UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

For the quarterly period ended July 1, 2023

or

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

For the transition period from                      to                     .

Commission File Number: 01-14010

Waters Corporation

(Exact name of registrant as specified in its charter)

Delaware	13-3668640
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

34 Maple Street

Milford, Massachusetts 01757

(Address, including zip code, of principal executive offices)

(508) 478-2000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	WAT	New York Stock Exchange, Inc.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ☐    No  ☒

Indicate the number of shares outstanding of the registrant’s common stock as of July 28, 2023: 59,102,922

WATERS CORPORATION AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q

INDEX

		Page
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets (unaudited) as of July 1, 2023 and December 31, 2022		3
	Consolidated Statements of Operations (unaudited) for the three months ended July 1, 2023 and July 2, 2022		4
	Consolidated Statements of Operations (unaudited) for the six months ended July 1, 2023 and July 2, 2022		5
	Consolidated Statements of Comprehensive Income (unaudited) for the three and six months ended July 1, 2023 and July 2, 2022		6
	Consolidated Statements of Cash Flows (unaudited) for the six months ended July 1, 2023 and July 2, 2022		7
	Consolidated Statements of Stockholders’ Equity (unaudited) for the three months ended July 1, 2023 and July 2, 2022		8
	Consolidated Statements of Stockholders’ Equity (unaudited) for the six months ended July 1, 2023 and July 2, 2022		9
	Condensed Notes to Consolidated Financial Statements (unaudited)		10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		37
Item 4.	Controls and Procedures		37
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings		38
Item 1A.	Risk Factors		38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		38
Item 6.	Exhibits		39
	Signature		40

Item 1: Financial Statements

WATERS CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(unaudited)

	July 1, 2023			December 31, 2022
	(In thousands, except per share data)
ASSETS
Current assets:
Cash and cash equivalents	$	329,693		$	480,529
Investments		885			862
Accounts receivable, net		693,436			722,892
Inventories		536,828			455,710
Other current assets		120,342			103,910
Total current assets		1,681,184			1,763,903
Property, plant and equipment, net		615,211			582,217
Intangible assets, net		649,731			227,399
Goodwill		1,313,501			430,328
Operating lease assets		92,412			86,506
Other assets		196,157			191,100
Total assets	$	4,548,196		$	3,281,453
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Notes payable and debt	$	50,000		$	50,000
Accounts payable		81,918			93,302
Accrued employee compensation		35,522			103,300
Deferred revenue and customer advances		324,665			227,908
Current operating lease liabilities		25,908			26,429
Accrued income taxes		121,294			132,545
Accrued warranty		12,409			11,949
Other current liabilities		157,671			140,304
Total current liabilities		809,387			785,737
Long-term liabilities:
Long-term debt		2,580,198			1,524,878
Long-term portion of retirement benefits		43,565			38,203
Long-term income tax liabilities		154,376			248,496
Long-term operating lease liabilities		66,856			62,108
Other long-term liabilities		122,585			117,543
Total long-term liabilities		2,967,580			1,991,228
Total liabilities		3,776,967			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 July 1, 2023 and December 31, 2022		—			—
Common stock, par value $0.01 per share, 400,000 shares authorized, 162,576 and 162,425 shares issued, 59,046 and 59,104 shares outstanding at July 1, 2023 and December 31, 2022, respectively		1,626			1,624
Additional paid-in capital		2,232,055			2,199,824
Retained earnings		8,800,064			8,508,587
Treasury stock, at cost, 103,530 and 103,321 shares at July 1, 2023 and December 31, 2022, respectively		(10,133,716	)		(10,063,975	)
Accumulated other comprehensive loss		(128,800	)		(141,572	)
Total stockholders’ equity		771,229			504,488
Total liabilities and stockholders’ equity	$	4,548,196		$	3,281,453

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

3

WATERS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

	Three Months Ended
	July 1, 2023			July 2, 2022
	(In thousands, except per share data)
Revenues:
Product sales	$	477,926		$	469,630
Service sales		262,650			244,689
Total net sales		740,576			714,319
Costs and operating expenses:
Cost of product sales		194,354			202,356
Cost of service sales		106,722			104,850
Selling and administrative expenses		186,953			161,877
Research and development expenses		45,873			44,006
Purchased intangibles amortization		6,815			1,598
Total costs and operating expenses		540,717			514,687
Operating income		199,859			199,632
Other (expense) income, net		(352	)		1,535
Interest expense		(23,272	)		(11,419	)
Interest income		4,040			2,526
Income before income taxes		180,275			192,274
Provision for income taxes		29,721			27,410
Net income	$	150,554		$	164,864
Net income per basic common share	$	2.56		$	2.74
Weighted-average number of basic common shares		58,857			60,206
Net income per diluted common share	$	2.55		$	2.72
Weighted-average number of diluted common shares and equivalents		59,010			60,510

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

4

WATERS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

	Six Months Ended
	July 1, 2023			July 2, 2022
	(In thousands, except per share data)
Revenues:
Product sales	$	914,383		$	920,470
Service sales		510,867			484,421
Total net sales		1,425,250			1,404,891
Costs and operating expenses:
Cost of product sales		374,708			393,966
Cost of service sales		210,748			198,925
Selling and administrative expenses		368,909			319,352
Research and development expenses		88,564			84,478
Purchased intangibles amortization		8,294			3,271
Acquired in-process research and development		—			9,797
Total costs and operating expenses		1,051,223			1,009,789
Operating income		374,027			395,102
Other income, net		1,036			1,705
Interest expense		(37,716	)		(22,478	)
Interest income		8,101			4,640
Income before income taxes		345,448			378,969
Provision for income taxes		53,971			54,274
Net income	$	291,477		$	324,695
Net income per basic common share	$	4.97		$	5.38
Weighted-average number of basic common shares		58,703			60,399
Net income per diluted common share	$	4.95		$	5.35
Weighted-average number of diluted common shares and equivalents		58,909			60,744

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

5

WATERS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

	Three Months Ended						Six Months Ended
	July 1, 2023			July 2, 2022			July 1, 2023			July 2, 2022
	(In thousands)						(In thousands)
Net income	$	150,554		$	164,864		$	291,477		$	324,695
Other comprehensive income (loss):
Foreign currency translation		3,984			(24,307	)		12,767			(30,476	)
Unrealized gains on investments before income taxes		—			11			—			26
Income tax expense		—			(2	)		—			(6	)
Unrealized gains on investments, net of tax		—			9			—			20
Retirement liability adjustment before reclassifications		91			720			171			988
Amounts reclassified to other income, net		(84	)		120			(167	)		247
Retirement liability adjustment before income taxes		7			840			4			1,235
Income tax benefit (expense)		5			(206	)		1			(303	)
Retirement liability adjustment, net of tax		12			634			5			932
Other comprehensive income (loss)		3,996			(23,664	)		12,772			(29,524	)
Comprehensive income	$	154,550		$	141,200		$	304,249		$	295,171

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

6

WATERS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	Six Months Ended
	July 1, 2023			July 2, 2022
	(In thousands)
Cash flows from operating activities:
Net income	$	291,477		$	324,695
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation		23,734			20,722
Deferred income taxes		(6,435	)		(12,523	)
Depreciation		40,172			36,956
Amortization of intangibles		29,866			29,935
Acquired in-process research and development and other non-cash items		—			7,903
Change in operating assets and liabilities:
Decrease (increase) in accounts receivable		50,273			(57,377	)
Increase in inventories		(63,607	)		(65,070	)
Increase in other current assets		(19,044	)		(9,199	)
Decrease in other assets		12			4,658
Decrease in accounts payable and other current liabilities		(122,836	)		(32,197	)
Increase in deferred revenue and customer advances		81,659			70,027
Decrease in other liabilities		(90,402	)		(63,667	)
Net cash provided by operating activities		214,869			254,863
Cash flows from investing activities:
Additions to property, plant, equipment and software capitalization		(80,997	)		(74,746	)
Business acquisitions, net of cash acquired		(1,285,907	)		—
Proceeds from equity investments, net		—			5,646
Payments for intellectual property licenses		—			(4,897	)
Purchases of investments		(893	)		(10,959	)
Maturities and sales of investments		877			77,553
Net cash used in investing activities		(1,366,920	)		(7,403	)
Cash flows from financing activities:
Proceeds from debt issuances		1,450,040			105,000
Payments on debt		(395,040	)		(135,000	)
Payments of debt issuance costs		(218	)		—
Proceeds from stock plans		8,628			30,914
Purchases of treasury shares		(69,741	)		(321,944	)
Proceeds from derivative contracts		5,294			10,849
Net cash provided by (used in) financing activities		998,963			(310,181	)
Effect of exchange rate changes on cash and cash equivalents		2,252			(19,616	)
Decrease in cash and cash equivalents		(150,836	)		(82,337	)
Cash and cash equivalents at beginning of period		480,529			501,234
Cash and cash equivalents at end of period	$	329,693		$	418,897

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

7

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 April 2, 2022		162,252	$	1,623	$	2,138,426	$	7,960,663	$	(9,608,050	)	$	(117,725	)	$	374,937
Net income		—		—		—		164,864		—			—			164,864
Other comprehensive loss		—		—		—		—		—			(23,664	)		(23,664	)
Issuance of common stock for employees:
Employee Stock Purchase Plan		11		—		3,559		—		—			—			3,559
Stock options exercised		81		—		14,523		—		—			—			14,523
Treasury stock		—		—		—		—		(151,808	)		—			(151,808	)
Stock-based compensation		4		—		9,713		—		—			—			9,713
Balance July 2, 2022		162,348	$	1,623	$	2,166,221	$	8,125,527	$	(9,759,858	)	$	(141,389	)	$	392,124

	Number of Common Shares		Common Stock		Additional Paid-In Capital		Retained Earnings		Treasury Stock			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity
Balance April 1, 2023		162,550	$	1,626	$	2,214,963	$	8,649,510	$	(10,133,480	)	$	(132,796	)	$	599,823
Net income		—		—		—		150,554		—			—			150,554
Other comprehensive income		—		—		—		—		—			3,996			3,996
Issuance of common stock for employees:
Employee Stock Purchase Plan		13		—		3,933		—		—			—			3,933
Stock options exercised		11		—		2,316		—		—			—			2,316
Treasury stock		—		—		—		—		(236	)		—			(236	)
Stock-based compensation		2		—		10,843		—		—			—			10,843
Balance July 1, 2023		162,576	$	1,626	$	2,232,055	$	8,800,064	$	(10,133,716	)	$	(128,800	)	$	771,229

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

8

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		—		—		—		324,695		—			—			324,695
Other comprehensive loss		—		—		—		—		—			(29,524	)		(29,524	)
Issuance of common stock for employees:
Employee Stock Purchase Plan		19		—		5,886		—		—			—			5,886
Stock options exercised		150		1		25,614		—		—			—			25,615
Treasury stock		—		—		—		—		(321,944	)		—			(321,944	)
Stock-based compensation		95		1		19,841		—		—			—			19,842
Balance July 2, 2022		162,348	$	1,623	$	2,166,221	$	8,125,527	$	(9,759,858	)	$	(141,389	)	$	392,124

	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		—		—		—		291,477		—			—			291,477
Other comprehensive income		—		—		—		—		—			12,772			12,772
Issuance of common stock for employees:
Employee Stock Purchase Plan		21		—		5,933		—		—			—			5,933
Stock options exercised		17		—		3,285		—		—			—			3,285
Treasury stock		—		—		—		—		(69,741	)		—			(69,741	)
Stock-based compensation		113		2		23,013		—		—			—			23,015
Balance July 1, 2023		162,576	$	1,626	$	2,232,055	$	8,800,064	$	(10,133,716	)	$	(128,800	)	$	771,229

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

9

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1 Basis of Presentation and Summary of Significant Accounting Policies

Waters Corporation (the “Company,” “we,” “our,” or “us”) is a specialty measurement company that operates with a fundamental underlying purpose to advance the science that enables our customers to enhance human health and well-being. The Company has pioneered analytical workflow solutions involving liquid chromatography, mass spectrometry and thermal analysis innovations serving the life, materials and food sciences for more than 60 years. The Company primarily designs, manufactures, sells and services high-performance liquid chromatography (“HPLC”), ultra-performance liquid chromatography (“UPLCTM” 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 TATM 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 consolidated financial statements for the three and six months ended July 1, 2023 include Wyatt’s operating results from May 16, 2023 to July 1, 2023.

The Company’s interim fiscal quarter typically ends on the thirteenth Saturday of each quarter. Since the Company’s fiscal year end is December 31, the first and fourth fiscal quarters may have more or less than thirteen complete weeks. The Company’s second fiscal quarters for 2023 and 2022 ended on July 1, 2023 and July 2, 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.

10

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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.

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 July 1, 2023 and December 31, 2022, $272 million out of $331 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, $184 million out of $331 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 July 1, 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.

11

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 six months ended July 1, 2023 and July 2, 2022 (in thousands):

	Balance at Beginning							Balance at End of
	of Period		Additions		Deductions			Period
Allowance for Credit Losses
July 1, 2023	$	14,311	$	3,075	$	(2,432	)	$	14,954
July 2, 2022	$	13,228	$	3,690	$	(3,571	)	$	13,347

Other Investments

During the six months ended July 1, 2023, the Company did not have any other investment activity. During the six months ended July 2, 2022, the Company recorded a realized gain of $4 million in other income, net in the consolidated statement of operations due to the sale of an equity investment as well as incurring $4 million in impairment losses on an equity investment.

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: WatersTM and TATM. 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 July 1, 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.

12

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

The following table represents the Company’s assets and liabilities measured at fair value on a recurring basis at July 1, 2023 (in thousands):

	Total at July 1, 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	$	885	$	—	$	885	$	—
Waters 401(k) Restoration Plan assets		28,485		28,485		—		—
Foreign currency exchange contracts		53		—		53		—
Interest rate cross-currency swap agreements		11,889		—		11,889		—
Total	$	41,312	$	28,485	$	12,827	$	—
Liabilities:
Foreign currency exchange contracts	$	211	$	—	$	211	$	—
Interest rate cross-currency swap agreements		6,164		—		6,164		—
Total	$	6,375	$	—	$	6,375	$	—

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

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.

13

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

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

The fair values of the Company’s cash equivalents, investments, foreign currency exchange contracts and interest rate cross-currency swap agreements are determined through market and observable sources and have been classified as Level 2. These assets and liabilities have been initially valued at the transaction price and subsequently valued, typically utilizing third-party pricing services. The pricing services use many inputs to determine value, including reportable trades, benchmark yields, credit spreads, broker/dealer quotes, current spot rates and other industry and economic events. The Company validates the prices provided by third-party pricing services by reviewing their pricing methods and obtaining market values from other pricing sources.

Fair Value of 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 July 1, 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 $1.2 billion and $1.1 billion at July 1, 2023 and December 31, 2022, respectively, using Level 2 inputs.

Derivative Transactions

The Company is a global company that operates in over 35 countries and, as a result, the Company’s net sales, cost of sales, operating expenses and balance sheet amounts are significantly impacted by fluctuations in foreign currency exchange rates. The Company is exposed to currency price risk on foreign currency exchange rate fluctuations when it translates its non-U.S. dollar foreign subsidiaries’ financial statements into U.S. dollars and when any of the Company’s subsidiaries purchase or sell products or services in a currency other than its own currency.

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

Foreign Currency Exchange Contracts

The Company does not specifically enter into any derivatives that hedge foreign-currency-denominated operating assets, liabilities or commitments on its balance sheet, other than a portion of certain third-party accounts receivable and accounts payable, and the Company’s net worldwide intercompany receivables and payables, which are eliminated in consolidation. The Company periodically aggregates its net worldwide balances by currency and then enters into foreign currency exchange contracts that mature within 90 days to hedge a portion of the remaining balance to minimize some of the Company’s currency price risk exposure. The foreign currency exchange contracts are not designated for hedge accounting treatment. Principal hedged currencies include the euro, Japanese yen, British pound, Mexican peso and Brazilian real.

Interest Rate Cross-Currency Swap Agreements

As of July 1, 2023, the Company had three-year interest rate cross-currency swap derivative agreements 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.

14

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

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

	July 1, 2023				December 31, 2022
	Notional Value		Fair Value		Notional Value		Fair Value
Foreign currency exchange contracts:
Other current assets	$	14,000	$	53	$	42,047	$	231
Other current liabilities	$	34,226	$	211	$	13,450	$	98
Interest rate cross-currency swap agreements:
Other assets	$	425,000	$	11,889	$	400,000	$	19,163
Other liabilities	$	200,000	$	6,164	$	185,000	$	4,783
Accumulated other comprehensive income			$	1,370			$	10,026

The following is a summary of the activity included in the consolidated statements of operations and statements of comprehensive income related to the foreign currency exchange contracts and interest rate cross-currency swap agreements (in thousands):

	Financial	Three Months Ended						Six Months Ended
	Statement	July 1, 2023			July 2, 2022			July 1, 2023			July 2, 2022
	Classification
Foreign currency exchange contracts:
Realized gains (losses) on closed contracts	Cost of sales	$	675		$	(1,292	)	$	705		$	(2,791	)
Unrealized losses on open contracts	Cost of sales		(213	)		(66	)		(291	)		(555	)
Cumulative net pre-tax gains (losses)	Cost of sales	$	462		$	(1,358	)	$	414		$	(3,346	)
Interest rate cross-currency swap agreements:
Interest earned	Interest income	$	2,673		$	2,077		$	5,328		$	3,852
Unrealized (losses) gains on open contracts	Other comprehensive income	$	(1,400	)	$	30,516		$	(8,656	)	$	42,704

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 six months ended July 1, 2023 and July 2, 2022, the Company repurchased 0.2 million and 1.0 million shares of the Company’s outstanding common stock at a cost of $58 million and $312 million, respectively, under the January 2019 authorization and other previously announced programs. In addition, the Company repurchased $11 million and $10 million of common stock related to the vesting of restricted stock units during the six months ended July 1, 2023 and July 2, 2022, respectively. As of July 1, 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.

15

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

Product Warranty Costs

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

The following is a summary of the activity of the Company’s accrued warranty liability for the six months ended July 1, 2023 and July 2, 2022 (in thousands):

	Balance at							Balance at
	Beginning		Accruals for		Settlements			End of
	of Period		Warranties		Made			Period
Accrued warranty liability:
July 1, 2023	$	11,949	$	3,983	$	(3,523	)	$	12,409
July 2, 2022	$	10,718	$	4,084	$	(4,646	)	$	10,156

Subsequent Event

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. The Company expects to incur approximately $30 million of severance related costs relating to this reduction in the third quarter of 2023.

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 six months ended July 1, 2023 and July 2, 2022 (in thousands):

	July 1, 2023			July 2, 2022
Balance at the beginning of the period	$	285,175		$	273,598
Recognition of revenue included in balance at beginning of the period		(176,508	)		(173,606	)
Revenue deferred during the period, net of revenue recognized		284,863			240,928
Balance at the end of the period	$	393,530		$	340,920

The Company classified $69 million and $57 million of deferred revenue and customer advances in other long-term liabilities at July 1, 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):

	July 1, 2023
Deferred revenue and customer advances expected to be recognized in:
One year or less	$	324,665
13-24 months		42,196
25 months and beyond		26,669
Total	$	393,530

16

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

3 Marketable Securities

The Company’s marketable securities within cash equivalents and investments included in the consolidated balance sheets 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 July 1, 2023 and December 31, 2022.

4 Inventories

Inventories are classified as follows (in thousands):

	July 1, 2023		December 31, 2022
Raw materials	$	238,392	$	205,760
Work in progress		26,941		19,899
Finished goods		271,495		230,051
Total inventories	$	536,828	$	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.

17

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

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):

	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 six months ended July 1, 2023, the Company’s consolidated results included net sales of $16 million and a net operating loss of $3 million since the acquisition closed on May 16, 2023. The Company also incurred transaction related costs of $4 million and $12 million during the three and six months ended July 1, 2023, respectively.

The pro forma effect on the ongoing operations of the Company as though this acquisition had occurred on January 1, 2022 was considered immaterial to the consolidated financial statements.

18

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

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 $4 million of expense in the consolidated statement of operations for the three and six months ended July 1, 2023.

6 Goodwill and Other Intangibles

The carrying amount of goodwill was $1.3 billion and $430 million at July 1, 2023 and December 31, 2022, respectively. The acquisition of Wyatt increased goodwill by $879 million, while the effect of foreign currency translation increased goodwill by $4 million.

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

	July 1, 2023						December 31, 2022
					Weighted-						Weighted-
	Gross				Average		Gross				Average
	Carrying		Accumulated		Amortization		Carrying		Accumulated		Amortization
	Amount		Amortization		Period		Amount		Amortization		Period
Capitalized software	$	627,965	$	467,233		5 years	$	589,604	$	441,414		5 years
Purchased intangibles		612,946		171,959		10 years		197,805		166,735		11 years
Trademarks		9,680		—		—		9,680		—		—
Licenses		14,682		7,691		7 years		14,070		6,729		6 years
Patents and other intangibles		108,687		77,346		8 years		104,139		73,021		8 years
Total	$	1,373,960	$	724,229		7 years	$	915,298	$	687,899		7 years

The Company capitalized intangible assets in the amounts of $431 million and $12 million in the three months ended July 1, 2023 and July 2, 2022, respectively, and $445 million and $24 million in the six months ended July 1, 2023 and July 2, 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 increased by $18 million and $11 million, respectively, in the six months ended July 1, 2023 due to the effects of foreign currency translation.

Amortization expense for intangible assets was $18 million and $15 million for the three months ended July 1, 2023 and July 2, 2022. Amortization expense for intangible assets was $30 million for both the six months ended July 1, 2023 and July 2, 2022. Amortization expense for intangible assets is estimated to be $92 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 July 2, 2023 was $2.6 billion, a change of $1.2 billion from the end of the first quarter of 2023.

19

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

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

						Face Value
Senior Unsecured Notes	Term		Interest Rate			(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 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 July 1, 2023 and December 31, 2022, the Credit Facility had a total of $1.3 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 July 1, 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.

20

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

The Company had the following outstanding debt at July 1, 2023 and December 31, 2022 (in thousands):

	July 1, 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		1,325,000			270,000
Unamortized debt issuance costs		(4,802	)		(5,122	)
Total long-term debt		2,580,198			1,524,878
Total debt	$	2,630,198		$	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 July 1, 2023 and December 31, 2022, the Company had a total amount available to borrow under the Credit Facility of $0.7 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 4.68% and 3.54% at July 1, 2023 and December 31, 2022, respectively. As of July 1, 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 $113 million at both July 1, 2023 and December 31, 2022, 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 July 1, 2023 or December 31, 2022.

As of July 1, 2023, the Company had entered into three-year interest rate cross-currency swap derivative agreements 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 July 1, 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 rates rather than the statutory tax rate to income arising from qualifying activities in Singapore increased the Company’s net income for the six months ended July 1, 2023 and July 2, 2022 by $7 million and $10 million, respectively, and increased the Company’s net income per diluted share by $0.11 and $0.16, respectively.

The Company’s effective tax rate for the three months ended July 1, 2023 and July 2, 2022 was 16.5% and 14.3%, respectively. The increase in the effective income tax rate can be primarily attributed to the impact of discrete tax benefits in the prior year and differences in the proportionate amounts of pre-tax income recognized in jurisdictions with different effective tax rates.

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

The Company’s effective tax rate for the six months ended July 1, 2023 and July 2, 2022 was 15.6% and 14.3%, 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 July 1, 2023 and July 2, 2022 were $30 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 July 1, 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 July 1, 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 July 1, 2023
	Net Income		Weighted- Average Shares		Per Share
	(Numerator)		(Denominator)		Amount
Net income per basic common share	$	150,554		58,857	$	2.56
Effect of dilutive stock option, restricted stock, performance stock unit and restricted stock unit securities		—		153		(0.01	)
Net income per diluted common share	$	150,554		59,010	$	2.55

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

	Three Months Ended July 2, 2022
	Net Income		Weighted- Average Shares		Per Share
	(Numerator)		(Denominator)		Amount
Net income per basic common share	$	164,864		60,206	$	2.74
Effect of dilutive stock option, restricted stock, performance stock unit and restricted stock unit securities		—		304		(0.02	)
Net income per diluted common share	$	164,864		60,510	$	2.72

	Six Months Ended July 1, 2023
	Net Income		Weighted- Average Shares		Per Share
	(Numerator)		(Denominator)		Amount
Net income per basic common share	$	291,477		58,703	$	4.97
Effect of dilutive stock option, restricted stock, performance stock unit and restricted stock unit securities		—		206		(0.02	)
Net income per diluted common share	$	291,477		58,909	$	4.95

	Six Months Ended July 2, 2022
	Net Income		Weighted- Average Shares		Per Share
	(Numerator)		(Denominator)		Amount
Net income per basic common share	$	324,695		60,399	$	5.38
Effect of dilutive stock option, restricted stock, performance stock unit and restricted stock unit securities		—		345		(0.03	)
Net income per diluted common share	$	324,695		60,744	$	5.35

For the three and six months ended July 1, 2023 and July 2, 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		Accumulated Other Comprehensive Loss
Balance at December 31, 2022	$	(146,120	)	$	4,548	$	(141,572	)
Other comprehensive (loss) income, net of tax		12,767			5		12,772
Balance at July 1, 2023	$	(133,353	)	$	4,553	$	(128,800	)

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: WatersTM and TATM.

23

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

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

Net sales for the Company’s products and services are as follows for the three and six months ended July 1, 2023 and July 2, 2022 (in thousands):

Three Months Ended	Six Months Ended
July 1, 2023