<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 June 30, 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 Employe 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 August 12, 1997: 29,022,544
1
<PAGE>
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 June 30, 1997 3
and December 31, 1996
Consolidated Statements of Operations for the
three months ended June 30, 1997 and 1996 4
Consolidated Statements of Operations for the
six months ended June 30, 1997 and 1996 5
Consolidated Statements of Cash Flows for the
six months ended June 30, 1997 and 1996 6
Consolidated Statement of Stockholders' Equity 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
PART II OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security 14
Holders
Item 5. Other Information 14
Item 6. Exhibits and Reports on From 8-K 14
SIGNATURES 15
2
<PAGE>
WATERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
-------------- -----------------
(unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,438 $ 639
Accounts receivable, less allowances for doubtful accounts of
$2,135 and $1,712 at June 30, 1997 and December 31, 1996,
respectively 84,786 88,112
Inventories 49,295 47,351
Other current assets 7,966 7,930
--------- ---------
Total current assets 144,485 144,032
Property, plant, and equipment, net of accumulated depreciation
of $24,480 and $19,729 at June 30, 1997 and December 31,
1996, respectively 75,004 74,777
Other assets 36,866 36,058
Goodwill, less accumulated amortization of $5,815 and $4,818 at
June 30, 1997 and December 31, 1996, respectively 109,477 110,635
--------- ---------
Total assets $ 365,832 $ 365,502
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of long term debt $ 2,453 $ 1,736
Accounts payable 20,223 17,509
Deferred revenue 12,848 10,491
Other current liabilities 53,110 53,069
--------- ---------
Total current liabilities 88,634 82,805
Long term debt 179,552 210,470
Redeemable preferred stock 7,623 7,153
Other liabilities 6,790 7,294
--------- ---------
Total liabilities 282,599 307,722
Commitments and contingent liabilities - -
Stockholders' Equity:
Common stock (par value $ .01, 50,000 shares authorized,
28,995 and 28,923 shares issued and outstanding at June
30, 1997 and December 31, 1996, respectively) 290 289
Additional paid-in capital 146,009 145,717
Deferred stock option compensation (716) (826)
Accumulated deficit (60,711) (87,808)
Translation adjustments (1,639) 408
--------- ---------
Total stockholders' equity 83,233 57,780
--------- ---------
Total liabilities and stockholders' equity $ 365,832 $ 365,502
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
WATERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
-----------------------------
June 30, 1997 June 30, 1996
------------- -------------
<S> <C> <C>
Net sales $106,240 $95,965
Cost of sales 38,703 35,199
Revaluation of acquired inventory 2,440
-------- -------
Gross profit 67,537 58,326
Selling, general and administrative expenses 38,909 35,963
Research and development expenses 5,806 5,074
Goodwill and purchased technology amortization 1,415 1,431
Expensed in-process research and development 19,300
------- ------
Operating income (loss) 21,407 (3,442)
Interest expense, net 2,959 3,480
------- -------
Income (loss) before income taxes 18,448 (6,922)
Provision for income taxes 3,689 2,932
------- -------
Income (loss) before extraordinary item 14,759 (9,854)
Extraordinary item - (loss) on early retirement of debt (22,264)
------- --------
Net income (loss) 14,759 (32,118)
Less: accretion of and 6% dividend on preferred stock 234 229
------- --------
Net income (loss) available to common stockholders $14,525 ($32,347)
======= ========
Income (loss) before extraordinary item per common share $0.46 ($0.32)
Extraordinary (loss) per common share ($0.70)
------- --------
Net income (loss) per common share $0.46 ($1.02)
======= ========
Weighted average common shares outstanding 31,560 31,782
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
WATERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
-------------------------------
June 30, 1997 June 30, 1996
------------- -------------
<S> <C> <C>
Net sales $208,671 $181,278
Cost of sales 76,468 67,313
Revaluation of acquired inventory - 2,440
-------- ---------
Gross profit 132,203 111,525
Selling, general and administrative expenses 77,985 69,392
Research and development expenses 11,592 9,742
Goodwill and purchased technology amortization 2,772 2,362
Expensed in-process research and development - 19,300
------- --------
Operating income 39,854 10,729
Interest expense, net 5,983 7,434
------- --------
Income before income taxes 33,871 3,295
Provision for income taxes 6,774 4,974
------- --------
Income (loss) before extraordinary item 27,097 (1,679)
Extraordinary item - (loss) on early retirement of debt - (22,264)
------- --------
Net income (loss) 27,097 (23,943)
Less: accretion of and 6% dividend on preferred stock 468 458
------- --------
Net income (loss) available to common stockholders $26,629 ($24,401)
======= ========
Income (loss) before extraordinary item per common share $0.84 ($0.07)
Extraordinary (loss) per common share - ($0.71)
------- --------
Net income (loss) per common share $0.84 ($0.78)
======= ========
Weighted average common shares outstanding 31,714 31,354
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
WATERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
----------------------------------
June 30, 1997 June 30, 1996
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $27,097 ($23,943)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 5,085 4,260
Amortization of capitalized software and intangible assets 3,895 3,474
Amortization of debt issuance costs 517 536
Extraordinary loss on early retirement of debt - 22,264
Compensatory stock option expense 110 125
Expensed in-process research and development - 19,300
Change in operating assets and liabilities:
(Increase) in accounts receivable (375) (768)
(Increase) in inventories (2,809) (309)
(Increase) in other current assets (170) (766)
(Increase) in other assets (2,016) (300)
Increase (decrease) in accounts payable and accrued expenses 4,189 (5,872)
Increase in deferred revenue 2,623 2,337
Increase in other liabilities 1,364 2,013
-------- --------
Net cash provided by operating activities 39,510 22,351
Cash flows from investing activities:
Additions to property, plant and equipment (5,604) (3,454)
Software capitalization and other intangibles (2,328) (1,763)
Loans to officers (68) (356)
Payment to acquire net assets of TA Instruments, Inc. - (83,349)
Proceeds from sale of discontinued operations - 4,497
-------- --------
Net cash (used in) investing activities (8,000) (84,425)
Cash flows from financing activities:
Payments for interest protection agreements - (2,282)
Early retirement of Senior Subordinated Notes - (91,219)
Stock options exercised 761 338
Net (repayment) borrowings of bank debt (30,291) 152,255
-------- --------
Net cash (used in) provided by financing activities (29,530) 59,092
Effect of exchange rate changes on cash (181) 519
--------
Net change in cash and cash equivalents 1,799 (2,463)
Cash and cash equivalents at beginning of period 639 3,233
-------- --------
Cash and cash equivalents at end of period $2,438 $770
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
WATERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT 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 six months
ended June 30, 1997 - - - 27,097 - 27,097
Stock options exercised 1 760 - - - 761
Compensatory stock option expense - - 110 - - 110
Accretion of and dividend on
preferred stock - (468) - - - (468)
Translation adjustment for the six
months ended June 30, 1997 - - - - (2,047) (2,047)
------- -------- ------ --------- -------- --------
Balance - June 30, 1997 $ 290 $146,009 $(716) $(60,711) $(1,639) $83,233
======= ======== ====== ========= ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<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 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
Inventories are classified as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
<S> <C> <C>
Raw materials $15,472 $14,860
Work in progress 6,519 6,180
Finished goods 27,304 26,311
------- -------
Total Inventories $49,295 $47,351
</TABLE>
3. Income Taxes
The Company's effective tax rate for the three and six month
periods ended June 30, 1997 and June 30, 1996, excluding non-
recurring TAI acquisition charges for the revaluation of acquired
inventory and write-off of acquired in-process research and
development, was 20%. The three and six month periods ended June
30, 1997 and June 30, 1996 were benefited by net operating loss
carryforwards.
8
<PAGE>
WATERS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
4. Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued SFAS
130, Reporting Comprehensive Income, which is effective for periods
ending after December 15, 1997. The statement establishes
standards for reporting and display of comprehensive income and
its components (revenues, expenses, gains, and losses) in a full
set of general-purpose financial statements. The statement
requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same
prominence as other financial statements. While management has
not calculated the impact of the new standard, it is not expected
to be material.
5. 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.
6. TA Instruments, Inc. Acquisition
The Company acquired TA Instruments, Inc. on May 1, 1996. The
following unaudited Pro Forma results of operations for the six
month period ended June 30, 1996 gives effect to the TAI
acquisition as if the transaction had occurred at the beginning
of 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 period, 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
Six Months Ended
June 30, 1996
-------------
<S> <C>
Net sales $195,473
Net income (loss) $(24,356)
Net income (loss) per common share $(0.79)
</TABLE>
7. Debt
In May 1997, the Company entered into a one-year debt swap
agreement with Bankers Trust Company to hedge the U.S. dollar
value of its investment in the net assets of its Canadian
subsidiary and certain European subsidiaries, effective in
January 1998. The Company swapped $33,200 in notional amount of
floating rate LIBOR borrowings for equivalent notional amounts in
Canadian dollars and five European currencies of borrowings at
fixed interest rates averaging approximately 2.4% per annum. At
representative interest rates and currency exchange rates in
effect at May 2, 1997, the transaction date of the agreement, the
Company lowered its annual interest costs by approximately $1,134
over the term of the swap agreement. The Company could also
incur higher or lower principal payments over the term of the
swap agreement. At currency exchange rates in effect on June 30,
1997, the principal repayment amount would have been $33,329.
9
<PAGE>
In June 1997, the Company amended its senior credit facility
("Bank Credit Agreement") reducing its LIBOR-based interest rates
by 25 basis points and relaxing certain debt covenants.
8. Subsequent Event
On July 31, 1997, the Company purchased YMC, Inc., a U.S. based
company, for $8,530 in cash, subject to certain adjustments.
YMC, Inc. is a North American manufacturer and distributor of
chromatography chemicals and supplies.
10
<PAGE>
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.
In June 1997, the Financial Accounting Standards Board issued SFAS
130, Reporting Comprehensive Income, which is effective for periods
ending after December 15, 1997. The statement establishes standards
for reporting and display of comprehensive income and its
components (revenues, expenses, gains, and losses) in a full set
of general-purpose financial statements. The statement requires
that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in
a financial statement that is displayed with the same prominence as
other financial statements. While management has not calculated the
impact of the new standard, it is not expected to be material.
On July 31, 1997, pursuant to the Company's previous public
announcement, the Company consummated a purchase and sale
agreement to acquire all of the capital stock of YMC, Inc.
("YMC"), a U.S. based company, for $8.5 million in cash, subject
to certain adjustments. YMC is a North American manufacturer and
distributor of chromatography chemicals and supplies. YMC's 1996
revenues were approximately $6.5 million.
Results of Operations
Net Sales:
Net sales for the three month period ended June 30, 1997 (the
"1997 Quarter") and the six month period ended June 30, 1997 (the
"1997 Period"), were $106.2 million and $208.7 million,
respectively, compared to $96.0 million for the three month
period ended June 30, 1996 (the "1996 Quarter") and $181.3 for
the six month period ended June 30, 1996 (the "1996 Period"), an
increase of 11% for the quarter and 15% for the period.
Excluding the effect of TAI and the adverse effects of the
stronger U.S. dollar, the Waters traditional HPLC business grew
11% over the 1996 Quarter and 10% over the 1996 Period. Growth
was geographically broad based for the quarter and period.
Pharmaceutical industry sales, which account for over 45% of the
Company's business, continued the strong growth experienced in
1996. Product sales for TAI were strong and increased
consolidated net sales by 5% as compared to the 1996 Quarter and
9% as compared to the 1996 Period. Excluding the adverse effects
of a stronger U.S. dollar, consolidated net sales for the 1997
Quarter increased by 15% and consolidated net sales for the 1997
Period increased by 20%.
Gross Profit:
Gross profit increased to $67.5 million in the 1997 Quarter and
$132.2 million in the 1997 Period from $58.3 million in the 1996
Quarter and $111.5 million in the 1996 Period, an increase of
$9.2 million or 16% for the quarter and $20.7 million or 19% for
the period, primarily due to the TAI acquisition and increased
sales volume in the traditional HPLC business. In the 1996
Quarter, the Company recorded a $2.4 million charge for
revaluation of acquired inventory resulting from the TAI
acquisition. Excluding the effects of this charge, gross profit
increased 11% for the 1997 Quarter and 16% for the 1997 Period.
Gross profit as a percentage of sales, excluding the inventory
revaluation charge, improved to 63.6% and 63.4% during the 1997
Quarter and Period, from 63.3% and 62.9% in the 1996 Quarter and
Period, reflecting continued leverage from increased sales and
benefits from improved manufacturing productivity.
Selling, General, and Administrative Expenses:
Selling, general and administrative expenses increased to $38.9
million in the 1997 Quarter and $78.0 million in the 1997 Period,
as compared to $36.0 million in the 1996 Quarter and $69.4
million in the 1996 Period, an increase of $2.9 million or 8% for
the quarter and $8.6 million or 12% for the period, primarily due
to the acquisition of TAI. Selling, general and administrative
expenses declined in 1997 as a percentage of net sales,
reflecting general expense controls.
11
<PAGE>
Goodwill and Purchased Technology Amortization:
Goodwill and Purchased Technology amortization remained flat in
comparison with the 1996 Quarter. Goodwill and Purchased
Technology amortization increased $0.4 million or 17% as compared
to the 1996 Period. The increase is primarily related to the
acquisition of TAI.
Expensed In-Process Research and Development:
In the 1996 Quarter, the Company wrote off $19.3 million of the
TAI purchase price related to in-process research and development
acquired in the transaction. Generally accepted accounting
principles prohibit capitalization of acquired research and
development expenditures.
Research and Development Expenses:
Research and development expenses increased to $5.8 million in
the 1997 Quarter from $5.1 million in the 1996 Quarter and $11.6
million in the 1997 Period from $9.7 million in the 1996 Period.
Excluding the impact of the TAI acquisition in 1996, research and
development expenses increased $.6 million or 14% over the 1996
Quarter and $1.1 million or 12% over the 1996 Period, primarily
due to the Company's continued investment in the development of
new and improved product offerings.
Operating Income:
Operating income was $21.4 million in the 1997 Quarter and $39.9
million in the 1997 Period. In comparison, the Company generated
a net operating loss of $3.4 million in the 1996 Quarter and
operating income of $10.7 million in the 1996 Period . The loss
during the 1996 Quarter and resulting decrease in income for the
1996 Period was due to the impact of the revaluation of acquired
inventory and write-off of in-process research and development
charges associated with the TAI acquisition. Excluding the
effects of the TAI acquisition related charges in 1996, operating
income increased $3.1 million or 17% over the 1996 Quarter and
$7.5 million or 23% over the 1996 Period due to HPLC sales
growth, results from the TAI acquisition, and a continuing focus
on cost containment and improved productivity in all operating
areas.
Interest Expense:
Interest expense decreased $0.5 million or 14% to $3.0 million in
the 1997 Quarter compared to $3.5 million in the 1996 Quarter.
Interest expense decreased to $6.0 million in the 1997 Period,
from $7.4 million in the 1996 Period. 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. The Company's average
debt levels have since been reduced through the application of
operating cash flows generated during 1996 and 1997, resulting in
a decrease in interest expense during the 1997 Quarter and
Period. Further, the Company entered into various debt swap
agreements to hedge its investment in the net assets of its
Japanese and European subsidiaries during 1996. These agreements
have also allowed the Company to lower its interest expense
during the 1997 Quarter and Period compared to the 1996 Quarter
and Period.
Provision (Benefit) for Income Taxes:
The Company's effective tax rate for the three and six month
periods ended June 30, 1997 and June 30, 1996, excluding non-
recurring TAI acquisition charges for the revaluation of acquired
inventory and write-off of in-process research and development,
was 20%. The three and six month periods ended June 30, 1997 and
June 30, 1996 were benefited by net operating loss carryforwards.
Net Income (Loss) before Extraordinary Item:
Net income before extraordinary items was $14.8 million in the
1997 Quarter and $27.1 million in the 1997 Period. The Company
generated a net loss before extraordinary items of $9.9 million
in the 1996 Quarter and $1.7 million in the 1996 Period as a
result of the TAI acquisition charges totaling $21.7 million
($2.4 million for the revaluation of acquired inventory and $19.3
million for the write-off of acquired in-process research and
development). Excluding the effects of these charges, net
income before extraordinary items was $11.9 million in the 1996
Quarter and $20.1 million in the 1996 Period. The 1997 increases
of $2.9 million or 24% as compared to the 1996 Quarter and $7.0
million or 35% as compared to the 1996 Period reflect HPLC sales
growth, results from the TAI acquisition, a continuing focus on
cost containment and improved productivity in all operating
areas, and a reduction in interest expense.
12
<PAGE>
Extraordinary Item:
During the 1996 Quarter, the Company repurchased $75 million in
principal amount of its Senior Subordinated Notes. The Company
recorded a $22.3 million charge associated with the early
extinguishment of this debt.
Net Income (Loss):
The Company generated net income of $14.8 million in the 1997
Quarter and $27.1 million in the 1997 Period compared to a loss
of $32.1 million in the 1996 Quarter and $23.9 million in the
1996 Period. The net loss in 1996 Quarter and Period was due to
the aforementioned TAI acquisition charges and charges for the
early extinguishment of debt. Excluding these charges, net
income was $11.9 million for the 1996 Quarter and $20.1 million
for the 1996 Period.
Liquidity and Capital Resources:
During the 1997 Period, the Company generated positive operating
cash flow of $39.5 million primarily as a result of net income
for the period after adjusting for non-cash expenses. Primary
uses of cash flows during the Period were $30.3 million for net
repayment of debt and $7.9 million invested in property, plant
and equipment, software capitalization and other intangibles.
In May 1997, the Company entered into a one-year debt swap
agreement with Bankers Trust Company to hedge the U.S. dollar
value of its investment in the net assets of its Canadian
subsidiary and certain European subsidiaries, effective in
January 1998. The Company swapped $33.2 million in notional
amount of floating rate LIBOR borrowings for equivalent notional
amounts in Canadian dollars and 5 European currencies of
borrowings at fixed interest rates averaging approximately 2.4%
per annum. At representative interest rates and currency
exchange rates in effect at May 2, 1997, the transaction date of
the agreement, the Company lowered its annual interest costs by
approximately $1.1 million over the term of the swap agreement.
The Company could also incur higher or lower principal payments
over the term of the swap agreement. At currency exchange rates
in effect on June 30, 1997, the principal repayment amount would
have been $33.3 million.
In June 1997, the Company amended its senior credit facility
("Bank Credit Agreement") reducing its LIBOR-based interest rates
by 25 basis points and relaxing certain debt covenants.
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.
13
<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 has asserted a claim contending that Millipore
Corporation has understated the amount of assets it is
obligated to transfer from the Millipore Retirement Plan to
the Waters successor plan. The Federal court has recently
ruled in favor of Millipore's position with respect to the
claim. The Company, however, intends to appeal the
decision. The Company believes it has meritorious arguments
and should prevail although the outcome is not certain.
Regardless, the outcome is not expected to have a material
impact on the Company's financial position.
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
The Waters Corporation annual meeting of stockholders was
held on May 6, 1997, at which the following matters were
submitted to a vote of security holders: the election of
directors of the Company as previously reported to the
Commission and the election of auditors for the Company.
As of March 24, 1997, the record date for said meeting,
there were 28,929,595 shares of Waters Corporation common
stock entitled to vote at the meeting. At such meeting, the
holders of 24,484,687 shares were represented in person or
by proxy, constituting a quorum. At such meeting, the vote
with respect to the matters proposed to the stockholders was
as follows:
<TABLE>
<CAPTION>
Matter For Withheld or Against
------ --- -------------------
<S> <C> <C>
Election of Directors
For All Nominees 17,552,987 6,931,700
Election of Auditors 24,438,781 45,906
</TABLE>
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 months
ended June 30, 1997.
14
<PAGE>
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: August 12, 1997 Waters Corporation
/s/ Philip S. Taymor
--------------------
Philip S. Taymor
Senior Vice President and Chief
Financial Officer
15
<PAGE>
Exhibit 11
WATERS CORPORATION AND SUBSIDIARIES
STATEMENT REGRARDING COMPUTATION OF PER SHARE EARNINGS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Primary earnings per share For the three For the six
months ended months ended
--------------------- --------------------
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Common stock outstanding, beginning of period 28,930 28,796 28,923 28,796
Weighted average common stock equivalent shares 4,843 5,193 4,884 5,114
Weighted average shares issued upon exercise of 48 63 22 32
stock options
Less: Assumed purchase of treasury shares (2,261) (2,270) (2,115) (2,588)
------ ------ ------ ------
Weighted average number of common shares 31,560 31,782 31,714 31,354
====== ====== ====== ======
Income (loss) before extraordinary item $14,759 $(9,854) $27,097 $(1,679)
Extraordinary loss on early retirement of debt - (22,264) - (22,264)
------- ------ ------ ------
Net income (loss) $14,759 $(32,118) $27,097 $(23,943)
Less: accretion of and 6% dividend on preferred 234 229 468 458
stock ------- ------ ------ ------
Net (loss) income available to common $14,525 $(32,347) $26,629 $(24,401)
stockholders ======= ====== ====== ======
Income (loss) before extraordinary item per $0.46 $(0.32) $0.84 $(0.07)
common share
Extraordinary loss per common share - (0.70) - (0.71)
------- ------- ----- ------
Net income (loss) per common share $0.46 $(1.02) $0.84 $(0.78)
======= ======= ====== ======
<PAGE>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 2438
<SECURITIES> 0
<RECEIVABLES> 86921
<ALLOWANCES> 2135
<INVENTORY> 49295
<CURRENT-ASSETS> 144485
<PP&E> 99484
<DEPRECIATION> 24480
<TOTAL-ASSETS> 365832
<CURRENT-LIABILITIES> 88634
<BONDS> 179552
7623
0
<COMMON> 290
<OTHER-SE> 82943
<TOTAL-LIABILITY-AND-EQUITY> 365832
<SALES> 208671
<TOTAL-REVENUES> 208671
<CGS> 76468
<TOTAL-COSTS> 76468
<OTHER-EXPENSES> 92349
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5983
<INCOME-PRETAX> 33871
<INCOME-TAX> 6774
<INCOME-CONTINUING> 27097
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27097
<EPS-PRIMARY> .84
<EPS-DILUTED> .83
</TABLE>
