incentive compensation costs, compared to the first quarter of 2021. In addition, theinvestments associated with product launch. The effect of foreign currency translation decreased selling and administrative expenses by 2%3% in the first quarter of 2022.
As a percentage of net sales, selling and administrative expenses were 22.8%26.6% and 23.5%22.8% for the first quartersquarter of 2023 and 2022, and 2021, respectively. The decrease in this percentage is attributable to the increase in sales.
Research and Development Expenses
Research and development expenses increased 6%5% in the first quarter of 2022. In addition, the effect of foreign currency translation decreased2023. The increase in research and development expenses by 1% in the quarter.
Acquired In-Process
In 2022, the Company completed a technology and intellectual property rightan asset acquisition in which the charge detection mass spectrometryCDMS technology (“CDMS technology”) assets of Megadalton were acquired for approximately $10 million in total purchase price, of which $5 million was paid at closing and the remaining $4 million will be paid in the future at various dates through 2029. This CDMS technology makes it possible to analyze extremely large proteins and protein complexes used in cell and gene therapies that would otherwise be difficult to analyze with conventional mass spectrometry. Once this technology is further developed, it is expected to extend the capabilities of our mass spectrometry portfolio for a broader set of applications and as such the cost of this technology asset has been accounted for as
Other Income, net
During the first quarter of 2022, the Company sold an equity investment for $7 million in cash and recorded a gain on the sale of approximately $4 million in other income, net on the statement of operations. The Company also recorded an other than temporary impairment lossincurred $4 million in losses on an equity method investment still held at the reporting date of approximately $4 million within other income, net on the statement of operations as the company entered into a sale process and we adjusted the carrying value of our investment based on our portion of the total proceeds we expect to receive.operations.
24
Interest Expense, net
Net
Provision for Income Taxes
The four principal jurisdictions in which the Company manufactures are the U.S., Ireland, the U.K. and Singapore, where the statutory tax rates were 21%, 12.5%, 19%25% and 17%, respectively, as of April 2, 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.1, 2023. 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 ratesrate rather than the statutory tax rate to income from qualifying activities in Singapore increased the Company’s net income for the quarter in 2022 and 2021 by $5$3 million and $4$5 million respectively, and increased the Company’s net income per diluted share by $0.05 and $0.08 for the first quarter of 2023 and $0.06,2022, respectively.
The Company’s effective tax rate for the first quarter of 2023 and 2022 was 14.7% and 2021 quarters was 14.4% and 14.8%, respectively. The decrease in the effective rate is primarily due to the income tax provision includingincludes a $2 million and a $4 million income tax benefit related to stock-based compensation for the first quarter of 2023 and 2022, as compared to a $2 million income tax benefit related to stock-based compensation for the first quarter of 2021.respectively. The remaining differences between the effective tax rates can primarily be attributed to differences in the proportionate amounts of
25
Liquidity and Capital Resources
Condensed Consolidated Statements of Cash Flows (in thousands):
Three Months Ended | ||||||||
April 2, 2022 | April 3, 2021 | |||||||
Net income | $ | 159,831 | $ | 148,127 | ||||
Depreciation and amortization | 32,664 | 31,356 | ||||||
Stock-based compensation | 10,933 | 8,305 | ||||||
Deferred income taxes | 4,175 | 2,787 | ||||||
Acquired in-process research and development and othernon-cash items | 9,381 | — | ||||||
Change in accounts receivable | (907 | ) | 7,945 | |||||
Change in inventories | (26,832 | ) | (30,544 | ) | ||||
Change in accounts payable and other current liabilities | (69,548 | ) | (29,758 | ) | ||||
Change in deferred revenue and customer advances | 91,514 | 89,048 | ||||||
Other changes | (13,251 | ) | (8,862 | ) | ||||
Net cash provided by operating activities | 197,960 | 218,404 | ||||||
Net cash used in investing activities | 18,992 | (159,004 | ) | |||||
Net cash used in financing activities | (227,411 | ) | 188,775 | |||||
Effect of exchange rate changes on cash and cash equivalents | (10,705 | ) | (1,087 | ) | ||||
(Decrease) increase in cash and cash equivalents | $ | (21,164 | ) | $ | 247,088 | |||
Three Months Ended | ||||||||
April 1, 2023 | April 2, 2022 | |||||||
Net income | $ | 140,923 | $ | 159,831 | ||||
Depreciation and amortization | 31,154 | 32,664 | ||||||
Stock-based compensation | 12,805 | 10,933 | ||||||
Deferred income taxes | (5,078 | ) | 4,175 | |||||
Acquired in-process research and development and other non-cash items | — | 9,381 | ||||||
Change in accounts receivable | 44,047 | (907 | ) | |||||
Change in inventories | (42,621 | ) | (26,832 | ) | ||||
Change in accounts payable and other current liabilities | (71,257 | ) | (69,548 | ) | ||||
Change in deferred revenue and customer advances | 77,206 | 91,514 | ||||||
Other changes | 9,572 | (13,251 | ) | |||||
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Net cash provided by operating activities | 196,751 | 197,960 | ||||||
Net cash (used in) provided by investing activities | (34,406 | ) | 18,992 | |||||
Net cash used in financing activities | (159,211 | ) | (227,411 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents | 2,407 | (10,705 | ) | |||||
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Increase (decrease) in cash and cash equivalents | $ | 5,541 | $ | (21,164 | ) | |||
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Cash Flow from Operating Activities
Net cash provided by operating activities was $198$197 million and $218$198 million during the first quarter of 2023 and 2022, and 2021, respectively. ThisThe decrease in 2023 operating cash flow was primarily a result of lower net income and higher inventory levels, due tooffset by higher sales volumes and higher incentive compensation paymentscash collections in the first quarter of 20222023 compared to the first quarter of 2021.2022. The changes within net cash provided by operating activities include the following significant changes in the sources and uses of net cash provided by operating activities, aside from the changes in net income:
The changes in accounts receivable were primarily attributable to timing of payments made by customers and timing of sales. Days sales outstanding decreased towas 91 days at April 1, 2023 and 81 days at April 2, 2022 as compared2022.
The increase in inventory can primarily be attributed to 84 days at April 3, 2021.
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 $34 million in the first quarter of 2023 and net cash provided by investing activities totaled $19 million in the first quarter of 2022 and net cash used in investing activities totaled $159 million in the first quarter of 2021, respectively.2022. Additions to fixed assets and capitalized software were $28$34 million and $40$28 million in the first three months ended April 2,of 2023 and 2022, and April 3, 2021, respectively. The cash flows from investing activities in 2023 and 2022 also includedinclude $4 million and $6 million, respectively, of capital expenditures related to the major expansion of the Company’s precision chemistry consumable operations in the United States. The Company has incurred costs of $206$236 million on this facility through the end of the first quarter of 2022,2023 and anticipates spending approximately $30$16 million to complete this new
During the first three months ended April 2,of 2023 and 2022, and April 3, 2021, the Company purchased $9$1 million and $123$9 million of investments, respectively, while $54$1 million and $3$54 million of investments matured, respectively, and were used for financing activities described below.
26
During the first quarter of quarter 2022, the Company paid $5 million for the CDMS technology and intellectual property right asset from Megadalton, and the Company is required to make an additional $4 million of guaranteed payments at various dates in the future through 2029. The total purchase price of approximately $10 million was accounted for as Acquired
On February 14, 2023, the firstCompany entered into an agreement to acquire all issued and outstanding equity interests of Wyatt Technology for $1.4 billion in cash at closing, subject to customary adjustments. Wyatt Technology is a pioneer in innovative light scattering and field-flow fractionation instruments, software, accessories and services. The Company will finance this acquisition through cash on its balance sheet and existing borrowing capacity that is available on its revolving credit facility. The agreement contains certain customary termination rights, including the right of the sellers to terminate this transaction if it has not been completed by June 14, 2023, subject to automatic extension to August 14, 2023 if certain regulatory approvals are not obtained by such date. If this were to occur, the Company would be required to pay the sellers a one-time fee in the amount of $15 million if the agreement is validly terminated and not consummated in accordance with the closing conditions set forth in the agreement. This transaction is expected to close in the second quarter of 2022.
Cash Flow from Financing Activities
The Company entered into a credit agreement in September 2021 governing the Company’s five-year, $1.8 billion revolving facility that matures in September 2026. On March 3, 2023 the Company entered into an agreement to amend such credit agreement. The 2023 Amendment increases the borrowing capacity by $200 million to an aggregate borrowing capacity of $2.0 billion. As of April 2, 2022,1, 2023, the Company had a total of $1.4$1.5 billion in outstanding debt, which consisted of $1.3 billion in outstanding senior unsecured notes and $140$175 million borrowed under the 2021 Credit Agreement. During the three months ended April 2, 2022 and April 3, 2021, theits credit agreement. The Company’s net debt borrowings decreased by $95 million and $70 million during the three months ended 2023 and increased by $350 million,2022, respectively.
As of April 2, 2022,1, 2023, the Company has entered into three-year interest rate cross-currency swap derivative agreements with a notional value $550$585 million to hedge the variability in the movement of foreign currency exchange rates on a portion of its Euro-denominatedeuro-denominated and yen-denominated net asset investments. As a result of entering into these agreements, the Company anticipates loweringlowered net interest expense by approximately $7$3 million and $2 million in 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
The Company received $13$2 million and $16$13 million of proceeds from the exercise of stock options and the purchase of shares pursuant to the Company’s employee stock purchase plan during the first three months ended April 2,of 2023 and 2022, and April 3, 2021, respectively.
The Company had cash, cash equivalents and investments of $503$487 million as of April 2, 2022.1, 2023. The majority of the Company’s cash and cash equivalents are generated from foreign operations, with $431$313 million held by foreign subsidiaries at April 2, 2022,1, 2023, of which $324$188 million was held in currencies other than U.S. dollars.
27
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
From time to time, the Company and its subsidiaries are involved in various litigation matters arising in the ordinary course of business. The Company believes that it has meritorious arguments in its current litigation matters and that any outcome, either individually or in the aggregate, will not be material to the Company’s financial position or results of operations.
During fiscal year 2022,2023, 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
The Company has not created, and is not party to, any special-purpose or
The Company enters into standard indemnification agreements in its ordinary course of business. Pursuant to these agreements, the Company indemnifies, holds harmless and agrees to reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally the Company’s business partners or customers, in connection with patent, copyright or other intellectual property infringement claims by any third party with respect to its current products, as well as claims relating to property damage or personal injury resulting from the performance of services by the Company or its subcontractors. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited. Historically, the Company’s costs to defend lawsuits or settle claims relating to such indemnity agreements have been minimal and management accordingly believes the estimated fair value of these agreements is immaterial.
Critical Accounting Policies and Estimates
In the Company’s Annual Report on Form
New Accounting Pronouncements
Please refer to Note 14,12, Recent Accounting Standard Changes and Developments, in the Condensed Notes to Consolidated Financial Statements.
Special Note Regarding Forward-Looking Statements
This Quarterly Report on Form
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Statements that are not statements of historical fact may be deemed forward-looking statements. You can identify these forward-looking statements by the use of the words “feels”, “believes”, “anticipates”, “plans”, “expects”, “may”, “will”, “would”, “intends”, “suggests”, “appears”, “estimates”, “projects”, “should” and similar expressions, whether in the negative or affirmative. These forward-looking statements are subject to various risks and uncertainties, many of which are outside the control of the Company, including, and without limitation:
• | foreign currency exchange rate fluctuations potentially affecting translation of the Company’s future non-U.S. operating results, particularly when a foreign currency weakens against the U.S. dollar; |
current global economic, sovereign and political conditions and uncertainties, particularly regardingincluding the effect of the
the Company’s ability to access capital, and maintain liquidity and service the Company’s debt in volatile market conditions;
• | risks related to the effects of the ongoing COVID-19 pandemic on our business, financial condition, results of operations and prospects; |
changes in timing and demand for the Company’s products among the Company’s customers and various market sectors, or geographies, particularly if they should reduce capitalas a result of fluctuations in their expenditures or are unableability to obtain funding, as in the cases of academic, governmental academic and research institutions;
the effectintroduction of mergerscompeting products by other companies and acquisitionsloss of market share, as well as pressures on customer demand for the Company’s products; and the Company’s ability to sustain and enhance service.prices from customers and/or competitors;
changes in the competitive landscape as a result of changes in ownership, mergers and continued consolidation among the Company’s competitors; 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;introductions, lack of acceptance of new products;products and inability to grow organically through innovation;
rapidly changing technology and product obsolescence;
risks associated with previous or future acquisitions, strategic investments, joint ventures and divestitures, including risks associated with contingent purchase price payments and expansion of our business ininto new or developing markets; spending by certain
risks associated with unexpected disruptions in operations;
failure to adequately protect the Company’s intellectual property, infringement of intellectual property rights of third parties and inability to obtain licenses on commercially reasonable terms;
the Company’s ability to obtain alternativeacquire adequate sources of supply and its reliance on outside contractors for certain components and modules;modules, as well as disruptions to its supply chain;
risks associated with third-party sales intermediaries and resellers;
the possibility thatimpact and costs in connection with shifts in taxable income in jurisdictions with different effective tax rates, the outcome of ongoing and future sales of new products related to acquisitions, which trigger contingent purchase payments, may exceedtax examinations and changes in legislation affecting the Company’s expectations.effective tax rate;
the Company’s ability to attract and retain qualified employees and management personnel;
risks associated with cybersecurity and technology, including attempts by third parties to defeat the security measures of the Company and its third-party partners;
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increased regulatory burdens as the Company’s business evolves, especially with respect to the United StatesU.S. Food and Drug Administration and the United StatesU.S. Environmental Protection Agency, among others, as well as and in connection with government contracts;
regulatory, environmental and logistical obstacles affecting the distribution of the Company’s products, completion of purchase order documentation by our customers and the ability of customers to obtain letters of credit or other financing alternatives.alternatives;
risks associated with lawsuits, particularly involving claims for infringement of patentslitigation and other intellectual property rights.legal and regulatory proceedings; and
the impact and costs incurred from changes in accounting principles and practices; the impact and costs of changes in statutory or contractual tax rates in jurisdictions in which the Company operates, specifically as it relates to the 2017 Tax Cuts and Jobs Act in the U.S.; and shifts in taxable income among jurisdictions with different effective tax rates; and the outcome of and costs associated with ongoing and future tax audit examinations or changes in respective country legislation affecting the Company’s effective rates.
Certain of these and other factors are discussed under the heading “Risk Factors” under Part I, Item 1A of the Company’s Annual Report on Form
Item 3: Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to the risk of interest rate fluctuations from the investments of cash generated from operations. Investments with maturities greater than 90 days are classified as investments and are held primarily in U.S. dollar-denominated treasury bills and commercial paper, bank deposits and corporate debt securities. As of April 2, 2022,1, 2023, the Company estimates that a hypothetical adverse change of 100 basis points across all maturities would not have a material effect on the fair market value of its portfolio.
The Company is also exposed to the risk of exchange rate fluctuations. The Company maintains cash balances in various operating accounts in excess of federally insured limits, and in foreign subsidiary accounts in currencies other than the U.S. dollar. As of April 2, 20221, 2023 and December 31, 2021, $4312022, $313 million out of $503$487 million and $440$472 million out of $569$481 million, respectively, of the Company’s total cash, cash equivalents and investments were held by foreign subsidiaries. In addition, $324$188 million out of $503$487 million and $298$336 million out of $569$481 million of cash, cash equivalents and investments were held in currencies other than the U.S. dollar at April 2, 20221, 2023 and December 31, 2021,2022, respectively. As of April 2, 2022,1, 2023, the Company had no holdings in auction rate securities or commercial paper issued by structured investment vehicles.
Assuming a hypothetical adverse change of 10% in
There have been no other material changes in the Company’s market risk during the three months ended April 2, 2022.1, 2023. For information regarding the Company’s market risk, refer to Item 7A of Part II of the Company’s Annual Report on Form
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Item 4: Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company’s chief executive officer and chief financial officer (principal executive officer and principal financial officer), with the participation of management, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in
Changes in Internal Control Over Financial Reporting
No change was identified in the Company’s internal control over financial reporting (as defined in
Part II:
Item 1: Legal Proceedings
There have been no material changes in the Company’s legal proceedings during the three months ended April 2, 20221, 2023 as described in Item 3 of Part I of the Company’s Annual Report on Form
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
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Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
Purchases of Equity Securities by the Issuer
The following table provides information about purchases by the Company during the three months ended April 2, 20221, 2023 of equity securities registered by the Company under the Exchange Act (in thousands, except per share data):
Period | Total Number of Shares Purchased (1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Programs | Maximum Dollar Value of Shares that May Yet Be Purchased Under the Programs (2) | ||||||||||||
January 1, 2022 to January 29, 2022 | 151 | $ | 332.31 | 151 | $ | 834,249 | ||||||||||
January 30, 2022 to February 26, 2022 | 181 | $ | 321.53 | 159 | $ | 782,972 | ||||||||||
February 27, 2022 to April 2, 2022 | 191 | $ | 321.45 | 183 | $ | 724,176 | ||||||||||
Total | 523 | $ | 324.61 | 493 | $ | 724,176 | ||||||||||
Period | Total Number of Shares Purchased (1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Programs | Maximum Dollar Value of Shares that May Yet Be Purchased Under the Programs (2) | ||||||||||||
January 1, 2023 to January 28, 2023 | 173 | $ | 335.27 | 173 | $ | 1,011,207 | ||||||||||
January 29, 2023 to February 25, 2023 | 18 | $ | 313.01 | — | $ | 1,011,207 | ||||||||||
February 26, 2023 to April 1, 2023 | 18 | $ | 306.11 | — | $ | 1,011,207 | ||||||||||
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Total | 209 | $ | 330.84 | 173 | $ | 1,011,207 | ||||||||||
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(1) | The Company repurchased |
(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 thepre-existing authorization. In December 2020, the Company’s Board of Directors authorized the extension of the share repurchase program through January 21, 2023. In December 2022, the Company’s Board of Directors amended and extended this repurchase program’s term by one year such that it shall now expire on January 21, 2024 and increased the total authorization to $4.8 billion, an increase of $750 million. The size and timing of these purchases, if any, will depend on our stock price and market and business conditions, as well as other factors. |
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Item 6: Exhibits
(*) | This exhibit shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in any filing, except to the extent the Company specifically incorporates it by reference. |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
W ATERS CORPORATION |
/s/Amol Chaubal |
Amol Chaubal |
Senior Vice President and Chief Financial Officer |
(Principal Financial Officer) |
(Principal Accounting Officer) |
Date: May 5, 20229, 2023
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