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Basis of Presentation and Summary of Significant Accounting Policies | 3 Months Ended
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Mar. 31, 2018
Accounting Policies [Abstract] |
Basis of Presentation and Summary of Significant Accounting Policies |
1 | Basis of Presentation and Summary of Significant Accounting Policies
Waters Corporation (the “Company”) is a specialty measurement company that has pioneered analytical workflow solutions involving liquid chromatography, mass spectrometry and thermal analysis innovations serving the life, materials and food sciences for nearly 60 years. The Company primarily designs, manufactures, sells and services 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 common software platforms. LC is a standard technique and is utilized in a broad range of industries to detect, identify, monitor and measure the chemical, physical and biological composition of materials, and to purify a full range of compounds. MS technology, principally in conjunction with chromatography, is employed in drug discovery and development, including clinical trial testing, the analysis of proteins in disease processes (known as “proteomics”), nutritional safety analysis and environmental testing. LC-MS instruments combine a liquid phase sample introduction and separation system with mass spectrometric compound identification and quantification. In addition, the Company designs, manufactures, sells and services thermal analysis, rheometry and calorimetry instruments through its TA® product line. These instruments are used in predicting the suitability and stability of fine chemicals, pharmaceuticals, water, polymers, metals and viscous liquids for various industrial, consumer goods and healthcare products, as well as for life science research. The Company is also a developer and supplier of advanced software-based products that interface with the Company’s instruments, as well as other manufacturers’ instruments. The Company’s interim fiscal quarter typically ends on the thirteenth Saturday of each quarter. Since the Company’s fiscal year end is December 31, the first and fourth fiscal quarters may have more or less than thirteen complete weeks. The Company’s first fiscal quarters for 2018 and 2017 ended on March 31, 2018 and April 1, 2017, 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 (“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 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, 2017, as filed with the U.S. Securities and Exchange Commission on February 27, 2018. 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 most of the Company’s foreign operations, assets and liabilities are translated into U.S. dollars at exchange rates prevailing on the balance sheet date, while revenues and expenses are translated at average exchange rates prevailing during the respective period. Any resulting translation gains or losses are included in accumulated other comprehensive income 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 March 31, 2018 and December 31, 2017, $1,656 million out of $2,552 million and $3,326 million out of $3,394 million, respectively, of the Company’s total cash, cash equivalents and investments were held by foreign subsidiaries. In addition, $348 million out of $2,552 million and $304 million out of $3,394 million of cash, cash equivalents and investments were held in currencies other than the U.S. dollar at March 31, 2018 and December 31, 2017, respectively. Accounts Receivable and Allowance for Doubtful Accounts 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 allowance for doubtful accounts is the best estimate of the amount of probable credit losses in the existing accounts receivable. The allowance is based on a number of factors, including historical experience and the customer’s credit-worthiness. The allowance for doubtful accounts is reviewed on at least a quarterly basis. Past due balances over 90 days and over a specified amount are reviewed individually for collectibility. Account balances are charged against the allowance when the Company determines it is probable that the receivable will not be recovered. The Company does not have any off-balance sheet credit exposure related to its customers. Historically, the Company has not experienced significant bad debt losses. The following is a summary of the activity of the Company’s allowance for doubtful accounts for the three months ended March 31, 2018 and April 1, 2017 (in thousands):
|  | Balance at Beginning of Period |  |  | Additions |  |  | Deduction |  |  | Balance at End of Period |
Allowance for Doubtful Accounts |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
March 31, 2018 |  | $ | 6,109 |  |  | $ | 1,056 |  |  | $ | (1,033 | ) |  | $ | 6,132 |
April 1, 2017 |  | $ | 5,140 |  |  | $ | 636 |  |  | $ | (643 | ) |  | $ | 5,133 |
Other Investments During the three months ended March 31, 2018, the Company made a $3 million investment in a developer of laboratory solutions to increase productivity and reproducibility for use in any industry. 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 March 31, 2018 and December 31, 2017. 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 March 31, 2018 (in thousands):
|  | Total at March 31, 2018 |  |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury securities |  | $ | 425,032 |  |  | $ | — |  |  | $ | 425,032 |  |  | $ | — |
Foreign government securities |  |  | 6,947 |  |  |  | — |  |  |  | 6,947 |  |  |  | — |
Corporate debt securities |  |  | 1,292,878 |  |  |  | — |  |  |  | 1,292,878 |  |  |  | — |
Time deposits |  |  | 301,277 |  |  |  | — |  |  |  | 301,277 |  |  |  | — |
Equity securities |  |  | 147 |  |  |  | — |  |  |  | 147 |  |  |  | — |
Waters 401(k) Restoration Plan assets |  |  | 35,762 |  |  |  | 35,762 |  |  |  | — |  |  |  | — |
Foreign currency exchange contracts |  |  | 129 |  |  |  | — |  |  |  | 129 |  |  |  | — |
Total |  | $ | 2,062,172 |  |  | $ | 35,762 |  |  | $ | 2,026,410 |  |  | $ | — |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Contingent consideration |  | $ | 3,399 |  |  | $ | — |  |  | $ | — |  |  | $ | 3,399 |
Foreign currency exchange contracts |  |  | 730 |  |  |  | — |  |  |  | 730 |  |  |  | — |
Total |  | $ | 4,129 |  |  | $ | — |  |  | $ | 730 |  |  | $ | 3,399 |
The following table represents the Company’s assets and liabilities measured at fair value on a recurring basis at December 31, 2017 (in thousands):
|  | Total at December 31, 2017 |  |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury securities |  | $ | 591,988 |  |  | $ | — |  |  | $ | 591,988 |  |  | $ | — |
Foreign government securities |  |  | 6,952 |  |  |  | — |  |  |  | 6,952 |  |  |  | — |
Corporate debt securities |  |  | 1,975,160 |  |  |  | — |  |  |  | 1,975,160 |  |  |  | — |
Time deposits |  |  | 371,511 |  |  |  | — |  |  |  | 371,511 |  |  |  | — |
Equity securities |  |  | 147 |  |  |  | — |  |  |  | 147 |  |  |  | — |
Waters 401(k) Restoration Plan assets |  |  | 35,645 |  |  |  | 35,645 |  |  |  | — |  |  |  | — |
Foreign currency exchange contracts |  |  | 566 |  |  |  | — |  |  |  | 566 |  |  |  | — |
Total |  | $ | 2,981,969 |  |  | $ | 35,645 |  |  | $ | 2,946,324 |  |  | $ | — |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Contingent consideration |  | $ | 3,247 |  |  | $ | — |  |  | $ | — |  |  | $ | 3,247 |
Foreign currency exchange contracts |  |  | 182 |  |  |  | — |  |  |  | 182 |  |  |  | — |
Total |  | $ | 3,429 |  |  | $ | — |  |  | $ | 182 |  |  | $ | 3,247 |
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, Investment and Foreign Currency Exchange Contracts The fair values of the Company’s cash equivalents, investments 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. Fair Value of Contingent Consideration The fair value of the Company’s liability for contingent consideration relates to earnout payments in connection with the July 2014 acquisition of Medimass Research, Development and Service Kft. and is determined using a probability-weighted discounted cash flow model, which uses significant unobservable inputs, and has been classified as Level 3. Subsequent changes in the fair value of the contingent consideration liability are recorded in the results of operations. The fair value of the contingent consideration liability associated with future earnout payments is based on several factors, including the estimated future results and a discount rate that reflects both the likelihood of achieving the estimated future results and the Company’s creditworthiness. A change in any of these unobservable inputs can significantly change the fair value of the contingent consideration. Although there is no contractual limit, the fair value of future contingent consideration payments was estimated to be $3 million at both March 31, 2018 and December 31, 2017, based on the Company’s best estimate, as the earnout is based on future sales of certain products, some of which are currently in development, through 2034. 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 due to their short-term nature. The carrying value of the Company’s fixed interest rate debt was $510 million and $610 million at March 31, 2018 and December 31, 2017, respectively. 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 $501 million and $608 million at March 31, 2018 and December 31, 2017, 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 strategy in managing exposure to changes in foreign currency exchange rates is to 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. The Company does not specifically enter into any derivatives that hedge foreign-currency-denominated 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. At March 31, 2018 and December 31, 2017, the Company held foreign currency exchange contracts with notional amounts totaling $141 million and $147 million, respectively. The Company’s foreign currency exchange contracts included in the consolidated balance sheets are classified as follows (in thousands):
|  | March 31, 2018 |  |  | December 31, 2017 |
Other current assets |  | $ | 129 |  |  | $ | 566 |
Other current liabilities |  | $ | 730 |  |  | $ | 182 |
The following is a summary of the activity included in cost of sales in the statements of operations related to the foreign currency exchange contracts (in thousands):
|  | Three Months Ended |
|  | March 31, 2018 |  |  | April 1, 2017 |
Realized gains (losses) on closed contracts |  | $ | 1,937 |  |  | $ | (1,438 | )
Unrealized losses on open contracts |  |  | (985 | ) |  |  | (132 | )
Cumulative net pre-tax gains (losses) |  | $ | 952 |  |  | $ | (1,570 | )
Stockholders’ Equity In May 2017, the Company’s Board of Directors authorized the Company to repurchase up to $1 billion of its outstanding common stock over a three-year period. During the three months ended March 31, 2018 and April 1, 2017, the Company repurchased 1.3 million and 0.5 million shares of the Company’s outstanding common stock at a cost of $275 million and $82 million, respectively, under the May 2017 authorization and other previously announced programs. As of March 31, 2018, the Company had repurchased an aggregate of 2.4 million shares at a cost of $474 million under the May 2017 repurchase program and had a total of $526 million authorized for future repurchases. In addition, the Company repurchased $8 million and $7 million of common stock related to the vesting of restricted stock units during the three months ended March 31, 2018 and April 1, 2017, respectively. In April 2018, the Company’s Board of Directors authorized the Company to repurchase up to $3 billion of its outstanding common stock over a three-year period. This new program adds the remaining $526 million from the pre-existing program, allowing for the purchase of a total of $3.5 billion of the Company’s common stock over a three-year period. Upon commencement of the new authorization, the 2017 authorization was terminated. The Company believes that it has the financial flexibility to fund these share repurchases given current cash levels and debt borrowing capacity, as well as to invest in research, technology and business acquisitions. 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 three months ended March 31, 2018 and April 1, 2017 (in thousands):
|  | Balance at Beginning of Period |  |  | Accruals for Warranties |  |  | Settlements Made |  |  | Balance at End of Period |
Accrued warranty liability: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
March 31, 2018 |  | $ | 13,026 |  |  | $ | 1,767 |  |  | $ | (2,167 | ) |  | $ | 12,626 |
April 1, 2017 |  | $ | 13,391 |  |  | $ | 1,815 |  |  | $ | (2,208 | ) |  | $ | 12,998 |
Other Commitments In February 2018, the Company’s Board of Directors approved expanding its precision chemistry consumable manufacturing operations. The Company anticipates spending an estimated $215 million to build and equip the new state-of-the-art manufacturing facility, which will be paid for with existing cash and investments. Subsequent Events The Company did not have any material subsequent events except for the April 2018 stock repurchase authorization discussed under the heading, “Stockholders’ Equity”, above.

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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 Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -URI http://asc.fasb.org/topic&trid=2122369 + Details
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