Item 1. Financial Statements

WATERS CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(unaudited)

		September 30, 2023				December 31, 2022
		(In thousands, except per share data)
ASSETS
Current assets:
Cash and cash equivalents		$	336,414			$	480,529
Investments			898				862
Accounts receivable, net			631,284				722,892
Inventories			544,402				455,710
Other current assets			121,528				103,910
Total current assets			1,634,526				1,763,903
Property, plant and equipment, net			616,846				582,217
Intangible assets, net			631,209				227,399
Goodwill			1,308,027				430,328
Operating lease assets			84,726				86,506
Other assets			221,846				191,100
Total assets		$	4,497,180			$	3,281,453
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Notes payable and debt		$	50,000			$	50,000
Accounts payable			79,834				93,302
Accrued employee compensation			43,481				103,300
Deferred revenue and customer advances			275,941				227,908
Current operating lease liabilities			26,527				26,429
Accrued income taxes			112,681				132,545
Accrued warranty			11,120				11,949
Other current liabilities			145,445				140,304
Total current liabilities			745,029				785,737
Long-term liabilities:
Long-term debt			2,455,265				1,524,878
Long-term portion of retirement benefits			41,529				38,203
Long-term income tax liabilities			155,743				248,496
Long-term operating lease liabilities			60,169				62,108
Other long-term liabilities			133,923				117,543
Total long-term liabilities			2,846,629				1,991,228
Total liabilities			3,591,658				2,776,965
Commitments and contingencies (Notes 7, 8 and 9)
Stockholders’ equity:
Preferred stock, par value $0.01 per share, 5,000 shares authorized, none issued at September 30, 2023 and December 31, 2022			—				—
Common stock, par value $0.01 per share, 400,000 shares authorized, 162,649 and 162,425 shares issued, 59,116 and 59,104 shares outstanding at September 30, 2023 and December 31, 2022, respectively			1,627				1,624
Additional paid-in capital			2,249,984				2,199,824
Retained earnings			8,934,616				8,508,587
Treasury stock, at cost, 103,533 and 103,321 shares at September 30, 2023 and December 31, 2022, respectively			(10,134,408	)			(10,063,975	)
Accumulated other comprehensive loss			(146,297	)			(141,572	)
Total stockholders’ equity			905,522				504,488
Total liabilities and stockholders’ equity		$	4,497,180			$	3,281,453

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

WATERS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

		Three Months Ended
		September 30, 2023				October 1, 2022
		(In thousands, except per share data)
Revenues:
Product sales		$	448,081			$	464,923
Service sales			263,611				243,632
Total net sales			711,692				708,555
Costs and operating expenses:
Cost of product sales			184,332				199,918
Cost of service sales			107,075				107,183
Selling and administrative expenses			186,748				164,417
Research and development expenses			41,995				43,435
Purchased intangibles amortization			12,116				1,592
Total costs and operating expenses			532,266				516,545
Operating income			179,426				192,010
Other income, net			328				895
Interest expense			(30,442	)			(12,420	)
Interest income			3,883				2,896
Income before income taxes			153,195				183,381
Provision for income taxes			18,643				27,383
Net income		$	134,552			$	155,998
Net income per basic common share		$	2.28			$	2.61
Weighted-average number of basic common shares			59,093				59,801
Net income per diluted common share		$	2.27			$	2.60
Weighted-average number of diluted common shares and equivalents			59,255				60,081

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

WATERS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

		Nine Months Ended
		September 30, 2023				October 1, 2022
		(In thousands, except per share data)
Revenues:
Product sales		$	1,362,464			$	1,385,393
Service sales			774,478				728,053
Total net sales			2,136,942				2,113,446
Costs and operating expenses:
Cost of product sales			559,040				593,884
Cost of service sales			317,823				306,108
Selling and administrative expenses			555,657				483,769
Research and development expenses			130,559				127,913
Purchased intangibles amortization			20,410				4,863
Acquired in-process research and development			—				9,797
Total costs and operating expenses			1,583,489				1,526,334
Operating income			553,453				587,112
Other income, net			1,364				2,600
Interest expense			(68,158	)			(34,898	)
Interest income			11,984				7,536
Income before income taxes			498,643				562,350
Provision for income taxes			72,614				81,657
Net income		$	426,029			$	480,693
Net income per basic common share		$	7.21			$	7.98
Weighted-average number of basic common shares			59,061				60,200
Net income per diluted common share		$	7.19			$	7.94
Weighted-average number of diluted common shares and equivalents			59,262				60,521

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

WATERS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

		Three Months Ended								Nine Months Ended
		September 30, 2023				October 1, 2022				September 30, 2023				October 1, 2022
		(In thousands)								(In thousands)
Net income		$	134,552			$	155,998			$	426,029			$	480,693
Other comprehensive loss:
Foreign currency translation			(17,676	)			(23,779	)			(4,909	)			(54,255	)
Unrealized gains on derivative instruments before reclassifications			603				—				603				—
Amounts reclassified to other income, net			(93	)			—				(93	)			—
Unrealized gains on derivative instruments before income taxes			510				—				510				—
Income tax expense			(122	)			—				(122	)			—
Unrealized gains on derivative instruments, net of tax			388				—				388				—
Unrealized gains on investments before income taxes			—				—				—				26
Income tax expense			—				—				—				(6	)
Unrealized gains on investments, net of tax			—				—				—				20
Retirement liability adjustment before reclassifications			(200	)			767				(29	)			1,755
Amounts reclassified to other income, net			(75	)			254				(242	)			501
Retirement liability adjustment before income taxes			(275	)			1,021				(271	)			2,256
Income tax benefit (expense)			66				(243	)			67				(546	)
Retirement liability adjustment, net of tax			(209	)			778				(204	)			1,710
Other comprehensive loss			(17,497	)			(23,001	)			(4,725	)			(52,525	)
Comprehensive income		$	117,055			$	132,997			$	421,304			$	428,168

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

WATERS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

		Nine Months Ended
		September 30, 2023				October 1, 2022
		(In thousands)
Cash flows from operating activities:
Net income		$	426,029			$	480,693
Adjustments to reconcile net income to net cash provided by
operating activities:
Stock-based compensation			32,224				30,929
Deferred income taxes			267				(20,836	)
Depreciation			62,235				54,306
Amortization of intangibles			55,610				44,799
R ealized gain on sale of investment			(651	)			—
Acquired in-process research and development and other non-cash items			—				10,003
Change in operating assets and liabilities:
Decrease (increase) in accounts receivable			100,327				(39,098	)
Increase in inventories			(81,415	)			(113,211	)
Increase in other current assets			(24,066	)			(6,861	)
Increase in other assets			(23,432	)			(3,881	)
Decrease in accounts payable and other current liabilities			(130,065	)			(4,952	)
Increase in deferred revenue and customer advances			38,959				47,060
Decrease in other liabilities			(83,335	)			(65,999	)
Net cash provided by operating activities			372,687				412,952
Cash flows from investing activities:
Additions to property, plant, equipment and software
capitalization			(119,044	)			(113,737	)
Business acquisitions, net of cash acquired			(1,285,907	)			—
Proceeds from equity investments, net			651				8,903
Payments for intellectual property licenses			—				(7,535	)
Purchases of investments			(1,791	)			(11,407	)
Maturities and sales of investments			1,770				77,993
Net cash used in investing activities			(1,404,321	)			(45,783	)
Cash flows from financing activities:
Proceeds from debt issuances			1,450,041				165,000
Payments on debt			(520,040	)			(135,000	)
Payments of debt issuance costs			(400	)			—
Proceeds from stock plans			18,092				36,136
Purchases of treasury shares			(70,433	)			(477,167	)
Proceeds from derivative contracts			8,178				12,844
Net cash provided by (used in) financing activities			885,438				(398,187	)
Effect of exchange rate changes on cash and cash equivalents			2,081				(26,579	)
Decrease in cash and cash equivalents			(144,115	)			(57,597	)
Cash and cash equivalents at beginning of period			480,529				501,234
Cash and cash equivalents at end of period		$	336,414			$	443,637

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

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 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

		Number of Common Shares				Common Stock				Additional Paid-In Capital				Retained Earnings				Treasury Stock				Accumulated Other Comprehensive Loss				Total Stockholders’ Equity
Balance July 1, 2023			162,576			$	1,626			$	2,232,055			$	8,800,064			$	(10,133,716	)		$	(128,800	)		$	771,229
Net income			—				—				—				134,552				—				—				134,552
Other comprehensive loss			—				—				—				—				—				(17,497	)			(17,497	)
Issuance of common stock for employees:
Employee Stock Purchase Plan			10				—				2,758				—				—				—				2,758
Stock options exercised			35				—				5,084				—				—				—				5,084
Treasury stock			—				—				—				—				(692	)			—				(692	)
Stock-based compensation			28				1				10,087				—				—				—				10,088
Balance September 30, 2023			162,649			$	1,627			$	2,249,984			$	8,934,616			$	(10,134,408	)		$	(146,297	)		$	905,522

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

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 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

		Number of Common Shares				Common Stock				Additional Paid-In Capital				Retained Earnings				Treasury Stock				Accumulated Other Comprehensive Loss				Total Stockholders’ Equity
Balance December 31, 2022			162,425			$	1,624			$	2,199,824			$	8,508,587			$	(10,063,975	)		$	(141,572	)		$	504,488
Net income			—				—				—				426,029				—				—				426,029
Other comprehensive loss			—				—				—				—				—				(4,725	)			(4,725	)
Issuance of common stock for employees:
Employee Stock Purchase Plan			31				—				8,691				—				—				—				8,691
Stock options exercised			51				1				8,369				—				—				—				8,370
Treasury stock			—				—				—				—				(70,433	)			—				(70,433	)
Stock-based compensation			142				2				33,100				—				—				—				33,102
Balance September 30, 2023			162,649			$	1,627			$	2,249,984			$	8,934,616			$	(10,134,408	)		$	(146,297	)		$	905,522

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

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

1 Basis of Presentation and Summary of Significant Accounting Policies

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

TM

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

(“LC-MS”)

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

LC-MS

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

TM

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

On May 16, 2023, the Company completed the acquisition of Wyatt Technology, LLC and its three operating subsidiaries, Wyatt Technology Europe GmbH, Wyatt Technology France and Wyatt Technology UK Ltd. (collectively, “Wyatt”), for a total purchase price of $1.3 billion in cash. Wyatt is a pioneer in innovative light scattering and field-flow fractionation instruments, software, accessories and services. The acquisition will expand Waters’ portfolio and increase exposure to large molecule applications. The Company financed this transaction with a combination of cash on its balance sheet and borrowings under its revolving credit facility.

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 2023 and 2022 ended on September 30, 2023 and October 1, 2022, respectively.

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

10-Q

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

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

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

10-K

for the year ended December 31, 2022, as filed with the U.S. Securities and Exchange Commission (“SEC”) on February 27, 2023.

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.

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 to the Company’s employees, suppliers, manufacturing, or customers could result in a material impact to its consolidated financial position, results of operations or cash 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 loss in the consolidated balance sheets.

Cash, Cash Equivalents and Investments

Cash equivalents represent highly liquid investments, with original maturities of 90 days or less, while investments with longer maturities are classified as investments. The Company maintains cash balances in various operating accounts in excess of federally insured limits, and in foreign subsidiary accounts in currencies other than the U.S. dollar. As of September 30, 2023 and December 31, 2022, $307 million out of $337 million and $472 million out of $481 million, respectively, of the Company’s total cash, cash equivalents and investments were held by foreign subsidiaries. In addition, $196 million out of $337 million and $336 million out of $481 million of cash, cash equivalents and investments were held in currencies other than the U.S. dollar at September 30, 2023 and December 31, 2022, 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.

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 September 30, 2023 and October 1, 2022 (in thousands):

		Balance at Beginning of Period				Additions				Deductions				Balance at End of Period
Allowance for Credit Losses
September 30, 2023		$	14,311			$	3,727			$	(3,434	)		$	14,604
October 1, 2022		$	13,228			$	4,980			$	(4,973	)		$	13,235

Other Investments

During the nine months ended September 30, 2023, the Company recorded realized gains of approximately $0.7 million. During the nine months ended October 1, 2022, the Company recorded realized gains of approximately $7 million and incurred approximately $6 million in losses. Realized gains and losses on equity investments are recorded within other income, net on the statement of operations.

Business Combinations

The Company accounts for business combinations under the acquisition method of accounting. Accordingly, at the date of each acquisition, the Company measures the fair value of all identifiable assets acquired (including intangible assets) and liabilities assumed and allocates the amounts paid to all items measured. The fair value of identifiable intangible assets acquired is based on valuations that use information and assumptions determined by management and which consider management’s best estimates of inputs and assumptions that a market participant would use. Any excess of the fair value consideration transferred over the estimated fair values of the net assets acquired is recognized as goodwill.

Goodwill and Other Intangible Assets

The Company evaluates goodwill for impairment on an annual basis, or on an interim basis when events or changes in circumstances indicate that the carrying value may not be recoverable. Goodwill is tested for impairment at the reporting unit level, which is the operating segment or one level below an operating segment. The Company has the option of performing a qualitative assessment to determine whether further impairment testing is necessary before performing the quantitative assessment. If, as a result of the qualitative assessment, it is

more-likely-than-not

that the fair value of a reporting unit is less than its carrying amount, a quantitative impairment test will be required. Otherwise, no further testing will be required. If a quantitative impairment test is performed, the Company compares the fair values of the applicable reporting units with their aggregate carrying values, including goodwill. The fair value of reporting units is estimated using a discounted cash flows technique, which includes certain management assumptions, such as estimated future cash flows, estimated growth rates and discount rates. Estimating the fair value of the reporting units requires significant judgment by management. If the carrying amount of a reporting unit exceeds the fair value of the reporting unit, an impairment charge is recognized for the amount by which the carrying value amount exceeds the reporting unit’s fair value up to the total amount of goodwill allocated to the reporting unit. The Company performs an annual goodwill impairment assessment for its reporting units as of December 31 each year. The Company has two reporting units: Waters

TM

and TA

TM

. Goodwill is allocated to the reporting units at the time of acquisition.

The Company’s intangible assets include purchased technology; capitalized software; costs associated with acquiring Company patents, trademarks and intellectual properties, such as licenses; and acquired IPR&D. Purchased intangibles are recorded at their fair market values as of the acquisition date and amortized over their estimated useful lives, ranging from

one

to fifteen years. Other intangibles are amortized over a period ranging from

one

to ten years. Acquired IPR&D is amortized from the date of completion of the acquired program over its estimated useful life. IPR&D and indefinite-lived intangibles are tested annually for impairment.

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 September 30, 2023 and December 31, 2022. 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.

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 September 30, 2023 (in thousands):

		Total at September 30, 2023				Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
Assets:
Time deposits		$	898			$	—			$	898			$	—
Waters 401(k) Restoration Plan assets			26,460				26,460				—				—
Foreign currency exchange contracts			129				—				129				—
Interest rate cross-currency swap agreements			25,679				—				25,679				—
Interest rate swap cash flow hedge			778				—				778				—
Total		$	53,944			$	26,460			$	27,484			$	—
Liabilities:
Foreign currency exchange contracts		$	119			$	—			$	119			$	—
Interest rate cross-currency swap agreements			1,018				—				1,018				—
Interest rate swap cash flow hedge			175				—				175				—
Total		$	1,312			$	—			$	1,312			$	—

The following table represents the Company’s assets and liabilities measured at fair value on a recurring basis at December 31, 2022 (in thousands):

		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

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

Fair Value of 401(k) Restoration Plan Assets

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

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

The fair values of the Company’s cash equivalents, investments, foreign currency exchange contracts, interest rate cross-currency swap agreements and interest rate swap cash flow hedges 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 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 billion at both September 30, 2023 and December 31, 2022. 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 at both September 30, 2023 and December 31, 2022, using Level 2 inputs.

Derivative Transactions

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

non-U.S.

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

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

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

Cash Flow Hedges

The Company’s Credit Facility is a variable borrowing and has interest payments based on a contractually specified interest rate index. The contractually specified index on the Credit Facility is the 3-month Term SOFR. The variable rate interest payments create interest risk for the Company as interest payments will fluctuate based on changes in the contractually specified interest rate index over the life of the Credit Facility. In order to reduce interest rate risk, the Company enters into interest rate swaps that will effectively lock-in the forecasted interest payments on the variable rate borrowing over its term. The interest rate swaps represent cash flow hedges and are assessed for hedge effectiveness each reporting period. When the hedge relationship is highly effective at achieving offsetting changes in cash flows, the Company will record the entire change in fair value of the interest rate swaps in accumulated other comprehensive loss. The amount in accumulated other comprehensive loss is reclassified to earnings in the period that the underlying transaction impacts consolidated earnings. If it becomes probable that the forecasted transaction will not occur, the hedge relationship will be de-designated and amounts accumulated in other comprehensive loss will be reclassified to earnings in the current period. Interest settlements due to benchmark interest rate changes are recorded in interest income or interest expense. For the three and nine months ended

September

30, 2023, the Company did not have any cash flow hedges that were deemed ineffective.

Interest Rate Cross-Currency Swap Agreements

As of September 30, 2023, the Company had

entered into

interest rate cross-currency swap derivative agreements

with durations up to three years

with an aggregate notional value of $625 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 other comprehensive loss in stockholders’ equity until the sale or substantial liquidation of the foreign operation. The difference between the interest rate received and paid under the interest rate cross-currency swap derivative agreement is recorded in interest income in the statement of operations.

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

		September 30, 2023								December 31, 2022
		Notional				Fair Value				Notional				Fair Value
Foreign currency exchange contracts:
Other current assets		$	16,000			$	129			$	42,047			$	231
Other current liabilities		$	24,790			$	119			$	13,450			$	98
Interest rate cross-currency swap agreements:
Other assets		$	505,000			$	25,679			$	400,000			$	19,163
Other liabilities		$	120,000			$	1,018			$	185,000			$	4,783
Accumulated other comprehensive income						$	20,306							$	10,026
Interest rate swap cash flow hedges:
Other assets		$	50,000			$	778			$	—			$	—
Other liabilities		$	50,000			$	175			$	—			$	—
Accumulated other comprehensive income						$	510							$	—

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

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, interest rate cross-currency swap agreements and interest rate swap agreements designated as cash flow hedges (in thousands):

		Financial Statement Classification				Three Months Ended								Nine Months Ended
	September 30, 2023				October 1, 2022				September 30, 2023				October 1, 2022
Foreign currency exchange contracts:
Realized losses
on closed contracts			Cost of sales			$	(755	)		$	(3,811	)		$	(50	)		$	(6,603	)
Unrealized gains (losses)
on open contracts			Cost of sales				168				461				(123	)			(93	)
Cumulative net pre-tax
losses			Cost of sales			$	(587	)		$	(3,350	)		$	(173	)		$	(6,696	)
Interest rate cross-currency swap agreements:
Interest earned			Interest income			$	2,720			$	2,362			$	8,048			$	6,214
Unrealized gains			Other comprehensive
on open contracts			income			$	18,936			$	31,108			$	10,280			$	73,812
Interest rate swap cash flow hedges:
Interest earned			Interest income			$	93			$	—			$	93			$	—
Unrealized gains			Other comprehensive
on open contracts			income			$	510			$	—			$	510			$	—

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 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 to $4.8 billion, an increase of $750 million. During the nine months ended September 30, 2023 and October 1, 2022, the Company repurchased 0.2 million and 1.5 million shares of the Company’s outstanding common stock at a cost of $58 million and $467 million, respectively, under the January 2019 authorization and other previously announced programs. In addition, the Company repurchased $12 million and $11 million of common stock related to the vesting of restricted stock units during the nine months ended September 30, 2023 and October 1, 2022, respectively. As of September 30, 2023, the Company had repurchased an aggregate of 15.2 million shares at a cost of $3.8 billion under the January 2019 repurchase program and had a total of $1.0 billion authorized for future repurchases.

Product Warranty Costs

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

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 September 30, 2023 and October 1, 2022 (in thousands):

		Balance at Beginning of Period				Accruals for Warranties				Settlements Made				Balance at End of Period
Accrued warranty liability:
September 30, 2023		$	11,949			$	4,813			$	(5,642	)		$	11,120
October 1, 2022		$	10,718			$	6,606			$	(6,663	)		$	10,661

Restructuring

In July 2023, the Company made organizational changes to better align its resources with its growth and innovation strategies, resulting in a worldwide workforce reduction,

that has impacted approximately

5% of the Company’s employees. During the three and nine months ended September 30, 2023, the Company incurred $23 million and $27 million

, respectively,

of severance-related costs

in

connection

with this reduction.

During the three and nine months ended September 30, 2023, the Company paid $12 million and $14 million, respectively

,

of these costs

,

with the majority of the remaining costs to be paid in the fourth quarter of 2023 and the first half of 2024.

2 Revenue Recognition

The Company’s deferred revenue liabilities in 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.

The following is a summary of the activity of the Company’s deferred revenue and customer advances for the nine months ended September 30, 2023 and October 1, 2022 (in thousands):

		September 30, 2023				October 1, 2022
Balance at the beginning of the period		$	285,175			$	273,598
Recognition of revenue included in balance at beginning of the period			(222,001	)			(213,527	)
Revenue deferred during the period, net of revenue recognized			276,277				243,853
Balance at the end of the period		$	339,451			$	303,924

The Company classified $64 million and $57 million of deferred revenue and customer advances in other long-term liabilities at September 30, 2023 and December 31, 2022, 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):

		September 30, 2023
Deferred revenue and customer advances expected to be recognized in:
One year or less		$	275,941
13-24 months			37,373
25 months and beyond			26,137
Total		$	339,451

3 Marketable Securities

The Company’s marketable securities within cash equivalents and investments included in the consolidated balance sheets consist of time deposits that mature in one year or less with an amortized cost and a fair value of $0.9 million at both September 30, 2023 and December 31, 2022.

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

4 Inventories

Inventories are classified as follows (in thousands):

		September 30, 2023				December 31, 2022
Raw materials		$	241,012			$	205,760
Work in progress			25,689				19,899
Finished goods			277,701				230,051
Total inventories		$	544,402			$	455,710

5 Acquisitions

On May 16, 2023, the Company acquired all of the issued and outstanding equity interests of Wyatt for $1.3 billion, net of cash acquired. Wyatt is a pioneer in innovative light scattering and field-flow fractionation instruments, software, accessories and services. The acquisition will expand Waters’ portfolio and increase exposure to large molecule applications. As a result of the acquisition, the results of Wyatt are included in the Company’s consolidated financial statements from the acquisition date.

The Company preliminarily allocated the purchase price of the acquisition to identifiable assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. The purchase price allocation was based upon preliminary information and is subject to change if additional information about the facts and circumstances that existed at the acquisition date becomes available. The Company is in the ongoing process of conducting a valuation of the assets acquired and liabilities assumed related to the acquisition. The final fair value of the net assets acquired may result in adjustments to these assets and liabilities, including goodwill.

The intangible assets were valued with input from valuation specialists. The Company used variations of the income approach, which uses Level 3 inputs, in determining the fair value of intangible assets acquired in the Wyatt acquisition. Specifically, the customer relationships were valued using the multi-period excess earnings method under the income approach. The Company utilized the relief from royalty method to determine the fair value of the tradename and the developed technology. The following table presents the preliminary allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed on the closing date of May 16, 2023 (in thousands):

Purchase Price
Cash paid		$	1,311,531
Less: cash acquired			(25,624	)
Net cash consideration			1,285,907
Identifiable Net Assets (Liabilities) Acquired
Accounts receivable			20,099
Inventory			14,706
Prepaid and other assets			1,327
Property, plant and equipment			9,056
Operating lease assets			5,204
Intangible assets			418,100
Accounts payable and accrued expenses			(31,664	)
Operating lease liabilities			(5,204	)
Tax liabilities			(3,871	)
Deferred revenue			(15,219	)
Other liabilities			(5,728	)
Total identifiable net assets acquired			406,806
Goodwill			879,101
Net cash consideration		$	1,285,907

The details of the purchase price allocated to the intangible assets acquired and the estimated useful lives are as follows (dollars in thousands

):

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

		Amount				Weighted-Average Life
Developed technology		$	80,000				10 years
Customer relationships			330,600				10 years
Trade name			7,500				5 years
Total			$418,100

The Company allocated $879 million of the purchase price to goodwill which is

deductible for tax purposes and has been allocated to the Waters Division operating segment. The goodwill arising from the acquisition consists largely of the value of intangible assets that do not qualify for separate recognition such as workforce in place and cash flows from the integration of acquired technology, distribution channels and products with the Company’s products, which are higher than if the acquired companies’ technology, customer access or products were utilized on a stand-alone basis.

During the three and nine months ended September 30, 2023, the Company’s consolidated results included net sales of $

29 million and $

45 million

, respectively,

and a net operating loss of $

6 million and $

9 million

, respectively,

since the acquisition closed on May 16, 2023. The Company also incurred transaction related costs of $13 million during the nine months

ended

September 30, 2023

, which are recorded in selling and administrative expenses in the consolidated statement of operations.

Unaudited Pro Forma Financial Information

The following unaudited pro forma information is presented for illustrative purposes only. It is not necessarily indicative of the actual results of operations that actually would have been realized had the entities been a single company as of January 1, 2022 or the future operating results of the combined entity. The unaudited pro forma information does not give effect to the potential impact of current financial conditions, regulatory matters or any anticipated synergies that may be associated with the acquisition. The unaudited pro forma information also does not include any integration costs that the Company may incur related to the acquisition as part of combining the operations of the companies.

The following unaudited pro forma information shows the results of the Company’s operations for the nine months ended September 30, 2023 and October 1, 2022, as if the acquisition had occurred on January 1, 2022 (in thousands):

		September 30, 2023				October 1, 2022
Revenue		$	2,174,209			$	2,197,028
Net income			426,238				448,102

The impact of the unaudited pro forma information for the three months ended September 30, 2023 and October 1, 2022 was immaterial to the consolidated financial statements.

To reflect the acquisition of Wyatt as if it had occurred on January 1, 2022, the unaudited pro forma information includes adjustments to reflect, among other things, the incremental intangible asset amortization to be incurred based on the preliminary values of each identifiable intangible asset of Wyatt and the interest expense from debt financings obtained to partially fund the cash consideration transferred. Pro forma adjustments were tax effected at the Company’s historical statutory rates in effect for the respective periods.

Pro forma net income for the nine months ended September 30, 2023, was adjusted to exclude certain

non-recurring

expenses related to transaction costs incurred and the fair value adjustment of inventory. These

non-recurring

expenses were reclassified to the prior period and included in the pro forma net income for the nine months ended October 1, 2022.

In conjunction with the Wyatt acquisition, the Company entered into retention agreements with certain employees, in which the Company agreed to pay a total of $40 million, in two equal installments upon the first and second anniversary of the acquisition date. As these employees are earning their individual cash award by providing service over the

two-year

period that benefit the Company, the $40 million will be recognized within total costs and operating expenses in the consolidated statements of operations over the

two-year

service period. The Company has recorded $8 million and $11 million of expense in the consolidated statement of operations for the three and nine months ended September 30, 2023

, respectively.

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

6 Goodwill and Other Intangibles

The carrying amount of goodwill was $1.3 billion and $430 million at September 30, 2023 and December 31, 2022, respectively. The acquisition of Wyatt increased goodwill by $879 million, while the effect of foreign currency translation decreased goodwill by $1 million.

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

		September 30, 2023																December 31, 2022
										Weighted-																Weighted-
		Gross								Average								Gross								Average
		Carrying				Accumulated				Amortization								Carrying				Accumulated				Amortization
		Amount				Amortization				Period								Amount				Amortization				Period
Capitalized software		$	616,406			$	460,730				5				years			$	589,604			$	441,414				5				years
Purchased intangibles			610,513				182,214				10				years				197,805				166,735				11				years
Trademarks			9,680				—				—								9,680				—				—
Licenses			14,142				7,753				7				years				14,070				6,729				6				years
Patents and other intangibles			109,371				78,206				8				years				104,139				73,021				8				years
Total		$	1,360,112			$	728,903				7				years			$	915,298			$	687,899				7				years

The Company capitalized intangible assets in the amounts of $10 million and $14 million in the three months ended September 30, 2023 and October 1, 2022, respectively, and $455 million and $38 million in the nine months ended September 30, 2023 and October 1, 2022, respectively. The increases in intangible assets are a result of the Wyatt acquisition.

The gross carrying value of intangible assets and accumulated amortization for intangible assets decreased by $6 million and $10 million, respectively, in the nine months ended September 30, 2023 due to the effects of foreign currency translation.

Amortization expense for intangible assets was $26 million and $15 million for the three months ended September 30, 2023 and October 1, 2022. Amortization expense for intangible assets was $56 million and $45 million for the nine months ended September 30, 2023 and October 1, 2022, respectively. Amortization expense for intangible assets is estimated to be $97 million per year for each of the next five years.

7 Debt

On May 16, 2023, the Company financed the Wyatt acquisition with a combination of cash on its balance sheet and borrowings under its revolving credit facility. As a result of the Wyatt transaction, the Company’s outstanding debt on September 30,

2023

was $2.5 billion, a change of $1.0 billion from the end of the first quarter of 2023.

On May 11, 2023, the Company issued the following senior unsecured notes:

Senior Unsecured Notes		Term				Interest Rate				Face Value (in millions)				Maturity Date
Series P			5 years				4.91	%		$	50				May 2028
Series Q			7 years				4.91	%		$	50				May 2030

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 P and Q Senior Notes is payable semi-annually in arrears. The Company may prepay some or all of the Senior Notes, at any time and from time to time, in an amount not less than 10% of the aggregate principal amount of the Senior Notes then outstanding, plus the applicable make-whole

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

amount for Series P and Q 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.

The Company has a five-year, $1.8 billion revolving facility (the “Credit Facility”) that expires in September 2026. On March 3, 2023, the Company amended the Credit Facility to increase the borrowing capacity by $200 million to an aggregate total borrowing capacity of $2.0 billion, which did not affect the maturity date of September 17, 2026. The amendment also replaced all references in the Credit Facility to LIBOR with Term SOFR as the benchmark rate. As of September 30, 2023 and December 31, 2022, the Credit Facility had a total of $1.2 billion and $270 million outstanding, respectively.

The interest rates applicable under the Credit Facility 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 Term SOFR rate for a

one-month

interest period as published two U.S. Government Securities Business Days prior to such day (or if such day is not a U.S. Government Securities Business Day, the immediately preceding U.S. Government Securities Business Day), plus 1% annum) or the applicable 1, 3 or 6 month adjusted Term SOFR 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 Term SOFR or EURIBO rate loans. The facility fee on the Credit Facility 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 Credit Facility 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 Credit Facility includes negative covenants, affirmative covenants, representations and warranties and events of default that are customary for investment grade credit facilities.

As of both September 30, 2023 and December 31, 2022, the Company had a total of $1.3 billion 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. In the event of a change in control of the Company (as defined in the note purchase agreement), the Company may be required to prepay the senior unsecured notes at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest.

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

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

The Company had the following outstanding debt at September 30, 2023 and December 31, 2022 (in thousands):

		September 30, 2023				December 31, 2022
Senior unsecured notes - Series I - 3.13%, due May 2023			—				50,000
Senior unsecured notes - Series G - 3.92%, due June 2024			50,000				—
Total notes payable and debt, current			50,000				50,000
Senior unsecured notes - Series G - 3.92%, due June 2024			—				50,000
Senior unsecured notes - Series H - floating rate*, due June 2024			—				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
Senior unsecured notes - Series P - 4.91%, due May 2028			50,000				—
Senior unsecured notes - Series Q - 4.91%, due May 2030			50,000				—
Credit agreement			1,200,000				270,000
Unamortized debt issuance costs			(4,735	)			(5,122	)
Total long-term debt			2,455,265				1,524,878
Total debt		$	2,505,265			$	1,574,878

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

As of September 30, 2023 and December 31, 2022, the Company had a total amount available to borrow under the Credit Facility of $0.8 billion and $1.5 billion, respectively, after outstanding letters of credit. The weighted-average interest rates applicable to the senior unsecured notes and credit agreement borrowings collectively were 4.97% and 3.54% at September 30, 2023 and December 31, 2022, respectively. As of September 30, 2023, the Company was in compliance with all debt covenants.

The Company and its foreign subsidiaries also had available short-term lines of credit totaling $112 million and $113 million at September 30, 2023 and December 31, 2022, 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 September 30, 2023 or December 31, 2022.

As of September 30, 2023, the Company had entered into interest rate cross-currency swap derivative agreements

with durations up to three-years

with an aggregate notional value of $625 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.

8 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%, 25% and 17%, respectively, as of September 30, 2023. The Company has a 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

rate

rather than the statutory tax rate to income arising from qualifying activities in Singapore increased the Company’s net income for the nine months ended September 30, 2023 and October 1, 2022 by $11 million and $15 million, respectively, and increased the Company’s net income per diluted share by $0.18 and $0.25, respectively.

The Company’s effective tax rate for the three months ended September 30, 2023 and October 1, 2022 was 12.2% and 14.9%, respectively. The

decrease

in the effective income tax rate can be primarily attributed to the impact of discrete tax benefits in the

current

year and differences in the proportionate amounts of

pre-tax

income recognized in jurisdictions with different effective tax rates.

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

The Company’s effective tax rate for the nine months ended September 30, 2023 and October 1, 2022 was 14.6% and 14.5%, respectively. The 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.

The Company’s gross unrecognized tax benefits, excluding interest and penalties, at September 30, 2023 and October 1, 2022 were $32 million and $29 million, respectively. 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, 2017. 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 September 30, 2023, 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.

9 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 September 30, 2023 are immaterial for the years ended December 31, 2023 and thereafter.

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.

10 Earnings Per Share

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

		Three Months Ended September 30, 2023
		Net Income (Numerator)				Weighted- Average Shares (Denominator)				Per Share Amount
Net income per basic common share		$	134,552				59,093			$	2.28
Effect of dilutive stock option, restricted stock, performance stock unit and restricted stock unit securities			—				162				(0.01	)
Net income per diluted common share		$	134,552				59,255			$	2.27

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

		Three Months Ended October 1, 2022
		Net Income (Numerator)				Weighted- Average Shares (Denominator)				Per Share Amount
Net income per basic common share		$	155,998				59,801			$	2.61
Effect of dilutive stock option, restricted stock, performance stock unit and restricted stock unit securities			—				280				(0.01	)
Net income per diluted common share		$	155,998				60,081			$	2.60

		Nine Months Ended September 30, 2023
		Net Income (Numerator)				Weighted- Average Shares (Denominator)				Per Share Amount
Net income per basic common share		$	426,029				59,061			$	7.21
Effect of dilutive stock option, restricted stock, performance stock unit and restricted stock unit securities			—				201				(0.02	)
Net income per diluted common share		$	426,029				59,262			$	7.19

		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

For the three and nine months ended September 30, 2023 and October 1, 2022, the Company had fewer than one million stock options that were antidilutive due to having higher exercise prices than the Company’s average stock price during the applicable period. These securities were not included in the computation of diluted EPS. The effect of dilutive securities was calculated using the treasury stock method.

11 Accumulated Other Comprehensive Income (Loss)

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

		Currency Translation				Unrealized Gain (Loss) on Retirement Plans				Unrealized Gain (Loss) on Derivative Instruments				Accumulated Other Comprehensive Loss
Balance at December 31, 2022		$	(146,120	)		$	4,548			$	—			$	(141,572	)
Other comprehensive (loss) income, net of tax			(4,909	)			(204	)			388				(4,725	)
Balance at September 30, 2023		$	(151,029	)		$	4,344			$	388			$	(146,297	)

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

12 Business Segment Information

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

TM

and TA

TM

.

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

Net sales for the Company’s products and services are as follows for the three and nine months ended September 30, 2023 and October 1, 2022 (in thousands):

		Three Months Ended								Nine Months Ended
		September 30, 2023				October 1, 2022				September 30, 2023				October 1, 2022
Product net sales:
Waters instrument systems		$	262,142			$	274,869			$	786,293			$	825,677
Chemistry consumables			128,650				128,096				398,084				385,661
TA instrument systems			57,289				61,958				178,087				174,055
Total product sales			448,081				464,923				1,362,464				1,385,393
Service net sales:
Waters service			238,556				220,436				700,281				660,371
TA service			25,055				23,196				74,197				67,682
Total service sales			263,611				243,632				774,478				728,053
Total net sales		$	711,692			$	708,555			$	2,136,942			$	2,113,446

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

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 September 30, 2023 and October 1, 2022 (in thousands):

		Three Months Ended								Nine Months Ended
		September 30, 2023				October 1, 2022				September 30, 2023				October 1, 2022
Net Sales:
Asia:
China		$	102,081			$	140,080			$	333,127			$	399,852
Japan			40,069				37,095				123,943				123,222
Asia Other			96,078				102,759				288,862				289,204
Total Asia			238,228				279,934				745,932				812,278
Americas:
United States			231,773				216,380				673,033				638,908
Americas Other			43,706				40,029				131,794				123,609
Total Americas			275,479				256,409				804,827				762,517
Europe			197,985				172,212				586,183				538,651
Total net sales		$	711,692			$	708,555			$	2,136,942			$	2,113,446

Net sales by customer class are as follows for the three and nine months ended September 30, 2023 and October 1, 2022 (in thousands):

		Three Months Ended								Nine Months Ended
		September 30, 2023				October 1, 2022				September 30, 2023				October 1, 2022
Pharmaceutical		$	421,535			$	405,959			$	1,233,177			$	1,258,902
Industrial			209,449				223,968				648,754				641,882
Academic and government			80,708				78,628				255,011				212,662
Total net sales		$	711,692			$	708,555			$	2,136,942			$	2,113,446

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

Net sales for the Company recognized at a point in time versus over time are as follows for the three and nine months ended September 30, 2023 and October 1, 2022 (in thousands):

		Three Months Ended								Nine Months Ended
		September 30, 2023				October 1, 2022				September 30, 2023				October 1, 2022
Net sales recognized at a point in time:
Instrument systems		$	319,431			$	336,827			$	964,380			$	999,732
Chemistry consumables			128,650				128,096				398,084				385,661
Service sales recognized at a point in time (time & materials)			88,545				89,724				269,464				267,074
Total net sales recognized at a point in time			536,626				554,647				1,631,928				1,652,467
Net sales recognized over time:
Service and software maintenance sales recognized over time (contracts)			175,066				153,908				505,014				460,979
Total net sales		$	711,692			$	708,555			$	2,136,942			$	2,113,446

13 Recent Accounting Standard Changes and Developments

Recently Adopted Accounting Standards

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 effective for public business entities for fiscal years beginning after December 15, 2022, including interim periods within those years. The Company adopted this standard on January 1, 2023. The adoption of this standard did not have a material impact on the Company’s financial position, results of operations and cash flows.

Recently Issued Accounting Standards

In March 2020, accounting guidance was issued that facilitates the effects of reference rate reform on financial reporting. The amendments in the update provide optional guidance for a limited period of time to ease the potential burden in accounting for or recognizing the effects of reference rate reform on financial reporting and apply to all entities, subject to meeting certain criteria, that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. In January of 2021, an update was issued to clarify that certain optional expedients and exceptions under the reference rate reform guidance for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. Specifically, certain provisions in the reference rate reform guidance, if elected by an entity, apply to derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. This temporary guidance is effective for all entities as of March 12, 2020, through December 31, 2022. In December 2022, an update was issued because the cessation date for overnight LIBOR rates being published was extended to June 30, 2023, which was beyond the current expiration date of this guidance. The update extended the sunset date to December 31, 2024. 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.

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