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Basis of Presentation and Summary of Significant Accounting Policies | 6 Months Ended
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Jun. 28, 2014
Basis of Presentation and Summary of Significant Accounting Policies [Abstract] |
Basis of Presentation and Summary of Significant Accounting Policies | 1 Basis of Presentation and Summary of Significant Accounting Policies Waters Corporation (“Waters®” or the “Company”) is an analytical instrument manufacturer that primarily designs, manufactures, sells and services, through its Waters Division, high performance liquid chromatography (“HPLC”), ultra performance liquid chromatography (“UPLC®” and together with HPLC, referred to as “LC”) and mass spectrometry (“MS”) technology systems and support products, including chromatography columns, other consumable products and comprehensive post-warranty service plans. These systems are complementary products that are frequently employed together (“LC-MS”) and sold as integrated instrument systems using a common software platform. 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 instruments are used in drug discovery and development, including clinical trial testing, the analysis of proteins in disease process es (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. Through its TA Division (“TA®”), the Company primarily designs, manufactures, sells and services thermal analysis, rheometry and calorimetry instruments, which are used in predicting the suitability of fine chemicals, pharmaceuticals, water, polymers 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 software-based products that interface with the Company's instruments, as well as other manufacturers' instruments, and are typically purchased by customers as part of the instrument system. 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 not consist of thirteen complete weeks. The Company's second fiscal quarters for 2014 and 2013 ended on June 28, 2014 and June 29, 2013, 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 note disclosures required by generally accepted accounting principles (“GAAP”) in the United States of America. The consolidated financial statements include the accounts of the Company and its subsidiaries, most of which are wholly owned. All material inter-company balances and tra nsactions have been eliminated. The preparation of consolidated financial statements in conformity with 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 statem ents included in the Company's A nnual R eport on Form 10-K for the year ended December 31, 2013, as filed with the U.S. Securities and Exchange Commission on February 27, 2014. 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 U.S. dollars. As of June 28, 2014 and December 31, 2013, $1,876 million out of $1,918 million and $1,738 million out of $1,804 million, respectively, of the Company's total cash, cash equivalents and investments were held by foreign subsidiaries and may be subject to material tax effects on distribution to U.S. legal entities. Property, Plant and Equipment During the three and six months ended June 28, 2014, the Company recorded a $4 million impairment charge related to a write-down in the fair value of a building in the U.K. The building is currently classified as held-for-sale and recorded in other current assets in t he consolidated balance sheet as of June 28, 2014 at a fair value of $5 million, which was determined based on a real estate market analysis. 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 June 28, 2014 and December 31, 2013. Fair values determined by Level 1 inputs utilize observable data, such as quoted prices in active markets. Fair values determined by Level 2 inputs utilize data points other than quoted prices in active markets that are observable either directly or indirectly. Fair values determined by Level 3 inputs utilize unobservable data points for which there is little or no market data, which require the reporting entity to develop its own assumptions. The following table represents the Company's assets and liabilities measured at fair value on a recurring basis at June 28, 2014 (in thousands):
|  |  |  |  |  |  | Quoted Prices |  |  |  |  |  |
|  |  |  |  |  |  | in Active |  | Significant |  |  |
|  |  |  |  |  |  | Markets |  | Other |  | Significant
|  |  |  |  |  |  | for Identical |  | Observable |  | Unobservable
|  |  |  | Total at |  | Assets |  | Inputs |  | Inputs
|  |  |  | June 28, 2014 |  | (Level 1) |  | (Level 2) |  | (Level 3)
Assets: |  |  |  |  |  |  |  |  |  |  |  |
| U.S. Treasury securities |  | $ | 547,668 |  | $ | - |  | $ | 547,668 |  | $ | -
| Foreign government securities |  |  | 49,991 |  |  | - |  |  | 49,991 |  |  | -
| Corporate debt securities |  |  | 872,666 |  |  | - |  |  | 872,666 |  |  | -
| Time deposits |  |  | 67,367 |  |  | - |  |  | 67,367 |  |  | -
| Equity securities |  |  | 147 |  |  | - |  |  | 147 |  |  | -
| Other cash equivalents |  |  | 55,000 |  |  | - |  |  | 55,000 |  |  | -
| Waters 401(k) Restoration Plan assets |  |  | 32,830 |  |  | - |  |  | 32,830 |  |  | -
| Foreign currency exchange contract |  |  |  |  |  |  |  |  |  |  |  |
|  | agreements |  |  | 64 |  |  | - |  |  | 64 |  |  | -
|  | Total |  | $ | 1,625,733 |  | $ | - |  | $ | 1,625,733 |  | $ | -
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |
| Foreign currency exchange contract |  |  |  |  |  |  |  |  |  |  |  |
|  | agreements |  | $ | 180 |  | $ | - |  | $ | 180 |  | $ | -
|  | Total |  | $ | 180 |  | $ | - |  | $ | 180 |  | $ | -
The following table represents the Company's assets and liabilities measured at fair value on a recu rring basis at December 31, 2013 (in thousands):
|  |  |  |  |  |  | Quoted Prices |  |  |  |  |  |
|  |  |  |  |  |  | in Active |  | Significant |  |  |
|  |  |  |  |  |  | Markets |  | Other |  | Significant
|  |  |  | Total at |  | for Identical |  | Observable |  | Unobservable
|  |  |  | December 31, |  | Assets |  | Inputs |  | Inputs
|  |  |  | 2013 |  | (Level 1) |  | (Level 2) |  | (Level 3)
Assets: |  |  |  |  |  |  |  |  |  |  |  |
| U.S. Treasury securities |  | $ | 556,539 |  | $ | - |  | $ | 556,539 |  | $ | -
| Foreign government securities |  |  | 139,670 |  |  | - |  |  | 139,670 |  |  | -
| Corporate debt securities |  |  | 629,434 |  |  | - |  |  | 629,434 |  |  | -
| Time deposits |  |  | 74,050 |  |  | - |  |  | 74,050 |  |  | -
| Equity securities |  |  | 147 |  |  | - |  |  | 147 |  |  | -
| Other cash equivalents |  |  | 62,851 |  |  | - |  |  | 62,851 |  |  | -
| Waters 401(k) Restoration Plan assets |  |  | 31,203 |  |  | - |  |  | 31,203 |  |  | -
| Foreign currency exchange contract |  |  |  |  |  |  |  |  |  |  |  |
|  | agreements |  |  | 929 |  |  | - |  |  | 929 |  |  | -
|  | Total |  | $ | 1,494,823 |  | $ | - |  | $ | 1,494,823 |  | $ | -
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |
| Foreign currency exchange contract |  |  |  |  |  |  |  |  |  |  |  |
|  | agreements |  | $ | 88 |  | $ | - |  | $ | 88 |  | $ | -
|  | Total |  | $ | 88 |  | $ | - |  | $ | 88 |  | $ | -
The fair values of the Company's cash equivalents, investments, 401(k) restoration plan assets and foreign currency exchange contracts 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. After completing these validation procedures, the Company did not adjust or override any fair value measurements provided by third-party pricing services as of June 28, 2014 and December 31, 2013. Fair Value of Other Financial Instruments The Company's cash, accounts receivable, accounts payable and variable interest rate debt are recorded at cost, which approximates fair value. The carrying value of the Company's fixed interest rate debt was $400 million at both June 28, 2014 and December 31, 2013. 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 $406 million and $398 million at June 28, 2014 and December 31, 2013, respectively, using Level 2 inputs. Derivative Transactions The Company enters into forward foreign exchange contracts to manage exposures to foreign currency by hedging the impact of currency fluctuations on certain inter-company balances and short-term assets and liabilities. Principal hedged currenc ies include the Euro, Japanese y en, Britis h pound and Brazilian real. At June 28, 2014 and December 31, 2013, the Company held forward foreign exchange contracts with notional amounts totaling $107 million and $104 million, respectively. T he Company's foreign currency exchange contracts included in the consolid ated balance sheets are classified as follows (in thousands):
|  |  | June 28, 2014 |  | December 31, 2013
Other current assets |  | $ | 64 |  | $ | 929
Other current liabilities |  | $ | 180 |  | $ | 88
The following is a summary of the activity in the statements of operations related to the forward foreign exchange contracts (in thousands):
|  | Three Months Ended |  | Six Months Ended
|  | June 28, 2014 |  | June 29, 2013 |  | June 28, 2014 |  | June 29, 2013
Realized gains (losses) on closed contracts |  | $ | 214 |  | $ | 3,335 |  | $ | (100) |  | $ | 4,029
Unrealized losses on open contracts |  |  | (76) |  |  | (128) |  |  | (957) |  |  | (698)
Cumulative net pre-tax gains (losses) |  | $ | 138 |  | $ | 3,207 |  | $ | (1,057) |  | $ | 3,331
Stockholders' Equity In Ma y 20 1 4, the Company's Board of Directors authorized the Company to repurchase up to $75 0 million of its out standing common stock over a three-year period. In May 2014, the Company's Board of Directors also authorized the extension of the May 2012 program until May 2015, permitting the repurchase of the remaining $221 million under that program. During the six months ended June 28, 2014 and June 29, 2013, t he Company repurchased 1.7 million and 1.8 million shares of the Company's outstanding common stock at a cost of $178 million and $165 million, respectively, under the May 201 2 authorization. As of June 28, 2014, the Company re purchased an aggregate of 6.0 million shares at a cost of $580 million under the May 2012 repurchase program, leaving a total of $920 million authorized for future repurchases. In addition, the Company repurchased $7 million and $6 million of common stock related to the vesting of restricted stock units during the six months ended June 28, 2014 and June 29, 2013, respectively. 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 supplie r s, 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 inform ation, such as past experience, product failure rates, number of units repaired and estimated costs of material and labor. The liability is reviewed for re asonableness at least quarterly. The following is a summary of the activity of the Company's accrued warranty liability for the six months ended June 28, 2014 and June 29, 2013 (in thousands):
|  | Balance at |  |  |  |  |  | Balance at
|  | Beginning |  | Accruals for |  | Settlements |  | End of
|  | of Period |  | Warranties |  | Made |  | Period
Accrued warranty liability: |  |  |  |  |  |  |  |  |  |  |  |
June 28, 2014 |  | $ | 12,962 |  | $ | 3,230 |  | $ | (3,717) |  | $ | 12,475
June 29, 2013 |  | $ | 12,353 |  | $ | 3,710 |  | $ | (3,955) |  | $ | 12,108
Subsequent Events The Company did not have any material subsequent events, except as described in Note 4 and Note 6.

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- Definition The entire disclosure for the basis of presentation and significant accounting policies concepts. Basis of presentation describes the underlying basis used to prepare the financial statements (for example, US Generally Accepted Accounting Principles, Other Comprehensive Basis of Accounting, IFRS). Accounting policies describe all significant accounting policies of the reporting entity. + References No definition available. + Details
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