<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTIONS 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 the charter)
Delaware 13-3668640
-------- ----------
(State or other jurisdiction of (I.R.S Employer Identification No.)
incorporation or organization)
34 Maple Street
Milford, Massachusetts 01757
----------------------------
(Address of principal executive offices)
Registrant's telephone number, include area code: (508) 478-2000
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 and 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 (X) No ( )
Number of shares outstanding of the Registrant's common stock as
of May 2, 1997: 28,937,419
1
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WATERS CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
INDEX
Page
----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1997 3
and December 31, 1996
Consolidated Statements of Operations for the
three months ended March 31, 1997 and 1996 4
Consolidated Statements of Cash Flows for the
three months ended March 31, 1997 and 1996 5
Consolidated Statement of Stockholders' Equity 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on From 8-K 11
SIGNATURES 12
2
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WATERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
--------------- -----------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,819 $ 639
Accounts receivable, less allowances for doubtful accounts of
$1,984 and $1,712 at March 31, 1997 and December 31, 1996,
respectively 87,976 88,112
Inventories 48,858 47,351
Other current assets 8,096 7,930
------------- -------------
Total current assets 147,749 144,032
Property, plant, and equipment, net of accumulated depreciation
of $22,028 and $19,729 at March 31, 1997 and December 31,
1996, respectively 74,097 74,777
Other assets 35,420 36,058
Goodwill, less accumulated amortization of $5,210 and $4,818 at
March 31, 1997 and December 31, 1996, respectively 109,255 110,635
------------- -------------
Total assets $ 366,521 $ 365,502
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of long term debt $ 2,045 $ 1,736
Accounts payable 21,502 17,509
Deferred revenue 12,678 10,491
Other current liabilities 54,807 53,069
------------- -------------
Total current liabilities 91,032 82,805
Long term debt 195,025 210,470
Redeemable preferred stock 7,388 7,153
Other liabilities 3,294 7,294
------------- -------------
Total liabilities 296,739 307,722
Commitments and contingent liabilities - -
Stockholders' Equity:
Common stock (par value $ .01, 50,000 shares authorized,
28,930 and 28,923 shares issued and outstanding at March
31, 1997 and December 31, 1996, respectively) 289 289
Additional paid-in capital 145,516 145,717
Deferred stock option compensation (771) (826)
Accumulated deficit (75,470) (87,808)
Translation adjustments 218 408
------------- -------------
Total stockholders' equity 69,782 57,780
------------- -------------
Total liabilities and stockholders' equity $ 366,521 $ 365,502
============= =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
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WATERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
------------------------------------
March 31, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
Net sales $102,431 $85,313
Cost of sales 37,765 32,114
------------- --------------
Gross profit 64,666 53,199
Selling, general and administrative expenses 39,076 33,429
Research and development expenses 5,786 4,668
Goodwill and purchased technology amortization 1,357 931
------------- --------------
Operating income 18,447 14,171
Interest expense, net 3,024 3,954
------------- --------------
Income before income taxes 15,423 10,217
Provision for income taxes 3,085 2,042
------------- --------------
Net income 12,338 8,175
Less: accretion of and 6% dividend on preferred stock 234 229
------------- --------------
Net income available to common stockholders $12,104 $7,946
============= ==============
Net income per common share $0.38 $0.26
Weighted average common shares outstanding 31,867 30,925
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
WATERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
------------------------------
March 31, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income $12,338 $8,175
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 2,603 2,086
Amortization of capitalized software and intangible assets 1,928 1,553
Amortization of debt issuance costs 256 277
Compensatory stock option expense 55 83
Change in operating assets and liabilities:
(Increase) in accounts receivable (3,910) (131)
(Increase) decrease in inventories (2,707) 1,190
(Increase) in other current assets (289) (332)
(Increase) in other assets (254) (2,211)
Increase (decrease) in accounts payable and accrued expenses 8,968 (83)
Increase in deferred revenue 2,402 1,953
Increase in other liabilities 209 2,152
------------- -------------
Net cash provided by operating activities 21,599 14,712
Cash flows from investing activities:
Additions to property, plant and equipment (2,204) (1,678)
Software capitalization and other intangibles (1,033) (785)
Loans to officers (34) (322)
Proceeds from sale of discontinued operations - 4,497
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Net cash (used in) provided by investing activities (3,271) 1,712
Cash flows from financing activities:
Payments for interest protection agreements - (1,734)
Stock options exercised 33 -
Net repayment of bank borrowings (15,084) (15,961)
------------- -------------
Net cash (used in) financing activities (15,051) (17,695)
Effect of exchange rate changes on cash (1,097) (137)
------------- -------------
Net change in cash and cash equivalents 2,180 (1,408)
Cash and cash equivalents at beginning of period 639 3,233
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Cash and cash equivalents at end of period $2,819 $1,825
============= =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE>
WATERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
(unaudited)
<TABLE>
<CAPTION>
Additional Deferred Cumulative
Common Paid-In Stock Option Accumulated Translation
Stock Capital Compensation Deficit Adjustments Total
------- ------- ------------ ------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance - December 31, 1996 $ 289 $ 145,717 $ (826) $ (87,808) $ 408 $ 57,780
Net income for the three months
ended March 31, 1997 - - - 12,338 - 12,338
Stock options exercised - 33 - - - 33
Compensatory stock option expense - - 55 - - 55
Accretion of and dividend on
preferred stock - (234) - - - (234)
Translation adjustment for the three
months ended March 31, 1997 - - - - (190) (190)
------- --------- --------- ---------- --------- ---------
Balance - March 31, 1997 $ 289 $ 145,516 $ (771) $ (75,470) $ 218 $ 69,782
======= ========= ========= ========== ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
6
<PAGE>
WATERS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1. Organization and Basis of Presentation
Waters Corporation ("Waters" or the "Company") is a holding
company which owns all and only the common stock of Waters
Technologies Corporation. Waters is the world's largest
manufacturer, distributor and provider of high performance liquid
chromatography ("HPLC") instruments, chromatography columns and
other consumables, and related services. HPLC, the largest
product segment of the analytical instrument market, 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. With its
acquisition of TA Instruments, Inc. ("TAI") in May 1996, the
Company is also the world's leader in thermal analysis, a
prevalent and complementary technique used in the analysis of
polymers.
The accompanying unaudited interim financial statements have been
prepared in accordance with generally accepted accounting
principles ("GAAP"). The consolidated financial statements
include the accounts of the Company and its subsidiaries, most of
which are wholly owned. All material intercompany balances and
transactions have been eliminated. Certain amounts from prior
years have been reclassified in the accompanying financial
statements in order to be consistent with the current year's
classifications.
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect
(i) the reported amounts of assets and liabilities, (ii)
disclosure of contingent assets and liabilities at the dates of
the financial statements and (iii) the reported amounts of
revenues and expenses during the reporting periods. Actual
results could differ from those estimates.
It is management's opinion that the accompanying interim
financial statements reflect all adjustments (which are normal
and recurring) necessary for a fair presentation of the results
for the interim periods. The interim financial statements should
be read in conjunction with the consolidated financial statements
included in the Company's 10-K filing with the Securities and
Exchange Commission for the year ended December 31, 1996.
2. Inventories
<TABLE>
<CAPTION>
Inventories are classified as follows:
March 31, December 31,
1997 1996
---- ----
<S> <C> <C>
Raw materials $15,040 $14,860
Work in progress 6,520 6,180
Finished goods 27,298 26,311
------- -------
Total Inventories $48,858 $47,351
======= =======
</TABLE>
3. Income Taxes
The Company's effective tax rate for the three month periods
ended March 31, 1997 and March 31, 1996 was 20%. The three month
periods ended March 31, 1997 and March 31, 1996 were benefited by
net operating loss carryforwards.
7
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WATERS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
4. Earnings Per Share
In February, 1997 the Financial Accounting Standards Board issued
SFAS 128, Earnings Per Share, which is effective for periods
ending after December 15, 1997. The statement simplifies the
existing computational guidelines and revises the disclosure
requirements for earnings per share. While management has not
calculated the impact of the new standard, it is not expected to
be material.
5. TA Instruments, Inc. Acquisition
The Company acquired TA Instruments ("TAI") on May 1, 1996. The
following unaudited Pro Forma results of operations for the three
month periods ended March 31, 1997 and March 31, 1996 give effect
to the TAI Acquisition as if the transaction had occurred at the
beginning of each such period. The financial data are based on
the historical consolidated financial statements for the Company
and TAI and the assumptions and adjustments made upon the TAI
Acquisition. The Pro Forma results of operations do not (i)
purport to represent what the Company's results of operations
actually would have been if the TAI Acquisition had occurred as
of the beginning of the periods, or (ii) what such results will
be for any future periods. The financial data are based upon
assumptions that the Company believes are reasonable and should
be read in conjunction with the Consolidated Financial Statements
and accompanying notes thereto included elsewhere in this report.
<TABLE>
<CAPTION>
Pro Forma Results For the Three Months Ended
--------------------------------------------
March 31, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
Net sales $102,431 $95,910
Net income $12,338 $7,861
Net income per common share $0.38 $0.25
</TABLE>
8
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Recent Events
On May 1, 1996, the Company acquired all of the capital stock of
TA Instruments, Inc. ("TAI"), a U.S. based company. TAI
develops, manufactures, sells and services thermal analysis and
rheology instrumentation which is used for the physical
characterization of polymers and related materials.
In February, 1997 the Financial Accounting Standards Board issued
SFAS 128, Earnings Per Share, which is effective for periods
ending after December 15, 1997. The statement simplifies the
existing computational guidelines and revises the disclosure
requirements for earnings per share. While management has not
calculated the impact of the new standard, it is not expected to
be material.
Three Month Period Ended March 31, 1997 Compared to the Three
Month Period Ended March 31, 1996
Net Sales:
Net sales for the three month period ended March 31, 1997 (the
"1997 Quarter"), were $102.4 million, compared to $85.3 million
for the three month period ended March 31, 1996 (the "1996
Quarter"), an increase of 20%. Excluding the effect of TAI and
the adverse effects of the stronger U.S. dollar, the Waters
traditional HPLC business grew 9%. Growth was geographically
broad based. Pharmaceutical sales, which account for over 40% of
the Company's business, continued the strong growth experienced
in 1996. Excluding the adverse effects of a stronger U.S.
dollar, consolidated net sales for the 1997 Quarter increased by
25%.
Gross Profit:
Gross profit increased to $64.7 million in the 1997 Quarter from
$53.2 million in the 1996 Quarter, an increase of $11.5 million
or 22%, primarily due to the TAI acquisition and sales volume in
the traditional HPLC business. Gross profit as a percentage of
sales improved to 63.1% during the 1997 Quarter from 62.4% during
the 1996 Quarter reflecting leverage from increased sales and
improved manufacturing productivity.
Selling, General, and Administrative Expenses:
Selling, general and administrative expenses increased to $39.1
million in the 1997 Quarter as compared to $33.4 million the 1996
Quarter, an increase of $5.6 million or 17%, primarily due to the
acquisition of TAI. Selling, general and administrative expenses
improved as a percentage of net sales to 38.1% during the 1997
quarter as compared to 39.2% during the 1996 Quarter, reflecting
general expense controls.
Goodwill and Purchased Technology Amortization:
Goodwill and Purchased Technology amortization increased by $0.4
million or 46% as compared to the 1996 Quarter. The increase is
primarily related to the acquisition of TAI.
Research and Development Expenses:
Research and development expenses increased to $5.8 million in
the 1997 Quarter from $4.7 million in the 1996 Quarter, an
increase of $1.1 million or 24% primarily due to the acquisition
of TAI and the Company's continued investment in the development
of new and improved HPLC detection, consumable and data products.
Operating Income:
Operating income increased 30% to $18.4 million in the 1997
Quarter compared to $14.2 million in the 1996 Quarter due to HPLC
sales growth, the inclusion of TAI, and improved manufacturing
and selling, general and administrative productivity.
9
<PAGE>
Interest Expense:
Interest expense decreased $0.9 million or 24% to $3.0 million in
the 1997 Quarter compared to $4.0 million in the 1996 Quarter.
In April 1996, the Company completed a successful tender for its
Senior Subordinated Notes, financing the repurchase with
borrowings under a New Bank Credit Agreement with lower interest
rates. The resulting interest expense reduction was partially
offset by the higher average debt levels as a result of the TAI
acquisition. Further, during 1996 the Company entered into
various interest rate swap agreements to hedge investment in the
net assets of its Japanese and European subsidiaries. These
agreements have also allowed the Company to lower its interest
expense during the 1997 Quarter compared to the 1996 Quarter.
Provision (Benefit) for Income Taxes:
The Company's effective tax rate for the three month periods
ended March 31, 1997 and March 31, 1996 was 20%. The three month
periods ended March 31, 1997 and March 31, 1996 were benefited by
net operating loss carryforwards.
Net Income (Loss):
The Company generated net income of $12.3 million in the 1997
Quarter compared to $8.2 million in the 1996 Quarter, an increase
of 51%. This improvement was a result of net sales growth, the
TAI acquisition and a continuing focus on cost reductions and
improved productivity in all operating areas.
Liquidity and Capital Resources:
During the 1997 period, the Company generated positive cash flow
primarily as a result of net income for the period after
adjusting for non-cash expenses, and a $4.5 million reduction in
working capital. Primary uses during the Quarter were $15.1
million for net repayment of debt and $3.2 million invested in
property, plant and equipment, software capitalization and other
intangibles.
The Company believes that existing cash balances and cash flow
from operating activities together with borrowing available under
the Bank Credit Agreement will be sufficient to fund future
working capital needs, capital spending requirements and debt
service requirements of the Company in the foreseeable future.
Cautionary Statement:
Certain statements contained herein are forward looking. Many
factors could cause actual results to differ from these
statements, including loss of market share through competition,
introduction of competing products by other companies, pressure
on prices from competitors and/or customers, regulatory obstacles
to new product introductions, lack of acceptance of new products
by the HPLC or thermal analysis industries, changes in the
healthcare market and the pharmaceutical industry, changes in
distribution of the Company's products, and interest rate and
foreign exchange fluctuations.
10
<PAGE>
Part II: Other information
Item 1. Legal Proceedings
From time to time, the Company and its subsidiaries are
involved in various litigation matters arising in the
ordinary course of its business. None of the matters in
which the Company or its subsidiaries are currently
involved, either individually or in the aggregate, is
material to the Company or it subsidiaries.
The Company is currently asserting a claim contending that
Millipore has undervalued the amount of assets it is
obligated to transfer from the Millipore Retirement Plan to
the Waters successor plan. The Company believes it has
meritorious arguments and should prevail although the
outcome is not certain. The Company believes that any
outcome of the proceeding will not be material to the
Company.
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
A. Exhibit 11 - Statement Regarding Computation of Per Share Earnings
Exhibit 27 - Financial Data Schedule
B. No reports on Form 8-K were filed during the three month ended
March 31, 1997.
11
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WATERS CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Date: May 6, 1997 Waters Corporation
/s/ Philip S. Taymor
--------------------
Philip S. Taymor
Senior Vice President and Chief
Financial Officer
12
<PAGE>
Exhibit 11
WATERS CORPORATION AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
For the three months ended
--------------------------------
March 31, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
Common stock outstanding,
beginning of period 28,923 28,796
Weighted average number of common
stock equivalent shares 4,904 5,035
Weighted average number of shares
issued upon exercise of stock options 4 -
Less: Assumed purchase of treasury shares (1,964) (2,906)
-------------- -------------
Weighted average number of common shares 31,867 30,925
============== =============
Net income 12,338 8,175
Less: accretion of and 6% dividend
on preferred stock (234) (229)
-------------- -------------
Net (loss) income available to common
stockholders 12,104 7,946
Income (loss) per common share: $0.38 $0.26
</TABLE>
Fully diluted net income per share is the same as primary net income
per share.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 2819
<SECURITIES> 0
<RECEIVABLES> 89960
<ALLOWANCES> 1984
<INVENTORY> 48858
<CURRENT-ASSETS> 147749
<PP&E> 96125
<DEPRECIATION> 22028
<TOTAL-ASSETS> 366521
<CURRENT-LIABILITIES> 91032
<BONDS> 195025
7388
0
<COMMON> 289
<OTHER-SE> 69493
<TOTAL-LIABILITY-AND-EQUITY> 366521
<SALES> 102431
<TOTAL-REVENUES> 102431
<CGS> 37765
<TOTAL-COSTS> 37765
<OTHER-EXPENSES> 46219
<LOSS-PROVISION> 0
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<INCOME-TAX> 3085
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<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12338
<EPS-PRIMARY> .38
<EPS-DILUTED> .38
</TABLE>
