WATERS CORP /DE/ (WAT)

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

Business Overview

The Company has four operating segments: Analytical Sciences, Biosciences, Advanced Diagnostics, and Materials Sciences. Analytical Sciences products and services primarily consist of high-performance liquid chromatography (“HPLC”), ultra-performance liquid chromatography (“UPLC” and, together with HPLC, referred to as “LC”), mass spectrometry (“MS”), light scattering and field-flow fractionation instruments (Wyatt), and precision chemistry consumable products and related services. Materials Sciences products and services primarily consist of thermal analysis, rheometry and calorimetry instrument systems and service revenue. Biosciences products and services primarily consist of instruments, software and informatics, reagents, and single cell multiomics solutions, supporting the advanced analysis of cell populations for use in fields such as immunology, oncology, and infectious disease research. Advanced Diagnostics products and services primarily consist of a broad range of diagnostic instrumentation, assays, consumables, automation, and informatics that support the detection, identification and drug susceptibility testing of infectious disease organisms.

The Company’s products are used by pharmaceutical, biochemical, industrial, nutritional safety, environmental, academic and government customers. These customers use the Company’s products to detect, identify, monitor and measure the chemical, physical and biological composition of materials and to predict the suitability and stability of fine chemicals, pharmaceuticals, water, polymers, metals and viscous liquids in various industrial, consumer goods and healthcare products.

Acquisition of BD Biosciences and Diagnostic Solutions Businesses

On February 9, 2026 (the “Closing Date”), the Company completed the acquisition (the “BDS Business Acquisition”) of the Biosciences and Diagnostic Solutions business (the “BDS Business”) of Becton, Dickinson and Company (“BD”). The transaction was structured as a Reverse Morris Trust transaction, where the BDS Business was spun off to BD shareholders and simultaneously merged with a wholly-owned subsidiary of the Company. The 2026 financial results of the BDS Business from the Closing Date are included in the Company’s 2026 consolidated financial results presented herein.

Tariffs

The Company sells and services its customers in over 35 countries outside of the U.S. and we have major manufacturing operations in the U.S., Ireland, U.K., Switzerland, Puerto Rico and in Singapore where we utilize subcontractors with worldwide capabilities.

In 2025, the U.S. government issued varying levels of tariffs on all imported goods into the U.S., including a baseline 10% tariff, subject to certain exceptions, which have also prompted retaliatory tariffs by a number of countries, including tariffs and export restrictions on certain manufacturing components imposed by China and tariffs pursuant to trade agreements the U.S. has entered into with certain countries. In addition, a number of new tariffs have been threatened, and the U.S. and other countries continue to negotiate trade arrangements and tariff levels. On February 20, 2026, the U.S. Supreme Court rendered a decision invalidating tariffs imposed under the International Emergency Economic Powers Act (“IEEPA”). On March 4, 2026, the U.S. Court of International Trade ordered the U.S. Customs and Border Protection (“CBP”) to process refunds of the IEEPA tariffs, and the CBP has begun accepting and processing applications for refunds on certain IEEPA tariffs. This decision introduces uncertainty regarding potential refund processes and future trade policy actions and could affect the Company’s cost structure and supply chain planning. As a result of this ruling, the Company may be eligible for a refund of tariffs previously paid on imported goods. As the recoverability and timing of any such refund remains uncertain, the Company has not recognized any material amounts as of July 4, 2026. In response to the U.S. Supreme Court ruling mentioned above, the U.S. government implemented new tariffs under alternative statutory authority. The Company continues to monitor developments around the Supreme Court’s decision and evaluate its potential impact on the Company’s future financial results and business.

These tariffs, any resulting retaliatory tariffs and any related supply-chain disruptions could have a significant impact on the Company’s consolidated statement of operations and statement of cash flows. In response to currently applicable and potential future tariffs, the Company is continuing to evaluate and implement a series of actions and policies that are intended to offset a portion of the impact of the tariffs on the Company’s financial position and results of operations. While the Company believes that these actions and policies will mitigate a substantial portion of the impact of the tariffs, the Company cannot provide any assurances that the tariffs or any resulting impediments to trade will not have a material effect on the Company’s consolidated statement of operations and statement of cash flows.

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In addition to changes in trade policy, the U.S. administration has implemented a number of other regulatory, policy and personnel changes, including the elimination, downsizing and reduced funding of certain government agencies and programs and the cancellation or delay of government contracts and research grants. In addition, the administration has changed the composition of and guidance from advisory panels on healthcare practices.

Financial Overview

The Company’s operating results are as follows for the three and six months ended July 4, 2026 and June 28, 2025 (dollars in millions, except per share data):

Due to the acquisition of the BDS Business on February 9, 2026, period over period comparability of the Company’s financial results has been materially impacted. In addition, the Company’s 2026 results include the BDS Business’s financial results only from the Closing Date through the end of the period, further affecting comparability with prior periods and in the future.

Revenue

The Company’s revenue increased 113% in the second quarter of 2026, as compared to the second quarter of 2025 and 103% for the first half of 2026 as compared to the first half of 2025, primarily driven by $817 million and $1.3 billion of revenue contributed by the BDS Business for the second quarter and since the Closing Date for the first half of 2026, respectively. Excluding the BDS Business revenue, legacy revenue increased 7% and 10% in the second quarter and first half of 2026, respectively, primarily due to broad-based growth across all product lines and geographical regions. Foreign currency translation decreased total revenue growth by 2% for the second quarter of 2026 and had a minimal impact on total revenue growth for the first half of 2026. In addition, the first half of 2026 had six more calendar days compared to the first half of 2025.

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Cost of Revenue

The cost of revenue in the second quarter and first half of 2026 increased 184% and 166%, respectively, as compared to 2025. This increase is primarily attributed to the $560 million for the second quarter and $921 million for the first half of 2026 of cost of revenue from the BDS Business since the Closing Date as well as the increase in legacy business sales volume. The cost of revenue in the second quarter and first half of 2026 included $154 million and $253 million, respectively, of fair value inventory and fixed asset step-up expense recognized as a result of the BDS Business Acquisition.

Cost of revenue is affected by many factors, including, but not limited to, foreign currency translation, product mix, product costs of instrument systems and amortization of software platforms. At current foreign currency exchange rates, the Company expects foreign currency translation to be neutral to gross profit during 2026.

Selling and Administrative Expenses

Selling and administrative expenses increased 105% and 111% in the second quarter and first half of 2026, respectively, as compared to 2025. The BDS Business increased selling and administrative expenses by $125 million and $224 million in the second quarter and first half of 2026, respectively, since the Closing Date. The remaining increase in selling and administrative expenses is primarily due to an increase in costs associated with merit compensation for the Company’s employees as well as $37 million and $119 million of transaction, integration and other internal costs associated with the BDS Business in the second quarter and first half of 2026, respectively.

Research and Development Expenses

Research and development expenses increased 149% and 129% in the second quarter and first half of 2026, respectively, as compared to 2025. The BDS Business increased research and development expenses by $66 million and $108 million in the second quarter and first half of 2026, respectively, since the Closing Date. The remaining increase in research and development expenses can be attributed to increases from costs associated with merit compensation to the Company’s employees and costs associated with new products and the development of new technology initiatives. In the second quarter and first half of 2026, research and development expenses included $1 million and $2 million, respectively, of transaction, integration and other internal costs associated with the B

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Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations

Business Overview

The Company has two operating segments: Waters™ and TA™. Waters products and services primarily consist of high-performance liquid chromatography (“HPLC”), ultra-performance liquid chromatography (“UPLC™” and, together with HPLC, referred to as “LC”), mass spectrometry (“MS”), light scattering and field-flow fractionation instruments (Wyatt), and precision chemistry consumable products and related services. TA products and services primarily consist of thermal analysis, rheometry and calorimetry instrument systems and service sales. The Company’s products are used by pharmaceutical, biochemical, industrial, nutritional safety, environmental, academic and government customers. These customers use the Company’s products to detect, identify, monitor and measure the chemical, physical and biological composition of materials and to predict the suitability and stability of fine chemicals, pharmaceuticals, water, polymers, metals and viscous liquids in various industrial, consumer goods and healthcare products.

Acquisition of BD Biosciences & Diagnostic Solutions Businesses

On February 9, 2026, the Company completed the acquisition of the BDS Business. The transaction was structured as a Reverse Morris Trust transaction, where the BDS Business was spun off to BD shareholders and simultaneously merged with a wholly-owned subsidiary of the Company. The 2025 financial results of the BDS Business are not included in the Company’s 2025 consolidated financial results presented herein.

Tariffs

The Company sells and services its customers in over 35 countries outside of the U.S. and we have manufacturing operations in the U.S., Ireland, U.K. and in Singapore where we utilize subcontractors with worldwide capabilities. In 2025, the U.S. government issued varying levels of tariffs on all imported goods into the U.S., including a baseline 10% tariff, subject to certain exceptions, which have also prompted retaliatory tariffs by a number of countries, including tariffs and export restrictions on certain manufacturing components imposed by China and tariffs pursuant to trade agreements the U.S. has entered into with certain countries. In addition, a number of new tariffs have been threatened, and the U.S. and other countries continue to negotiate trade arrangements and tariff levels. In August 2025, the U.S. Court of Appeals for the Federal Circuit ruled against certain of the U.S. tariffs that have been implemented. On February 20, 2026, the U.S. Supreme Court rendered a decision invalidating tariffs imposed under the International Emergency Economic Powers Act. This decision introduces uncertainty regarding potential refund processes and future trade policy actions and could affect the Company’s cost structure and supply chain planning. The Company continues to monitor developments around the Supreme Court’s decision and evaluate its potential impact on the Company’s future financial results and business.

These tariffs, any resulting retaliatory tariffs and any related supply-chain disruptions could have a significant impact on the Company’s consolidated statement of operations and statement of cash flows. In response to currently applicable and potential future tariffs, the Company is continuing to evaluate and implement a series of actions and policies that are intended to offset a portion of the impact of the tariffs on the Company’s financial position and results of operations. While the Company believes that these actions and policies will mitigate a substantial portion of the impact of the tariffs, the Company cannot provide any assurances that the tariffs or any resulting impediments to trade will not have a material effect on the Company’s consolidated statement of operations and statement of cash flows.

In addition to changes in trade policy, the new U.S. administration has implemented a number of other regulatory, policy and personnel changes, including the elimination, downsizing and reduced funding of certain government agencies and programs and the cancellation or delay of government contracts and research grants. In addition, the administration has changed the composition of and guidance from advisory panels on healthcare practices.

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Financial Overview

The Company’s operating results are as follows for the years ended December 31, 2025, 2024 and 2023 (dollars in thousands, except per share data):

The Company’s net sales increased 7% in 2025 following a flat performance in 2024 relative to 2023. The net sales growth in 2025 reflected strong customer demand for the Waters Division products and services across most major geographies, end markets and product lines. By contrast, 2024 sales were impacted by the 10% decline in China sales due to lower demand for our instrument systems and chemistry products as a result of increased government regulations and lower spending by our customers due to macroeconomic conditions. Foreign currency translation had a minimal impact on sales growth in 2025 and decreased sales growth by 1% in 2024.

Instrument system sales increased 5% in 2025 as compared to 2024 reflecting broad-based customer demand across most global regions. Instrument system sales declined 6% in 2024, primarily due to softer demand across most geographies and a 15% decrease in China instrument sales. Foreign currency translation had minimal impact on instrument system sales performance in both 2025 and 2024.

Recurring revenues (combined sales of precision chemistry consumables and services) increased 8% and 5% in 2025 and 2024, respectively. Service revenues increased 7% and 6% in 2025 and 2024, respectively. Chemistry sales growth increased 12% and 4% in 2025 and 2024, respectively. The double-digit chemistry sales growth can be attributed to the uptake in columns and application-specific testing kits to pharmaceutical customers. Foreign currency translation had a minimal impact on recurring revenues sales growth in 2025 and decreased sales growth by 1% in 2024.

Operating income of $803 million in 2025, decreased $23 million from the operating income of $826 million in 2024 primarily due to the impact of the higher sales volume, which was offset by the change in

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sales mix, the impact of merit increases on the Company’s annual payroll in 2025 and approximately $82 million of transaction, integration and other internal costs associated with the BDS Business Acquisition. In addition, operating income for 2025 included the impact of $20 million of expenses associated with the Company’s new ERP system implementation. The effect of foreign currency translation had minimal impact on operating income in 2025.

Operating income of $826 million in 2024 increased $8 million from operating income of $818 million in 2023 primarily due to cost savings from recent workforce reductions and the absence of the $26 million severance costs associated with the workforce reduction incurred in 2023, which were offset by higher annual incentive compensation, a full year of amortization associated with the Wyatt acquisition and the impact of merit increases on the Company’s annual payroll in 2024. In addition, the negative effect of foreign currency translation lowered operating income by approximately $43 million during 2024.

The Company’s effective tax rates were 14.9%, 15.5% and 12.8% for 2025, 2024 and 2023, respectively. Net income per diluted share was $10.76, $10.71 and $10.84 in 2025, 2024 and 2023, respectively.

In 2025, the Company’s interest expense included approximately $16 million of financing costs incurred by the Company on behalf of SpinCo in connection with financing activities related to the BDS Business Acquisition.

The Company generated $653 million, $762 million and $603 million of net cash flow from operating activities in 2025, 2024 and 2023, respectively. The decrease in cash flows from operating activities in 2025 was driven by $24 million in additional tax payments associated with the final 2018 Tax Reform Transition payment, $52 million of costs related to the implementation of the Company’s new ERP system and $29 million of payments made in connection with transaction and integration costs associated with the BDS Business Acquisition. The increase in cash flows from operating activities in 2024 was driven by lower annual incentive bonus payments and an improvement in working capital compared to 2023.

Net cash used in investing activities included capital expenditures related to property, plant, equipment and software capitalization of $113 million, $142 million and $161 million in 2025, 2024 and 2023, respectively. Net cash used in investing activities in 2025 also included the payment related to the acquisition of Halo Labs. The decline in investing activities in 2025 and 2024 was primarily due to the completion of the Company’s new manufacturing facilities. In 2023, net cash used in investing activities included $1.3 billion associated with the Wyatt acquisition.

On May 22, 2025, the Company and certain of its subsidiaries, as guarantors, entered into an Amendment and Restatement Agreement in respect of that certain Amended and Restated Credit Agreement, dated as of September 17, 2021 and amended as of March 3, 2023, with the lenders and issuing banks party thereto, and JPMorgan Chase Bank, N.A., as administrative agent, pursuant to which the Company, among other things, reduced the aggregate total borrowing capacity of its existing senior unsecured revolving credit facility (the “Credit Facility”) by up to $200 million for an aggregate principal amount of up to $1.8 billion. The Credit Facility will mature on May 22, 2030 subject to the Company’s ability to request, subject to customary conditions, a one-year extensio

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