<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 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, including zip code, of principal executive offices)
Registrant's telephone number, including area code: (508) 478-2000
Securities of the Registrant registered pursuant to Section 12(b) of the Act:
None
Securities of the Registrant registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
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 ( )
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the best
of the registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. (X)
The aggregate market value of the voting stock of the Registrant held by non-
affiliates of the Registrant as of March 24, 1997: $756,197,606
Number of shares outstanding of the Registrant's common stock as of March 24,
1997: 28,929,595
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1996 Annual Report to Stockholders are incorporated by reference
in Parts I and II.
Portions of the proxy statement for the 1997 Annual Meeting of Stockholders are
incorporated by reference in Part III.
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WATERS CORPORATION AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10K
INDEX
Index No. Page
- --------- ----
PART I
1. Business............................................... 3
2. Properties............................................. 6
3. Legal Proceedings...................................... 7
4. Submission of Matters to a Vote of Security Holders.... 7
PART II
5. Market for Registrants Common Stock and
Related Stockholder Matters............................ 7
6. Selected Financial Data................................ 8
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.......... 8
8. Financial Statements and Supplementary Data............ 8
9. Changes In and Disagreements With Accountants
on Accounting and Financial Disclosure................. 8
PART III
10. Directors and Executive Officers of the Registrant..... 8
11. Executive Compensation................................. 8
12. Security Ownership of Certain Beneficial Owners
and Management......................................... 9
13. Certain Relationships and Related Transactions......... 9
PART IV
14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K.................................... 9
Signatures............................................. 11
2
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PART I
Item 1: BUSINESS
The Company
Waters Corporation ("Waters" or the "Company") is a holding company
which owns only and all of the outstanding common stock of Waters Technologies
Corporation. Waters Corporation was established to acquire ("Acquisition") the
predecessor Waters Chromatography Division ("Predecessor") of Millipore
Corporation ("Millipore") on August 18, 1994. Waters Corporation became a
publicly traded company with its initial public offering ("IPO") in November
1995.
Effective on December 31, 1994, the Board of Directors approved a plan
to divest operations of the Company's Extrel FTMS and Extrel Pittsburgh business
units. The description of Waters' business contained herein treats both business
units as discontinued operations, and excludes these units from this
description. For additional information, please see "Management's Discussion and
Analysis of Financial Condition and the Results of Operations," and the
Financial Statements and the accompanying notes found in the 1996 Annual Report
which is incorporated herein by reference.
Business Segments
The Company operates in only one business segment, but operates in
several geographic segments. See Footnote 18 to the Financial Statements for
detailed results by geographic segment found in the 1996 Annual Report which is
incorporated herein by reference.
Business
Waters is the world's largest manufacturer, distributor and provider
of high performance liquid chromatography ("HPLC") instruments, columns and
other consumables, and related service. The Company has the largest HPLC market
share in the United States, Europe and non-Japan Asia and has a leading position
in Japan. 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, Waters is also the world's leader in thermal analysis, a
prevalent and complementary technique used in the analysis of polymers.
Developed in the 1950's, HPLC today is the standard technique used to
identify and analyze the constituent components of a variety of chemicals and
materials. HPLC's unique performance capabilities enable it to separate and
identify 80% of all known chemicals and materials. As a result, HPLC is used to
analyze substances in a wide variety of industries for research and development
purposes, quality control and process engineering applications. Within the
pharmaceutical and life science industries, its most important end-use market,
HPLC is used extensively to identify new drugs, to develop manufacturing
methods, and to assure the potency and purity of new pharmaceuticals. HPLC is
used to identify food content for nutritional labeling in the food and beverages
industry and to test water and air purity within the environmental testing
industry. HPLC is also used in a variety of applications in other industries,
such as chemical and consumer products, as well as by universities and
government agencies. In many instances, Food and Drug Administration ("FDA") and
Environmental Protection Agency ("EPA") regulations, and those of their
international counterparts, mandate testing that requires HPLC instrumentation.
Waters manufactures over 100 HPLC instruments. A complete HPLC system
consists of five basic components: the solvent delivery system, the sample
injector, the separation column, the detector and the data acquisition unit. The
solvent delivery system pumps the solvent through the HPLC system, while the
sample injector injects the sample into the solvent flow. The separation column
then separates the sample into its components for analysis by the detector which
measures the presence and amount of
3
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the constituents. The data acquisition unit then records and stores the
information from the detector. Instrument and system sales comprise
approximately two thirds of the Company's annual revenues.
Consumable products and service comprise the remaining one third of
annual revenues. Consumable products primarily are columns packed with
separation media used in the HPLC testing process and are replaced at regular
intervals. The separation column contains one of several types of packing,
typically stationary phase packing made from silica. As the sample flows through
the column it is separated into its constituent components.
The acquisition of TAI expands the Company's product offerings to
include thermal analysis and rheology products. Thermal analysis measures the
physical characteristics of materials as a function of temperature. Changes in
temperature affect several characteristics of materials such as their physical
state, weight, dimension and mechanical and electrical properties, which may be
measured by one or more thermal analysis techniques. Consequently, thermal
analysis techniques are widely used in the development, production and
characterization of materials in various industries such as plastics, chemicals,
automobiles, pharmaceuticals and electronics. Rheology instruments complement
thermal analyzers in characterizing materials. Rheology characterizes the flow
properties of materials and measures their viscosity, elasticity and deformation
under different types of loading. The information obtained provides insight with
regard to a material's behavior during manufacture, transport, usage and
storage. Approximately 80% of TAI's annual revenues pertain to instrument sales.
Customers
Waters has a broad and diversified customer base that includes
pharmaceutical accounts, other industrial accounts, universities and government
agencies. The pharmaceutical segment represents the Company's largest sector and
includes multinational pharmaceutical companies, generic drug manufacturers and
biotechnology companies. The Company's other industrial customers include
chemical manufacturers, polymer manufacturers, food and beverage companies and
environmental testing laboratories. Expanding into the industrial customer
segment is the primary business objective behind the acquisition of TAI. The
instrumentation used to make physical measurements (based on thermal analysis)
is found in almost all customer settings that also utilize the Company's gel
permeation chromatography. Furthermore, there is an important relationship
between the information obtained from gel permeation chromatography analysis and
the properties that can be measured by thermal analysis.
The Company also sells to various universities and government agencies
worldwide and Waters' technical support staff work closely with these customers
in developing and implementing applications that meet their full range of
analytical requirements.
The Company does not rely on any one customer or group of customers for
a material portion of its sales. During fiscal 1996, no customer accounted for
more than 2% of the Company's net sales.
Research and Development
Waters maintains an active research and development program focused on
the development and commercialization of products which both complement and
update the existing product offering. The Company's research and development
expenditures, including those of the Predecessor, for 1996, 1995 and 1994, were
$20.9 million, $17.7 million and $20.2 million, respectively. Nearly all of the
current HPLC core products of the Company have been developed at the main
research and development center in Milford, Massachusetts, with input and
feedback from Waters' extensive field organization. Nearly all of the current
thermal analysis products have been developed at TAI's research and development
center in New Castle, Delaware and nearly all of the current rheology products
have been developed at the TAI facility in England. At December 31, 1996, there
were approximately 190 employees involved in the Company's research and
development efforts, with approximately 30 employees at TAI. Among its various
accomplishments, the Company recently attained accreditation with strict
International Standards Organization ("ISO") 9001 standards for software
development.
4
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Sales and Service
Waters has the largest sales and service team focused exclusively on
HPLC in the industry. The Company serves its customer base through over 615
field representatives in 59 sales offices throughout the world, excluding TAI.
Many of Waters' field representatives are former Waters' customers. The sales
representatives have direct responsibility for account relationships, while
service representatives work in the field to install instruments and minimize
instrument downtime for customers. Technical support representatives work
directly with customers, helping them to develop customized applications and
procedures to expand the use of HPLC as a testing method. Waters provides
customers with comprehensive product literature and also makes consumable
products available through a dedicated catalog. TAI sells and services its own
products through over 100 field representatives in 11 offices throughout the
world.
Manufacturing
Waters provides high quality HPLC products by controlling each stage of
production of its instruments and columns. The Company assembles most of its
instruments at its facility in Milford, Massachusetts, where it performs
machining, wiring, assembly and testing. The Milford facility employs
manufacturing techniques that meet the strict ISO 9002 quality manufacturing
standards and FDA mandated Good Manufacturing Practices. The Company outsources
manufacturing of certain electronic components such as computers and screens to
outside vendors that can meet the Company's quality requirements.
The Company manufactures its columns at its facility in Taunton,
Massachusetts, where it processes, sizes and treats silica and polymer media
that are packed into columns, solid phase extraction cartridges and bulk
shipping containers. The Taunton facility meets the same ISO and FDA standards
met by the Milford, Massachusetts facility and is approved by the FDA to produce
Class 1 medical devices.
TAI manufactures its thermal analysis products at its New Castle,
Delaware facility and its rheology products at its Leatherhead, England
facility.
Competition
The analytical instrument and systems market is highly competitive.
The Company encounters competition from several worldwide instrument
manufacturers in both domestic and foreign markets, although only one other
company focuses principally on the HPLC market. Waters competes in this market
primarily on the basis of instrument performance, reliability and service and,
to a lesser extent, price. Many competitors who are not solely focused on the
HPLC market have instrument businesses that are much larger than the Company's
business. Certain competitors have greater financial and other resources than
the Company.
The market for consumable products, including separation columns, is
also highly competitive but is more fragmented than the instruments market.
Waters encounters competition in the columns market from chemical companies that
produce column chemicals and small specialized companies that pack and
distribute columns. The Company believes that it is one of the few suppliers
that processes silica, packs columns, and distributes its own product. Waters
competes in this market on the basis of reproducibility, reputation and
performance, and, to a lesser extent, price.
Patents, Trademarks and Licenses
Waters owns a number of United States and foreign patents and has
patent applications pending in the United States and abroad. Certain technology
and software is licensed from third parties. Waters also owns a number of
trademarks. While the patents, licenses and trademarks are viewed as valuable
assets, the Company's patent position is not of material importance to its
operations.
5
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Employees
At December 31, 1996, Waters had approximately 1,865 employees,
excluding TAI. More than 60% of the Company's employees are located in the
United States. Labor relations are considered to be excellent and no Waters
employees have union affiliations. At December 31, 1996, TAI had approximately
225 employees worldwide and their geographic distribution was similar to the
distribution of Waters employees.
Environmental Matters
The Company is subject to Federal, state and local laws, regulations
and ordinances that (i) govern activities or operations that may have adverse
environmental effects, such as discharges to air and water, as well as handling
and disposal practices for solid and hazardous wastes, and (ii) impose liability
for the costs of cleaning up, and certain damages resulting from sites of past
spills, disposals or other releases of hazardous substances. The Company
believes that it currently conducts its operations, and in the past has operated
its business, in substantial compliance with applicable environmental laws. From
time to time, operations of the Company have resulted or may result in
noncompliance with or liability for cleanup pursuant to environmental laws. The
Company does not currently anticipate any material adverse effect on its
operations, financial condition or competitive position as a result of its
efforts to comply with environmental laws.
Millipore has been notified that the United States Environmental
Protection Agency has determined that a release or a threat of a release of
hazardous substances as defined by CERCLA has occurred at certain sites to which
chemical wastes generated by the manufacturing operations of the Predecessor
have been sent. In each instance, Millipore was only one of a large number of
corporations and entities which received such notification, and anticipates that
any ultimate liability for remedial costs will be shared by others. In any
instances involving chemical wastes generated by the Predecessor, Millipore has
entered into partial settlements, paid its proportionate financial obligation
and received partial releases.
In connection with the Acquisition, Millipore agreed to retain
environmental liabilities resulting from pre-acquisition operations of the
Company's facilities. Notwithstanding this contractual agreement, under CERCLA
and similar environmental laws, the Company may remain primarily liable to
certain persons for environmental cleanup costs.
Item 2: PROPERTIES
Waters operates 16 United States facilities and 55 international
facilities. The Company believes its facilities are adequate for its current
production level and for reasonable growth over the next few years. The
Company's primary facilities are summarized in the table below.
Primary Facility Locations
Location Function (1) Owned/Leased Square Feet (000's)
- --------------------------------------------------------------------------
Milford, MA M, R, S Owned 408
Taunton, MA M Owned 32
St. Quentin, France S Leased 18
Singapore S Leased 5
Tokyo, Japan R, S Leased 12
New Castle, DE (2) M, R, S Leased 48
Leatherhead, England (2) M, R, S Leased 12
______________
(1) M = Manufacturing; R = Research; S = Sales
(2) TAI facilities
6
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Waters operates and maintains 13 field offices in the United States and
55 field offices abroad in addition to sales offices in Milford, MA and New
Castle, DE. The Company's primary field office locations are listed below.
Field Office Locations (3)
<TABLE>
<CAPTION>
United States International
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tustin, CA Australia Hungary Puerto Rico
Wood Dale, IL Austria India Russia
Fairfax, VA Belgium Italy Singapore
Cary, NC Brazil Japan Spain
Morristown, NJ Canada Malaysia Sweden
Houston, TX Czech Republic Mexico Switzerland
Pleasanton, CA Denmark Netherlands Taiwan
Ann Arbor, MI Finland Norway United Kingdom
Rolling Meadows, IL France People's Republic
Lake Wylie, SC Germany of China
Felton, CA Hong Kong Poland
Valley View, OH
</TABLE>
______________
(3) Waters operates more than one office within certain
states and foreign countries.
Item 3: 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 its
subsidiaries.
The Company is currently asserting a claim against Millipore under
arbitration procedures specified in the purchase and sale agreement to the
Predecessor. The Company contends 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 arbitration proceeding will not be material to the Company.
Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
Item 5: MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is registered under the Securities Exchange
Act of 1934 and is listed on the New York Stock Exchange under the symbol WAT.
As of March 24, 1997, the Company had approximately 314 common stockholders
of record. The Company has not declared or paid any cash or other dividends on
its Common Stock and does not expect to pay dividends for the foreseeable
future. On September 12, 1995 the Company declared and paid a special
distribution of $16,195,169.
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The quarterly range of high and low sales prices for the Common Stock
as reported by the New York Stock Exchange is as follows:
Price Range
-----------
For the quarter ended High Low
- --------------------- ---- ---
December 31, 1995 (commencing November 17, 1995) $ 18 1/8 $ 13 1/4
March 31, 1996 24 5/8 16 3/4
June 30, 1996 33 24 3/8
September 30, 1996 33 25 1/4
December 31, 1996 33 5/8 25 7/8
Item 6: SELECTED FINANCIAL DATA
Reference is made to information contained in the section entitled
"Selected Financial Data" on page 55 of the 1996 Annual Report, which
information is incorporated herein by reference.
Item 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Reference is made to the information on pages 29 to 35 of the 1996
Annual Report, which information is incorporated herein by reference.
Item 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the Company's consolidated financial statements
and notes thereto on pages 37 to 53 of the 1996 Annual Report together with the
"Report of Independent Accountants" dated January 22, 1997 on page 36 and
"Quarterly Results" on page 54, which information is incorporated herein by
reference.
Item 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Item 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
a. Information concerning the Registrant's directors is set forth in
the Proxy Statement under the headings "Election of Directors" and "Directors
Meetings and Compensation." Such information is incorporated herein by
reference.
b. Information required by Item 405 of Regulation S-K is set forth in
the Proxy Statement under the heading "Director and Officer and Ten Percent
Stockholder Securities Reports." Such information is incorporated herein by
reference.
Item 11: EXECUTIVE COMPENSATION
Information concerning compensation of the Registrant's executive
officers is set forth in the Proxy Statement under the heading "Management
Compensation." Such information is incorporated herein by reference.
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Item 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning security ownership of certain beneficial owners
and management is set forth in the Proxy Statement under the heading "Security
Ownership of Certain Beneficial Owners." Such information is incorporated herein
by reference.
Item 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relationships and related transactions
is set forth in the Proxy Statement under the heading "Certain Relationships and
Related Transactions." Such information is incorporated herein by reference.
PART IV
Item 14: EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report
(1) Reference is made to the Company's consolidated financial
statements and notes thereto on pages 37 to 53 of the 1996 Annual
Report, which information is incorporated herein by reference.
(2) Not Applicable.
(3) List of exhibits
Exhibit
Number Description of Document
------- -----------------------
3.1 Second Amended and Restated Certificate of Incorporation
of Waters Corporation, as amended to date. (1)
3.2 Amended and Restated Bylaws of Waters Corporation, as
amended to date. (1)
10.1 Credit Agreement, dated as of November 22, 1995, among Waters
Corporation, Waters Technologies Corporation, Bankers Trust
Company and other Lenders party thereto. (2)
10.2 First Amendment to Credit Agreement, dated as of March 6, 1996
among Waters Corporation, Waters Technologies Corporation,
Bankers Trust Company and other Lenders party thereto. (2)
10.3 Waters Corporation Amended and Restated 1996 Long-Term
Performance Incentive Plan. Incorporated by reference to Exhibit
A of the Proxy Statement for the 1996 Annual Meeting of
Stockholders ("1996 Proxy Statement").
10.4 Waters Corporation 1996 Employee Stock Purchase Plan.
Incorporated by reference to Exhibit B of the 1996 Proxy
Statement.
10.5 Waters Corporation 1996 Non-Employee Director Deferred
Compensation Plan. Incorporated by reference to Exhibit C of the
1996 Proxy Statement.
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10.6 Waters Corporation Amended and Restated 1996 Non-Employee
Directors Stock Option Plan. Incorporated by reference to
Exhibit D of the 1996 Proxy Statement.
10.7 Agreement and Plan of Merger among Waters Corporation, TA Merger
Sub, Inc. and TA Instruments, Inc. dated as of March 28, 1996.
Incorporated by reference to the Registrant's Report on Form 8-K
dated March 29, 1996.
10.8 Offer to Purchase and Consent Solicitation Statement, dated
March 7, 1996, of Waters Technologies Corporation. Incorporated
by reference to the Registrant's Report on Form 8-K dated March
11, 1996.
10.9 WCD Investors, Inc. Amended and Restated 1994 Stock Option Plan,
as amended (including Form of Amended and Restated Stock Option
Agreement). (2)
10.10 Waters Corporation Retirement Plan. (2)
10.11 Registration Rights Agreement made as of August 18, 1994, by and
among WCD Investors, Inc., AEA Investors, Inc., certain
investment funds controlled by Bain Capital, Inc. and other
stockholders of Waters Corporation. (2)
10.12 Form of Indemnification Agreement, dated as of August 18, 1994,
between WCD Investors, Inc. and its directors and executive
officers. (2)
10.13 Form of Management Subscription Agreement, dated as of August
18, 1994, between WCD Investors, Inc. and certain members of
management. (2)
11.1 Statement of Computation of Per Share Earnings.
13.1 1996 Annual Report to Stockholders.
13.2 Report of the Independent Accountants
13.3 Report of the Independent Accountants
21.1 Subsidiaries of Waters Corporation. (1)
22.1 Proxy Statement for the 1997 Annual Meeting of Stockholders.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Coopers & Lybrand L.L.P.
27.1 Financial Data Schedule.
______________
(1) Incorporated by reference to the Registrant's Report on
Form 10-K dated March 29, 1996.
(2) Incorporated by reference to the Registrant's Registration
Statement on Form S-1 (File No. 333-3810).
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three month period
ended December 31, 1996.
10
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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: March 24, 1997 Waters Corporation
/s/ Philip S. Taymor
-----------------------------
Philip S. Taymor
Senior Vice President, Finance and
Administration and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Registrant and in the
capacities indicated on March 25, 1997.
<TABLE>
<S> <C>
Chairman of the Board of Directors, Chief Executive
/s/ Douglas A. Berthiaume Officer, and President (principal executive officer)
- ---------------------------
Douglas A. Berthiaume
Senior Vice President, Finance and
Administration, and Chief Financial Officer
(principal financial officer and principal
/s/ Philip S. Taymor accounting officer)
- ---------------------------
Philip S. Taymor
/s/ Joshua Bekenstein Director
- ---------------------------
Joshua Bekenstein
/s/ Philip Caldwell Director
- ---------------------------
Philip Caldwell
/s/ Edward Conard Director
- ---------------------------
Edward Conard
/s/ Thomas P. Salice Director
- ---------------------------
Thomas P. Salice
/s/ Marc Wolpow Director
- ---------------------------
Marc Wolpow
</TABLE>
11
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EXHIBIT 11.1
WATERS CORPORATION AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
August 19, to Year Ended Year Ended
December 31, 1994 December 31, 1995 December 31, 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Historical
Common stock outstanding, beginning of period 21,482 21,482 28,796
Weighted average cheap stock 3,540 3,136 -
Weighted average number of common stock
equivalent shares - 286 5,220
Weighted average number of shares in connection
with the Company's IPO and upon exercise of the
Warrant - 840 -
Weighted average shares issued upon exercise of
stock options - - 66
Less: Assumed purchase of treasury shares (1,170) (1,162) (2,454)
----------- ----------- ----------
Weighted average number of common shares 23,852 24,582 31,628
=========== =========== ==========
(Loss) income from continuing operations ($80,191) $14,113 $19,859
(Loss) from discontinued operations (7,213) - -
Extraordinary Item - (12,112) (22,264)
----------- ----------- ----------
Net (loss) income (87,404) 2,001 (2,405)
Less: accretion of and 6% dividend on preferred stock (330) (902) (921)
Net (loss) income available to common
stockholders ($87,734) $1,099 ($3,326)
=========== =========== ==========
Income (loss) income per common share:
(Loss) income per common share from continuing
operations ($3.38) $0.54 $0.60
(Loss) per common share from discontinued
operations (0.30) - -
Extraordinary (loss) per common share - (0.49) (0.71)
----------- ----------- ----------
Net (loss) income per common share ($3.68) $0.05 ($0.11)
=========== =========== ==========
</TABLE>
- ----
(1) In accordance with Securities and Exchange Commission Staff Accounting
Bulletin No. 83 ("SAB No. 83") all common equivalent shares and other
potentially dilutive instruments (including stock options and warrants)
issued during the twelve month period prior to the initial filing date of
the Company's initial public offering Registration Statement have been
included in the calculation as if they were outstanding for all periods
presented. The common equivalent shares for stock options and warrant were
determined using the treasury stock method at the initial public offering
price of $15.00 per share.
(2) Fully diluted net (loss) income per share is the same as primary net
(loss) income per share.
<PAGE>
EXHIBIT 13.1
1996
The year in measurement
[LOGO]
Waters
Annual Report
[FRONT COVER - VISUAL DEPICTION OF AN ASPIRIN]
<PAGE>
Waters(TM) Corporation (NYSE: WAT) is the world's leading supplier of high
performance liquid chromatography instrumentation and consumables, as well as
thermal analysis products. Around the world, Waters products are used by
pharmaceutical, industrial and university research and development laboratories.
For these markets, we provide technology that helps break matter down to its
molecular level. By turning analytical data into useful information, Waters
helps its clients understand the complexities of chemistry and life itself.
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights
- --------------------
Adjusted Financial Results (A):
Percentage
($ in thousands, except per share data) 1996 1995 Change
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
For the year:
Net sales $391,113 $332,972 17%
Operating income 71,229 56,267 26%
Income from continuing operations before income taxes 56,489 38,621 46%
Net income available to common stockholders 44,338 30,700 44%
Income per common share from continuing operations $ 1.40 $ 1.02 37%
At year end:
Total assets $365,502 $299,816
Stockholders' equity 57,780 58,118
Return on assets 12.1% 10.2%
Return on equity 76.7% 52.8%
</TABLE>
(A) Adjusted financial results for 1996 reflect adjustments to reported results
of operations necessary to eliminate nonrecurring charges related to the
May 1996 acquisition of TA Instruments, Inc. and the Company's April 1996
tender for its then remaining subordinated debt. These amounts had no
related tax effects. Adjusted financial results for 1995 reflect
adjustments to reported results primarily necessary to eliminate
nonrecurring charges related to the Company's November 1995 initial public
offering ("IPO"), reduce interest expense to reflect the capital structure
achieved with the Company's IPO, and record related income tax effects. A
reconciliation of reported results to adjusted results follows in the table
below.
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Net (loss) income available to common stockholders -
as reported $ (3,326) $ 1,099
Adjustments:
Eliminate revaluation of acquired inventory (6,100) (925)
Eliminate charge to SG&A for one-time acceleration of
compensatory stock option vesting - (3,567)
Eliminate expensed in-process research and development
related to the TAI acquisition (19,300) -
Eliminate management fee under agreement terminated in
conjunction with the Company's IPO - (5,393)
Adjust interest expense to reflect financing associated with
post-IPO capital structure - (11,494)
Adjust tax provision for items above - 3,881
Eliminate extraordinary loss from early extinguishment of debt (22,264) (12,112)
Adjust preferred stock dividend and accretion to reflect
Company's current capital structure - 9
Total adjustments 47,664 29,601
Net income available to common stockholders - as adjusted $ 44,338 $ 30,700
</TABLE>
<PAGE>
President's Letter
[GRAPHIC]
The year just concluded was successful not only financially for Waters, with
sales growth of 17% and earnings growth of 37% (excluding nonrecurring items),
but was a year of significant strategic progress for the company as well. First,
in our core chromatography business, we launched a revolutionary new instrument
platform, The Alliance(TM) System; and second, we acquired TA Instruments(TM)
and its thermal analysis technology, providing Waters with a major new
complementary growth opportunity.
The Alliance System debuted at The Pittsburgh Conference in March 1996, and
has been quickly established as the HPLC performance leader. Customer response
has been extremely positive and has driven HPLC growth rates to double-digit
levels in the second half of 1996.
By July 1996, the Alliance System had been introduced in all regions of the
world. Encouragingly, the Company's strong second-half performance was broad
based with all major regions contributing equally to sales growth.
The success of the Alliance System underscores the real growth opportunity for
us in our core markets. The Alliance System enables customers to improve their
results through better chromatography. Customers clearly see this performance
advantage and are encouraging us to continue to provide state-of-the-art HPLC
solutions for their applications.
2
<PAGE>
We intend to meet these customer needs by continuing to invest in our three
major platform areas: our instrumentation, principally with the Alliance System;
our software, with our market leading Millennium(R) Chromatography Manager
Software; and chemistry, with a full range of consumable products, led by our
novel Symmetry(R) product line.
No one is better positioned than Waters to provide a full range of state-of-
the-art technologies in each of these important areas, and we intend to
introduce important new products in each of these areas during 1997.
TA Instruments is the world leader in the field of thermal analysis -- a
technology complementary to HPLC which is particularly important for the
analysis of polymers and plastics. We acquired TA Instruments in May 1996 for
its technology and market leadership in a section of the analytical instrument
marketplace where we had been underrepresented and where we saw opportunity. We
were also attracted to TA Instruments by its culture and management which is
very similar to Waters, with an emphasis on strong customer service, state-of-
the-art products and application solutions for customers. TA Instruments'
performance in 1996 exceeded our expectations, and ended 1996 with growth rates
in the solid double digits. This business has a strong pipeline of new products
in development, and we are optimistic about our opportunity to maintain and
extend our competitive position. We believe that, with TA Instruments, we have a
strengthened foundation in the industrial marketplace that can accelerate its
growth by acquiring products and businesses which augment the base business.
We also made key investments to improve our infrastructure in 1996. We
successfully converted legacy information systems in Europe and Asia to new
state-of-the-art business systems based on software from SAP AG. These systems
were delivered on time and on budget. Over the next 18 months, the United States
and the remainder of our international operations will be converted as well.
With these new systems in place, our information systems architecture will be
ready to support our 21st century growth strategy.
As we look to 1997 and the future, the success we experienced and the
investments we made in 1996 make us confident in our ability to sustain above-
average performance in our very competitive industry. I'd like to thank our
customers for their continued support and the worldwide Waters organization for
its hard work and dedication in 1996, both of which made such a successful year
possible.
Sincerely,
/s/ Douglas A. Berthiaume
Douglas A. Berthiaume
Chairman, President, and
Chief Executive Officer
3
<PAGE>
We gauge
our results
on an international basis. No matter how you measure it, the world is getting
smaller. And that means Waters is an increasingly global corporation. Today, two
thirds of our sales come from outside of the United States. While Japan and
Europe remain our largest international markets, our fastest growth is expected
to come from emerging markets -- particularly in the Pacific Rim. But no matter
where the customer is, our more than 2,000 employees throughout the world have
been extremely successful at taking the Waters philosophy, fitting it to local
needs, and delivering solutions that result in satisfied customers.
Bar graph that illustrates revenue by geography as follows:
United States - 38%
Europe - 30%
Japan - 12%
Asia/Pacific Rim - 9%
Rest of World - 11%
4
<PAGE>
Visual depiction of the German Deutsche Mark with overlays that illustrate
revenue by geography as follows:
United States - 38%
Europe - 30%
Japan - 12%
Asia/Pacific Rim - 9%
Rest of World - 11%
Local sales & support worldwide.
48 offices in 29 countries.
<PAGE>
How do You Measure Achievement?
- -------------------------------
CHART (no data points)
[Caption] Alliance HPLC Systems -- improving the quality of HPLC results
When it comes to Waters, one could argue that the most accurate way to measure
success is with a High Performance Liquid Chromatography (HPLC) system. After
all, that is precisely what we help our customers do every day, in every corner
of the globe. For example, we're aiding customers in their quest to create and
manufacture important new drugs. We're making sure that the taste quality of
their food and beverage products is consistent. We're helping them comply with
governmental regulations, keeping water cleaner. And we're providing knowledge
that allows them to make major medical breakthroughs.
What is it that we do? In simple terms, we provide the tools that make
analytical measurements, and then turn analytical data into usable information.
In more complex terms, HPLC separates the individual chemical components of
liquids (or chemical mixtures that can be converted into a liquid state), so
they can be identified, purified or quantified. This helps chromatographers
(analytical chemists, biochemists, materials scientists and other professionals)
make smarter decisions faster. Or it gives them confidence that their chemical
formulations are identical, batch after batch, year after year. It lets them
know, with precision, if there is something in their product that does not
belong there. Examples of industries where HPLC is employed include
6
<PAGE>
pharmaceutical, food, beverage and industrial chemical companies, as well as
government agencies, universities and research institutes.
Shaped By The Past, Present And Future. Waters pioneered HPLC, back in the
1960's. And today, the future of HPLC is bright, both in the short and long
term. The size of the HPLC market is currently estimated at $1.9 billion. And,
with a market share estimated to be twice that of our nearest competitor, Waters
is the world's largest supplier of HPLC technologies.
CHART (no data points)
[Caption] Symmetry HPLC Columns -- a new standard for reproducibility
Our customers include most Fortune 500 companies, in addition to major
corporations all over the world. And their products are things you use every
day. From cola to aspirin, from tires to perfume.
Reviewing Our First Year As A Public Company. While increases in orders, sales
and profitability can be easily measured, other things, just as important to the
success of a company, are more difficult to quantify. One such intangible is the
spirit and culture of an organization. For Waters, 1996 was a year filled with
enthusiasm and a sense of purpose. Based in large part on the successful launch
of our Alliance HPLC system concept and excitement about the introduction of
several new products in 1997, Waters employees have a heightened sense of pride
and teamwork, and a dedication to maintaining their position as the industry's
innovative leader.
CHART (no data points)
[Caption] Millennium Chromatography Software for HPLC and GC results
management
7
<PAGE>
The sweet
smell of success The worldwide analytical instrument market size is estimated
at $11.0 billion, and HPLC is the largest segment. From manufacturing the
world's most sophisticated fragrances, to making motor oil, laboratories invest
in numerous different technologies, depending on their analytical needs. HPLC,
however, represents the single largest segment, since over 80% of compounds
known to science can be characterized by HPLC. Complementary technologies like
thermal analysis, which we acquired with the TA Instruments, Inc. purchase in
1996, give scientists additional means to characterize not only chemical
mixtures but the associated physical properties of materials made of these
mixtures, such as plastics, rubber and other highly engineered materials.
Linear chart that illustrates estimated worldwide demand in 1996 for analytical
instrumentation (in billions of U.S. dollars) as follows:
High performance liquid chromatography - $1.9
Molecular spectroscopy - $1.6
Molecular bioinstrumentation - $1.5
Gas-phase chromatography - $1.4
Surface sciences - $1.2
Atomic spectroscopy - $1.1
Other analytical techniques - $1.0
Physical properties - $0.9
Mass spectroscopy - $0.4
8
<PAGE>
Visual depiction of a perfume bottle with overlays that illustrate the estimated
worldwide demand in 1996 for analytical instrumentation (in billions of U.S.
dollars) as follows:
High performance liquid chromatography - $1.9
Molecular spectroscopy - $1.6
Molecular bioinstrumentation - $1.5
Gas-phase chromatography - $1.4
Surface sciences - $1.2
Atomic spectroscopy - $1.1
Other analytical techniques - $1.0
Physical properties - $0.9
Mass spectroscopy - $0.4
<PAGE>
The new standard by which all other
- -----------------------------------
HPLC systems will be measured
-----------------------------
CHART (no data points)
[Caption] Alliance HPLC Systems -- a bold new direction in HPLC
In March of 1996, Waters launched a new breed of HPLC instrument: The Alliance
System. The importance of this introduction to Waters cannot be overemphasized.
Not only was the technology judged an unqualified success by our customers, but
it was also a shining example of the spirit of innovation and teamwork that
defines the Waters work force worldwide.
To truly grasp the significance of the Alliance System concept, it is
necessary to understand a few things about the HPLC industry. For years, major
instrument suppliers had been marginally improving their HPLC systems. And
fundamental system design had remained basically unchanged. The prevailing
attitude was that maximum performance and reliability had been reached.
Customers and equipment suppliers were satisfied with what they had. Waters
challenged that attitude and, with the Alliance System, sent HPLC in a bold new
direction. With technology that made results dramatically more accurate and
reliable. And gave customers a reason to reevaluate what they should expect from
an HPLC system.
Fundamental to the Alliance System concept was the industry's first system
that combined solvent and sample management. The functional integration of a new
design for solvent delivery with the world's most respected autosampler brought
more consistent performance, enhanced reproducibility and higher quality
results.
Reaction to the Alliance System was swift and clear. At Pittcon, the HPLC
industry's biggest trade show, the Alliance System was the talk of the town.
American Laboratory magazine called our Alliance System the "most impressive
product introduction in HPLC" at Pittcon. Instrument Business Outlook, a major
industry publication covering the show, noted "Alliance is a major step forward
in HPLC instrumentation that will
10
<PAGE>
set a new standard for performance."
In October, a blue-ribbon panel of independent scientists, educators, and
science journalists appointed by France's Institut National des Sciences
Applique[_]s (INSA) awarded our Alliance System its top innovation award at a
ceremony at INSA LABO, one of Europe's most highly-regarded industry
exhibitions.
But more important was the reaction of customers. Both ours and our
competitors'. Orders for the Alliance System far exceeded our most optimistic
forecasts. And because the worldwide launch was just completed in July, the full
impact to the Waters bottom line is still being realized. Just as importantly,
the Alliance System has greatly added to our ability to compete for new business
in strategic accounts.
We believe the Alliance System concept is the most important new HPLC product
in the past 15 years. Moreover, it will provide the basis for the Waters
approach to HPLC for many years to come.
CHART (no data points)
[Caption] Integrity System for positive compound identification
And Alliance represents our commitment to developing the most innovative
products and technologies.
More Integrity Than Ever. Mass spectrometry is a powerful detection technique
for HPLC. It provides much more sensitive and sophisticated information about
HPLC samples. Until the launch of the Waters Integrity(TM) System in 1994, these
instruments were extremely large, costly and difficult to use. The benchtop
Integrity System changed everything, truly bringing mass spec to the masses.
In 1996, Waters brought the power of Alliance HPLC System performance to
Integrity Systems and orders nearly doubled compared to the previous year.
During 1997, Waters plans to introduce a new mass spectrometry detector
coupled with our Alliance System to take advantage of oppor-tunities in the
high-growth pharmaceutical analysis segment of the instrument market. Scientists
will be able to generate higher-quality results in less time, helped by
relational database technology to organize this increased productivity.
11
<PAGE>
The business of
making people
feel better. The pharmaceutical industry is our largest market. By all
indications, 1996 was the best year ever for this important customer segment.
According to the Pharmaceutical Research and Manufacturers of America, sales of
ethical pharmaceuticals were expected to have topped $96 billion and research
and development spending to have exceeded $15 billion, both new records. The
number of new biotechnology drugs in production increased 21% in 1996. These
factors significantly contributed to the overall growth of our core HPLC
business in 1996.
Linear timeline indicating HPLC pharmaceutical applications in numerical order
from 1 to 8 as follows:
1 - Discovery of new chemical entities
2 - Toxicological studies
3 - Impurity profiling
4 - Clinical trials
5 - Stability analyses
6 - Bulk drug assays
7 - Dissolution testing
8 - Content uniformity analyses
12
<PAGE>
Visual depiction of a drug capsule that illustrates the significance of HPLC in
pharmaceutical research, development and quality control during the discovery
phase, clinical phase, and commercial phase:
Discovery of new chemical entities (Discovery and clinical phases)
Toxicological studies (Discovery and clinical phases)
Impurity profiling (Clinical phase)
Clinical trials (Clinical and commercial phases)
Stability analyses (Clinical phase)
Bulk drug assays (Clinical and commercial phases)
Dissolution testing (Clinical and commercial phases)
Content uniformity analyses (Clinical and commercial phases)
<PAGE>
Analyzing the Analytical Column
-------------------------------
CHART (no data points)
[Caption] Symmetry Columns -- for improved run-to-run reproducibility
After the instrument itself, the second critical component of an HPLC system
is the analytical column. The analytical column actually separates the sample's
constituents from one another, so that their concentrations can be accurately
measured.
Obviously, the success of any HPLC separation depends on the quality of the
analytical column in which that separation takes place. What's more, the
consistency of the column is critical, so that methods used can be repeated or
transferred to other sites with exactly the same results.
With this in mind, Waters developed the Symmetry(R) line of columns, launched
in late 1994. Our goal was to create the first world-class standard for columns
to be used in the next generation of drug assays. We succeeded in bringing to
market a product that is unsurpassed in performance, column-to-column
reproducibility and durability.
In fact, much like our Alliance System is changing what customers expect from
HPLC instruments, Symmetry columns have reset customer expectations in terms of
analytical columns.
Today, many pharmaceutical companies around the world are using Symmetry
columns in the research and development phases of various new, important drugs.
And once a column
14
<PAGE>
CHART (no data points)
[Caption] Oasis HLB Extraction Cartridges for HPLC sample preparation
is specified for a given drug, it becomes tied to a drug company's overall
strategy for ensuring the quality of that product -- meaning sales for the
column continue as long as the drug is manufactured.
In 1996, sales of Symmetry columns increased by almost 50%, exceeding our
revenue projections. The vast majority of columns went to pharmaceutical
accounts. Many of these columns were used in the development of products that
will soon be coming to market. That means future sales of Symmetry columns
should continue to grow strongly.
Broadening Our Product Line. The past year also saw the introduction of
Oasis(TM) HLB single-use, disposable sample preparation cartridges. Launched in
November at the annual meeting of the American Association of Pharmaceutical
Scientists, Oasis HLB cartridges are based on a patented* polymeric sorbent
technology that makes it faster and easier to prepare HPLC samples by
eliminating all but the compounds of interest.
Oasis HLB cartridges are the industry's first product of its type, and the
first from our new polymeric technology platform. And they represent one of
Waters' most important new sample preparation product platforms ever, since they
provide access to a $50 million market opportunity not addressed by Waters
today.
15
<PAGE>
Good chemistry As one might expect, Waters has many customers in the chemical
and material industries. HPLC and thermal analysis come into play in the
production of a diverse group of these products. From the coating on CDs to the
waterproofing on coats. From semiconductors to semi-tractor tires, Waters
technologies are an integral part of the development and manufacturing process.
Linear chart that depicts chemical industry applications in the following order:
Competitive product analysis
Incoming raw material inspection
Process development and control
Materials research
Analytical support services
Methods development
Environmental testing
16
<PAGE>
Visual depiction of compact disk with a pie chart overlay that illustrates
chemical industry applications as follows:
Competitive product analysis
Incoming raw material inspection
Process development and control
Materials research
Analytical support services
Methods development
Environmental testing
. Thousands of Laboratories
---------
. HPLC Essential
----
. TAI's Biggest Market
-----
<PAGE>
A New Measure of Intelligence
- -----------------------------
CHART (no data points)
[Caption] Millennium Chromatography Software for HPLC results management
Generating reams of accurate, consistent results is one thing. Using them
intelligently is another. Two initiatives that Waters began last year should
have a substantial impact on helping customers employ their chromatography
systems with greater intelligence than ever before. And these projects will also
have a strong influence on the future of Waters for many years to come. The
first of these is a new software system that makes it easier for
chromatographers to manage information. The second makes conventional service
and support obsolete, and draws upon Waters' unparalleled intellectual capital
to help customers in new ways. Both initiatives also represent significant new
areas for revenue growth and increased market penetration.
The New Millennium Comes Early. There are several reasons why managing
information is important to the chromatography process. When customers use
chromatography for research purposes, they need fast, flexible access to the
data files for the myriad of tests they have run - which may number into the
hundreds or thousands. And when applying for government approval of a drug, or
after a drug is put into production, exact records are critical. Information
management can also turn a difficult government audit into a much more
manageable process.
Millennium software is the industry-leading, best-selling liquid
chromatography software. More than 14,000 copies of Millennium software have
been sold to date. That makes it the
18
<PAGE>
world's leading software platform for liquid chromatography data management.
Millennium software is available in versions for individual computer
workstations and for networked chromatography computer workstations. Orders for
our Millennium net-working products grew a robust 50% in 1996, as more companies
adopt Millennium software as their data management software standard.
This year, Waters is scheduled to release the newest state-of-the-art version
of Millennium software, to coincide with the migration of thousands of
laboratories to Microsoft(R) Windows(R) 95 and Windows NT(R). With a rich
feature set and powerful capabilities, this new version of Millennium software
will be one of the most sophisticated and powerful applications ever developed
for the Windows environment.
The Right Connections. No other company has a longer history of HPLC
innovation and experience than Waters. This is the basis of an exciting new
approach to support and service: Waters Connections(TM) program. It represents
an efficient new way to provide service for our customers, while improving
overall responsiveness and emphasizing preventive maintenance. It also allows us
to aggressively market a mix of service products better suited to individual
client needs.
CHART (no data points)
[Caption] Industry-leading Millennium Chromatography Software
After-sale service and support is one of our fastest-growing areas of
business. The Connections suite of service products should make it only more so.
Using our experienced technicians, as well as the Internet and CD-ROM,
Connections service products will furnish customers with application
information, education, performance assurance and regulatory compliance
assistance.
And, we will increase our emphasis on preventive maintenance; in the end that
means more uptime and improved productivity for our customers, and more
effectively managed business for us.
19
<PAGE>
It's all
important
(and profitable) Whether we're helping companies formulate or fortify a new
fruit juice for their kiwi raspberry drink or develop a more powerful antacid,
no other supplier of HPLC products has the depth and breadth of line that Waters
offers. With leading-edge offerings in instrumentation, consumables and data
management software, we offer a one-stop source for our customers. This focus,
we believe, will continue to differentiate us from our major competition. And
since all of our major product lines are still early in their life-cycle, the
groundwork is set for strong performance for some time to come.
Bar graph that illustrates revenue by product line as follows:
Instrumentation and software - 63%
Service and support - 20%
Consumables - 17%
20
<PAGE>
Visual depiction of a sliced Kiwi fruit with a pie chart overlay that
illustrates revenue by product line as follows:
Instrumentation and software - 63%
Service and support - 20%
Consumables - 17%
Instrumentation & Software:
. Alliance HPLC Systems
. Millennium Chromatography Software
. Thermal Analysis Systems
Service and Support:
. Connections Program
Consumables:
. Symmetry Columns
. Oasis HLB Cartridges
. over 50 thousand sold!
<PAGE>
New Directions and New Opportunities
- ------------------------------------
CHART (no data points)
[Caption] TA Instruments Dynamic Mechanical Analyzer for measuring the
mechanical properties of materials
The largest market for HPLC products and services remains the pharmaceutical
industry. While 1996 was perhaps the best year in history for sales to this
market, 1997 looks even brighter. The Pharmaceutical Research and Manufacturers
of America estimates that in 1997 R & D spending by pharmaceutical companies
will exceed last year's total by 11%. Presently there are nearly 7,000
pharmaceuticals and biopharmaceuticals in development by more than 900
therapeutic drug companies worldwide.1 There is also a renewed focus on
streamlining the drug approval process. These are all factors which bode well
for the use of HPLC. Since Waters' core technology is well-suited to this
market, we are well-positioned to capitalize on the anticipated growth.
One of the most significant events this past year was our acquisition of TA
Instruments, Inc. (TAI). TAI is the world leader in thermal analysis, the most
common measurement technique for characterizing polymers. Examples of polymers
include rubber, plastics, proteins and starch. There are strong complementary
relationships between the information obtained by our HPLC technology and
thermal analysis. It is these relationships that we believe will bring new
advantages to companies involved with the development, fabrication and quality
control of high performance materials.
The worldwide market for thermal analysis and related products is close to
$250 million, and many of TAI's current customers are also Waters' customers.
Consistent with our philosophy of adding complementary capabilities in other
areas of expertise, TAI will strengthen our position in the very important
chemical marketplace. Acquisitions of this type profitably expand and leverage
our customer base.
New Allies. Also key to the future are new partnerships designed to create
22
<PAGE>
additional value for our customers. One example is our strategic partnership
with Source for Automation, Inc. (Milford, Mass.). Together we are working to
take their expertise in automated sample extraction and combine it with HPLC to
establish an entirely new solution for auto-mated content uniformity testing for
pharmaceutical companies. A second partnership with Wyatt Technology Corp.
(Santa Barbara, Calif.) strengthens our offering for polymer characterization by
combining our Alliance System platform with their patented light-scattering
detector technology.
Another example of new opportunity is software that links Millennium
workstations or client/server systems to virtually any commercial Laboratory
Information Management system, allowing scientists to better track all analyses
performed on their samples.
These and other alliances will give us new capabilities that will expand our
marketplace.
It's All Important. There are four keys to the success of an HPLC procedure.
First, the instrument that performs the procedure must be accurate and reliable.
Second, it is imperative that the analytical column, or the consumable element
used for every test, be of high quality and consistency. Third, the data
management software used for organizing, analyzing and storing results and
methods must be flexible, powerful and easy to use. And finally, companies that
employ HPLC must have access to service and support that help them get the most
out of their applications. If just one of these elements is not up to par, the
entire procedure is compromised.
Waters is the only company in the world that has industry-leading technology
in all four of these areas. Moving forward, we intend to leverage each of them,
and combine them more powerfully, to serve our customers more completely, and
solidify our position as the definitive, single resource for HPLC solutions.
In short, as we look both back and ahead, one might sum up our first year as a
public company stating that, by virtually any measure, 1996 was a successful
year. Yet, we would like to think of it another way: as just the beginning.
1. Scrip Magazine, Review Issue of 1996,
PJB Publications, London, England
23
<PAGE>
A strong
foundation for
future growth Waters' management team has the good fortune to lead an
organization that is rich in intellectual capital, and that possesses a highly
skilled work force. This combination of motivated and talented individuals will
be instrumental in moving Waters to even greater profitability and productivity.
Our management and employees are working together to implement new systems and
technologies that will increase our competitive advantage, and lay the
groundwork for future growth.
24
<PAGE>
Photograph of Waters' executive officers from top-left to bottom-right as
follows:
Brian K. Mazar - Vice President, Human Resources and Investor Relations
Philip S. Taymor - Senior Vice President and Chief Financial Officer
Devette W. Russo - Vice President, Chromatography Consumables Division
John R. Nelson - Senior Vice President, Research, Development, and
Engineering
Thomas W. Feller - Senior Vice President, Operations
Douglas A. Berthiaume - Chairman, President, and Chief Executive Officer
Arthur G. Caputo - Senior Vice President, Worldwide Sales and Marketing
[Captions to art (group shot) on page by self ]
Brian K. Mazar
Vice President, Human Resources
and Investor Relations
Philip S. Taymor
Senior Vice President
and Chief Financial Officer
Devette W. Russo
Vice President,
Chromatography
Consumables Division
John R. Nelson
Senior Vice President
Research, Development,
and Engineering
Thomas W. Feller
Senior Vice President
Operations
Douglas A. Berthiaume
Chairman, President, and
Chief Executive Officer
Arthur G. Caputo
Senior Vice President
Worldwide Sales and Marketing
<PAGE>
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<PAGE>
<TABLE>
<CAPTION>
Financial Table of Contents
- ---------------------------
<S> <C>
Management's Discussion and Analysis of Financial
Condition and Results of Operations........................................ 29
Report of Independent Accountants.......................................... 36
Consolidated Financial Statements.......................................... 37
Notes to Consolidated Financial Statements................................. 41
Quarterly Results.......................................................... 54
Selected Financial Data.................................................... 55
Directory.................................................................. 56
</TABLE>
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
Waters Corporation and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
OVERVIEW
Waters Corporation ("Waters" or the "Company") is the world's largest
manufacturer, distributor and provider of high performance liquid
chromatography ("HPLC") instruments, columns and other consumables, and related
service. The Company has the largest HPLC market share
in the United States, Europe and non-Japan Asia and has a leading position in
Japan. 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, Waters is also the world's leader in
thermal analysis, a prevalent and complementary technique used in the analysis
of polymers. Waters Corporation was established to acquire the predecessor
Waters Chromatography Division ("Predecessor") of Millipore Corporation
("Acquisition") on August 18, 1994. Waters Corporation became a publicly traded
company with its initial public offering ("IPO") in November 1995.
After sales growth of 8% in 1995, sales for the year ended December 31, 1996
grew by 17% over the comparable prior year period. Sales growth increased as a
result of the introduction of new products, improvement in the HPLC market and
the effect of the TAI acquisition. While some product prices have increased and
others have decreased over the past three years, overall pricing has remained
generally stable.
Waters has improved operating income levels in 1995 and 1996 on the strength
of sales growth, significant cost reductions and operating leverage. In
particular, as a result of measures taken in conjunction with the Acquisition
and restructuring actions completed in late 1994, the Company reduced annual
operating spending by over $20 million in 1995. These savings reduced cost of
sales; selling, general and administrative expenses; and, to a lesser extent,
research and development spending. The Company has continued to benefit from
these cost reduction measures and has augmented them with new initiatives in
1996.
Excluding 1996 nonrecurring charges related to the purchase of TAI and 1995
nonrecurring charges related to the Company's IPO and purchase of Phase
Separations Limited; operating income for the year ended December 31, 1996 was
$71.2 million, a 26% increase over the $56.3 million generated in 1995.
Excluding 1995 nonrecurring charges and 1994 nonrecurring charges related to the
Acquisition of the Predecessor in August 1994; 1995 operating income represented
a 72% increase over 1994 primarily as a result of the $20 million of spending
reductions. Excluded 1996 nonrecurring charges were as follows: $6.1 million of
revaluation of acquired inventory and $19.3 million of expensed in-process
research and development. Excluded 1995 nonrecurring charges were as follows:
$0.9 million of revaluation of acquired inventory, $5.4 million of management
fees under a management services agreement terminated in conjunction with the
Company's IPO and $3.6 million of expense included in selling, general and
administrative expenses for the one-time acceleration of vesting of certain
compensatory stock options in the fourth quarter. Excluded 1994 nonrecurring
charges were as follows: $38.4 million of revaluation of inventory, $53.9
million of expensed in-process research and development, $0.6 million of
management fees and $3.5 million of restructuring charges associated with the
Acquisition of the Predecessor.
Based upon the re-engineering of its operations, the Company believes it can
continue to leverage its infrastructure to support additional sales without a
corresponding increase in costs.
During 1996, approximately 63% of the Company's combined net sales were
derived from operations outside the United States. The Company believes that the
geographic diversity of its sales reduces its dependence on any particular
region. The U.S. dollar value of these revenues varies with currency exchange
fluctuations, and such fluctuations can affect the Company's results from period
to period. In 1996, each 1% average strengthening of the U.S. dollar would have
decreased reported net sales by approximately $2.4 million while each 1%
weakening of the dollar would have increased reported net sales by $2.4 million.
The impact on net income and cash flow would have been significantly less as a
result of local currency expenditures. Prior to the fourth quarter of 1995, the
Company periodically entered into forward exchange contracts (which had initial
maturities of 24 months or less) to economically hedge a significant portion of
the U.S. dollar value of its anticipated future international cash flows.
Generally accepted accounting principles required that those contracts
outstanding at period end be valued at current market value with the resulting
unrealized gain or loss reflected in the statements of operations for the period
even though they economically hedged anticipated future cash flows. In the
fourth quarter of 1995, the Company ceased to economically hedge anticipated
future international cash flows and therefore liquidated those particular
forward currency contracts. As of December 31, 1996, the Company's outstanding
forward currency contracts amounted to $3.3 million and hedged the dollar value
equivalent of specified customer commitments. The Company does not speculate in
foreign currencies.
EFFECT OF ACQUISITION ON RESULTS OF OPERATIONS
The consummation of the Acquisition of the Predecessor affected the Company's
results of operations following the Acquisition in certain significant respects.
The Acquisition was structured as an asset purchase which created certain tax
benefits from the revaluation of inventory, property, plant and equipment and
intangible assets. The Company adjusted upward the historical book value of
certain assets in accordance with generally accepted accounting principles.
Consequently, depreciation and amortization expense related to goodwill and
other intangibles increased subsequent to the Acquisition as did interest
expense related to debt used to finance the Acquisition.
29
<PAGE>
Waters Corporation and Subsidiaries
OPERATING INCOME DATA
Because of the revaluation of the assets and liabilities of the Predecessor and
the related impact on cost of sales and expenses, the financial statements of
the Predecessor for periods prior to August 19, 1994 are not strictly comparable
to those of subsequent periods. However, the following table combines 1994 data
for the Predecessor and Company in order to facilitate management's discussion
of financial results.
<TABLE>
<CAPTION>
Company Year Ended Company Year Ended Combined Year Ended
December 31, 1996 December 31, 1995 December 31, 1994
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 391,113 $ 332,972 $307,154
Cost of sales 145,254 126,216 123,186
Revaluation of acquired inventory(A) 6,100 925 38,424
-----------------------------------------------------
Gross profit 239,759 205,831 145,544
SG&A expenses(B) 148,513 132,746 129,738
R&D expenses 20,898 17,681 20,189
Expensed in-process R&D(A) 19,300 -- 53,918
Goodwill and purchased technology amortization(C) 5,219 3,629 1,227
Management fee(A) - 5,393 552
Restructuring charge(A) - - 3,500
-----------------------------------------------------
Operating income (loss) $ 45,829 $ 46,382 $(63,580)
=====================================================
</TABLE>
(A) Non-recurring charges.
(B) The year ended December 31, 1995 includes a $3,567 non-recurring charge for
one-time acceleration of vesting of compensatory stock options.
(C) For the 1994 period, amount reflects amortization only for the period
August 19, 1994 to December 31, 1994.
RECENT EVENTS
On May 1, 1996, the Company acquired all of the common stock of TAI for $84
million in cash, subject to certain adjustments, financed by drawings on the
revolving credit facility under the New Bank Credit Agreement. As a result, the
Company recorded nonrecurring charges for the revaluation of acquired inventory
of $6.1 million and expensed in-process research and development of $19.3
million during the second and third quarters of 1996. TAI develops,
manufactures, sells and services thermal analysis and rheology instrumentation
which is used for the physical characterization of polymers and related
materials. Thermal analysis and rheology are among the most prevalent techniques
employed in the analysis of polymers and other organic/inorganic materials. TAI
is the global market leader in the field of thermal analysis. Net sales for TAI
were approximately $14 million through April 30, 1996 and $47 million in 1995.
On March 6, 1996, the Company increased the maximum availability under the
New Bank Credit Agreement to $300 million in order to
simplify its capital structure and provide additional financial flexibility. On
March 7, 1996, the Company commenced a tender offer pursuant to which the $75
million in aggregate principal amount of Senior Subordinated Notes, which were
not previously redeemed, were purchased on
April 4, 1996. The Company recorded a $22.3 million extraordinary loss in the
second quarter of 1996 due to the early extinguishment of its Senior
Subordinated Notes.
COMPANY YEAR ENDED DECEMBER 31, 1996 COMPARED TO COMPANY YEAR ENDED DECEMBER
31, 1995
Net Sales
Net sales for 1996 were $391.1 million, compared with $333.0 million for the
year ended December 31, 1995, an increase of 17%. Excluding the adverse effects
of a stronger U.S. dollar, net sales increased by 20% in 1996. TAI accounted for
10% points of growth while the Company's core HPLC business grew by 10% points,
excluding currency effects. HPLC growth was generally broad-based across
geographies and end-user markets. The Company's international HPLC business
sales increased by 11% and the U.S. HPLC business, which had been flat for the
past several years, grew by 9% primarily from strong demand for its products in
general and the impact of new product introductions. In particular, in March
1996, Waters successfully introduced its new family of AllianceTM HPLC systems
which provide customers more accurate and consistent results and increased
sample handling capacity, and are more compact and easier to maintain than
conventional component systems.
Gross Profit
Gross profit for 1996 was $239.8 million compared to $205.8 million for 1995, an
increase of $34.0 million or 17% over the comparable period of the prior year.
Excluding nonrecurring charges for revaluation of acquired inventory related to
purchase accounting for acquisitions ($6.1 million related to TAI in 1996 and
$0.9 million related to Phase Separations Limited in 1995), gross profit
increased by 19% in 1996. Gross profit as a percentage of sales excluding
revaluation charges increased to 62.9% in 1996 from 62.1% in 1995 reflecting
increased sales volume and improved manufacturing productivity.
30
<PAGE>
Waters Corporation and Subsidiaries
Selling, General and Administrative Expenses
Selling, general and administrative expenses for 1996 were $148.5 million,
compared to $132.7 million for 1995. As a percentage of net sales, selling,
general and administrative expenses decreased to 38% for 1996 from 39.9% for
1995, reflecting continued emphasis on expense controls. The $15.8 million or
12% increase in total expenditures primarily reflected the addition of TAI to
the Company's operations.
Research and Development Expenses
Research and development expenses were $20.9 million for 1996 and $17.7 million
for 1995, a $3.2 million or 18% increase from prior year levels. Current year
spending increased with new HPLC product development programs and the addition
of TAI's research and development expenses in the current year. In 1996, Waters
introduced its new AllianceTM systems and a variety of other new products. The
Company continues to invest significantly in the development of new and
improved HPLC detection, consumable and data products, as well as newly
acquired thermal analysis and rheology products.
Goodwill and Purchased Technology Amortization
Goodwill and purchased technology amortization for 1996 was $5.2 million, an
increase of $1.6 million from the prior year. This increase was
primarily related to the acquisition of TAI.
Expensed In-Process Research and Development
In 1996, the Company expensed $19.3 million of the purchase price for TAI
related to acquired in-process research and development. Generally accepted
accounting principles prohibit capitalization of research and development
expenditures.
Management Fee
There were no management fees incurred during 1996. Until November 1995, the
Company paid AEA Investors, Inc. ("AEA") and Bain Capital, Inc. ("Bain") an
annual fee of $1.5 million plus out of pocket expenses for general management,
financial and other corporate advisory services. The agreement was terminated
for a one-time fee of $4.0 million in conjunction with the Company's IPO.
Operating Income
Operating income for 1996 was $45.8 million, a decrease of $0.6 million from the
prior year. This decrease reflects $25.4 million of nonrecurring charges related
to the TAI acquisition ($6.1 million of revaluation of acquired inventory and
$19.3 million of expensed in-process research and development). Excluding
revaluation of acquired inventory charges in 1996 and 1995, the 1996 expensed
in-process research and development, the 1995 accelerated compensatory stock
option vesting charge and the 1995 management fees under the terminated
Management Services Agreement; operating income was $71.2 million for the year
ended December 31, 1996 and represented a $14.9 million or 26% increase over
1995. Waters has improved operating income levels in 1996 on the strength of
sales growth and continued focus on cost reduction in all operating areas.
Interest Expense, Net
Net interest expense decreased $15.6 million or 51%, from $30.3 million in 1995
to $14.7 million in 1996. Contemporaneously with the IPO, the Company retired
$25 million of Senior Subordinated Notes, and retired all outstanding
indebtedness under its senior credit facility dated August 18, 1994 ("Prior Bank
Credit Agreement") with proceeds from the IPO and the New Bank Credit Agreement.
In April 1996, the Company completed the successful tender for its then
remaining $75 million of Senior Subordinated Notes, financing the repurchase
with borrowings under the New Bank Credit Agreement. The current year interest
expense decrease reflects the reduced debt levels and more favorable interest
rates under the New Bank Credit Agreement.
Unrealized Losses (Gains) on Future Cash Flow Hedges
During 1995, the Company periodically entered into forward exchange contracts
to economically hedge a significant portion of the U.S. dollar value of its
anticipated future international cash flows. Generally accepted accounting
principles required that those contracts outstanding at period end be valued at
current market value with the resulting unrealized gain or loss reflected in
the statement of operations for the period even though they economically hedged
anticipated future international cash flows. For the year ended December 31,
1995, the Company reported unrealized losses of $1.1 million.
Realized (Gains) on Cash Flow Hedges
In the fourth quarter of 1995, the Company ceased to hedge anticipated future
international cash flows and therefore liquidated those particular forward
currency contracts. During 1995, the Company realized a $2.3 million gain on
cash flow hedges.
31
<PAGE>
Waters Corporation and Subsidiaries
Provision for Income Taxes
The Company's effective income tax rate for 1996, excluding nonrecurring,
nondeductible charges, was 19.9% compared to 18.1% in 1995. Including these
nonrecurring, nondeductible charges related to the purchase of TAI, the 1996
effective income tax rate was 36.1% in 1996. The Company continued to benefit
from net operating loss carryforwards which substantially offset U.S. taxable
income in 1996 and 1995.
Income from Continuing Operations
Income from continuing operations for 1996 was $19.9 million, compared to $14.1
million for 1995. Excluding nonrecurring charges in both years related to the
revaluation of acquired inventory, 1996 expensed in-process research and
development, 1995 management fees and the 1995 accelerated compensatory stock
option vesting charge, the Company generated $45.3 million of income in 1996
compared to $24.0 million in 1995. The improvement over the prior year was a
result of sales growth, continued focus on cost reductions in all operating
areas, and interest expense reduction.
Early Extinguishment of Debt
In the second quarter of 1996, the Company recorded an extraordinary loss of
$22.3 million related to the early extinguishment of debt in connection with the
tender for its remaining $75 million of Senior Subordinated Notes. In the fourth
quarter of 1995, the Company recorded an extraordinary loss of $12.1 million
related to the early extinguishment of debt in connection with the IPO. The
Company utilized the net proceeds from its IPO, its New Bank Credit Agreement
and operating cash flow to retire $25 million of Senior Subordinated Notes and
$81.4 million of principal outstanding under the Prior Bank Credit Agreement.
Company Year Ended December 31, 1995 Compared to Combined Predecessor
and Company Year Ended December 31, 1994
COMPANY YEAR ENDED DECEMBER 31, 1995 COMPARED TO COMBINED PREDECESSOR AND
COMPANY YEAR ENDED DECEMBER 31, 1994
Net Sales
Net sales for 1995 were $333.0 million, compared with $307.2 million for the
year ended December 31, 1994, an increase of 8%. Excluding the benefits of a
weaker U.S. dollar, consolidated net sales for 1995 increased by 5% compared to
the prior year period. The Company's international business benefited from
improved market conditions and weakening of the U.S. dollar. International
sales increased by 14% and growth was geographically broad-based. The U.S.
business was flat with the prior year. On a worldwide basis, pharmaceutical
customer demand, which accounted for over 40% of the Company's business, grew
strongly in 1995. Company revenues reflected increased demand for new products
introduced in 1994. In particular, the Company experienced strong demand for its
consumable Symmetry(R) column products, which provide more accurate and
reproducible chromatography results. Sales growth was also generated by the
Company's new IntegrityTM product, which combines the separation, quantification
and detection capabilities of HPLC with the identification and characterization
capabilities of benchtop MS detection.
Gross Profit
Gross profit for 1995 was $205.8 million, versus $145.5 million for 1994, an
increase of $60.3 million or 41% over the comparable period of the prior year,
due to significantly lower charges for revaluation of acquired inventory, higher
sales volumes and productivity improvements. In the year ended December 31,
1994, the Company charged $38.4 million to cost of sales related to the
revaluation of inventory acquired as part of the Acquisition. In the year ended
December 31, 1995, the Company charged $0.9 million to cost of sales related to
the revaluation of inventory acquired in conjunction with the July 1995 purchase
of Phase Separations Limited. Moreover, the Company took various measures to
reduce costs in conjunction with the Acquisition and as part of a restructuring
in late 1994, including consolidating manufacturing plants and reducing the
number of employees. Excluding revaluation of acquired inventory charges, gross
profit for 1995 was $206.8 million, versus $184.0 million for 1994, an increase
of 12% over the comparable period of the prior year and gross profit margins of
62.1% for 1995 exceeded 59.9% margins for 1994.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for 1995 were $132.7 million,
compared to $129.7 million for 1994. As a percentage of net sales, selling,
general and administrative expenses decreased to 39.9% for 1995 from 42.2% for
1994. This decrease was primarily the result of re-engineering measures adopted
in connection with the Acquisition and fourth quarter restructuring in 1994.
The Company eliminated excess facilities, consolidated administrative
operations, reduced staffing and replaced corporate overhead with a less costly
stand-alone infrastructure. Cost reduction impacts were partly offset by the
increased translated dollar value of international expenses due to the weak
U.S. dollar and a $4.6 million charge for compensatory stock option expense,
including a one-time charge of $3.6 million for the accelerated vesting of
certain of these options.
Research and Development Expenses
Research and development expenses for 1995 were $17.7 million, $2.5 million
below prior year levels due to three factors. First, 1994 results included
particularly high spending levels related to the Company's IntegrityTM HPLC-MS
system. Research and development spending levels for 1994 were 9% higher than
those of 1993. HPLC-MS spending has been reduced to levels typical after the
completion of initial development. Second, the Company eliminated certain
administrative and supervisory redundancies within its research and development
organization by consolidating two research and development organizations into
one after the Acquisition. Third, the Company modified its product development
approach in 1995 and funded slightly fewer programs with more spending per
program in order to shorten time to market and improve productivity.
32
<PAGE>
Waters Corporation and Subsidiaries
The Company continued to invest in those programs important to its future,
including benchtop mass spectrometry detection capabilities, a new
solvent delivery module, network data products and new column chemistries.
Expensed In-Process Research and Development
In 1994, the Company wrote off $53.9 million of the Acquisition purchase price
related to in-process research and development acquired from the Predecessor.
Generally accepted accounting principles prohibit capitalization of research
and development expenditures.
Goodwill and Purchased Technology Amortization
Goodwill and purchased technology amortization for 1995 was $3.6 million, an
increase of $2.4 million from the prior period and primarily relates to the
Acquisition on August 18, 1994.
Management Fee
For the year ended December 31, 1995, the Company incurred $5.4 million of
expense for financial advice and consulting and other services from AEA and
Bain, an increase of $4.8 million from the prior period under the professional
services agreement dated August 18, 1994 among AEA, Bain, and the Company
("Management Services Agreement"). The increase was due primarily to a $4.0
million charge to terminate this agreement in connection with the Company's IPO
in November 1995.
Operating Income
Operating income for 1995 was $46.4 million, an increase of $110.0 million from
the prior year loss. $92.3 million of this operating income increase resulted
from nonrecurring Acquisition related charges. Excluding revaluation of
acquired inventory charges in 1994 and 1995, the 1995 accelerated compensatory
stock option vesting charge, 1994 and 1995 management fees under the terminated
Management Services Agreement and the 1994 expensed in-process research and
development and restructuring charges; operating income of $56.3 million for
the year ended December 31, 1995 was $23.5 million greater than that of the
comparable period in 1994, a 72% increase.
Interest Expense, Net
Interest expense for 1995 was $30.3 million, an increase of $17.5 million as
compared with $12.8 million for 1994. This increase was due to
borrowings which financed the Acquisition on August 18, 1994.
Unrealized Losses (Gains) on Future Cash Flow Hedges
As discussed in the Overview above, until the fourth quarter of 1995, the
Company periodically entered into forward exchange contracts to economically
hedge the U.S. dollar value of a portion of its anticipated future
international cash flows. The Company reported unrealized losses of $1.1
million in 1995 and unrealized gains of $0.9 million in 1994.
Realized (Gains) Losses on Cash Flow Hedges
In the fourth quarter of 1995, the Company liquidated all outstanding forward
exchange contracts which hedged future cash flows. For the year ended December
31, 1995, the Company realized a $2.3 million gain on cash flow hedges
contracted in prior periods to hedge its currency exposure.
Provision for Income Taxes
The Company's effective income tax rate for 1995 was 18.1%. The Predecessor's
effective income tax rate for the period from January 1, 1994 to August 18, 1994
was 28.6%. The Company's 1995 tax rate was lower than the Predecessor's 1994
rate due to the benefit of net operating loss carryforwards from 1994 which
substantially offset U.S. taxable income. The Company recorded a tax provision
for the period from August 19 to December 31, 1994 while it reported operating
losses as certain foreign subsidiaries generated taxable income.
Income from Continuing Operations
Income from continuing operations for 1995 was $14.1 million, compared to a loss
of $77.9 million in the prior year comparable period. Non-recurring charges
related to the Acquisition depressed 1994 profit levels. In addition, 1995
improvements in operating profitability were offset by higher interest expense
related to the Acquisition and nonrecurring charges primarily related to the
Company's IPO.
Early Extinguishment of Debt
In the fourth quarter of 1995, the Company recorded an extraordinary loss of
$12.1 million related to the early extinguishment of debt. The Company utilized
the net proceeds from its IPO, its New Bank Credit Agreement and operating cash
flow to retire $25.0 million of Senior Subordinated Notes and $81.4 million of
principal outstanding under the Prior Bank Credit Agreement.
33
<PAGE>
Waters Corporation and Subsidiaries
LIQUIDITY AND CAPITAL RESOURCES
Upon consummation of the Acquisition, liquidity requirements increased
significantly due to debt service costs associated with borrowings.
On April 4, 1996, the Company consummated a tender offer ("Tender Offer")
pursuant to which the remaining $75 million in aggregate principal amount of its
12.75% Senior Subordinated Notes ("Senior Subordinated Notes") were purchased.
The aggregate purchase price paid by the Company in connection with the Tender
Offer was $90.6 million. In the second quarter of 1996, the Company recorded an
extraordinary loss of $22.3 million related to the early extinguishment of the
Senior Subordinated Notes.
The Company's new bank credit agreement ("New Bank Credit Agreement") is a
revolving credit facility with maximum availability of $300 million with the
following principal terms. The loans under the New Bank Credit Agreement bear
interest for each quarter at a per annum rate equal to, at the Company's option,
(i) the Base Rate plus an amount which will vary between zero and 0.50% or (ii)
Eurodollar Rate (as defined) plus an amount which will vary between 0.50% and
1.50%, based upon certain Company performance criteria for the previous four
quarters. The availability under the New Bank Credit Agreement will decrease
under certain circumstances such as in the event of asset sales and issuance of
equity, will decrease by $45 million in each of the years 1998 and 1999, and
will terminate in 2000. At December 31, 1996, the interest rate on the Company's
New Bank Credit Agreement was approximately 6.6%. The New Bank Credit Agreement
imposes certain restrictions on the Company and certain of its subsidiaries,
including restrictions on its ability to incur indebtedness, pay dividends, make
acquisitions, make investments, grant liens, sell its assets and engage in
certain other activities. Indebtedness under the New Bank Credit Agreement is
secured by substantially all of the assets of the Company. The Company's
existing availability under the New Bank Credit Agreement was $87.5 million as
of December 31, 1996. The Company was in compliance with all of its debt
covenants under the New Bank Credit Agreement as of December 31, 1996.
The Company generated $53.2 million in cash from operating activities during
1996 primarily as a result of (i) $45.3 million in operating income before
extraordinary items and non-cash charges for the revaluation of acquired
inventory and expensed in-process research and development and (ii) $16.7
million of depreciation and amortization of intangible assets, offset by (iii)
a $9.0 million increase in accounts receivable and changes in other net assets
and liabilities.
Net cash of $93.1 million used in investing activities for 1996 primarily
reflected (i) the $83.3 million used to acquire TAI and (ii) $10.1 million used
for additions to property, plant and equipment.
Net cash of $34.7 million provided by financing activities reflected
borrowings to finance the acquisition of TAI and the premium paid to
tender for the Senior Subordinated Notes, offset by repayments made from the
Company's operating cash flows.
In October 1996, the Company entered into a fifteen (15) month debt swap
agreement with Credit Lyonnais - New York to hedge the U.S. dollar value of its
investments in the net assets of certain European subsidiaries. The Company
swapped $35.4 million in notional amount of floating rate LIBOR borrowings for
equivalent notional amounts in six European currencies of borrowings at fixed
interest rates averaging approximately 3.2% per annum. At representative
interest rates and currency exchange rates in effect at October 29, 1996, the
date of the transaction, 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 depending on future related foreign currency rates. At currency
exchange rates in effect on December 31, 1996, the principal repayment amount
would have been $35.2 million.
In June 1996, the Company entered into a three-year debt swap agreement with
Bankers Trust Company to hedge the U.S. dollar value of its investment in the
net assets of TAI's Japanese subsidiary. The Company swapped $7.5 million in
notional amount of floating rate LIBOR borrowings for 818 million Yen notional
amount of borrowings at a fixed rate of 2.02%. At representative interest rates
and currency exchange rates in effect at June 26, 1996, the effective date of
the agreement, the Company lowered its annual interest costs by approximately
$0.3 million over the term of the swap agreement. The Company could also incur
higher or lower principal repayments over the term of the swap agreement
depending on future currency rates for the Yen. At currency exchange rates in
effect on December 31, 1996, the principal repayment amount would have been
$7.1 million.
In March and April of 1996, the Company entered into several interest rate
protection agreements. These agreements provide payments to the Company if the
three month LIBOR rate, as defined, exceeds 6% in 1997 and 6.5% in 1998 and
1999 on aggregate borrowings of $183 million in 1997 and $70 million and $30
million in 1998 and 1999, respectively. At December 31, 1996, the fair value of
these agreements was $0.7 million.
In January 1996, the Company entered into a three-year debt swap agreement
with the Bank of Boston to hedge the U.S. dollar value of its investment in the
net assets of its Japanese subsidiary. The Company swapped $22 million in
notional amount of floating rate LIBOR borrowings for 2.3 billion Yen notional
amount of borrowings at a fixed interest rate of 1.525% per annum. At
representative interest rates and currency exchange rates in effect at January
23, 1996, the effective date of the agreement, the Company lowered its annual
interest costs by approximately $0.9 million over the term of the swap. The
Company could also incur higher or lower principal repayments over the term of
the swap agreement depending on future currency rates for the Yen. At currency
exchange rates in effect on December 31, 1996, the principal repayment amount
would have been $20.1 million.
The Company believes that existing cash balances and cash flow from
operating activities together with borrowings available under the New 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.
34
<PAGE>
Waters Corporation and Subsidiaries
ENVIRONMENTAL MATTERS
The Company's facilities are subject to federal, state and local environmental
requirements, including those relating to discharges to air, water and land,
the handling and disposal of solid and hazardous waste and the cleanup of
properties affected by hazardous substances. The Company does not currently
anticipate any material adverse effect on its operations or financial condition
as a result of its efforts to comply with, or its liabilities under, such
requirements. The Company does not currently anticipate any material capital
expenditures for environmental control facilities. Some risk of environmental
liability is inherent in the Company's business, however, and there can be no
assurance that material environmental costs will not arise in the future. In
particular, the Company might incur capital and other costs to comply with
increasingly stringent environmental laws and enforcement policies. Although it
is difficult to predict future environmental costs, the Company does not
anticipate any material adverse effect on its operations, financial condition or
competitive position as a result of future costs of environmental compliance. In
connection with the Acquisition, Millipore Corporation agreed to retain
environmental liabilities resulting from pre-Acquisition operations of the
Company's facilities.
RECENTLY ADOPTED ACCOUNTING STANDARDS
Accounting for Stock-Based Compensation
In 1996, the Company adopted the disclosure provisions of SFAS No. 123 which
specifies a fair value based method of accounting for stock based compensation
plans.
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.
35
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Waters Corporation:
We have audited the accompanying consolidated balance sheets of Waters
Corporation and Subsidiaries as of December 31, 1996 and 1995
and the related consolidated statements of operations, stockholders' equity and
cash flows for the years ended December 31, 1996 and December 31, 1995 and the
period from August 19, 1994 to December 31, 1994. These financial statements
are the responsibility of Waters Corporation management. Our responsibility is
to express an opinion on these financial statements based on our audits. We
have also audited the financial statements of the Waters Chromatography
Division of Millipore Corporation ("Predecessor") for the period January 1,
1994 to August 18, 1994. Our report, dated February 10, 1995 includes an
explanatory paragraph which describes certain costs and expenses presented in
the financial statements which represent allocations and management's estimates
of the cost of services provided to the Predecessor by Millipore Corporation.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of
Waters Corporation and Subsidiaries as of December 31, 1996 and 1995, and the
results of its operations and its cash flows for the years
ended December 31, 1996 and 1995 and the period from August 19, 1994 to
December 31, 1994 in conformity with generally accepted
accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
January 22, 1997
36
<PAGE>
Waters Corporation and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(In thousands, except per share data) December 31, 1996 December 31, 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 639 $ 3,233
Accounts receivable, less allowances for doubtful accounts of $1,712
and $1,513 at December 31, 1996 and 1995, respectively 88,112 76,087
Inventories 47,351 41,459
Other current assets 7,930 2,847
Net current assets of discontinued operations held for sale - 3,694
-------------------------------
Total current assets 144,032 127,320
Property, plant and equipment, net 74,777 70,261
Other assets 36,058 29,024
Goodwill, less accumulated amortization of $4,818 and $2,364 at December 31,
1996 and 1995, respectively 110,635 72,491
Net long term assets of discontinued operations held for sale - 720
-------------------------------
Total assets $ 365,502 $ 299,816
===============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of long term debt $ 1,736 $ 1,933
Accounts payable 17,509 16,757
Deferred revenue 10,491 6,945
Accrued retirement plan contributions 2,787 6,010
Accrued income taxes 1,700 2,494
Accrued other taxes 4,951 3,900
Other current liabilities 43,631 32,896
-------------------------------
Total current liabilities 82,805 70,935
Long term debt 210,470 158,500
Redeemable preferred stock 7,153 6,232
Other liabilities 7,294 6,031
-------------------------------
Total liabilities 307,722 241,698
Stockholders' Equity:
Common stock, par value $0.01 per share 50,000 shares authorized,
28,923 and 28,796 shares issued and outstanding at December 31,
1996 and 1995, respectively 289 288
Additional paid-in capital 145,717 145,318
Deferred stock option compensation (826) (1,076)
Accumulated deficit (87,808) (85,403)
Translation adjustments 408 (605)
Minimum pension liability adjustment - (404)
-------------------------------
Total stockholders' equity 57,780 58,118
-------------------------------
Total liabilities and stockholders' equity $ 365,502 $ 299,816
===============================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
37
<PAGE>
Consolidated Statements of Operations
Waters Corporation and Subsidiaries
<TABLE>
<CAPTION>
Company Predecessor
----------------------------------------------- --------------------
Year Ended Year Ended
December December August 19, 1994 to January 1, 1994 to
(In thousands, except per share data) 31, 1996 31, 1995 December 31, 1994 August 18, 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 391,113 $ 332,972 $ 131,057 $ $176,097
Cost of sales 145,254 126,216 49,740 73,446
Revaluation of acquired inventory 6,100 925 38,424 -
-------------------------------------------------------------
Gross profit 239,759 205,831 42,893 102,651
Selling, general and administrative
expenses 148,513 132,746 44,522 85,216
Research and development expenses 20,898 17,681 6,790 13,399
Goodwill and purchased technology
amortization 5,219 3,629 1,227 -
Expensed in-process research and
development 19,300 - 53,918 -
Management fee - 5,393 552 -
Restructuring charge - - 3,500 -
-------------------------------------------------------------
Operating income (loss) 45,829 46,382 (67,616) 4,036
Interest expense, net 14,740 30,315 12,011 828
Unrealized losses (gains) on future
cash flow hedges - 1,142 (923) -
Realized (gains) on cash flow hedges - (2,317) - -
-------------------------------------------------------------
Income (loss) from continuing
operations before income taxes 31,089 17,242 (78,704) 3,208
Provision for income taxes 11,230 3,129 1,487 916
-------------------------------------------------------------
Income (loss) from continuing
operations 19,859 14,113 (80,191) 2,292
Income (loss) from discontinued
operations, net of tax effect - - 787 (448)
Estimated (loss) on disposal of
discontinued operations - - (8,000) -
-------------------------------------------------------------
Income (loss) before extraordinary
item 19,859 14,113 (87,404) 1,844
Extraordinary (loss) on early
retirement of debt (22,264) (12,112) - -
-------------------------------------------------------------
Net (loss) income (2,405) 2,001 (87,404) $1,844
Less: accretion of and 6% dividend on ======
Preferred stock 921 902 330
---------------------------------------
Net (loss) income available to
common stockholders $ (3,326) $ 1,099 $ (87,734)
=======================================
(Loss) income per common share:
Income (loss) per common share
from continuing operations $ .60 $ .54 $ (3.38)
(Loss) per common share from
discontinued operations - - (.30)
Extraordinary (loss) per common
share (.71) (.49) -
---------------------------------------
Net (loss) income per common share $ (.11) $ .05 $ (3.68)
---------------------------------------
Weighted average number of common
shares 31,628 24,582 23,852
=======================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
38
<PAGE>
Consolidated Statements of Cash Flows
Waters Corporation and Subsidiaries
<TABLE>
<CAPTION>
Company Predecessor
----------------------------------------------- --------------------
Year Ended Year Ended
December December August 19, 1994 to January 1, 1994 to
(In thousands, except per share data) 31, 1996 31, 1995 December 31, 1994 August 18, 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (2,405) $ 2,001 $ (87,404) $ 1,844
Adjustments to reconcile net (loss)
income to net cash provided by
operating activities:
Net (income) loss from
discontinued operations - - (787) 448
Unrealized losses (gains) on
future cash flow hedges - 1,142 (923) -
Estimated loss on disposal of
discontinued operations - - 8,000 -
Deferred income taxes (4,200) - - -
Depreciation and amortization 9,334 7,709 2,501 5,197
Amortization of capitalized
software and intangible
assets 7,375 6,065 1,893 1,126
Amortization of debt issuance
costs 1,055 2,731 993 -
Compensatory stock option expense 250 4,565 - -
Expensed in-process research and
development 19,300 - 53,918 -
Extraordinary loss on early
retirement of debt 22,264 12,112 - -
Change in operating assets and
liabilities:
(Increase) decrease in accounts
receivable (8,981) 10,212 (38,127) 18,186
Decrease (increase) in
inventories 5,430 5,583 44,324 (2,492)
(Increase) decrease in other
current assets (410) (1,073) 970 (2,248)
Decrease (increase) in other
assets 1,218 (1,277) (568) 453
Increase (decrease) in accounts
payable and other current
liabilities 4,992 (1,661) 16,397 1,583
Increase (decrease) in deferred
revenue 2,541 (32) (317) 1,380
(Decrease) increase in accrued
retirement plan contributions (5,329) 1,637 109 (809)
Increase (decrease) in other
liabilities 3,283 (4,511) 5,012 503
-------------------------------------------------------------------------
Net cash provided by continuing
operations 55,717 45,203 5,991 25,171
Net cash provided by discontinued
operations - 1,039 1,418 478
-------------------------------------------------------------------------
Net cash provided by operating
activities 55,717 46,242 7,409 25,649
Cash flows from investing activities:
Additions to property, plant and
equipment (10,064) (6,260) (1,524) (3,901)
Software capitalization and other
intangibles (3,758) (3,618) (667) (2,034)
Payment to acquire predecessor
net assets - - (310,456) -
Business acquisitions, net of cash
acquired (83,349) (7,469) - -
Loans to officers (425) (2,062) - -
Realized loss on contracts hedging
net asset value - (1,457) - -
Proceeds from sale of discontinued
operations 4,497 6,477 - -
-------------------------------------------------------------------------
Net cash (used in) investing
activities by continuing
operations (93,099) (14,389) (312,647) (5,935)
Net investing activities of
discontinued operations - (154) (594) (508)
-------------------------------------------------------------------------
Net cash (used in) investing
activities (93,099) (14,543) (313,241) (6,443)
Cash flows from financing activities:
Proceeds from long term borrowings - 84,286 275,813 -
Proceeds from issuance of common stock - 86,152 66,628 -
Repayment (issuance) of notes and
accrued interest - 5,309 (5,055) -
Net borrowings (repayment) of bank
debt 126,902 (175,000) - -
Retirement of Senior Subordinated
Notes (91,219) (28,188) - -
Transactions with parent company - - - (18,739)
Payments for debt issuance costs (2,282) (2,211) (15,111) -
Dividend paid - (16,195) - -
Proceeds from stock options
exercised 1,322 - - -
-------------------------------------------------------------------------
Net cash provided by (used in)
financing activities 34,723 (45,847) 322,275 (18,739)
Effect of exchange rate changes on
cash and cash equivalents 65 642 (171) -
-------------------------------------------------------------------------
(Decrease) increase in cash
and cash equivalents (2,594) (13,506) 16,272 467
Cash and cash equivalents at beginning
of period 3,233 16,739 467 -
-------------------------------------------------------------------------
Cash and cash equivalents at
end of period $ 639 $ 3,233 $ 16,739 $ 467
=========================================================================
Supplemental cash flow information:
Income taxes paid $ 3,401 $ 1,924 $ 217 $ -
Interest paid $ 15,941 $ 30,370 $ 7,247 $ -
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
39
<PAGE>
Consolidated Statements of Stockholders' Equity
Waters Corporation and Subsidiaries
<TABLE>
<CAPTION>
Additional Deferred Cumulative
Common Paid-In Stock Option Notes Accumulated Transaction
(In thousands) Stock Capital Compensation Warrants Receivable Deficit Adjustments
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Initial capital contribution
at August 19, 1994 (restated) $ 215 $ 67,824 $ - $ 3,200 $ (4,925) $ - $ -
Net loss for the period August 19, 1994 to
December 31, 1994 - - - - - (87,404) -
Translation adjustment for the period
August 19, 1994 to December 31, 1994 - - - - - - (1,120)
Accretion of preferred stock - (108) - - - - -
Interest income on notes receivable - - - - (130) - -
Dividend payable on preferred stock - (222) - - - - -
---------------------------------------------------------------------------------
Balance December 31, 1994 215 67,494 - 3,200 (5,055) (87,404) (1,120)
Net income for the year ended
December 31, 1995 - - - - - 2,001 -
Translation adjustment for the year ended
December 31, 1995 - - - - - - 515
Proceeds from stock offering 63 86,089 - - - - -
Accretion of preferred stock - (301) - - - - -
Interest income on notes receivable - - - - (254) - -
Dividend payable on preferred stock - (600) - - - - -
Repayment of notes receivable - - - - 5,309 - -
Minimum pension liability adjustment - - - - - - -
Warrants exercised 10 3,190 - (3,200) - - -
Compensatory stock options issued - 5,641 (5,641) - - - -
Compensatory stock option expense - - 4,565 - - - -
Dividend paid - (16,195) - - - - -
----------------------------------------------------------------------------------
Balance December 31, 1995 288 145,318 (1,076) - - (85,403) (605)
Net (loss) for the year ended
December 31, 1996 - - - - - (2,405) -
Translation adjustment for the year ended
December 31, 1996 - - - - - - 1,013
Accretion of preferred stock - (321) - - - - -
Dividend payable on preferred stock - (600) - - - - -
Minimum pension liability adjustment - - - - - - -
Compensatory stock option expense - - 250 - - - -
Stock options exercised 1 1,320 - - - - -
----- -------- --------- --------- -------- -------- --------
Balance December 31, 1996 $ 289 $145,717 $ (826) $ - $ - $(87,808) $ 408
===== ======== ======== ========= ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Minimum
Pension
Liability
(In thousands) Adjustment Total
- ------------------------------------------------------------------
<S> <C> <C>
Initial capital contribution
at August 19, 1994 (restated) $ - $ 66,314
Net loss for the period August 19, 1994 to
December 31, 1994 - (87,404)
Translation adjustment for the period
August 19, 1994 to December 31, 1994 - (1,120)
Accretion of preferred stock - (108)
Interest income on notes receivable - (130)
Dividend payable on preferred stock - (222)
------------------
Balance December 31, 1994 - (22,670)
Net income for the year ended
December 31, 1995 - 2,001
Translation adjustment for the year ended
December 31, 1995 - 515
Proceeds from stock offering - 86,152
Accretion of preferred stock - (301)
Interest income on notes receivable - (254)
Dividend payable on preferred stock - (600)
Repayment of notes receivable - 5,309
Minimum pension liability adjustment (404) (404)
Warrants exercised - -
Compensatory stock options issued - -
Compensatory stock option expense - 4,565
Dividend paid - (16,195)
------------------
Balance December 31, 1995 404 58,118
Net (loss) for the year ended
December 31, 1996 - (2,405)
Translation adjustment for the year ended
December 31, 1996 - 1,013
Accretion of preferred stock - (321)
Dividend payable on preferred stock - (600)
Minimum pension liability adjustment 404 404
Compensatory stock option expense - 250
Stock options exercised - 1,321
----- --------
Balance December 31, 1996 $ - $ 57,780
===== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
40
<PAGE>
Waters Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except per share data)
1. DESCRIPTION OF BUSINESS
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 service. 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 instrumentation products which are used in a
complementary fashion to analyze polymers.
In November 1995, the Company completed its initial public offering ("IPO").
Prior to this date, the Company was known as WCD Investors, Inc. and Waters
Technologies Corporation was known as Waters Corporation. Waters acquired
substantially all of the assets ("Acquisition") of the Waters Chromatography
Division ("Predecessor") of Millipore Corporation ("Millipore") on August
18, 1994. Pursuant to the purchase method of accounting, acquired assets and
liabilities were revalued to their fair market value. The excess of the
purchase price over the fair market value of the net assets acquired was
recorded as goodwill. Because of the revaluation of the assets and liabilities
and its related impact on the statement of operations, the financial statements
of the Predecessor for the periods prior to August 19, 1994 are not strictly
comparable to those of the Company subsequent to that date. Therefore,
Predecessor financial statements have been presented separately from Company
financial statements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles 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.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries, most of which are wholly owned. All material
inter-company balances and transactions have been eliminated.
Translation of Foreign Currencies
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 period. Any resulting translation gains or losses are
included in translation adjustments in the consolidated balance sheet.
Cash and Cash Equivalents
Cash equivalents primarily represent highly liquid investments, with original
maturities of 90 days or less, in repurchase agreements and money market funds
which are convertible to a known amount of cash and carry an insignificant risk
of change in value. The Company has periodically maintained balances in various
operating accounts in excess of federally insured limits.
Concentration of Credit Risk
The Company sells its products to a significant number of large and small
customers throughout the world, with over 40% of 1996 net sales to the
pharmaceutical industry. None of the Company's individual customers account for
more than two percent of annual Company sales. The Company performs continuing
credit evaluation of its customers and generally does not require collateral,
but, in certain circumstances may require letters of credit. Historically, the
Company has not experienced significant bad debt losses.
Inventory
The Company values all of its inventories at the lower of cost or market on a
first-in, first-out basis (FIFO).
Income Taxes
Deferred income taxes are recognized for temporary differences between
financial statement and income tax bases of assets and liabilities. Prior
to the Acquisition, the Predecessor's operations were included in the
consolidated tax returns of Millipore and all related income tax payments
were made by Millipore.
41
<PAGE>
Waters Corporation and Subsidiaries
Property, Plant and Equipment
Property, plant and equipment is recorded at cost. Expenditures for maintenance
and repairs are charged to expense while the costs of significant improvements
are capitalized. Depreciation is provided using straight line methods over the
following estimated useful lives; leasehold improvements - lives of the related
leases, buildings - 33 years, and production and other equipment - 5 to 10
years. Upon retirement or sale, the cost of assets disposed and the related
accumulated depreciation are eliminated from the balance sheet and related
gains or losses are reflected in income.
Software Development Costs
The Company capitalizes software development costs in accordance with Statement
of Financial Accounting Standard No. 86. Capitalized costs
are amortized to cost of sales on a straight-line basis over the estimated
useful lives of the related software products, generally three to five years.
Capitalized software included in other assets, net of accumulated amortization,
was $10,379 and $8,418 at December 31, 1996 and 1995, respectively.
Purchased Technology and Goodwill
Purchased technology is recorded at its fair market value as of the acquisition
date and is amortized over its estimated useful life, ranging from four to
fifteen years for current purchased technology components. Goodwill is
amortized on a straight-line basis over its useful life, 40 years for current
goodwill components. Impairment of purchased technology and goodwill is
measured on the basis of whether anticipated future undiscounted operating cash
flows expected from the acquired business will recover the recorded respective
intangible asset balances over the remaining amortization period. At December
31, 1996, no such impairment of assets was indicated. Purchased technology
included in other assets was $6,805 and $8,667, net of accumulated amortization
of $4,343 and $2,482, at December 31, 1996 and 1995, respectively.
Debt Issuance Costs
Debt issuance costs are amortized over the life of the related debt using the
effective interest method. At December 31, 1996 and 1995, debt issuance costs
included in other assets amounted to $3,551 and $7,874, net of accumulated
amortization of $935 and $912, respectively.
Revenue Recognition
Sales of products and services are recorded based on product shipment and
performance of service, respectively. Proceeds received in advance of product
shipment or performance of service are recorded as deferred revenue in the
balance sheet.
Product Warranty Costs
The Company provides for estimated warranty costs at the point of sale.
Field Service Expenses
All expenses of the Company's field service organization are included in
selling, general and administrative expenses.
Reclassification
Certain amounts in previous years' financial statements have been reclassified
to conform to current presentation.
Income (Loss) Per Share
Income (loss) per common share is based on the weighted average number of common
shares and common share equivalents outstanding during the periods presented.
Common share equivalents result from outstanding options and warrants to
purchase common stock. Pursuant to Securities and Exchange Commission Staff
Accounting Bulletin No. 83, using the treasury stock method until shares are
actually issued, all common share equivalents issued and options granted by the
Company at a price less than the IPO price during the twelve months preceding
the IPO date in November 1995 have been included in computing income (loss) per
common share for 1995 and 1994. Accretion of and cumulative dividends on
preferred stock have been included in computing income (loss) per share.
Supplemental unaudited pro forma income (loss) per common share amounts,
calculated as if the IPO had taken place at the beginning of the respective
periods, were $0.35 and $(2.75) for the year ended December 31, 1995 and for
the period August 19, 1994 to December 31, 1994,
42
<PAGE>
Waters Corporation and Subsidiaries
respectively. These calculations, required by APB Opinion No. 15 "Earnings per
Share", make supplemental pro forma adjustments to data as reported for the
repayment of debt and common stock issued due to the IPO, and not for other
nonrecurring items. The calculations are as follows:
<TABLE>
<CAPTION>
1995 1994
(Unaudited) (Unaudited)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net income (loss) available to common stockholders, as reported $ 1,099 $ (87,734)
Pro forma adjustments for interest expense, assuming that the IPO occurred at
the beginning of the period 9,407 4,820
------------------------------
Net income (loss) used for supplemental pro forma income (loss) per common
share calculation $ 10,506 $ (82,914)
------------------------------
Weighted average number of common shares outstanding, as reported 24,582 23,852
Adjustment necessary assuming shares issued in the IPO were outstanding for the
full period 5,529 6,250
------------------------------
Weighted average common shares in supplemental pro forma income (loss) per
common share calculation 30,111 30,102
------------------------------
Supplemental pro forma income (loss) per common share $ .35 $ (2.75)
==============================
</TABLE>
3. Business Combinations
In May 1996, the Company purchased TAI for $83,349 excluding transaction costs.
The acquisition was financed through borrowings under the current bank credit
agreement. TAI develops, manufactures, sells and services thermal analysis and
rheology instruments which are used for the physical characterization of
polymers and related materials. Thermal analysis and rheology are among the most
prevalent techniques employed in the analysis of polymers and other
organic/inorganic materials. TAI is the global market leader in the field of
thermal analysis. Net sales for TAI were approximately $14,000 for the period
from January 1, 1996 to April 30, 1996 and $47,000 in 1995. The acquisition was
accounted for by the purchase method and the excess purchase price was allocated
to the assets and liabilities of TAI based upon their estimated fair values.
Principle components of this excess amount included the revaluation of certain
inventories ($6,100), in-process research and development projects ($19,300) and
goodwill ($43,780). The technological feasibility of in-process research and
development projects had not yet been established at the date of acquisition and
had no alternative future use.
The following unaudited Pro Forma results of operations for the years ended
December 31, 1996 and December 31, 1995 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 exclude the 1996 charges for
the revaluation of acquired inventory and expensed in-process research and
development associated with the acquisition and do not (i) purport to represent
what the Company's results 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 Year Ended
December 31, 1996 December 31, 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 405,308 $ 379,569
Income from continuing operations 44,786 16,867
Net income 22,522 4,755
Income per common share from continuing operations $ 1.39 $ 0.65
Net income per common share $ 0.68 $ 0.16
</TABLE>
In July 1995, the Company purchased Phase Separations Limited, a United
Kingdom company, for approximately $7,500. Phase Separations Limited is a
manufacturer of chromatography consumable products. This acquisition was also
accounted for by the purchase method.
The total purchase price paid to acquire the Predecessor on August 18, 1994
was approximately $358,000, including related costs, and exceeded the historical
book value of the net assets acquired. The Acquisition was accounted for by the
purchase method and the excess purchase price was allocated to the assets and
liabilities of the Predecessor based upon their estimated fair values. Principal
components of this excess amount included the revaluation of certain inventories
($38,424), in-process research and development projects ($53,918), purchased
technology ($10,748) and goodwill ($70,022). The technological feasibility of
in-process research and development projects had not yet been established at the
date of acquisition and had no alternative future use.
43
<PAGE>
Waters Corporation and Subsidiaries
4. DISCONTINUED OPERATIONS
On December 31, 1994, the Company announced a plan to sell its process mass
spectrometry business. The largest operation was sold in July 1995 for
proceeds, net of associated costs, of approximately $6,500. Remaining
operations were sold in January 1996 for proceeds, net of associated costs, of
approximately $4,500. The results of this business prior to 1995 have been
classified as discontinued operations in the consolidated statements of
operations. A reserve of $8,000 was recorded in December 1994 for the estimated
loss on disposition of this business. This reserve was reduced by actual losses
for the year ended December 31, 1995 which aggregated $546. The net assets of
the business had been segregated in the 1995 consolidated balance sheet.
5. Property, Plant and Equipment
Property, plant and equipment consist of the following:
December 31, 1996 December 31, 1995
- -------------------------------------------------------------------------------
Land $ 3,092 $ 3,092
Leasehold improvements 1,083 1,206
Buildings and improvements 29,171 28,653
Production and other equipment 53,414 43,499
Construction in progress 7,746 3,965
-----------------------------------
94,506 80,415
Less: accumulated depreciation
and amortization (19,729) (10,154)
-----------------------------------
Property, plant and equipment, net $ 74,777 $ 70,261
===================================
6. Inventories
Inventories are classified as follows:
December 31, 1996 December 31, 1995
- --------------------------------------------------------------------------------
Raw material $ 14,860 $ 10,719
Work in progress 6,180 4,201
Finished goods 26,311 26,539
----------------------------------------
Total inventories $ 47,351 $ 41,459
========================================
7. Debt
On August 18, 1994, the Company issued $100,000 of 12.75% Senior Subordinated
Notes, series B due 2004 ("Senior Subordinated Notes") and entered into an
original bank credit agreement ("Prior Bank Credit Agreement") which provided
for term loans of up to $205,000. As required by the Prior Bank Credit
Agreement, the Company also entered into an interest rate protection
agreement on borrowing levels of $100,000 in September 1994. As explained
below, all of these arrangements were subsequently terminated and refinanced.
Contemporaneously with the IPO, the Company retired all outstanding
indebtedness under the Prior Bank Credit Agreement with net
proceeds from the IPO and bank financing under a new bank credit agreement
("New Bank Credit Agreement"). The New Bank Credit Agreement is a revolving
credit facility with maximum availability of $175,000 on the IPO date which was
subsequently increased to $300,000 in March 1996. The loans under the New Bank
Credit Agreement bear interest for each calendar quarter at a per annum rate
equal to, at the Company's option, (i) a floating rate based on the prime rate
plus an amount which will vary between zero and 0.50% or (ii) the applicable
Eurodollar rate plus an amount which will vary between 0.50% and 1.50%, based
upon certain Company performance criteria for the previous four quarters.
Amounts available under the New Bank Credit Agreement will decrease under
certain circumstances and, in any case, by $45,000 in each of 1998 and 1999.
The agreement terminates on November 22, 2000. Borrowings under the New Bank
Credit Agreement are collateralized by substantially all of the Company's
assets.
On December 29, 1995, the Company redeemed $25,000 of Senior Subordinated
Notes principal for a call premium of $3,188. In connection with the early
retirement of the Prior Bank Credit Agreement and the $25,000 of Senior
Subordinated Notes principal, the Company recorded a $12,112 extraordinary loss
in 1995 for the write-off of associated unamortized debt issuance costs, the
call premium and the associated interest rate protection premium.
On April 4, 1996, the Company consummated a tender offer ("Tender Offer") to
repurchase the remaining $75,000 in principal amount of 12.75% Senior
Subordinated Notes. The aggregate purchase price paid by the Company in
connection with the Tender Offer was $90,600. The Company funded this redemption
through additional borrowings under the New Bank Credit Agreement. In the second
quarter of 1996, the Company recorded an extraordinary loss of $ 22,264 related
to the early extinguishment of the Senior Subordinated Notes.
44
<PAGE>
Waters Corporation and Subsidiaries
Under its various loan agreements, the Company is required to meet certain
covenants, including certain restrictions on dividend payments, none of which
is considered restrictive to the operations of the Company. The Company was in
compliance with all of its debt covenants under the New Bank Credit Agreement
as of December 31, 1996.
At December 31, 1996, the Company had aggregate borrowings outstanding under
the New Bank Credit Agreement of $212,460 and approximately $87,540 in
additional borrowings available. The weighted average interest rate on the New
Bank Credit Agreement borrowings was approximately 6.6% at December 31, 1996.
At December 31, 1995, the interest rate on the $75,000 principal amount of
Senior Subordinated Notes outstanding was fixed at 12.75% and the weighted
average interest rate on the New Bank Credit Agreement borrowings was
approximately 6.7%. The Company's foreign subsidiaries had available short-term
lines of credit totaling $8,545 at December 31, 1996 and December 31, 1995. At
December 31, 1996 and December 31, 1995, borrowings amounted to $1,990 at a
weighted average interest rate of approximately 7.1% and $1,933 at a weighted
average interest rate of approximately 4.0%, respectively.
In January 1996, the Company entered into a three-year debt swap agreement
with the Bank of Boston to hedge the U.S. dollar value of its investment in the
net assets of its Japanese subsidiary. The Company swapped $22,000 in notional
amount of floating rate LIBOR borrowings for 2,300,000 Yen notional amount of
borrowings at a fixed interest rate of 1.525% per annum. At representative
interest rates and currency exchange rates in effect at January 23, 1996, the
effective date of the agreement, the Company lowered its annual interest costs
by approximately $900 over the term of the swap agreement. The Company could
also incur higher or lower principal repayments over the term of the swap
agreement. At currency exchange rates in effect on December 31, 1996, the
principal repayment amount would have been $20,114.
In March and April 1996, the Company entered into several interest rate
protection agreements. These agreements provide payments to the Company if the
three month LIBOR rate, as defined, exceeds 6% in 1997 and 6.5% in 1998 and
1999 on aggregate borrowings of $183,000 in 1997 and $70,000 and $30,000 in
1998 and 1999, respectively. At December 31, 1996, the fair value of these
agreements was $741.
In June 1996, the Company entered into a three-year debt swap agreement with
Bankers Trust Company to hedge the U.S. dollar value of its investment in the
net assets of TAI's Japanese subsidiary. The Company swapped $7,500 in notional
amount of floating rate LIBOR borrowings for 817,500 Yen notional amount of
borrowings at a fixed interest rate of 2.02% per annum. At representative
interest rates and currency exchange rates in effect at June 26, 1996, the
effective date of the agreement, the Company lowered its annual interest costs
by approximately $266 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 December 31, 1996, the
principal repayment amount would have been $7,057.
In October 1996 the Company entered into a fifteen (15) month debt swap
agreement with Credit Lyonnais - New York to hedge the U.S.
dollar value of its investments in the net assets of certain European
subsidiaries. The Company swapped $35,400 in notional amount of floating rate
LIBOR borrowings for equivalent notional amounts in six European currencies of
borrowings at fixed interest rates averaging approximately 3.2% per annum. At
representative interest rates and currency exchange rates in effect at October
29, 1996, the date of the transaction, the Company lowered its annual interest
costs by approximately $1,100 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 December 31, 1996, the
principal repayment amount would have been $35,229.
45
<PAGE>
Waters Corporation and Subsidiaries
8. Income Taxes
Income tax data for 1996, 1995, and 1994 follow in the tables below:
<TABLE>
<CAPTION>
Company Predecessor
------------------------------------------------------------ ------------
Year Ended Year Ended August 19, 1994 to January 1, 1994 to
(In thousands) December 31, 1996 December 31, 1995 December 31, 1994 August 18, 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
The components of income (loss) from
continuing operations before income
taxes were as follows:
Domestic $ 33,534 $ 18,322 $ (77,320) $15,953
Foreign (2,445) (1,080) (1,384) (12,745)
------------------------------------------------------------------------
Total $ 31,089 $ 17,242 $ (78,704) $ 3,208
========================================================================
The components of the current and
deferred income tax provision on
continuing operations were as follows:
Current $ 15,430 $ 3,129 $ 1,487 $ 916
Deferred (4,200) - - -
------------------------------------------------------------------------
Total $ 11,230 $ 3,129 $ 1,487 $ 916
========================================================================
The components of the provision for income
taxes on continuing operations were as
follows:
Federal $ 4,576 $ - $ - $ 916
State 900 300 129 -
Foreign 5,754 2,829 1,358 -
------------------------------------------------------------------------
Total $ 11,230 $ 3,129 $ 1,487 $ 916
========================================================================
The differences between income taxes
computed at the United States
statutory rate and the provision for
income taxes are summarized as follows:
Federal tax computed at U.S. statutory
income tax rate $ 10,881 $ 6,035 $(27,546) $ 1,123
State income tax, net of federal income
tax benefit 585 300 (5,156) -
Deferred tax assets not benefited
(benefited) (16,823) (6,271) 35,080 -
Net effect of foreign operations 7,339 2,858 - -
Nondeductible acquisition costs 8,890 - - -
Other 358 207 (891) (207)
------------------------------------------------------------------------
Provision for income taxes $ 11,230 $ 3,129 $ 1,487 $ 916
========================================================================
The tax effects of temporary differences
and carryforwards which gave rise to
deferred tax liabilities and deferred
tax (assets) were as follows:
Acquired net operating loss
carryforwards $ (3,995) $ - $ - $ -
Estimated loss on disposal of
discontinued operations (991) (1,900) (3,200) -
Goodwill amortization (11,731) (12,808) (20,677) -
Depreciation and capitalized software 3,919 3,357 - 77
Deferred financing (146) (2,569) - -
Deferred compensation (2,344) (1,840) - -
Tax credit carryforwards (1,221) (1,221) - -
Other (3,610) 513 189 (77)
Net operating loss carryforward (16,905) (17,704) (11,392) -
Valuation allowance 32,824 34,172 35,080 -
------------------------------------------------------------------------
Total deferred taxes $ (4,200) $ - $ - $ -
========================================================================
</TABLE>
46
<PAGE>
Waters Corporation and Subsidiaries
At December 31, 1996 the Company had a U.S. net operating loss carryforward of
approximately $35,000 which begins to expire in the year 2009. The Company's
ability to use the net operating loss carryforward is limited under Internal
Revenue Code Section 382, however the company feels such limitation is not
material. The Company had foreign net operating loss carryforwards of
approximately $8,000, some of which begin to expire in the year 2000 and some of
unlimited duration. The goodwill amortization represents the difference between
the book and tax treatment for both goodwill and in-process research and
development. The deferred tax asset of $4,200 is included as part of other
current assets in the consolidated balance sheet. Realization of deferred tax
assets is contingent upon future taxable income. The valuation allowance relates
to the uncertainty of realizing the deferred tax assets. The tax benefit of the
acquired net operating loss carryforwards of $9,986 will reduce goodwill but not
tax expense when it is realized.
The Company's effective tax rate before the nondeductible acquisition
related expenses for the twelve month period ended December 31, 1996 was 19.9%.
The Company benefited from net operating loss carryforwards which offset U.S.
taxable income in 1996.
9. Leases
Lease agreements, expiring at various dates through 2019, cover buildings,
office equipment and automobiles. Rental expense was approximately $6,474 in
1996, $5,684 in 1995 and $3,262 in 1994. In 1994, 1995 and 1996, the Company's
rent expense included amounts previously allocated to and not classified as
direct rent expense of the Predecessor. Future minimum rents payable as of
December 31, 1996 under non-cancelable leases with initial terms exceeding one
year were as follows:
------------------------
1997 $5,824
1998 4,544
1999 3,352
2000 1,950
2001 1,388
thereafter 2,362
10. Common Stock
Prior to the IPO, the authorized common stock of the Company consisted of 919
shares of Class A, 10 shares of Class B and 194 shares of Class C common stock.
All general voting power was vested in the holders of the Class B common stock.
The holders of the Class A, Class B and Class C common stock were entitled to
receive dividends and distributions from the current and accumulated earnings
and profits, as declared by the Board of Directors, in proportion to the number
of shares of common stock held. In September 1995, the Company declared and
paid a $16,195 distribution to its securityholders.
Contemporaneously with the IPO, the Company completed a reclassification in
which each share of Class A, Class B, and Class C common stock was converted
into a specified number of shares of a single class of Common Stock
("Reclassification"). At the same time, the authorized number of shares of
common stock was increased to 50,000 shares with a par value of $.01 per share.
Holders of Common Stock are entitled to one vote per share. In November 1995,
the Company issued 6,250 shares of Common Stock in an IPO for net proceeds of
$86,152.
11. Redeemable Preferred Stock
On August 18, 1994, as part of the consideration for the Acquisition, the
Company authorized and issued one hundred shares of Redeemable Preferred Stock
(''Preferred Stock'') with a par value of $.01 per share to Millipore. The
Preferred Stock has a liquidation value of $10,000 and earns an annual 6%
cumulative dividend based upon the liquidation value. Any accumulated but
unpaid dividends are added to the liquidation value. The Company may, at any
time, redeem the Preferred Stock at the current liquidation value but in no
event later than August 18, 2006. The Preferred Stock was recorded at its
estimated fair value of $5,000 on the date of issuance. The excess of the
liquidation value over the fair market value is being accreted by periodic
charges to additional paid-in capital from the date of issue through August 18,
2006. During the years ended December 31, 1996, 1995, and 1994, $321, $301, and
$108, respectively, were charged against additional paid-in capital to reflect
the accretion from fair value to the liquidation value and $600, $600 and $222,
respectively, were charged against additional paid-in capital for the
accumulated but unpaid dividends. At December 31, 1996, the liquidation
preference was $11,422.
47
<PAGE>
Waters Corporation and Subsidiaries
12. Stock Compensation and Purchase Plans
The Company has four stock-based compensation plans, which are described below.
The Company applies APB Opinion 25 and related Interpretations in accounting
for its plans. Accordingly, no compensation cost has been recognized for its
fixed stock option plans and its stock purchase plan under SFAS 123. In adopting
SFAS 123 in 1996, the Company elected footnote disclosure only. Had compensation
cost for the Company's four stock-based compensation plans been recorded based
on the fair value of awards at grant date consistent with the method prescribed
by SFAS 123, the Company's net income and earnings per share would have been
changed to the pro forma amounts indicated below:
1996 1995
- -------------------------------------------------------------------------------
Net (loss) income available to
common stockholders As reported $(3,326) $ 1,099
SFAS 123 fair
value, net of
taxes (1,174) (487)
APB 25 offset,
net of taxes 176 493
---------------------
Pro forma $(4,324) $ 1,105
=====================
Net (loss) income per common share As reported $ (0.11) $0.05
SFAS 123 fair
value, net of
taxes (0.04) (0.02)
APB 25 offset,
net of taxes 0.01 0.02
---------------------
Pro forma $ (0.14) $ 0.05
=====================
The above initial phase-in period pro forma disclosures under SFAS 123 are not
likely to be representative of the effects on reported net income for future
years.
The fair value of each option grant under SFAS 123 is estimated on the date of
grant using the Black-Scholes option-pricing model. The following table presents
the annualized weighted-average values of the significant assumptions used to
estimate the fair values of the options:
Options issued 358 663
Risk-free interest rate 6.4% 7.0%
Expected life in years 7.4 7.5
Expected volatility 0.674 0.6928
Expected dividends 0 0
The following table details the weighted-average exercise price and fair values
of options on the date of grant where:
Option exercise prices are less than the market price
Exercise price $ 9.50
Fair value $10.51
Option exercise prices are equal to the market price
Exercise price $ 4.07
Fair value $ 3.07
Option exercise prices exceed the market price
Exercise price $ 34.21 $12.89
Fair value $ 20.89 $ 2.16
The following table details the weighted-average remaining contractual life of
options outstanding at December 31, 1996 by range of
exercise prices:
<TABLE>
<CAPTION>
Remaining
Number of Exercise Contractual Life of
Exercise Price Range Shares Outstanding Price Options Outstanding
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 0.00 to $ 5.00 1,077 $ 4.00 7.8 Years
$ 5.01 to $10.00 1,307 $ 9.50 7.9 Years
$10.01 to $20.00 2,520 $16.28 7.7 Years
$20.01 to $40.00 358 $34.21 9.3 Years
-----
5,262
=====
</TABLE>
Stock Option Plans
On May 7, 1996, the Company's shareholders approved the 1996 Long-Term
Incentive Plan ("1996 Plan"), which provides for the granting of 1,000 shares
of Common Stock, consisting of stock options, stock appreciation rights
("SARs"), restricted stock, and other types of awards. Under the 1996 Plan, the
exercise price for stock options may not be less than the fair market value of
the underlying stock at the date of grant. The 1996 Plan is scheduled to
terminate on May 7, 2006, unless extended for a period of up to five years by
action of the Board of Directors. Options granted may be either incentive stock
options or non-qualified options. Options generally will expire no later than
ten years after the date on which they are granted and will become exercisable
as directed by the Compensation Committee of the Board of Directors. An SAR may
be granted alone or in conjunction with an option or other award. No SARs,
restricted stock, or other types of awards were outstanding as of December 31,
1996.
48
<PAGE>
Waters Corporation and Subsidiaries
The Company's 1994 Stock Option Plan (''1994 Plan'') provided for the granting
of 205 common stock options to certain key employees of Waters. Stock options
under the 1994 Plan allowed the purchase of Class A Common Stock of the
Company. Concurrent with the Reclassification, total options to purchase Class
A Common Stock of the Company were converted into 5,035 options to purchase
shares of Common Stock. The exercise price of the options is determined by a
committee of the Board of Directors (''Board'') of the Company. Options granted
have a term of ten years and vest in five equal installments on the first five
anniversaries after the grant.
On September 14, 1995, the Board amended certain existing stock option
agreements as follows: (i) outstanding options for 971 and 129 shares granted in
August 1994 and January 1995, respectively, which had a variable exercise price
dependent on future events, were amended to fix the exercise price at $9.50 per
share and (ii) outstanding options for 2,431 and 129 shares granted in August
1994 and January 1995, respectively, were amended to fix both the number of
shares as originally granted and to fix the exercise price at $16.28 per share.
On September 14, 1995, certain of these amended options had an exercise price
below estimated fair value. Accordingly, the Company recorded $5,641 of deferred
compensation expense to be recognized over the vesting period of the underlying
options. In October 1995, the Board accelerated the vesting period of 1,100
outstanding stock options. Accordingly, the Company immediately charged $3,567
of noncash compensatory stock option expense to selling, general and
administrative expenses in 1995.
Non-Employee Director Plans
On May 7, 1996, the Company's shareholders approved the 1996 Non-Employee
Director Deferred Compensation Plan ("Deferred Compensation Plan") and the 1996
Non-Employee Director Stock Option Plan ("Director Stock Option Plan"). Under
the Deferred Compensation Plan, outside directors may elect to defer their fees
and credit such fees to either a cash account which earns interest at a
market-based rate or to a common stock unit account, for which 100 shares of
Common Stock have been reserved. Under the Director Stock Option Plan, each
outside director will receive an option to purchase one thousand shares of
Common Stock, and up to fifty thousand shares of Common Stock may be issued
under such plan. On May 24, 1996 the Compensation Committee granted options to
purchase six thousand shares of Common Stock under the Director Stock Option
Plan. Options have a term of ten years and, with the exception of options
granted in 1996, which vest in one year, vest in five equal installments on the
first five anniversaries following the date of grant and have option prices no
less than fair market value at the date of grant.
The following table summarizes stock option activity for the plans after giving
effect to the Reclassification:
Weighted Average Number
Exercise Price of Shares Price Per Share
- --------------------------------------------------------------------------------
Granted $ 12.06 4,372 $ 4.00 to $16.28
---------------------------------------
Outstanding at December 31,
1994 12.06 4,372 $ 4.00 to $16.28
Granted 9.76 663 $ 4.00 to $16.28
---------------------------------------
Outstanding at December 31,
1995 $ 11.76 5,035 $ 4.00 to $16.28
Granted 34.21 358 $34.21 to $34.50
Exercised (10.48) (128) $ 4.00 to $16.28
Canceled (34.21) (3) $ 34.21
=======================================
Outstanding at December 31, 1996 $ 13.31 5,262 $ 4.00 to $34.50
=======================================
Options exercisable at December 31,
1996 $ 11.30 2,439
=====
Available for grant at December 31,
1996 699
===
Employee Stock Purchase Plan
On February 26, 1996, the Company adopted the 1996 Employee Stock Purchase Plan
under which eligible employees may contribute up to 15% of their earnings
toward the quarterly purchase of the Company's Common Stock. The plan makes
available 250 shares of the Company's Common Stock commencing October 1, 1996.
As of December 31, 1996, four thousand three hundred thirty six shares have
been issued under the plan. Each plan period lasts three months beginning on
January 1, April 1, and October 1 of each year. The purchase price for each
share of stock is the lesser of 90% of the market price on the first day of the
plan period or 100% of the market price on the last day of the plan period. No
compensation expense is recorded in connection with the plan.
13. Warrant
On August 18, 1994, the Company issued a warrant (''Warrant'') to purchase 34
shares of Class A Common Stock and 10 shares of Class C Common Stock in
connection with the Company's financing under the Prior Bank Credit Agreement.
The Warrant had an exercise price of $.01 per share. The Company valued the
Warrant based upon the difference between the fair market value of the Company's
common stock as of the date of issuance and the exercise price of the Warrant.
The fair market value of the Company's common stock was determined by the cash
consideration per share paid by the original investors at the time of the
Acquisition. The estimated fair market value of $3,200 for the Warrant was
recorded as a component of stockholders' equity.
In connection with the Reclassification, the Warrant allowed for the
purchase of 1,064 shares of the Common Stock at an exercise price of $.01 per
share. In October 1995, the Company issued 1,064 shares of Common Stock upon
the exercise of the Warrant.
49
<PAGE>
Waters Corporation and Subsidiaries
14. Foreign Currency Contracts
The Company has periodically entered into forward exchange contracts to hedge
the impact of foreign currency fluctuations on the U.S. dollar value of certain
anticipated and specified future foreign cash flows and foreign net asset
values. The unrealized gains and losses on outstanding contracts at period end
which relate to anticipated future cash flows are recorded in unrealized gains
(losses) on future cash flow hedges in the statements of operations. The
realized gains and losses on these contracts and on those contracts relating to
specified future foreign cash flows are recorded as realized gains (losses) on
cash flow hedges. In December 1995, the Company liquidated those outstanding
contracts which hedged anticipated future cash flows. Gains (losses) on
contracts hedging net asset values generated a reduction in translation
adjustments of $1,313 for the year ended December 31, 1995.
At December 31, 1996 and 1995, the Company had outstanding forward exchange
contracts amounting to $3,342 and $3,400, respectively, which hedged the dollar
value equivalent of specified future customer commitments. These contracts have
an initial maturity of less than three months and mature in the period in which
the local currency cash flow is expected.
15. Retirement Plans
Prior to the Acquisition, retirement benefits were provided to employees
through the Millipore Corporation Employees' Participation and Savings Plan
(''Millipore Participation Plan'') and the Retirement Plan for Employees of
Millipore Corporation (''Millipore Retirement Plan''). Subsequent to the
Acquisition, the Company adopted two new retirement plans for employees
effective August 19, 1994; the Waters Employee Investment Plan,
a defined contribution plan, and the Waters Retirement Plan, a defined benefit
cash balance plan, which supersede the aforementioned Millipore Corporation
Participation and Retirement plans.
Waters employees' accumulated benefit balances in the Millipore
Participation Plan were valued as of September 30, 1994 and transferred to the
Waters Employee Investment Plan. Millipore and the Company have not yet agreed
on the final valuation of the amount of benefits transferable from the
Millipore Retirement Plan on behalf of Waters employees as of the Acquisition
date. Upon agreement of a final valuation, Millipore will transfer the Waters
Employees' accumulated benefit balances to the Waters Retirement Plan.
Waters is currently asserting a claim against Millipore under procedures
specified in the purchase and sale agreement for the Predecessor. Waters
contends that Millipore has undervalued the amount of assets it is obligated to
transfer from the Millipore Retirement Plan to the Waters successor plan.
Waters 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.
Employees hired prior to the Acquisition date were eligible to participate
in the Waters Employee Investment Plan as of the Acquisition date. Employees
hired after this date but before October 1, 1996 were eligible after one year of
service. As of October 1, 1996, new or existing employees are eligible after one
month of service. Employees may contribute from 1%-15% of eligible pay on a pre-
tax basis. The Company makes a matching contribution of 50% for contributions up
to 6% of eligible pay after one year of service. Employees are 100% vested in
company matching contributions upon becoming eligible for the plan. For the
years ended December 31, 1996 and December 31, 1995, the Company's matching
contributions amounted to $1,318 and $1,280, respectively. Effective December
31, 1996, the TA Instruments, Inc. Savings and Investment Plan was merged into
the Waters Employee Investment Plan. TAI's matching contributions from May 1,
1996 to December 31, 1996 were $127.
U.S. employees are eligible to participate in the Waters Retirement Plan
after one year of service. The Company makes an annual contribution to each
employee's account as a percentage of eligible pay based on years of service. In
addition, each employee's account is credited for investment returns at the
beginning of each year for the prior year at the average 12 month Treasury Bill
rate plus 0.5%, limited to a minimum rate of 5% and a maximum rate of 10%. An
employee does not vest until the completion of five years of service at which
time the employee becomes 100% vested. Years of service under the Millipore
Retirement Plan count toward participation and vesting under the Waters
Retirement Plan. As of December 31, 1996, the TA Instruments, Inc. Employees'
Pension Plan ("TAI Pension Plan") was merged into the Waters Retirement Plan.
Participants in the TAI Pension Plan as of December 31, 1996 will have an
opening account balance established equal to the present value of their December
31, 1996 accrued benefit under the TAI Pension Plan. TAI employees eligible for
early retirement as of December 31, 1996 will continue to accrue benefits under
the TAI formula to the extent that it provides a larger benefit than their cash
balance account in the Waters Retirement Plan.
Summary data for the Waters Retirement Plan at December 31, 1996 and 1995
are presented in the following table. These amounts include the effect of the
TAI acquisition as of December 31, 1996.
50
<PAGE>
Waters Corporation and Subsidiaries
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1996 December 31, 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $9,127 and $4,194, respectively $ (9,305) $ (4,323)
--------------------------------
Projected benefit obligation for service rendered to date $(10,552) $ (4,424)
Estimated plan assets at fair value 13,988 2,087
--------------------------------
Projected benefit obligation (in excess of) less than
fair value of assets 3,436 (2,337)
Unrecognized prior service costs (734) 273
Unrecognized net actuarial (gain) loss (3,910) 505
Minimum pension liability adjustment - (677)
-------------------------------
(Accrued) pension cost included in the financial
statements $ (1,208) $ (2,236)
===============================
Intangible asset $ - $ 273
===============================
</TABLE>
Year Ended Year Ended Year Ended
December 31, 1996 December 31, 1995 December 31, 1994
- --------------------------------------------------------------------------------
Net periodic pension
cost includes the
following components:
Service cost $ 2,025 $ 1,780 $ 543
Interest cost 938 321 68
Return on plan assets (700) (137) (60)
Amortization and deferral (5) (8) (16)
----------------------------------------------
Net periodic pension cost $ 2,258 $ 1,956 $ 535
==============================================
The projected benefit
obligation was calculated
using the following
assumptions:
Discount rate 7.75% 7.25% 8.75%
Return on assets 8.50% 8.50% 8.50%
Increases in compensation
levels 4.75% 4.50% 5.00%
Millipore did not perform separate actuarial calculations for the Predecessor's
portion of its Retirement Plan. As a result, data is not available for the plan
for the period from January 1, 1994 to August 18, 1994.
16. Post-retirement Benefits Other than Pensions
The Company sponsors several unfunded defined benefit post-retirement plans
covering U.S. employees. The plans provide medical insurance benefits and are,
depending on the plan, either contributory or non-contributory.
Net periodic post-retirement benefit cost included the following components:
<TABLE>
<CAPTION>
Company Predecessor
------------------------------------------------------------ -----------
Year Ended Year Ended August 19, 1994 to January 1, 1994 to
December 31, 1996 December 31, 1995 December 31, 1994 August 18, 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Service cost-benefits attributed
to service during the year
Interest cost on accumulated post-
retirement benefit obligation $ 95 $ 82 $ 37 257
Net amortization and deferral 69 64 35 174
Net periodic post-retirement
benefit cost (83) (83) (21) (29)
---------------------------------------------------------------------
$ 81 $ 63 $ 51 $ 402
=====================================================================
</TABLE>
51
<PAGE>
Waters Corporation and Subsidiaries
Summary information on the Company's plan at December 31, 1996, and 1995 is
presented in the following table:
Year Ended Year Ended
December 31, 1996 December 31, 1995
- ------------------------------------------------------------------------------
Accumulated post-retirement benefit
obligation:
Retirees $ 137 $ 152
Fully eligible active plan
participants 229 45
Other active plan participants 682 608
Unrecognized amounts:
Prior service costs 1,348 1,556
Net loss (gain) 33 16
-------------------------
Accrued post retirement benefit cost $2,429 $2,377
=========================
The Company's accrued post-retirement benefit obligation was $2,429 and
$2,377 at December 31, 1996 and 1995, respectively, and is included in other
liabilities in the balance sheet. This obligation pertains only to active
employees of the Company at the time of the Acquisition and employees hired
subsequent to the Acquisition. The obligation to fund post retirement benefits
for retired employees prior to the Acquisition has been retained by Millipore.
The discount rate used in determining the accumulated post-retirement
benefit obligation was 7.75%, and 7.25% as of December 31, 1996 and 1995,
respectively. Increases in the health care cost trend rate do not result in any
additional costs to the Company.
17. Related Party Transactions
In 1996 and 1995, the Company made loans to certain executive officers of the
Company. The loans are collateralized by a pledge of shares of common stock
held by these executive officers. The 1995 loans bear interest at 5.83% per
annum and mature on December 1, 2000. The additional loans made in 1996 bear
interest at 5.65% per annum and mature on January 8, 2001. Loans receivable of
$2,487 at December 31, 1996 and $2,062 at December 31, 1995 are included in
other assets in the balance sheet at December 31, 1996 and December 31, 1995,
respectively.
In connection with the consummation of the Acquisition, the Company and
Millipore entered into a Transition Support and Service Agreement (''Transition
Agreement'') whereby Millipore agreed to (i) lease office space, (ii) transfer
certain personnel, (iii) provide management information systems, administrative,
distribution and facilities management support, (iv) provide access to its
telephone network, and (v) supply professional support services. The Company
believes that the costs incurred under the Transition Agreement are
representative of the charges that would be levied by independent third parties
for similar services. The Company incurred net expenses pursuant to this
agreement of $4,165, $5,210 and $5,621 for the years ended December 31, 1996 ,
1995, and 1994, respectively.
During the years ended December 31, 1996, 1995, and 1994, the Company sold
product and services totaling $86, $104, and $203, respectively, to Millipore.
In conjunction with the Acquisition, the Company assumed a deferred
compensation liability of $4,925 from Millipore to certain key executives of
Waters. The liability incurred interest at an annual rate of 7.05%. This
liability plus accrued interest was paid to the executives on September 14,
1995. Interest expense for the years ended December 31, 1995 and 1994 was $254
and $130, respectively.
In connection with the Acquisition, the Company entered into a ten-year
Management Services Agreement with AEA Investors, Inc. and Bain Capital, Inc.
pursuant to which they agreed to pay AEA Investors, Inc. and Bain Capital, Inc.
an aggregate annual management fee of $1,500, plus out-of-pocket expenses.
Pursuant to the Management Services Agreement, AEA Investors, Inc. and Bain
Capital, Inc. provided general management, financial and other corporate
advisory services to the Company. Pursuant to this agreement, AEA Investors,
Inc. and Bain Capital, Inc. received a cash financial advisory fee of $8,000 at
the closing of the Acquisition. The management fee for the period August 19,
1994 to December 31, 1994 was $552. In connection with the IPO, the Management
Services Agreement was terminated for a fee of $4,000. Management fees
excluding the termination fee were $1,393 for the year ended December 31, 1995.
On August 18, 1994, the Company issued common stock at fair market value to
senior management in exchange for notes receivable in the amount of $4,925. The
notes receivable earned interest at an annual interest rate of 7.05%. Interest
income on the notes receivable for the year ended December 31, 1995 was $254.
The notes receivable were collateralized by the shares of common stock owned by
senior management of the Company. Accordingly, the notes receivable were
recorded as a reduction of stockholders' equity during the period they were
outstanding. On September 14, 1995, the notes were repaid in full.
52
<PAGE>
Waters Corporation and Subsidiaries
18. Business Segment Information
The Company operates in one business segment and in the geographical segments
indicated in the table below. Sales are reflected in the segment from which the
sales are made. The United States segment includes Puerto Rico. The other
international segment includes Canada, South America, Australia, India, Eastern
Europe and countries in the former Soviet Union. Transfer sales between
geographical areas are generally made at a discount from list price.
Company, 1996
<TABLE>
<CAPTION>
United States Europe Japan Asia Other Int'l Elimination Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales:
Unaffiliated sales $ 145,578 $ 118,433 $ 48,876 $ 34,828 $ 37,230 $ - $ 384,945
Unaffiliated export sales
to Asia 283 - - - - - 283
Unaffiliated export sales to
Other Int'l 5,885 - - - - - 5,885
Transfers between areas 122,575 - - - - (122,575) -
--------------------------------------------------------------------------------------------
Total sales $ 274,321 $ 118,433 $ 48,876 $ 34,828 $ 37,230 $ (122,575) $ 391,113
============================================================================================
Income from operations $ 45,748 $ 67 $ 672 $ (221) $ 423 (860) $ 45,829
============================================================================================
Total assets $ 385,891 $ 108,111 $ 23,507 $ 9,655 $ 17,889 $ (179,551) $ 365,502
============================================================================================
Company, 1995 United States Europe Japan Asia Other Int'l Elimination Total
- ----------------------------------------------------------------------------------------------------------------------------------
Sales:
Unaffiliated sales $ 116,065 $ 103,144 $ 47,941 $ 26,787 $ 33,749 $ - $ 327,686
Unaffiliated export sales
to Asia 464 - - - - - 464
Unaffiliated export sales to
Other Int'l 3,947 875 - - - - 4,822
Transfers between areas 107,506 - - - - (107,506) -
--------------------------------------------------------------------------------------------
Total sales $ 227,982 $ 104,019 $ 47,941 $ 26,787 $ 33,749 $(107,506) $ 332,972
============================================================================================
Income from operations $ 44,780 $ 1,610 $ 2,422 $ (1,416) $ (1,014) - $ 46,382
============================================================================================
Total assets $ 343,768 $ 75,464 $ 20,537 $ 11,010 $ 18,402 $(169,365) $ 299,816
============================================================================================
Company, August 19, 1994
to December 31, 1994
United States Europe Japan Asia Other Int'l Elimination Total
- ----------------------------------------------------------------------------------------------------------------------------------
Sales:
Unaffiliated sales $ 47,663 $ 39,203 $ 17,095 $10,450 $ 13,359 $ - $ 127,770
Unaffiliated export sales to
Asia 1,072 - - - - - 1,072
Unaffiliated export sales to
Other Int'l 2,022 193 - - - - 2,215
Transfers between areas 43,881 - - - - (43,881) -
---------------------------------------------------------------------------------------------
Total sales $ 94,638 $ 39,396 $ 17,095 $10,450 $ 13,359 $(43,881) $ 131,057
=============================================================================================
Loss from operations
pre-restructuring $ (63,973) $ 240 $ 789 $(1,204) $ 32 $ - $ (64,116)
Restructuring charge (498) (960) (1,660) (320) (62) - (3,500)
=============================================================================================
Loss from operations post-
restructuring $ (64,471) $ (720) $ (871) $(1,524) $ (30) $ - $ (67,616)
=============================================================================================
Total assets $ 331,113 $ 79,291 $ 21,503 $12,058 $ 18,640 $ (131,007) $ 331,598
=============================================================================================
Predecessor, January 1, 1994
to August 18, 1994
United States Europe Japan Asia Other Int'l Elimination Total
- ----------------------------------------------------------------------------------------------------------------------------------
Sales:
Unaffiliated sales $ 70,101 $ 47,373 $ 26,242 $10,711 $ 17,253 $ - $ 171,680
Unaffiliated export sales to
Asia 1,441 - - - - - 1,441
Unaffiliated export sales to
Other Int'l 2,717 259 - - - - 2,976
Transfers between areas 65,064 - - - - (65,064) -
------------------------------------------------------------------------------------------------
Total sales $ 139,323 $ 47,632 $ 26,242 $10,711 $ 17,253 $(65,064) $ 176,097
================================================================================================
Income from operations $ 16,781 $ (8,109) $ (706) $(2,045) $ (1,885) $ - $ 4,036
================================================================================================
</TABLE>
53
<PAGE>
Quarterly Results
Waters Corporation and Subsidiaries
The Company's (Predecessor's) unaudited quarterly results are summarized below
(In thousands except per share data):
<TABLE>
<CAPTION>
1996 First Quarter Second Quarter Third Quarter Fourth Quarter Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $85,313 $ 95,965 $ 98,414 $ 111,421 $ 391,113
Cost of sales 32,114 35,199 36,631 41,310 145,254
Revaluation of acquired inventory - 2,440 3,660 - 6,100
----------------------------------------------------------------------------------
Gross profit 53,199 58,326 58,123 70,111 239,759
Selling, general and administrative expenses 33,429 35,963 38,360 40,761 148,513
Research and development expenses 4,668 5,074 5,544 5,612 20,898
Goodwill and purchased technology amortization 931 1,431 1,615 1,242 5,219
Expensed in-process research and development - 19,300 - - 19,300
----------------------------------------------------------------------------------
Operating income (loss) 14,171 (3,442) 12,604 22,496 45,829
Interest expense, net 3,954 3,480 3,706 3,600 14,740
Unrealized loss on future cash flow hedges- - - - - -
---------------------------------------------------------------------------------
Income (loss) from continuing operations
before income taxes 10,217 (6,922) 8,898 18,896 31,089
Provision (credit) for income taxes 2,042 2,932 2,502 3,754 11,230
----------------------------------------------------------------------------------
Income (loss) from continuing operations 8,175 (9,854) 6,396 15,142 19,859
Extraordinary item - (loss) on early retirement
of debt - (22,264) - - (22,264)
---------------------------------------------------------------------------------
Net income (loss) 8,175 (32,118) 6,396 15,142 (2,405)
Less: accretion of and dividend on Preferred
Stock 229 229 231 232 921
---------------------------------------------------------------------------------
Net loss available to common stockholders $ 7,946 $ (32,347) $ 6,165 $ 14,910 $ (3,326)
=================================================================================
Per share information:
Income from continuing operations $ .26 $ (.32) $ .19 $ .47 $ .60
Extraordinary (loss) per common share - (.70) - - (.71)
---------------------------------------------------------------------------------
Net (loss) per common share $ . 26 $ (1.02) $ .19 $ .47 $ (.11)
=================================================================================
Weighted average number of common shares
outstanding 30,925 31,782 31,888 31,919 31,628
=================================================================================
1995 First Quarter Second Quarter Third Quarter Fourth Quarter Total
- ----------------------------------------------------------------------------------------------------------------------------------
Net sales $77,554 $ 84,328 $ 80,634 $ 90,456 $ 332,972
Cost of sales 30,282 31,275 30,761 33,898 126,216
Revaluation of acquired inventory - - 371 554 925
---------------------------------------------------------------------------------
Gross profit 47,272 53,053 49,502 56,004 205,831
Selling, general and administrative
expenses 31,823 32,593 33,259 38,700 136,375
Management fee 387 383 389 4,234 5,393
Research and development expenses 4,096 4,418 4,346 4,821 17,681
---------------------------------------------------------------------------------
Operating income (loss) 10,966 15,659 11,508 8,249 46,382
Interest expense, net 8,119 7,955 7,614 6,627 30,315
Foreign currency contracts losses (gains) 3,886 2,461 (6,669) (853) (1,175)
---------------------------------------------------------------------------------
(Loss) Income from continuing operations
before income taxes (1,039) 5,243 10,563 2,475 17,242
(Credit) provision for income taxes (199) 876 1,993 459 3,129
---------------------------------------------------------------------------------
(Loss) before extraordinary item (840) 4,367 8,570 2,016 14,113
Extraordinary item - (loss) on early retirement
of debt - - - (12,112) (12,112)
---------------------------------------------------------------------------------
Net income (loss) (840) 4,367 8,570 (10,096) 2,001
Less: accretion of and dividend on Preferred
Stock 222 226 227 227 902
---------------------------------------------------------------------------------
Net loss available to common stockholders $(1,062) $ 4,141 $ 8,343 $(10,323) $ 1,099
=================================================================================
Per share information:
(Loss) income from continuing operations $ (.04) $ .17 $ .35 $ .07 $ .54
Extraordinary (loss) per share - - - (.45) (.49)
---------------------------------------------------------------------------------
Net (loss) income per share $ (.04) $ .17 $ .35 $ (.38) $ .05
=================================================================================
Weighted average number of common shares
outstanding 23,852 23,852 23,852 26,774 24,582
=================================================================================
</TABLE>
54
<PAGE>
Selected Financial Data
Waters Corporation and Subsidiaries
<TABLE>
<CAPTION>
The Company Predecessor Business
------------------------------------------ --------------------------------------------
Year Ended Year Ended August 19 to January 1 to Year Ended Year Ended
December 31, December 31, December 31, August 18, December 31, December 31,
1996 1995 1994 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales $391,113 $332,972 $131,057 $176,097 $ 304,927 $ 309,287
Cost of sales 145,254 126,216 49,740 73,446 124,387 123,342
Revaluation of acquired inventory 6,100 925 38,424 - - -
-------------------------------------------------------------------------------------
Gross profit 239,759 205,831 42,893 102,651 180,540 185,945
Selling, general and administrative
expenses 148,513 132,746 44,522 85,216 132,452 138,318
Research and development expenses 20,898 17,681 6,790 13,399 18,525 19,142
Goodwill and purchased technology
amortization 5,219 3,629 1,227 - - -
Expensed in-process research and
development 19,300 - 53,918 - - -
Management fee - 5,393 552 - - -
Restructuring charge - - 3,500 - 13,000 -
-------------------------------------------------------------------------------------
Operating income (loss) 45,829 46,382 (67,616) 4,036 16,563 28,485
Interest expense, net (1) 14,740 30,315 12,011 828 2,072 2,107
Unrealized losses (gains) on future cash
flow hedges - 1,142 (923) - - -
Realized (gains) on cash flow hedges - (2,317) - - - -
-------------------------------------------------------------------------------------
Income (loss) from continuing operations
before income taxes 31,089 17,242 (78,704) 3,208 14,491 26,378
Provision for income taxes 11,230 3,129 1,487 916 4,169 6,180
-------------------------------------------------------------------------------------
Income (loss) from continuing operations 19,859 14,113 (80,191) 2,292 10,322 20,198
Income (loss) from discontinued operations,
net of tax - - 787 (448) (9) 108
Estimated (loss) on disposal of discontinued
operations - - (8,000) - - -
--------------------------------------------------------------------------------------
Income (loss) before extraordinary item 19,859 14,113 (87,404) 1,844 10,313 20,306
Extraordinary item-(loss) on early
retirement of debt (22,264) (12,112) - - - -
---------------------------------------------------------------------------------------
Income (loss) before cumulative effect of
change in accounting principal (2,405) 2,001 (87,404) 1,844 10,313 20,306
Cumulative effect of change in accounting
principle (2) - - - - - (2,228)
---------------------------------------------------------------------------------------
Net income (loss) $ (2,405) 2,001 (87,404) $ 1,844 $ 10,313 $ 18,078
=======================================
Less: accretion of and dividend on
Preferred Stock 921 902 330
======================================
Net income (loss) available to common
stockholders $ (3,326) $ 1,099 $ (87,734)
======================================
Income (loss) per common share:
Income (loss) per common share from
continuing operations $ .60 $ .54 $ (3.38)
Loss per common share from discontinued
operations - - (.30)
Extraordinary loss per common share (.71) (.49) -
--------------------------------------
Net income (loss) per common share $ (.11) $ 05 $ (3.68)
======================================
Weighted average number of common shares 31,628 24,582 23,852
======================================
Balance Sheet Data (at period end):
Working capital $ 61,227 $56,385 $ 87,357 $100,528 $ 112,905
Total assets 365,502 299,816 331,598 189,592 199,513
Long-term debt, including current
maturities (1) 210,470 158,500 275,000 - -
Redeemable preferred stock 7,153 6,232 5,330 - -
Stockholders' equity (deficit)/parent
company investment 57,780 58,118 (22,670) 149,095 163,157
</TABLE>
(1) Interest expense through August 18, 1994 was an allocation of Millipore's
worldwide net interest expense based upon the ratio of the Predecessor's
net assets to Millipore's net assets. No debt obligations of Millipore
were reflected on the Predecessor's balance sheets.
(2) In 1992, the Company recorded an after tax charge to income of $2.2
million for the adoption of the provisions of SFAS No. 106,
Employers' Accounting for Postretirement Benefits Other Than Pensions.
55
<PAGE>
Directors Officers
- --------- --------
Douglas A. Berthiaume Douglas A. Berthiaume
Chairman, President, Chairman, President,
and Chief Executive Officer and Chief Executive Officer
Waters Corporation
Arthur G. Caputo
Joshua Bekenstein Senior Vice President
Managing Director Worldwide Sales
Bain Capital, Inc. and Marketing
Philip Caldwell Thomas W. Feller
Senior Managing Director Senior Vice President
Lehman Brothers Inc. Operations
and Retired Chairman and
Chief Executive Officer, John R. Nelson
Ford Motor Company Senior Vice President
Research and Development
Edward Conard
Managing Director Philip S. Taymor
Bain Capital, Inc. Senior Vice President
Finance and Administration
Thomas P. Salice and Chief Financial Officer
Managing Director
AEA Investors, Inc. Brian K. Mazar
Vice President
Marc Wolpow Human Resources
Managing Director and Investor Relations
Bain Capital, Inc.
Devette W. Russo
Vice President
Chromatography
Consumables Division
<TABLE>
Transfer Stockholders'
- -------- ------------
Agent Meeting
- ----- -------
<S> <C>
Bank of Boston Date: May 6, 1997, 11 a.m.
c/o Boston EquiServe, L.P. Place: Waters Corporation
P.O. Box 8040 34 Maple Street
Boston, Massachusetts 02266-8040 Milford, Massachusetts
617-575-3120 Directions: Call 800-252-4752 Ext. 3314
Internet address: http://www.equiserve.com
Stocklist
Auditors ---------
- -------- Symbol
------
Coopers and Lybrand L.L.P. NYSE: WAT
One Post Office Square
Boston, Massachusetts 02109 Form 10K
--------
Attorneys
- --------- A copy of the Company's 10K,
Kirkland and Ellis filed with the Securities and Exchange
Citicorp Center Commission, is available without
153 East 53rd Street charge upon written request to:
39th Floor
New York, New York 10022 Waters Corporation
34 Maple Street
Milford, Massachusetts 01757
Offices
-------
Corporate Headquarters
Waters Corporation
34 Maple Street
Milford, Massachusetts 01757
Phone: 508-478-2000
Toll free: 800-252-4752
FAX: 508-872-1990
Email: [email protected]
Internet address:
http://www.waters.com
Waters, Millennium, and Symmetry
are registered trademarks of Waters
Corporation. Alliance, Integrity, TA
Instruments, Oasis, Connections, and
Spherisorb are trademarks of Waters
Corporation. Microsoft, Windows,
and Windows NT are trademarks
of Microsoft Corporation.
</TABLE>
56
<PAGE>
EXHIBIT 13.2
[LETTERHEAD OF COOPERS & LYBRAND]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Waters Corporation:
We have audited the accompanying consolidated balance sheets of Waters
Corporation and Subsidiaries as of December 31, 1996 and 1995 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years ended December 31, 1996 and 1995 and the period from August 19, 1994
to December 31, 1994. These financial statements are the responsibility of
Waters Corporation management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Waters Corporation
and Subsidiaries as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for the years ended December 31, 1996 and 1995 and
the period from August 19, 1994 to December 31, 1994 in conformity with
generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
January 22, 1997
<PAGE>
EXHIBIT 13.3
[LETTERHEAD OF COOPERS & LYBRAND]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Millipore Corporation:
We have audited the accompanying statements of operations and cash flows of the
Waters Chromatography Division of Millipore Corporation (the "Predecessor") for
the period from January 1, 1994 to August 18, 1994. These financial
statements are the responsibility of Millipore Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
Certain costs and expenses presented in the financial statements represent
allocations and management's estimates of the costs of services provided to the
Waters Chromatography Division by Millipore Corporation. As a result, the
financial statements presented may not be indicative of the financial position
or results of operations that would have been achieved had the Waters
Chromatography Division operated as a non-affiliated entity.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of the Waters
Chromatography Division of Millipore Corporation for the period from January 1,
1994 to August 18, 1994 in conformity with generally accepted accounting
principles.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 10, 1995
<PAGE>
EXHIBIT 22.1
WATERS
March 31, 1997
Dear Stockholder:
On behalf of the Board of Directors, I cordially invite you to attend the
Annual Meeting of Stockholders of Waters Corporation (the "Company") on May 6,
1997 at 11:00 o'clock a.m., eastern standard time. The meeting will be held at
Waters Corporation, 34 Maple Street, Milford, Massachusetts 01757.
The matters scheduled to be considered at the meeting are the election of
directors of the Company and the ratification of auditors for the Company.
These matters are more fully explained in the attached Proxy Statement which
you are encouraged to read.
The Board of Directors values and encourages stockholder participation. It
is important that your shares be represented, whether or not you plan to
attend the meeting. Please take a moment to sign, date and return your Proxy
in the envelope provided even if you plan to attend the meeting.
We hope you will be able to attend the meeting.
Sincerely,
/s/ Douglas A. Berthiaume
Douglas A. Berthiaume Chairman,
President and Chief Executive
Officer
Waters Corporation 34 Maple Street Milford, MA 01757-3696 U.S.A. 508 478-
2000 FAX 508 872-1990
<PAGE>
WATERS
WATERS CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Notice is hereby given that the Annual Meeting of Stockholders of Waters
Corporation (the "Company") will be held at Waters Corporation, 34 Maple
Street, Milford, Massachusetts 01757 on May 6, 1997, at 11:00 o'clock a.m.,
eastern standard time, for the following purposes:
1. To elect directors to serve for the ensuing year and until their
successors are elected.
2. To ratify the selection of the firm of Coopers & Lybrand L.L.P., the
present auditors, as auditors for the fiscal year of 1997; and
3. To consider and act upon any other matters which may properly come
before the meeting or any adjournment thereof.
In accordance with the provisions of the Company's bylaws, the Board of
Directors has fixed the close of business on March 24, 1997 as the record date
for the determination of the holders of Common Stock entitled to notice of and
to vote at the Annual Meeting.
By order of the Board of Directors
/s/ Douglas A. Berthiaume
Douglas A. Berthiaume
Chairman, President and Chief
Executive Officer
Milford, Massachusetts March 31, 1997
Waters Corporation 34 Maple Street Milford, MA 01757-3696 U.S.A. 508 478-
2000 FAX 508 872-1990
<PAGE>
WATERS CORPORATION
34 MAPLE STREET
MILFORD, MASSACHUSETTS 01757
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
MAY 6, 1997, 11:00 O'CLOCK A.M.
The Proxy is solicited by the Board of Directors of Waters Corporation (the
"Company") for use at the 1997 Annual Meeting of Stockholders to be held on
May 6, 1997 at 11:00 o'clock a.m. at the Company's headquarters located at 34
Maple Street, Milford, Massachusetts, 01757. Solicitation of the Proxy may be
made through officers and regular employees of the Company by telephone or by
oral communications with some stockholders following the original solicitation
period. No additional compensation will be paid to such officers and regular
employees for Proxy solicitation. Corporate Investor Communications, Inc. has
been hired by the Company to do a limited broker solicitation for a fee of
$4,000. Expenses incurred in the solicitation of Proxies will be borne by the
Company.
VOTING MATTERS
The representation in person or by proxy of a majority of the outstanding
shares of common stock of the Company, par value $.01 per share (the "Common
Stock"), entitled to a vote at the meeting is necessary to provide a quorum
for the transaction of business at the meeting. Shares can only be voted if
the stockholder is present in person or is represented by a properly signed
proxy (a "Proxy"). Each stockholder's vote is very important. Whether or not
you plan to attend the meeting in person, please sign and promptly return the
enclosed Proxy card, which requires no postage if mailed in the United States.
All signed and returned Proxies will be counted towards establishing a quorum
for the meeting, regardless of how the shares are voted.
Shares represented by Proxy will be voted in accordance with your
instructions. You may specify your choice by marking the appropriate box on
the Proxy card. If your Proxy card is signed and returned without specifying
choices, your shares will be voted in favor of the proposals made by the Board
of Directors, and as the individuals named as Proxy holders on the Proxy deem
advisable on all other matters as may properly come before the meeting.
For all matters to be voted upon at the meeting, the affirmative vote of a
majority of shares present in person or represented by Proxy, and entitled to
vote on the matter, is necessary for approval. Withholding authority to vote
or an instruction to abstain from voting on a proposal will be treated as
shares present and entitled to vote and, for purposes of determining the
outcome of the vote, will have the same effect as a vote against the proposal.
A broker "non-vote" occurs when a nominee holding shares for a beneficial
holder does not have discretionary voting power and does not receive voting
instructions from the beneficial owner. Broker "non-votes" will not be treated
as shares present and entitled to vote on a voting matter and will have no
effect on the outcome of the vote.
Any stockholder giving the enclosed Proxy has the power to revoke such Proxy
prior to its exercise either by voting by ballot at the meeting, by executing
a later-dated Proxy or by delivering a signed written notice of the revocation
to the office of the Secretary of the Company before the meeting begins. The
Proxy will be voted at the meeting if the signer of the Proxy was a
stockholder of record on March 24, 1997 (the "Record Date").
On the Record Date, there were 28,929,595 shares of Common Stock outstanding
and entitled to vote at the meeting. Each outstanding share of Common Stock is
entitled to one vote. This Proxy Statement is first being sent to the
stockholders on or about March 31, 1997. A list of the stockholders entitled
to vote at the meeting will be available for inspection at the meeting for
purposes relating to the meeting.
<PAGE>
MATTERS TO BE ACTED UPON
1. ELECTION OF DIRECTORS
The Board of Directors recommends that the stockholders vote FOR each
nominee for director set forth below. Six directors are to be elected at the
meeting, each to hold office until his successor is elected and qualified or
until his earlier resignation, death or removal. Each nominee listed below is
currently a director of the Company. It is intended that the Proxies in the
form enclosed with this Proxy Statement will be voted for the nominees set
forth below unless stockholders specify to the contrary in their Proxies or
specifically abstain from voting on this matter.
The following information pertains to the nominees, their principal
occupations for the preceding five-year period, certain directorships and
their ages as of April 1, 1997:
Douglas A. Berthiaume, 48, has served as Chairman of the Board of Directors
of the Company since February 1996 and has served as President and Chief
Executive Officer of the Company since August 1994. From 1990 to 1994, Mr.
Berthiaume served as President of the Waters Chromatography Division of
Millipore (the "Predecessor"). Mr. Berthiaume is a Director of Genzyme
Corporation and the Vice-Chairman of the Analytical Instrument Association.
Joshua Bekenstein, 38, has served as a Director of the Company since August
1994. He has been a Managing Director of Bain Capital, Inc. ("Bain") since
January 1993 and a General Partner of Bain Venture Capital since its inception
in 1987. Mr. Bekenstein is a Director of Stage Stores Inc., Totes Inc., Small
Fry Snack Foods, Inc. and Bright Horizons Children's Center, Inc..
Philip Caldwell, 77, has served as a Director of the Company since August
1994. Mr. Caldwell has been a Director and Senior Managing Director of Lehman
Brothers Inc. and its predecessor, Shearson Lehman Brothers Holdings Inc.,
since 1985. Mr. Caldwell spent 32 years at Ford Motor Company where he was
Chairman of the Board of Directors and Chief Executive Officer from 1980 to
1985 and a Director from 1973 through 1990. Mr. Caldwell is a Director of
Zurich Holding Company of America, Inc., Zurich Reinsurance Centre Holdings,
Inc., American Guarantee & Liability Insurance Company (a Zurich affiliate),
The Mexico Fund, MT Investors, Inc. and Russell Reynolds Associates, Inc. He
has served as a Director of CasTech Aluminum Group Inc., the Chase Manhattan
Bank Corporation, the Chase Manhattan Bank, N.A., Digital Equipment
Corporation, Federated Department Stores Inc., Kellogg Company, Shearson
Lehman Brothers Holdings, Inc. and Specialty Codings International, Inc.
Edward Conard, 40, has served as a Director of the Company since August
1994. He has been a Managing Director of Bain since March 1993. Mr. Conard is
a Director of Medical Specialties Group, Inc. Mr. Conard has served as a
Director of Wasserstein Perella and Company, an investment banking firm that
specializes in mergers and acquisitions. Previously, he was a Vice President
of Bain & Company, where he headed the firm's operations practice area.
Thomas P. Salice, 37, has served as a Director of the Company since July
1994. Mr. Salice is a Managing Director of AEA Investors Inc. ("AEA") and has
been associated with AEA since May 1989. Mr. Salice is also a Director of
Mettler-Toledo, Inc. and Manchester Tank & Equipment Company.
Marc Wolpow, 38, has served as a Director of the Company since August 1994.
He has been a Managing Director of Bain since January 1993 and was a Principal
of Bain Venture Capital from May 1990 through December 1992. From 1988 to
April 1990, Mr. Wolpow was a Vice President in the corporate finance
department of Drexel Burnham Lambert, Incorporated. Mr. Wolpow is a Director
of American Pad & Paper Company, Professional Services Industries, Inc.,
Miltex Instruments Inc. and Paper Acquisition Corporation.
2. RATIFICATION OF AUDITORS
The Board of Directors recommends that the stockholders vote FOR the
ratification of the firm of Coopers & Lybrand L.L.P. as the auditors to audit
the financial statements of the Company and certain of its subsidiaries for
the fiscal year ending December 31, 1997. It is intended that the Proxies in
the form enclosed with this Proxy Statement will be voted for such firm unless
stockholders specify to the contrary in their Proxies or specifically abstain
from voting on this matter.
2
<PAGE>
Representatives of Coopers & Lybrand L.L.P. are expected to be present at
the Annual Meeting of Stockholders. They will have the opportunity to make
statements if they desire to do so and will be available to respond to
appropriate questions.
3. OTHER BUSINESS
The Board of Directors does not know of any other business to be presented
at the Annual Meeting of Stockholders. If any other matters properly come
before the meeting, however, it is intended that the persons named in the
enclosed form of Proxy will vote said Proxy in accordance with their best
judgment.
DIRECTORS MEETINGS AND COMPENSATION
DIRECTORS MEETINGS
The Board of Directors held 6 meetings during the year ended December 31,
1996. The Audit Committee, which currently consists of Messrs. Bekenstein,
Caldwell and Salice, oversees actions taken by the Company's independent
auditors, recommends the engagement of auditors and reviews the Company's
internal audits. The Compensation Committee, which currently consists of
Messrs. Conard and Salice, approves the compensation of executives of the
Company, makes recommendations to the Board of Directors with respect to
standards for setting compensation levels and administers the Company's
incentive plans. There is no standing nominating committee. During fiscal year
1996, all of the Company's directors except for Mr. Wolpow participated in
excess of 75% of the aggregate of the meetings of the Board of Directors and
the meetings of committees of the Board of Directors of which such director
was a member. During fiscal year 1996, the Compensation Committee met three
times and the Audit Committee met two times.
Charles L. Brown resigned in November 1996 as a Director of the Company.
Pursuant to the provisions of the Company's Bylaws, the Board of Directors
resolved to fix the number of members of the Board of Directors at six.
COMPENSATION OF DIRECTORS
Directors who are full-time employees of the Company receive no additional
compensation for serving on the Board or its committees. Outside Directors
each receive a retainer of $15,000 per year (other than the Chairman who, if
an Outside Director, will receive an annual fee of $30,000) and $750 for each
Board meeting and committee meeting that they attend. All directors are
reimbursed for expenses incurred in connection with their attendance at
meetings.
3
<PAGE>
MANAGEMENT COMPENSATION
SUMMARY COMPENSATION TABLE
The following Summary Compensation Table discloses, for the fiscal years
indicated, individual compensation information on Mr. Berthiaume and the four
other most highly compensated executive officers (collectively, the "named
executives") who were serving as executive officers at the end of fiscal year
1996.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------
SECURITIES
UNDERLYING
OPTIONS/SARS ALL OTHER
FISCAL SALARY BONUS (#) OF COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) SHARES ($)
- --------------------------- ------ ------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Douglas A. Berthiaume.... 1996 299,990 352,200(1) 38,500 22,696(2)(3)(4)
Chairman, President, 1995 275,002 548,414(5)(6) -- 26,914(7)(8)(9)
Chief Executive Officer 1994 318,329 1,599,517(10)(11) 1,325,240(12) 9,550(13)(14)(15)
Arthur G. Caputo......... 1996 160,004 164,480(1) 22,000 11,446(2)(3)(4)
Senior Vice President, 1995 149,994 345,714(5)(6) -- 15,685(7)(8)(9)
Sales and Marketing 1994 170,000 601,100(10)(11) 491,410(12) 5,100(15)(16)(17)
Thomas W. Feller......... 1996 160,004 164,480(1) 22,000 13,655(2)(3)(4)
Senior Vice President, 1995 155,012 352,714(5)(6) -- 16,236(7)(8)(9)
Operations 1994 175,668 601,637(10)(11) 491,410(12) 5,270(13)(14)(15)
John R. Nelson .......... 1996 164,996 169,620(1) 22,000 11,053(2)(3)(4)
Senior Vice President, 1995 160,004 359,714(5)(6) -- 18,086(7)(8)(9)
Research and Development 1994 181,993 602,170(10)(11) 491,410(12) 5,460(14)(15)(17)
Philip S. Taymor ........ 1996 160,004 164,480(1) 22,000 10,582(2)(3)(4)
Senior Vice President, 1995 149,994 395,714(5)(6) -- 16,799(7)(8)(9)
Finance and Administra-
tion and
Chief Financial Officer 1994 138,328 601,270(10)(11) 491,410(12) 4,150(14)(15)(17)
</TABLE>
- --------
(1) Reflects bonus earned under the Company's Pay for Performance Plan in
1996 which was paid in 1997.
(2) Includes amounts contributed for the benefit of the named executive under
the Waters 401(k) Restoration Plan in 1996 as follows: Mr. Berthiaume
$18,508, Mr. Caputo $5,600, Mr. Feller $5,308, Mr. Nelson $6,933 and Mr.
Taymor $5,331.
(3) Includes amounts contributed for the benefit of the named executive under
the Waters Employee Investment Plan in 1996 as follows: Mr. Berthiaume
$1,404, Mr. Caputo $4,454, Mr. Feller $4,612, Mr. Nelson $3,296 and Mr.
Taymor $4,588.
(4) Includes amounts contributed for the benefit of the named executive under
Group Term Life Insurance in 1996 as follows: Mr. Berthiaume $2,784, Mr.
Caputo $1,392, Mr. Feller $3,735, Mr. Nelson $824 and Mr. Taymor $663.
(5) Reflects bonus earned under the Company's Pay for Performance Plan in
1995 which was paid in 1996 as follows: Mr. Berthiaume $412,700, Mr.
Caputo $210,000, Mr. Feller $217,000, Mr. Nelson $224,000 and Mr. Taymor
$210,000.
(6) Reflects one-time cash bonus earned in 1995 and paid in 1996 in
connection with certain productivity programs implemented by senior
management as follows: Mr. Berthiaume $135,714, Mr. Caputo $135,714, Mr.
Feller $135,714, Mr. Nelson $135,714 and Mr. Taymor $185,714.
(7) Includes amounts contributed for the benefit of the named executive under
the Waters 401(k) Restoration Plan in 1995 as follows: Mr. Berthiaume
$21,216, Mr. Caputo $8,504, Mr. Feller $10,422, Mr. Nelson $10,840 and
Mr. Taymor $11,503.
(8) Includes amounts contributed for the benefit of the named executive under
the Waters Employee Investment Plan in 1995 as follows: Mr. Berthiaume
$3,481, Mr. Caputo $6,367, Mr. Feller $4,809, Mr. Nelson $4,752 and Mr.
Taymor $4,867.
(9) Includes amounts contributed for the benefit of the named executive under
Group Term Life Insurance in 1995 as follows: Mr. Berthiaume $2,219, Mr.
Caputo $816, Mr. Feller $1,006, Mr. Nelson $2,494 and Mr. Taymor $429.
4
<PAGE>
(10) Includes the aggregate amount of deferred compensation and cash paid by
Millipore to the named executive in connection with the divestiture of
the Company as follows: Mr. Berthiaume $1,570,000, Mr. Caputo $585,000,
Mr. Feller $585,000, Mr. Nelson $585,000 and Mr. Taymor $585,170.
(11) Includes amounts of bonus earned by the named executive under the
Company's Pay for Performance Plan in 1994 which was paid in 1995 as
follows: Mr. Berthiaume $29,517, Mr. Caputo $16,100, Mr. Feller $16,637,
Mr. Nelson $17,170 and Mr. Taymor $16,100.
(12) Reflects grant of options to purchase shares of Common Stock. Certain of
such options were granted at an exercise price equal to the estimated
fair value of the Common Stock at the date of grant and the other options
were granted at an exercise price in excess of such estimated fair value.
All such options have a term of ten years. The Company amended the option
agreements in the third fiscal quarter of 1995. After giving effect to
such amendment, the named executive officers held the following options:
Mr. Berthiaume, 282,562 options at an exercise price of $4.07 per share,
282,562 options at an exercise price of $9.50 per share, and 760,116
options at an exercise price of $16.28 per share; and each of Messrs.
Caputo, Feller, Nelson and Taymor, 110,567 options at an exercise price
of $4.07 per share; 110,567 options at an exercise price of $9.50 per
share, and 270,276 options at an exercise price of $16.28 per share. The
Company also amended the option agreements in the fourth fiscal quarter
of 1995 to vest an aggregate of 1,099,535 options at the $9.50 exercise
price.
(13) Includes amounts contributed by Millipore for the benefit of the named
executive under the Millipore Supplemental Executive Retirement Plan as
follows: Mr. Berthiaume $3,720; and Mr. Feller $640.
(14) Includes amounts contributed by Millipore for the benefit of the named
executive under the Millipore Savings Plan as follows: Mr. Berthiaume
$3,080; Mr. Feller $3,080; Mr. Nelson $3,860; and Mr. Taymor $2,650.
(15) Includes amounts contributed by the Company for the benefit of the named
executive under the Waters 401(k) Restoration Plan as follows: Mr.
Berthiaume $2,750; Mr. Caputo $750; Mr. Feller $1,550; Mr. Nelson $1,200;
and Mr. Taymor $655.
(16) Includes $3,600 contributed by Millipore for the benefit of Mr. Caputo
under the Millipore Participation Plan.
(17) Includes amounts contributed for the benefit of the named executive under
the Waters Employee Investment Plan as follows: Mr. Caputo $750; Mr.
Nelson $400; and Mr. Taymor $845.
OPTION GRANTS IN FISCAL YEAR 1996
The following table shows information regarding stock option grants to the
named executives in fiscal year 1996:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
OF STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
------------------------------------------------------ ---------------------------
NUMBER OF
SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS GRANTED
OPTIONS TO EMPLOYEES IN EXERCISE PRICE EXPIRATION
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
---- ----------- ---------------- -------------- ---------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
Douglas A. Berthiaume... 38,500 10.76% 34.21 05/24/06 $ 548,606 $ 1,653,719
Arthur G. Caputo........ 22,000 6.15% 34.21 05/24/06 $ 313,489 $ 944,982
Thomas W. Feller........ 22,000 6.15% 34.21 05/24/06 $ 313,489 $ 944,982
John R. Nelson.......... 22,000 6.15% 34.21 05/24/06 $ 313,489 $ 944,982
Philip S. Taymor........ 22,000 6.15% 34.21 05/24/06 $ 313,489 $ 944,982
</TABLE>
5
<PAGE>
AGGREGATED OPTION EXERCISES, HOLDINGS AND YEAR END VALUES FOR FISCAL YEAR 1996
There were no exercises of stock options during fiscal year 1996 by the
named executives. The following table shows information regarding the number
and value of any unexercised stock options held by such executives as of
December 31, 1996:
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE
UNDERLYING UNEXERCISED MONEY OPTIONS AT
OPTIONS AT FY-END (#) FY-END ($) EXERCISABLE/
NAME EXERCISABLE/UNEXERCISABLE UNEXERCISABLE(1)
---- ------------------------- -----------------------
<S> <C> <C>
Douglas A. Berthiaume........ 699,632/664,108 $13,157,105/$10,888,003
Arthur G. Caputo............. 262,903/250,507 $ 4,995,260/$ 4,030,829
Thomas W. Feller............. 262,903/250,507 $ 4,995,260/$ 4,030,829
John R. Nelson............... 262,903/250,507 $ 4,995,260/$ 4,030,829
Philip S. Taymor............. 262,903/250,507 $ 4,995,260/$ 4,030,829
</TABLE>
- --------
(1)Value is based on the closing price of the Common Stock on December 31,
1996 of $30.375.
WATERS CORPORATION RETIREMENT PLANS
Substantially all full-time United States employees of Waters participate in
the Waters Corporation Retirement Plan (the "Retirement Plan"), a defined
benefit pension plan intended to qualify under Section 401(a) of the Internal
Revenue Code (the "Code"). The Retirement Plan is a cash balance plan whereby
each participant's benefit is determined based on annual pay credits and
interest credits made to each participant's notional account. In general, a
participant becomes vested under the Retirement Plan upon the completion of
five years of service. The normal retirement age under the plan is age 65.
Pay credits range from 4.0% to 9.5% of compensation, depending on the
participant's amount of compensation and length of service with the Company.
Compensation refers to pension eligible earnings of the participant (limited
to $150,000 for 1996), which includes base pay, overtime, certain incentive
bonuses, commissions and pre-tax deferrals, but excludes special items such as
stock awards, moving expense reimbursements and employer contributions to
retirement plans. Interest credits are based on the one-year constant maturity
Treasury Bill rate on the last day of the preceding plan year plus 0.5%,
subject to a 5.0% minimum and 10.0% maximum rate.
The Company also maintains a non-qualified, supplemental plan which provides
benefits that would be paid by the Retirement Plan except for the limitations
on pensionable pay and benefit amounts currently imposed by the Code.
The aggregate estimated annual benefit payable from the Retirement Plan and
supplemental plan to Messrs. Berthiaume, Caputo, Feller, Nelson and Taymor
upon normal retirement is $93,000, $60,000, $23,000 $39,000 and $79,000,
respectively. As of December 31, 1996, Messrs. Berthiaume, Caputo, Feller,
Nelson and Taymor had approximately 16, 19, 20, 20 and 16 years of credited
service, respectively, under the Retirement Plan.
COMPENSATION COMMITTEE INTERLOCKS
The Compensation Committee currently consists of Mr. Edward Conard and Mr.
Thomas Salice. Prior to the Company's initial public offering, each of Mr.
Conard and Mr. Salice also served as an officer of the Company.
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board of Directors is responsible for
administering the compensation of senior executives of the Company and is
comprised of two independent non-employee directors.
The Committee's compensation philosophy is to focus management on achieving
financial and operating objectives which provide long-term stockholder value.
The Company's executive compensation programs are designed to align the
interest of senior management with those of the Company's stockholders. There
are three key components of executive compensation: base salary, pay for
performance (annual incentive), and long-term performance incentive. It is the
intent of these programs to attract, motivate and retain senior executives. It
is the philosophy of the Compensation Committee to allocate a significant
portion of cash compensation to variable performance-based compensation in
order to reward executives for high achievement.
6
<PAGE>
Base Salary
The salaries for senior executives are reviewed annually and are based upon
a combination of factors including past individual performance, competitive
salary levels, and an individual's potential for making significant
contributions to future Company performance. Increases to senior executives'
base salaries in fiscal year 1996 were determined by the Committee after
subjective consideration of the Company's financial performance in fiscal year
1995, individual position and responsibilities, and general and industry
market surveys for comparable positions. No senior executives received any
increase in base salary in fiscal year 1994 or in fiscal year 1995.
Annual Incentive
The Pay for Performance Plan, an annual incentive award plan, is the
variable pay program for officers and other senior executives of the Company.
The purpose of the Pay for Performance Plan is to provide added motivation and
direction to senior executives to achieve operating results based on operating
budgets established at the beginning of the year. The Compensation Committee
evaluates the audited results of the Company's performance against previously
established performance targets in order to determine the individual bonuses
under the Pay for Performance Plan. The Company achieved a level of
performance required to pay bonuses for fiscal year 1996 based upon overall
Company performance.
Long-Term Performance Incentive Plan
Stock options are an important component of senior executive compensation
and the Long-Term Performance Incentive Plan has been designed to motivate
senior executives and other key employees to contribute to the long-term
growth of stockholder value. Under the 1994 Amended and Restated Stock Option
Plan, stock options were also granted to the Company's senior executives and
other key individuals. The Compensation Committee authorizes awards under the
plan based upon recommendations from the Company's President.
Other Compensation
The Company's senior executives are also eligible to participate in other
compensation plans that are generally offered to other employees, such as the
Company's investment and savings plan, the retirement plan, the employee stock
purchase plan, and the supplemental employee retirement plans.
Chief Executive Compensation
Based on its evaluation of the Company's overall performance and the
salaries and compensation practices of peer companies of comparable size, the
Compensation Committee elected to increase Mr. Berthiaume's annual base salary
for fiscal year 1996 to $300,000 from $275,000. Under the Pay for Performance
Plan, the Compensation Committee awarded Mr. Berthiaume a bonus of $352,200
for fiscal year 1996 based upon the Company's performance as compared to pre-
established criteria and targets. Mr. Berthiaume received a stock option grant
of 38,500 shares (at an option price equal to 115% of the fair market value on
the date of grant), based on the subjective considerations described under the
1994 Amended and Restated Stock Option Plan.
Limit on Deductible Compensation
The Compensation Committee has considered the application of Section 162(m)
of the Code to the Company's compensation practices. Section 162(m) limits the
tax deduction available to public companies for annual compensation paid to
senior executives in excess of $1 million unless the compensation qualifies as
performance-based. The annual cash compensation paid to individual executives
does not approach the $1 million threshold, and its is believed that the stock
incentive plans of the Company qualify as performance-based. Therefore, the
Committee does not believe any further action is necessary in order to comply
with Section 162(m). From time to time, the Committee will reexamine the
Company's compensation practices and the effect of Section 162(m).
Mr. Edward Conard Mr. Thomas Salice
7
<PAGE>
PERFORMANCE GRAPH
The following graph compares the cumulative total return on $100 invested on
November 17, 1995 (the first day of public trading of the Common Stock)
through December 31, 1996 (the last day of public trading of the Common Stock
in fiscal year 1996) in the Common Stock of the Company, the NYSE Market Index
and the SIC Code 3823 Index. The return of the indices is calculated assuming
reinvestment of dividends during the period presented. The Company has not
paid any dividends since its initial public offering. The stock price
performance shown on the graph below is not necessarily indicative of future
price performance.
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
AMONG WATERS CORPORATION
NYSE MARKET INDEX AND SIC CODE INDEX
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
New York Process Control
Waters Stock Exchange Instruments Index
Date Corporation Market Index (SIC Code 3823)
- ---- ----------- -------------- -----------------
<S> <C> <C> <C>
11/17/95 100.00 100.00 100.00
12/31/95 120.66 102.31 99.05
12/31/96 200.83 123.24 116.41
</TABLE>
8
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The table below sets forth certain information regarding beneficial
ownership of Common Stock as of March 24, 1997, by each person or entity known
to the Company who owns of record or beneficially five percent or more of the
Common Stock, by each named executive officer and director nominee and all
executive officers and director nominees as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF
OUTSTANDING
NUMBER OF SHARES COMMON
NAME OF COMMON STOCK(1) STOCK(1)
---- ----------------- -------------
<S> <C> <C>
5% STOCKHOLDERS
Pilgrim Baxter & Associates, Ltd. ........... 2,392,900 8.27
1255 Drummers Lane, Suite 300
Wayne, Pennsylvania 19087-1590
DIRECTORS AND EXECUTIVE OFFICERS
Douglas A. Berthiaume (2).................... 1,356,001 4.58
Arthur G. Caputo (2)......................... 408,764 1.40
Thomas W. Feller (2)......................... 393,290 1.35
John R. Nelson (2)........................... 323,228 1.11
Philip S. Taymor (2)......................... 406,763 1.39
Joshua Bekenstein (3)........................ 0 *
Philip Caldwell (3)(4)....................... 32,143 *
Edward Conard (5)............................ 0 *
Thomas P. Salice (3)(5)(6)................... 38,592 *
Marc Wolpow.................................. 0 *
All Directors and Executive Officers as a
group (12 persons)........................... 3,651,154 11.77
</TABLE>
- --------
*represents less than 1% of the total.
(1) Figures are based upon 28,929,595 shares of Common Stock outstanding as of
March 24, 1997. The figures assume exercise by only the stockholder or
group named in each row of all options for the purchase of Common Stock
held by such stockholder or group which are exercisable within 60 days of
March 24, 1997.
(2) Includes share amounts which the named individuals have the right to
acquire through the ownership of options which are exercisable within 60
days of March 24, 1997 as follows: Mr. Berthiaume 699,632, Mr. Caputo
262,903, Mr. Feller 262,903, Mr. Nelson 262,903 and Mr. Taymor 262,903.
(3) Member of the Audit Committee.
(4) Includes 31,782 shares held in trust for Mr. Caldwell's wife, Betsey C.
Caldwell, and for which shares he disclaims beneficial ownership.
(5) Member of the Compensation Committee.
(6) Includes 6,335 shares in a family trust, for which shares he disclaims
beneficial ownership.
9
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
EMPLOYMENT AGREEMENTS
None of the executive officers have employment agreements with the Company
or any of its affiliates. None of them have any agreements entitling them to
termination or severance payments upon a change in control of the Company nor
a change in the named executive's responsibilities following a change of
control. However, each of the named executive officers is party to a
Management Subscription Agreement with the Company pursuant to which each
named executive officer has purchased shares of Common Stock in the Company.
Each executive officer is also the grantee of certain stock options from the
Company under one or more Stock Option Agreements. Pursuant to the terms of
such agreements the stock purchased under such agreements or available upon
exercise of the options may be subject to repurchase by the Company at the end
of such executive's employment with the Company. The Management Subscription
Agreements and the Stock Option Agreements also impose certain additional
restrictions upon the executive, including confidentiality obligations,
assignment of the benefit of inventions and patents to the Company, a
requirement that the executive devote his or her exclusive business time to
the Company, and noncompete restrictions which extend in certain cases,
depending on the basis on which his or her employment is terminated, for a
period of up to 24 months following his or her termination date.
LOANS TO EXECUTIVE OFFICERS
The Company has made loans, in an aggregate principal amount of $2,342,303
million, to certain executive officers of the Company. These loans are all in
amounts in excess of $60,000, are full recourse loans and are secured by a
pledge of certain of the shares of Common Stock owned by such executive
officers. The following executive officers' loans are as of December 1, 1995,
bear interest at 5.83% and have a maturity date of December 1, 2000: Douglas
A. Berthiaume, Chairman, President and Chief Executive Officer, $650,919;
Arthur G. Caputo, Senior Vice President, Sales and Marketing, $245,825; Thomas
W. Feller, Senior Vice President, Operations, $245,825; Brian K. Mazar, Vice
President, Human Resources and Investor Relations, $247,843; John R. Nelson,
Senior Vice President, Research and Development, $204,854; Devette Russo, Vice
President, Chromatography Chemistry Division, $211,190; and Philip S. Taymor,
Senior Vice President, Finance and Administration and Chief Financial Officer,
$245,825. The following executive officers' loans are as of January 8, 1996,
bear interest at 5.65% and have a maturity date of January 8, 2001: Mr.
Berthiaume $92,939, Mr. Caputo $34,629, Mr. Feller $34,617, Mr. Mazar $34,629,
Mr. Nelson $28,858, Ms. Russo $29,750 and Mr. Taymor $34,629.
REGISTRATION RIGHTS AGREEMENT
The Company is party to a registration rights agreement (the "Registration
Rights Agreement") among all of the Company's existing stockholders. Pursuant
to the terms of the Registration Rights Agreement, certain of the Company's
stockholders have the right to require the Company, at the sole expense of the
Company and subject to certain limitations, to register under the Securities
Act of 1933 (the "Securities Act") all or part of the shares of Common Stock
(the "Registrable Securities") held by them. All of the Company's existing
stockholders are entitled to unlimited "piggyback" registrations. In
connection with all registrations, the Company will agree to indemnify all
holders of Registrable Securities against certain liabilities, including
liabilities under the Securities Act. Registrations pursuant to the
Registration Rights Agreement will be made on the appropriate registration
form and may be underwritten registrations.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company has entered into agreements to provide indemnification for its
directors and executive officers in addition to the indemnification provided
for in the Company's Amended and Restated Certificate of Incorporation and
Amended and Restated Bylaws.
10
<PAGE>
DIRECTOR AND OFFICER AND TEN PERCENT
STOCKHOLDER SECURITIES REPORTS
The federal securities laws require the Company's directors and officers,
and persons who own more than ten percent of the Company's Common Stock, to
file with the Securities and Exchange Commission, the New York Stock Exchange
and the Secretary of the Company initial reports of ownership and reports of
changes in ownership of the Common Stock of the Company. All of the Company's
officers filed reports late during the fiscal year ended December 31, 1996.
Except for the foregoing, to the Company's knowledge, based solely on review
of the copies of such reports furnished to the Company and written
representations that no other reports were required, during the fiscal year
ended December 31, 1996 all of the Company's officers, directors and greater-
than-ten-percent beneficial owners made all required filings.
STOCKHOLDER PROPOSALS
Proposals of stockholders to be presented at the 1998 Annual Meeting of
Stockholders must be received by the Secretary of the Company by November 4,
1997 to be considered for inclusion in the Company's Proxy Statement and form
of proxy relating to that meeting. It is anticipated that the 1998 Annual
Meeting will be scheduled for May 5, 1998.
11
<PAGE>
1444-PS-97
<PAGE>
The Officers and Directors of Waters Corporation
cordially invite you to attend
the Annual Meeting of Stockholders
to be held at Waters Corporation, 34 Maple Street,
Milford, Massachusetts on Tuesday, May 6, 1997 at 11:00 a.m.
Douglas A. Berthiaume
/s/ Douglas Berthiaume
Chairman, President and Chief Executive Officer
Please sign, date and return your proxy in the envelope provided even if you
plan to attend the meeting.
DETACH HERE
[X] PLEASE MARK
VOTES AS IN
THIS EXAMPLE.
1. To elect a Board of Directors for the ensuing year.
Nominees: Joshua Bekenstein, Douglas A. Berthiaume, Philip Caldwell, Edward
Conard, Thomas P. Salice, Marc Wolpow
FOR WITHHELD
[ ] [ ]
[ ]
-------------------------------------------------
For all nominees except as noted above
FOR AGAINST ABSTAIN
2. To ratify the selection of the firm of [ ] [ ] [ ]
Coopers & Lybrand L.L.P. as auditors
for the fiscal year ending December
31, 1997
3. To transact such other business as may properly come before the meeting.
MARK HERE MARK HERE
FOR ADDRESS IF YOU PLAN
CHANGE AND TO ATTEND
NOTE AT LEFT [ ] THE MEETING [ ]
(If signing as attorney, executor, trustee or guardian, please give your full
title as such. If shares are held jointly, each holder should sign.)
Signature: Date: Signature: Date:
------------------ ------ ----------------- ------
<PAGE>
DIRECTIONS TO
WATERS CORPORATION
ANNUAL MEETING
DATE: MAY 6, 1997
MEETING LOCATION: WATERS CORPORATION
34 MAPLE STREET
MILFORD, MA 01757
TEL (508) 478-2000
FROM BOSTON - Mass Turnpike West to Route 495, take Route 495 South to exit 19,
(Milford/Medway, Rt. 109), turn right at end of exit onto Route 109 West,
continue approximately 1/2 mile, turn left onto Birch St. (at Richard's
Restaurant). Take right at end of Birch St. and follow the signs to Waters.
FROM THE WEST - Mass Turnpike East to Route 495, take Route 495 South to exit
19, (Milford/Medway, Rt. 109), turn right at end of exit onto Route 109 West,
continue approximately 1/2 mile, turn left onto Birch St. (at Richard's
Restaurant). Take right at end of Birch St. and follow the signs to Waters.
FROM THE NORTH OR SOUTH - take Route 495 to exit 19, (Milford/Medway, Rt. 109),
turn at end of exit onto Route 109 West, continue approximately 1/2 mile,
turn left onto Birch St. (at Richard's Restaurant). Take right at end of Birch
St. and follow the signs to Waters.
PLEASE NOTE: THESE DIRECTIONS CAN BE REPEATED BY CALLING A RECORDING AT
(508) 482-3314.
DETACH HERE
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WATERS CORPORATION
FOR ANNUAL MEETING OF STOCKHOLDERS - MAY 6, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PROXY
The undersigned hereby appoints Douglas A. Berthiaume and Philip S. Taymor,
and each or either of them, as the true and lawful attorneys of the undersigned,
with full power of substitution and revocation, and authorizes them, and each of
them, to vote all the shares of capital stock of the Corporation which the
undersigned is entitled to vote at said meeting and any adjournment thereof upon
the matters specified below and upon such other matters as may be properly
brought before the meeting or any adjournments thereof, conferring authority
upon such true and lawful attorneys to vote in their discretion on such other
matters as may properly come before the meeting and revoking any proxy
heretofore given.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO
DIRECTION IS GIVEN, WILL BE VOTED FOR THE ELECTION OF THE DIRECTORS AND FOR
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THE PROPOSAL IN ITEM 2, AND AUTHORITY WILL BE DEEMED GRANTED UNDER PROPOSAL 3.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE [SEE REVERSE SIDE]
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Waters Corporation on Form S-8 (File No. 333-18371) of our report dated January
22, 1997, on our audits of the consolidated financial statements of Waters
Corporation and Subsidiaries as of December 31, 1995 and 1996, and for the
period August 19, 1994 to December 31, 1994 and the years ended December 31,
1995 and 1996, which report is included in this Annual Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
March 25, 1997
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement on
Form S-8 (File No. 333-18371) of our report which includes an explanatory
paragraph addressing certain costs and expenses presented in the financial
statements which represent allocations and management's estimates of the costs
of services provided by Millipore Corporation, dated February 10, 1995, on our
audit of the financial statements of Waters Chromatography Division of Millipore
Corporation (the "Predecessor") for the period January 1, 1994 to August 18,
1994, which report is included in this Annual Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
March 25, 1997
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<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 639
<SECURITIES> 0
<RECEIVABLES> 89,824
<ALLOWANCES> 1,712
<INVENTORY> 47,351
<CURRENT-ASSETS> 144,032
<PP&E> 94,506
<DEPRECIATION> 19,729
<TOTAL-ASSETS> 365,502
<CURRENT-LIABILITIES> 82,805
<BONDS> 210,470
7,153
0
<COMMON> 289
<OTHER-SE> 57,491
<TOTAL-LIABILITY-AND-EQUITY> 365,502
<SALES> 391,113
<TOTAL-REVENUES> 391,113
<CGS> 145,254
<TOTAL-COSTS> 151,354
<OTHER-EXPENSES> 193,930
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,740
<INCOME-PRETAX> 31,089
<INCOME-TAX> 11,230
<INCOME-CONTINUING> 19,859
<DISCONTINUED> 0
<EXTRAORDINARY> (22,264)
<CHANGES> 0
<NET-INCOME> (2,405)
<EPS-PRIMARY> $(.11)
<EPS-DILUTED> $(.11)
</TABLE>
