<PAGE>
UNITED STATES
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, 1997
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 registered pursuant to Section 12(b) of the Act: NONE
Securities 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 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 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)
State the aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 23, 1998: $1,532,334,801.
Indicate the number of shares outstanding of the registrant's common stock as of
March 23, 1998: 29,790,227.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1997 Annual Report to Stockholders are incorporated by reference
in Parts I and II.
Portions of the proxy statement for the 1998 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
<TABLE>
<CAPTION>
Index No. PAGE
- --------- ----
PART I
<S> <C> <C>
1. Business............................................................................ 3
2. Properties.......................................................................... 6
3. Legal Proceedings................................................................... 7
4. Submission of Matters to a Vote of Security Holders................................. 8
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters............... 8
6. Selected Financial Data............................................................. 8
7. Management's Discussion and Analysis of Financial Condition and Results
of Operations....................................................................... 9
8. Financial Statements and Supplementary Data......................................... 9
9. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure................................................................ 9
PART III
10. Directors and Executive Officers of the Registrant................................... 9
11. Executive Compensation............................................................... 9
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...................... 10
Signatures........................................................................... 12
</TABLE>
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,
the operating subsidiary. 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. The Company has made two significant acquisitions since its
inception: TA Instruments, Inc. in May 1996 and Micromass Limited in October
1997.
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 1997 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. Also,
with its acquisition of Micromass Limited ("Micromass") in September 1997,
Waters is a market leader in mass spectrometry, which can be integrated and used
along with other analytical instruments, especially HPLC.
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 instrument types. 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 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 HPLC
revenues.
3
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Consumable products and service comprise the remaining one third of annual
HPLC 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 expanded the Company's product offerings to include
thermal analysis and rheology products. 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
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.
The acquisition of Micromass expands the Company's product offerings in mass
spectrometry instruments. Micromass is a world leader in the development,
manufacture, sale and support of organic, inorganic, stable isotope and ICP mass
spectrometers typically coupled with HPLC, chemical electrophoresis, chemical
electrophoresis chromatography, gas chromatography or elemental analysis
systems. Its products supply a diverse market with a strong emphasis on the life
science, pharmaceutical, biomedical, clinical, environmental and geochemistry
markets worldwide. With the acquisition of Micromass, Waters became one of the
leading worldwide manufacturers of HPLC-MS systems, "hyphenated" analytical
systems that bring together HPLC and mass spectrometry detection. Design
innovations in HPLC-MS interfacing technology have drastically improved the
operating efficiencies of these systems, greatly simplifying their operation,
driving down their overall cost and making them much more affordable for the
average analytical laboratory. These laboratories previously relied on expert
mass spectrometrists to provide them the information they now get in minutes.
The largest market for HPLC-MS is the pharmaceutical market where new drug
development technologies are placing greater demands on laboratories to screen
and analyze new drug compounds. Approximately 88% of Micromass' 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.
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 1997, no customer accounted for
more than 2% of the Company's net sales.
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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 for 1997, 1996 and 1995, were $25.8 million, $20.9 million, and
$17.7 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. The majority of the mass spectrometry products have been
developed at Micromass' facilities in England. At December 31, 1997, there were
approximately 305 employees involved in the Company's research and development
efforts.
SALES AND SERVICE
Waters has the largest sales and service team focused exclusively on HPLC in
the industry. Along with TAI and Micromass, the Company serves its customer
base through over 865 field representatives in 73 sales offices throughout the
world. 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. Waters provides customers with comprehensive product literature
and also makes consumable products available through a dedicated catalog. TAI
and Micromass maintain their own dedicated, specialized and highly experienced
sales and service forces.
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 HPLC 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.
Micromass manufactures its mass spectrometry products at its Manchester, England
facilities.
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. Waters competes in its markets primarily
on the basis of instrument performance, reliability and service and, to a lesser
extent, price. Some competitors have instrument businesses that are much larger
than the Company's business, but are typically less focused on Waters' chosen
markets. Certain competitors have greater financial and other resources than
the Company.
5
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The market for consumable HPLC products, including separation columns, is also
highly competitive but is more fragmented than the analytical 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.
EMPLOYEES
At December 31, 1997, Waters had approximately 2,640 employees. 56% 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.
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.
With respect to the Predecessor operations of the Company's HPLC business,
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 its manufacturing operations 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 19 United States facilities and 68 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.
6
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PRIMARY FACILITY LOCATIONS
LOCATION FUNCTION (1) OWNED/LEASED SQUARE FEET(000'S)
- --------------------------------------------------------------------------------
Etten-Leur, Netherlands D Leased 42
Franklin, MA D Leased 30
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
Wexford, Ireland M Leased 20
Deeside Flintshire, UK M, R, S, D Leased 25
Wilmington, NC M, R, S, D Leased 5
New Castle, DE M, R, S, D Leased 49
Leatherhead, England M, R, S, D Leased 10
Manchester, England M, R, S, D Leased 54
Cheshire, England M, R, S Leased 28
- --------------
(1) M = Manufacturing; R = Research; S = Sales; D = Distribution
Waters operates and maintains 14 field offices in the United States and 59
field offices abroad in addition to sales offices in the primary facilities
listed above. The Company's primary field office locations are listed below.
FIELD OFFICE LOCATIONS (2)
UNITED STATES INTERNATIONAL
- ------------------------------------------------------------------------
Tustin, CA Australia Hungary Russia
Wood Dale, IL Austria India Spain
Fairfax, VA Belgium Italy Sweden
Cary, NC Brazil Japan Switzerland
Morristown, NJ Canada Malaysia Taiwan
Houston, TX Czech Republic Mexico United Kingdom
Pleasanton, CA Denmark Netherlands
Ann Arbor, MI Finland Norway
Charlotte, NC France People's Republic of China
Felton, CA Germany Poland
Rolling Meadows, IL Hong Kong Puerto Rico
Beverly, MA
______________
(2) 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 has asserted a claim contending that Millipore has understated
the amount of assets it is obligated to transfer from the Millipore Retirement
Plan to the Waters successor plan. The Federal court has recently ruled in
favor of Millipore's position with respect to the claim. The Company appealed
the decision in October, 1997. The Company believes it has meritorious
arguments and should prevail although the outcome is not certain.
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Regardless, the outcome is not expected to have a material impact on the
Company's financial position.
The Company, through its subsidiary TAI, asserted a claim against The Perkin-
Elmer Corporation ("PE") alleging patent infringement of three patents owned by
TAI ("the TAI patents"). PE counterclaimed for infringement of a patent owned
by PE ("the PE patent"). PE withdrew its claim for infringement preserving its
right to appeal rulings interpreting the claims of the PE patent. A jury
returned a verdict finding that no valid claims of the TAI patents were
infringed by PE. TAI has appealed the verdict with the U.S. District Court for
the District of Delaware and believes it has meritorious arguments and should
prevail, although the outcome is not certain. The Company believes that any
outcome will not be material to the Company.
The Company has filed suit against Hewlett-Packard Company and Hewlett-
Packard GmbH ("HP"), seeking a declaration that certain products sold under the
mark Alliance do not constitute an infringement of one or more patents owned by
HP or its foreign subsidiaries ("the HP patents"). Similar actions seeking
revocation or nullification of foreign HP patents have been filed in Europe.
The Company believes it has meritorious arguments and should prevail, although
the outcome is not certain. The Company believes that any outcome of the
proceedings 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 EQUITY 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 23, 1998, the Company had approximately 296 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.
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
--------------------- ---- ---
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
March 31, 1997 31 3/8 26
June 30, 1997 37 3/4 23 1/8
September 30, 1997 45 1/4 31 7/16
December 31, 1997 48 7/16 36
Item 6: SELECTED FINANCIAL DATA
Reference is made to information contained in the section entitled
"Selected Financial Data" on page 42 of the 1997 Annual Report, which
information is incorporated herein by reference.
8
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Item 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Reference is made to the information on pages 19 to 23 of the 1997 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 25 to 40 of the 1997 Annual Report together with the
"Report of Independent Accountants" dated January 23, 1998 on page 24 and
"Quarterly Results" on page 41, 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.
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.
9
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PART IV
Item 14: EXHIBITS, FINANCIAL STATEMENT 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 25 to 40 of the 1997 Annual Report, which
information is incorporated herein by reference.
(2) Not Applicable.
(3) List of exhibits:
Exhibit
Number Description of Document
------ -----------------------
2.1 Agreement for the Sale and Purchase of Micromass Limited dated as of
September 12, 1997, between Micromass Limited, Schroder UK Buy-Out
Fund III Trust I and Others, Waters Corporation and Waters
Technologies Corporation. (Incorporated by reference to the
Registrant's Report on Form 8-K, filed on October 8, 1997 as amended
on December 5, 1997.)
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.
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
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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)
13.1 1997 Annual Report to Stockholders.
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.
27.1 Financial Data Schedule for December 31, 1997.
27.2 Restated Financial Data Schedule for September 30, 1997 and June 30,
1997.
27.3 Restated Financial Data Schedule for March 31, 1997 and December 31,
1996.
27.4 Restated Financial Data Schedule for September 30, 1996 and June 30,
1996.
27.5 Restated Financial Data Schedule for March 31, 1996 and December 31,
1995.
27.6 Restated Financial Data Schedule for December 31, 1994.
______________
(1) Incorporated by reference to the Registrant's Report on Form 10-K
dated March 30, 1998.
(2) Incorporated by reference to the Registrant's Registration Statement
on Form S-1 (File No. 333-3810).
(b) Reports on Form 8-K.
Form 8-K was filed on October 8, 1997 and amended Form 8-K was filed on
December 5, 1997, both relating to the acquisition of Micromass Limited.
(c) See (3) above.
(d) Not Applicable.
11
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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 31, 1998 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 31, 1998.
Chairman of the Board of Directors,
Chief Executive Officer, and President
/s/ Douglas A. Berthiaume (principal executive officer)
- ----------------------------------
Douglas A. Berthiaume
Senior Vice President, Finance and
Administration, and Chief Financial
Officer (principal financial officer and
/s/ Philip S. Taymor principal accounting officer)
- ----------------------------------
Philip S. Taymor
/s/ Joshua Bekenstein Director
- ----------------------------------
Joshua Bekenstein
/s/ Michael J. Berendt Director
- ----------------------------------
Michael J. Berendt, PhD
/s/ Philip Caldwell Director
- ----------------------------------
Philip Caldwell
/s/ Edward Conard Director
- ----------------------------------
Edward Conard
/s/ Laurie H. Glimcher Director
- ----------------------------------
Dr. Laurie H. Glimcher
/s/ William J. Miller Director
- ----------------------------------
William J. Miller
/s/ Thomas P. Salice Director
- ----------------------------------
Thomas P. Salice
12
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EXHIBIT 13.1
[Front Cover]
Waters
1997 Annual Report
THE RIGHT FORMULA FOR EXPANSION
[Cover Image]
A photograph of U.S. and foreign coins superpositioned over drawn representation
of a molecule.
[Inside front cover]
Waters Corporation (NYSE:WAT) is the world's leading supplier of high
performance liquid chromatography (HPLC) instrumentation and consumables, as
well as thermal analysis and mass spectrometry (MS) products. Around the world,
Waters(R) products are used by pharmaceutical, industrial, university and
government research & development, quality assurance and environmental testing
laboratories. For these customers, we provide technology that gives scientists
fundamental data on chemical mixtures and materials. Then, by turning these
analytical data into useful information, we help scientists understand the
complexities of chemistry and life itself.
FINANCIAL HIGHLIGHTS
ADJUSTED FINANCIAL RESULTS (A):
<TABLE>
<CAPTION>
($ in thousands, except per share data) 1997 1996 Increase
For the year:
<S> <C> <C> <C>
Net Sales $465,470 $391,113 19%
Operating income $ 92,687 $ 71,229 30%
Percentage of Sales 19.9% 18.2%
Income from operations before income taxes $ 78,967 $ 56,489 40%
Net income available to common stockholders $ 62,270 $ 44,338 40%
Net income per basic common share $ 2.14 $ 1.54 39%
</TABLE>
<TABLE>
<S> <C> <C> <C>
Net income per diluted common share $ 1.94 $ 1.40 39%
Return on average assets 13.6% 13.3%
Return on average equity 65.0% 54.2%
At year end:
Total assets $ 552,059 $365,502
Stockholders' equity $ 62,297 $ 57,780
Employees 2,640 2,135
</TABLE>
(A) Adjusted financial results for 1997 reflect reported results of operations
excluding nonrecurring charges related to the September 1997 acquisition of
Micromass Limited ($16,500 of revaluation of acquired inventory and $55,000 of
expensed in-process research and development). Adjusted financial results for
1996 reflect reported results of operations excluding 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 ($6,100 of
revaluation of acquired inventory, $19,300 of expensed in-process research and
development and $22,264 of extraordinary loss on early retirement of debt).
Excluded amounts had no related tax effects. Net income per basic common share
for 1997 and 1996 were computed based upon weighted average shares of common
stock outstanding of 29,127 and 28,841, respectively. Net income per diluted
common share for 1997 and 1996 were computed based upon weighted average shares
of common stock and equivalents outstanding of 32,168 and 31,628, respectively.
1
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LETTER TO SHAREHOLDERS
[Photographs]
Three photographs of Douglas A. Berthiaume, Chairman, President, and Chief
Executive Officer on a 35mm film strip.
During 1997, we significantly expanded our technological and market reach within
the broad $12 billion analytical instrument marketplace. We began this expansion
with the 1996 acquisition of TA Instruments/TM/, Inc., the world leader in
thermal analysis, and continued this year with the acquisition of Micromass
Limited in September which brought to Waters a world leader in mass
spectrometry. We have increased the market we serve by 50% from the approximate
$2 billion liquid chromatography market to a total of $3 billion of the
analytical laboratory market and stand well-positioned to increase our
penetration of this expanded market.
Over the past several years as we have evaluated important developments in both
the analytical instrument marketplace and in liquid chromatography, we have
focused, in particular, on the growing importance of mass spectrometry and
adopted a long-term strategy to develop this capability. In 1994, we introduced
a first generation benchtop LC-MS System with our Integrity/TM/ product. Then in
1997, we accelerated our efforts in mass spectrometry with the completion of the
merger between Waters and Micromass Limited. We can now offer our customers
state-of-the-art capabilities utilizing quadrupole,
2
<PAGE>
magnetic sector and time-of-flight technologies, and we can deliver these
capabilities through a sales, marketing and distribution organization that is
unsurpassed in the industry. Although Micromass has been part of Waters for only
a brief period, it appears that the combination will be even more powerful than
our original expectations. Optimism is very high at Waters and, more
importantly, within our worldwide customer base. We believe that the field of
LC-MS will be the fastest growing segment of the analytical marketplace over the
next five years and, with the Waters-Micromass combination, no other competitor
is better positioned to develop and advance this technology.
Our core business also performed extremely well in 1997. Led by our Alliance/TM/
System's success, our chromatography business ended the year with strong double-
digit unit growth, and we have continued to introduce innovative products and
maintain a rich new product pipeline to sustain our growth into the future. In
the fourth quarter alone, we introduced a new UV absorbance detector (2487), a
system for combinatorial drug discovery, and our keynote Millennium(R)/32/ which
expands and extends our industry leading chromatography software position.
Millennium/32/, which takes full advantage of the Windows NT(R) platform, is
well suited for the needs of large customers, particularly pharmaceutical
customers, to control and network large numbers of liquid chromatographs.
Other areas of our business have also continued to keep pace. Our TA Instruments
thermal analysis and rheology product lines grew at double-digit rates in 1997,
and we believe, continued to gain marketshare. We also extended our
chromatography consumables position with the acquisition of YMC, Inc. in August,
received very good response to our new Oasis/TM/ HLB sample preparation product
line and continued to introduce successful extensions of our Symmetry(R) column
product line.
Finally, through the Waters Connections/SM/ Program, we reemphasized that
extraordinary customer assurance and support is a foundation of Waters'
commitment to its customers. Waters is earmarking significant resources to
maintain our well-earned reputation for service and support.
Our efforts have been rewarded with outstanding financial performance in 1997.
Sales grew 19% to $465.5 million, while earnings per diluted share before
nonrecurring charges grew by 39% to $1.94 per share. Operating cash flow was an
impressive $113 million for the year. Fourth quarter performance was
particularly outstanding with the strongest incoming order rate in over five
years.
This is an exciting time for Waters. We are challenged by scientists who are
looking for innovative solutions. They have growing requirements for more
productivity, ease-of-use and higher throughput in their analytical
laboratories. Their needs are driving them to more sophisticated systems
incorporating powerful mass detectors and state-of-the-art computer software,
with networking capabilities to link their global research activities.
Their companies are allocating unprecedented levels of human and financial
resources to speed their products to market. I believe Waters is superbly
positioned with products and technologies to continue to aid these chemists in
their mission.
Sincerely,
Douglas A. Berthiaume
Chairman, President, and Chief Executive Officer
3
<PAGE>
DISCOVERING THE MOLECULAR STRUCTURE FOR MANAGED GROWTH
If a successful business could distill and measure the essence of intelligent
growth and expansion, what would the result look like? It should come as no
surprise that, at Waters, we're trying to do just that. After all, we're experts
in helping companies break down matter to its most primary level. So as you
might imagine, we take a relatively scientific approach to our business. While
we invest in many technologies and technology extensions, we employ a
disciplined decision- making process based equally on very sound business and
scientific principles. For example, we will not invest in a technology, no
matter how brilliant, if we cannot identify clear and compelling commercial
applications and if we are not convinced the technology has an extremely good
chance of contributing significantly to our bottom line. Likewise, we will not
enter a marketplace, no matter how promising, without technology that we believe
is superior and will remain so.
Our philosophy has served both us and our shareholders well this past year. And
over the past four decades, it is this kind of thinking that has helped make
Waters one of the most respected names in our industry. Respected by our
customers, our employees and, yes, even our competitors.
In 1996 - 1997, we made a number of important strategic decisions that have
helped us expand our product offerings and the markets where we have a major
presence. These are the first careful steps to help us grow beyond our
traditional High Performance Liquid Chromatography (HPLC) technologies. And
while our roots are clearly still in HPLC, we are becoming more diverse, playing
in a much larger marketplace. By adding mass spectrometry and thermal analysis
to our core strength in HPLC, we can offer more comprehensive solutions to
analytical laboratories worldwide.
The bottom line is that we are now a more diverse company. And one that is
better able to respond to the increasing demands for advances in laboratory
productivity.
[Figure Caption]
In 1997, the market for liquid chromatography products was nearly $2.0 billion.
With recent acquisitions, Waters is now a leader in the thermal analysis and
mass spectrometry arenas, and is participating in a worldwide market estimated
at $3.0 billion annually.
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[Photograph]
Glass flask partially filled with bluish liquid sitting atop columns of
financial (bond market) data.
5
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On the following pages we will tell you more about how business and science
intersect in four elements critical to our continued growth: developing and
bringing to market leading edge technologies, identifying and serving the right
markets, providing uncompromising customer service, and making intelligent
additions to our product offerings. But first, it may be helpful to take a quick
refresher course on exactly what our business is.
In broad terms, Waters and its subsidiaries provide the tools (instrumentation,
software, consumables and customer support) that make very specific analytical
measurements, and then turn these data into usable information. The technologies
we provide scientists -HPLC, thermal analysis and mass spectrometry - supply
information on the chemical composition, material properties and structural
profiles of natural and synthetic substances. This information allows scientific
professionals - chemists, biochemists, and materials scientists - to make better
decisions about the directions their research should take. Or it tells them 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. Our technologies are used on a daily basis by
pharmaceutical, food, beverage, chemical and industrial companies, as well as
government agencies, universities and research institutes.
[Figure Caption]
As of the end of last year, Waters' stock price had increased more than 150%
since its I.P.O. in November of 1995.
6
<PAGE>
[Photograph]
Results of an HPLC peptide analysis laid over business section of a newspaper.
7
<PAGE>
HOW TECHNOLOGICAL BREAKTHROUGHS END UP ON THE BOTTOM LINE
[Photographs]
Bar graph illustrating revenues as follows:
For 1995, $332.9 million
For 1996, $391.1 million
For 1997, $465.5 million
Waters generated revenues of $332.9 million in 1995, $391.1 million in 1996 and
$465.5 million in 1997, putting year over year revenue growth at over 17% since
becoming an independent company in late 1994.
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<PAGE>
Most companies say they want to provide good products for their customers. At
Waters, we take this idea a bit further. Quite simply, our goal is to provide
the best products in every category in which we choose to compete.
Consider the Alliance System. A product of our most significant investment in
research and development, and the result of a remarkable team effort at Waters,
Alliance was launched in 1996. It instantly set a new standard for performance
and reliability in the HPLC industry. It also helped us win customers in
numerous new accounts. And extensions of the Alliance product line will provide
a strong foundation for our HPLC business for many years to come. Later in this
report, we will talk about how our recent acquisition of Micromass Limited, a
mass spectrometry company, allows us to combine complementary technologies to
bring scientists new capabilities in LC-MS that are full of commercial promise.
In 1997, our Millennium/32/ software, the new version of the industry's
best-selling product, redefined chromatography information management. It is the
first true 32-bit program of its kind, and easier to use yet more powerful than
existing software. Written for the Microsoft(R) Windows environment,
Millennium/32/ is the backbone of our networking strategy. It is also year 2000-
compliant. And as many labs migrate to Windows NT and Windows(R) 95,
Millennium/32/ is the logical choice for software standardization.
In addition to the instrument and the software, the third critical element of
analyzing a chemical mixture by HPLC is the HPLC column, which separates a
sample's constituents from one another, so that their concentrations can be
accurately measured. Columns are consumable products, and once a particular
column brand is specified for an HPLC method, regulatory compliance often
dictates that the same column brand be specified for years to come. The Waters
Symmetry(R) line of columns is recognized as being unsurpassed in performance
and column-to-column reproducibility. This reproducibility is important, so
that methods can be transferred to sites around the world and yield exactly the
same results.
Last year Waters launched the Oasis line of single-use, disposable sample
preparation products. Oasis products are used to prepare complex samples such as
plasma for follow-up analysis of drugs and their metabolites by HPLC and LC-MS.
The introduction of this product line gives Waters access to a $50 million
market segment in which we previously did not participate.
[Figure Caption]
Millennium/32/ software (above), Symmetry columns (right), and the Alliance
System (far right) represent the three keys necessary for a successful HPLC
procedure.
[Illustrations]
Line drawings of the following Waters products: Millennium/32/ Software,
Symmetry Columns, and Alliance HPLC System
9
<PAGE>
ANALYZING WHERE AND HOW TO FIND NEW MARKETS
[Photograph]
Three tiered organization chart superpositioned over an illustration of a
molecule. The chart depicts industries and applications relevant to Waters'
business. Chart components read:
Tier 1 - Waters
Tier 2 - Pharmaceutical, Chemical, Environmental, University, Food and Beverage,
Government
Tier 3 - Research and Discovery, Manufacturing, Environmental Testing,
Development, Effluent Monitoring, Regulatory Enforcement
Waters products are hard at work in many of today's most important and fastest
growing industries.
10
<PAGE>
With nearly two thirds of our sales coming from outside of the United States,
our marketplace clearly is not limited by geography. And while our clients
produce everything from diet soda to the latest miracle drugs, they share one
common trait: they need precise scientific tools that they can depend on.
In the HPLC market, currently estimated at $2 billion annually, Waters is the
market share leader. The pharmaceutical industry is our largest market, and all
indications are that it will continue to grow at a rapid pace. Current spending
for research and development is at an all-time high. In addition, regulatory
bodies around the world are making it faster for companies to get important new
drugs to the public. Or use existing drugs for new purposes. These facts, as
well as the aging of the population and a stable pricing environment, should add
up to positive results for companies, such as ours, that provide vital solutions
to this market. What's more, the recent addition of Micromass Limited, and its
mass spectrometry detectors for liquid chromatography, will further help us take
advantage of our strength in the pharmaceutical arena. Liquid chromatography-
mass spectrometry (LC-MS) is one of the fastest growing segments of the HPLC
marketplace. LC-MS is a particularly valuable tool for analyzing drug compounds
during the research and discovery phase.
The chemical industry is another one of our large market segments. Our 1996
acquisition of TA Instruments, Inc. is allowing us to provide a wider range of
products to our chemical industry customers. This past year, TA Instruments
performed extremely well, with growth in the double digits.
As we approach new markets and try to gain a larger share of established ones,
we will increasingly take advantage of our wide range of products. Waters offers
all three keys to the success of the HPLC procedure: a high performance
instrument, powerful data management software and an HPLC column or consumable
element that is of high quality and consistency. Our message to scientists is
that if any one of these pieces is sub-standard, the entire analysis process is
compromised. Our slogan, "It's All Important,SM" refers to the way we feel about
our technologies, and how we sell them as well.
Another important way that we plan to engage new markets is by giving scientists
a better way to move data around the corner or around the globe. This year,
several important customer accounts began the move to standardize their
worldwide software network using our new Millennium/32/ Chromatography Software.
We expect this migration to accelerate in the years to come, and plan to use our
software as our competitive advantage, allowing us to penetrate new accounts
with software, then eventually sell entire systems.
11
<PAGE>
THE RIGHT CHEMISTRY FOR GETTING AND KEEPING CUSTOMERS
[Photograph]
Illustration of unzippered DNA strand. Matching labels on two sides read:
Connections Customer Support
Millennium/32/ Information Management
Alliance Chemical Analysis
Micromass Compound I.D.
TA Instruments Materials Analysis
Symmetry Drug Analysis
Oasis Sample Prep
12
<PAGE>
Nearly 40 years ago, Waters was founded by scientists to serve other scientists.
And while our company has grown to over 2,500 employees worldwide, a dedication
to knowing and serving our customers remains one of our core beliefs. Today, our
employees have an average of 10 years of service with our company, providing
more collective experience than any company in our field.
Last year we took dramatic steps to make our already highly regarded customer
service even better. We introduced Waters Connections program, an entirely new
concept for our industry. Connections accesses our global network of HPLC
experts, our long heritage of scientific leadership and innovative product
technologies and application solutions to provide customers with unprecedented
information, education, performance assurance, support and regulatory compliance
assistance.
Whether it's a difficult question about a complex application or simply advice
on keeping Waters products running at the highest level of performance,
Connections has the answer. An important part of Connections is our Performance
Assurance Programs which make service and maintenance more convenient, allow
customers to budget for this on an annual basis, and provide maximum system
uptime. This preventative maintenance program is proving popular with our
customer base.
Customer service is another area where we are leveraging technological advances
to work more efficiently. Our long history in the business has produced volumes
and volumes of useful information. Customers can now access this unique resource
via our CD-based tools or our Web site, where relevant, up-to-date information
is available for scientists worldwide.
We design every Waters product and service to meet the ever-changing needs of
customers, and we are always on the lookout for future opportunities to expand
our product portfolio and increase market share.
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<PAGE>
TO US, SCIENCE IS A BUSINESS, AND BUSINESS IS A SCIENCE
While we believe that Waters possesses an intellectual capital that is without
peer, there are some other companies who do things quite well, too. And when
they have developed a proven technology that is complementary to ours, and when
there is a good fit, an acquisition makes sense for both scientific and business
reasons.
Such was the case on September 11th, when Waters announced the acquisition of
Micromass Limited, of Manchester, England. This acquisition immediately gives us
a strong competitive position in the mass spectrometry marketplace in general,
and in LC-MS in particular, one of the fastest-growing segments of the liquid
chromatography market. Micromass is a very profitable and well-managed company.
And the addition of world leading MS to our product portfolio allows us to
improve our already strong position with pharmaceutical companies. With this
accretive acquisition, Waters now has leading positions in three complementary
technologies - HPLC, thermal analysis and mass spectrometry. And our potential
marketplace has increased from $2 to $3 billion.
In addition, last year we purchased YMC, Inc., which markets premium HPLC
columns and bulk packing materials for North America. Annual revenues exceed $7
million. This addition nicely augments the very profitable consumables segment
of our business.
In the years to come, we plan to make similar, selective additions to expand our
range of products and technologies.
We hope that the preceding pages have conveyed how we have and how we will
continue marrying good business with good science for good results. It is the
way things have always been done at Waters. And after nearly 40 years, we seem
to be getting the formula down pretty well.
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COMPANY OFFICERS
[Photographs]
10 Photographs of company officers on 35mm film strips. Captions beneath seven
read:
Douglas A. Berthiaume
Chairman, President, and Chief Executive Officer
Thomas W. Feller
Senior Vice President, Operations
Philip S. Taymor
Senior Vice President and Chief Financial Officer
Brian K. Mazar
Vice President, Human Resources and Investor Relations
Devette W. Russo
Vice President, Chromatography Consumables Division
Arthur G. Caputo
Senior Vice President, Worldwide Sales and Marketing
John R. Nelson
Senior Vice President, Research, Development, and Engineering
15
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<PAGE>
FINANCIAL TABLE OF CONTENTS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS..........................19
REPORT OF INDEPENDENT ACCOUNTANTS......................................24
CONSOLIDATED FINANCIAL STATEMENTS......................................25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.............................29
QUARTERLY RESULTS......................................................41
SELECTED FINANCIAL DATA................................................42
DIRECTORY..............................................................44
17
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<PAGE>
WATERS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Waters Corporation (the "Company") is the world's largest manufacturer and
distributor 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. Through its wholly owned
subsidiary TA Instruments, Inc. ("TAI"), the Company is also the world's leader
in thermal analysis, a prevalent and complementary technique used in the
analysis of polymers. Also, through its wholly owned subsidiary Micromass
Limited ("Micromass"), the Company is a market leader in mass spectrometry,
which can be integrated and used along with other analytical instruments,
especially HPLC.
Sales grew by 19% in 1997 and by 17% in 1996. Sales growth accelerated as
a result of increased customer demand for new HPLC products and the effect of
acquisitions. Excluding 1997 nonrecurring charges related to the purchase of
Micromass and 1996 nonrecurring charges related to the purchase of TAI,
operating income for the year ended December 31, 1997 was $92.7 million, a 30%
increase over the $71.2 million generated in 1996. Excluded 1997 nonrecurring
charges were as follows: $16.5 million of revaluation of acquired inventory and
$55.0 million of expensed in-process research and development. 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.
Earnings per diluted common share excluding nonrecurring charges were $1.94 in
1997, a 39% increase over the $1.40 in 1996.
During 1997, approximately 61% 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.
RECENT EVENTS
On September 23, 1997 the Company acquired all of the capital stock of
Micromass, a company headquartered in Manchester, England, for approximately
$175 million in cash, common stock and promissory notes. The acquisition
principally was financed through borrowings under the Company's Bank Credit
Agreement. Micromass develops, manufactures, and distributes mass spectrometry
instruments, products that are complementary to the Company's existing product
offering. Micromass offers products ranging from high-end stand-alone
instruments to smaller, easier-to-use detectors that can be integrated and used
along with other analytical instruments, especially HPLC. Micromass is a global
market leader in the field of mass spectrometry. Net sales for Micromass were
approximately $91 million in 1996.
On September 4, 1997, the Company increased the maximum availability under
its Bank Credit Agreement to $450 million in order to finance the acquisition of
Micromass.
On July 31, 1997, the Company acquired all of the capital stock of YMC,
Inc. ("YMC"), a U.S. based company, for approximately $9 million in cash. YMC
is a manufacturer and distributor of chromatography chemicals and supplies which
augment the Company's consumables business. YMC's 1996 revenues were
approximately $6.5 million.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
NET SALES
Net sales for 1997 were $465.5 million, compared with $391.1 million for the
year ended December 31, 1996, an increase of 19%. Excluding the adverse effects
of a stronger U.S. dollar, net sales increased by 24% in 1997. The Company's
core HPLC business grew by 10%, while the impact of acquired companies resulted
in the remaining 14% points of growth. HPLC growth was generally broad-based
across geographies and end-user markets, but particularly strong in the U.S. and
Europe. Pharmaceutical customer demand was especially strong across all
geographies. The Company's sales of thermal analysis products grew strongly as
well.
GROSS PROFIT
Gross profit for 1997 was $275.7 million compared to $239.8 million for 1996, an
increase of $35.9 million or 15% over the comparable period of the prior year.
Excluding nonrecurring charges for revaluation of acquired inventory related to
purchase accounting for acquisitions ($16.5 million related to Micromass in 1997
and $6.1 million related to TAI in 1996), gross profit increased by 19% in 1997.
Gross profit as a percentage of sales excluding revaluation charges decreased to
62.8% in 1997 from 62.9% in 1996 reflecting the inclusion of Micromass' results
after its September 1997 acquisition. (Micromass' gross margins are lower than
Waters' historical gross margins, but its operating expenses are commensurately
lower, and its operating margins are comparable to those of Waters.)
19
<PAGE>
WATERS CORPORATION AND SUBSIDIARIES
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for 1997 were $167.3 million,
compared to $148.5 million for 1996. As a percentage of net sales, selling,
general and administrative expenses decreased to 36% for 1997 from 38% for 1996,
reflecting continued emphasis on expense controls. The $18.8 million or 13%
increase in total expenditures is primarily the result of including the expenses
of acquired companies.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses were $25.8 million for 1997 compared to $20.9
million for 1996, a $4.9 million or 23% increase from prior year levels. Current
year spending increased with the addition of acquired company spending. The
Company continues to invest significantly in the development of new and improved
HPLC detection, consumable and data products, thermal analysis and rheology
products, and newly acquired mass spectrometry products.
GOODWILL AND PURCHASED TECHNOLOGY AMORTIZATION
Goodwill and purchased technology amortization for 1997 was $6.5 million, an
increase of $1.3 million from the prior year. This increase was primarily
related to the acquisition of Micromass and the inclusion of full-year goodwill
amortization on the 1996 TAI acquisition.
EXPENSED IN-PROCESS RESEARCH AND DEVELOPMENT
In 1997, the Company expensed $55 million of the purchase price for Micromass
related to acquired in-process research and development, which had not reached
technological feasibility and had no alternative future use.
OPERATING INCOME
Operating income for 1997 was $21.2 million, a decrease of $24.6 million from
the prior year. This decrease reflected $71.5 million of non-recurring charges
related to the Micromass acquisition ($16.5 million of revaluation of acquired
inventory and $55 million of expensed in-process research and development).
Excluding revaluation of acquired inventory and expensed in-process research and
development charges in both 1997 and 1996, operating income was $92.7 million
for the year ended December 31, 1997 and represented a $21.5 million or 30%
increase over 1996. Waters improved operating income levels in 1997 on the
strength of sales growth, volume leverage, continued focus on cost reduction in
all operating areas and the accretive impact of acquisitions.
INTEREST EXPENSE, NET
Net interest expense decreased by $1.0 million or 7%, from $14.7 million in 1996
to $13.7 million in 1997. The current year decrease reflected reduced debt
levels for the first nine months of 1997 and more favorable interest rates under
the Bank Credit Agreement, partially offset by the impact of increased debt
levels in the fourth quarter of 1997 due to the Micromass acquisition.
PROVISION FOR INCOME TAXES
The Company's effective income tax rate, excluding nonrecurring, nondeductible
charges related to the revaluation of acquired inventory and expensed in-process
research and development, was 20% in 1997 compared to 19.9% in 1996.
(LOSS) FROM OPERATIONS
Loss from operations for 1997 was $(8.3) million, compared to $19.9 million in
income for 1996. Excluding nonrecurring charges in both years for the
revaluation of acquired inventory and expensed in-process research and
development, the Company generated $63.2 million of income in 1997 compared to
$45.3 million in 1996. The improvement over the prior year was a result of sales
growth, continued focus on cost reductions in all operating areas and the
accretive impact of acquisitions.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
NET SALES
Net sales for 1996 were $391.1 million, compared to $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%. Growth was 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 Alliance/TM/
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.
20
<PAGE>
WATERS CORPORATION AND SUBSIDIARIES
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
$.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.
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. 1996 spending
increased with new HPLC product development programs and the addition of TAI's
research and development expenses. In 1996, Waters introduced its new
Alliance/TM/ systems and a variety of other new products. The Company continued
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, which had not reached
technological feasibility and had no alternative future use.
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 initial
public offering ("IPO").
OPERATING INCOME
Operating income for 1996 was $45.8 million, a decrease of $.6 million from the
prior year. This decrease reflected $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, a nonrecurring 1995 accelerated
compensatory stock option vesting charge of $3.6 million, and 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 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 its IPO, the Company retired
$25 million of Senior Subordinated Notes, and retired all outstanding
indebtedness under its senior credit facility dated August 18, 1994 with
proceeds from the IPO and the 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 Bank
Credit Agreement. The 1996 interest expense decrease reflected the reduced debt
levels and more favorable interest rates under the Bank Credit Agreement.
21
<PAGE>
WATERS CORPORATION AND SUBSIDIARIES
UNREALIZED LOSSES 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.
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.
INCOME FROM OPERATIONS
Income from 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 its IPO. The
Company utilized the net proceeds from its IPO, its 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.
LIQUIDITY AND CAPITAL RESOURCES
During 1997, net cash provided by the Company's operating activities was
$96.4 million, primarily as a result of net income for the period after adding
back the nonrecurring non-cash charges, and depreciation and amortization.
Primary uses of cash flows during the year were $151.1 million used to acquire
Micromass (net of cash acquired and common stock issued), $8.7 million used to
acquire YMC and $23.4 million invested in property, plant and equipment and
software capitalization.
In September 1997, the Company amended its Bank Credit Agreement increasing
maximum availability to $450 million. This increase was used to finance the
acquisition of Micromass.
In September 1997, the Company entered into an interest rate swap agreement
with Bankers Trust Company expiring December 31, 2001. The Company swapped $82
million in 1997 ($135 million in 1998, $151 million in 1999, $143 million in
2000 and $93 million in 2001) in notional amount of floating rate LIBOR
borrowings for an equivalent notional amount of borrowings at a fixed interest
rate of 6.3%. At December 31, 1997, the fair value of this agreement was a loss
of $1.6 million.
In June 1997, the Company amended its Bank Credit Agreement reducing its
LIBOR-based interest rates by 25 basis points and relaxing certain debt
covenants.
In May 1997, the Company entered into a one-year debt swap agreement with
Bankers Trust Company to hedge the U.S. dollar value of its investment in the
net assets of its Canadian subsidiary and certain European subsidiaries,
effective in January 1998. The Company swapped $33.2 million in notional amount
of floating rate LIBOR borrowings for equivalent notional amounts of borrowings
in Canadian dollars and five European currencies at fixed interest rates
averaging approximately 2.4% per annum. At representative interest rates and
currency exchange rates in effect at May 2, 1997, the transaction date of the
agreement, the Company lowered its annual interest costs by approximately $1.1
million over the term of the swap agreement. The Company could also incur
higher or lower principal payments over the term of the swap agreement. At
currency exchange rates in effect on December 31, 1997, the principal repayment
amount would have been $32.3 million.
At December 31, 1997, the Company also maintained several debt swap
agreements contracted prior to 1997 to hedge the U.S. dollar value of its
investment in Japanese subsidiaries. The Company swapped $29,500 in notional
amount of floating rate LIBOR borrowings for equivalent notional amounts of
borrowings in Japanese yen at fixed interest rates averaging approximately 1.77%
per annum. These agreements expire in 1999.
22
<PAGE>
WATERS CORPORATION AND SUBSIDIARIES
During 1996, the Company entered into several multi-year debt swap
agreements with major banks to hedge the U.S. dollar value of its investment in
the net assets of certain foreign subsidiaries. The Company swapped $64.9
million in notional amount of floating rate LIBOR borrowings for equivalent
notional amounts of borrowings in European and Japanese currencies at fixed
interest rates averaging 2.5%. All of these debt swap agreements expired during
1997.
The Company has evaluated the impact of Year 2000 issues on its existing
systems. The Company expects that the impact will not be material.
The Company believes that existing cash balances and current cash flow from
operating activities together with borrowings available under the Bank Credit
Agreement will be sufficient to fund working capital, capital spending and debt
service requirements of the Company in the foreseeable future.
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 of the predecessor HPLC business of Millipore Corporation
("Millipore") in August 1994, Millipore retained environmental liabilities
resulting from pre-acquisition operations of the Company's facilities.
RECENT ACCOUNTING STANDARDS CHANGES
In June 1997, the Financial Accounting Standards Board issued SFAS 131,
Disclosures about Segments of an Enterprise and Related information, which is
effective for periods beginning after December 15, 1997. The statement
establishes standards for reporting information about operating segments in
annual financial statements of public business enterprises and in interim
financial reports issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas, and major
customers.
In June 1997, the Financial Accounting Standards Board issued SFAS 130,
Reporting Comprehensive Income, which is effective for periods beginning after
December 15, 1997. The statement establishes standards for reporting and
displaying comprehensive income and its components (revenues, expenses, gains,
and losses) in a full set of general-purpose financial statements. The
statement requires that all components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements.
While management has not determined the impact of the new above-mentioned
standards, they are not expected to be material to the Company.
In February 1997, the Financial Accounting Standards Board issued SFAS 128,
Earnings Per Share, which is effective for periods ending after December 15,
1997. The statement changes computational guidelines and disclosure
requirements for earnings per share. The Company has adopted SFAS 128 in the
accompanying financial statements and has restated all prior period earnings per
share data.
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,
changes in the healthcare market and the pharmaceutical industry, changes in
distribution of the Company's products, and interest rate and foreign exchange
fluctuations.
23
<PAGE>
WATERS CORPORATION AND SUBSIDIARIES
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, 1997 and 1996 and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's 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, 1997 and 1996, and the results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
January 23, 1998
24
<PAGE>
WATERS CORPORATION AND SUBSIDIARIES
WATERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
December 31 (In thousands, except per share data) 1997 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 3,113 $ 639
Accounts receivable, less allowances for doubtful accounts of
$2,785 and $1,712 at December 31, 1997 and 1996, respectively 111,022 88,112
Inventories 87,375 47,351
Other current assets 11,614 7,930
----------- -----------
Total current assets 213,124 144,032
Property, plant and equipment, net 88,668 74,777
Other assets 70,089 36,058
Goodwill, less accumulated amortization of $7,543 and $4,818 at
December 31, 1997 and 1996, respectively 180,178 110,635
----------- -----------
Total assets $ 552,059 $ 365,502
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable and current portion of long term debt $ 7,394 $ 1,736
Accounts payable 33,061 17,509
Deferred revenue and customer advances 25,289 10,491
Accrued retirement plan contributions 3,426 2,787
Accrued income taxes 9,400 1,700
Accrued other taxes 4,597 4,951
Other current liabilities 87,489 43,631
----------- -----------
Total current liabilities 170,656 82,805
Long term debt 305,340 210,470
Redeemable preferred stock 8,096 7,153
Other liabilities 5,670 7,294
----------- -----------
Total liabilities 489,762 307,722
Stockholders' Equity:
Common stock, par value $0.01 per share 50,000 shares
authorized, 29,583 and 28,923 shares issued and outstanding at
December 31, 1997 and 1996, respectively 296 289
Additional paid-in capital 161,476 145,717
Deferred stock option compensation (606) (826)
Accumulated deficit (96,096) (87,808)
Translation adjustments (2,773) 408
----------- -----------
Total stockholders' equity 62,297 57,780
----------- -----------
Total liabilities and stockholders' equity $ 552,059 $ 365,502
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
25
<PAGE>
WATERS CORPORATION AND SUBSIDIARIES
WATERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Year Ended December 31 (In thousands, except per share data) 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 465,470 $ 391,113 $ 332,972
Cost of sales 173,275 145,254 126,216
Revaluation of acquired inventory 16,500 6,100 925
------------ ------------- -------------
Gross profit 275,695 239,759 205,831
Selling, general and administrative expenses 167,290 148,513 132,746
Research and development expenses 25,750 20,898 17,681
Goodwill and purchased technology amortization 6,468 5,219 3,629
Expensed in-process research and development 55,000 19,300 --
Management fee -- -- 5,393
------------ ------------- -------------
Operating income 21,187 45,829 46,382
Interest expense, net 13,720 14,740 30,315
Unrealized losses on future cash flow hedges -- -- 1,142
Realized (gains) on cash flow hedges -- -- (2,317)
------------ ------------- -------------
Income from operations before income taxes 7,467 31,089 17,242
Provision for income taxes 15,755 11,230 3,129
------------ ------------- -------------
(Loss) income before extraordinary item (8,288) 19,859 14,113
Extraordinary (loss) on early retirement of debt -- (22,264) (12,112)
------------ ------------- -------------
Net (loss) income (8,288) (2,405) 2,001
Less: Accretion of and 6% dividend on preferred stock 942 921 902
------------ ------------- -------------
Net (loss) income available to common stockholders $ (9,230) $ (3,326) $ 1,099
============ ============= =============
(Loss) income per basic common share:
(Loss) income per common share before extraordinary item $ (.32) $ .66 $ .59
Extraordinary (loss) per common share -- (.78) (.54)
------------ ------------- -------------
Net (loss) income per common share $ (.32) $ (.12) $ .05
------------ ------------- -------------
Weighted average number of basic common shares 29,127 28,841 22,326
============ ============= =============
(Loss) income per diluted common share:
(Loss) income per common share before extraordinary item $ (.32) $ .60 $ .54
Extraordinary (loss) per common share -- (.71) (.49)
------------ ------------- -------------
Net (loss) income per common share $ (.32) $ (.11) $ .05
============ ============= =============
Weighted average number of diluted common shares and
equivalents 29,127 31,628 24,582
============ ============= =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
26
<PAGE>
WATERS CORPORATION AND SUBSIDIARIES
WATERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Year Ended December 31 (In thousands) 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (8,288) $ (2,405) $ 2,001
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:
Unrealized losses on future cash flow hedges -- -- 1,142
Deferred income taxes (5,891) (4,200) --
Depreciation and amortization 20,010 16,709 13,774
Amortization of debt issuance costs 1,085 1,055 2,731
Compensatory stock option expense 220 250 4,565
Expensed in-process research and development 55,000 19,300 --
Revaluation of acquired inventory 16,500 6,100 925
Extraordinary loss on early retirement of debt -- 22,264 12,112
Change in operating assets and liabilities, net of acquisitions:
(Increase) decrease in accounts receivable (8,127) (8,981) 10,212
(Increase) decrease in inventories (2,270) (670) 4,658
Increase (decrease) in accounts payable and other current
liabilities 14,375 4,992 (1,661)
Increase (decrease) in deferred revenue and customer advances 5,375 2,541 (32)
Other, net 8,377 (1,238) (5,224)
------------- -------------- -------------
Net cash provided by continuing operations 96,366 55,717 45,203
Net cash provided by discontinued operations -- -- 1,039
------------- -------------- -------------
Net cash provided by operating activities 96,366 55,717 46,242
Cash flows from investing activities:
Additions to property, plant and equipment (18,216) (10,064) (6,260)
Software capitalization and other intangibles (5,177) (3,758) (3,618)
Business acquisitions, net of cash acquired (160,985) (83,349) (7,469)
Loans to officers (136) (425) (2,062)
Other, net -- 4,497 5,020
------------- -------------- -------------
Net cash (used in) investing activities by continuing operations (184,514) (93,099) (14,389)
Net investing activities of discontinued operations -- -- (154)
------------- -------------- -------------
Net cash (used in) investing activities (184,514) (93,099) (14,543)
Cash flows from financing activities:
Proceeds from long term borrowings -- -- 84,286
Proceeds from issuance of common stock -- -- 86,152
Net borrowings (repayment) of bank debt 87,452 126,902 (175,000)
Retirement of Senior Subordinated Notes -- (91,219) (28,188)
Dividend paid -- -- (16,195)
Proceeds from stock option plans 2,491 1,322 --
Other, net 1,113 (2,282) 3,098
------------- -------------- -------------
Net cash provided by (used in) financing activities 91,056 34,723 (45,847)
Effect of exchange rate changes on cash and cash equivalents (434) 65 642
------------- -------------- -------------
Increase (decrease) in cash and cash equivalents 2,474 (2,594) (13,506)
Cash and cash equivalents at beginning of period 639 3,233 16,739
------------- -------------- -------------
Cash and cash equivalents at end of period $ 3,113 $ 639 $ 3,233
============= ============== =============
Supplemental cash flow information:
Income taxes paid $ 10,022 $ 3,401 $ 1,924
Interest paid $ 12,754 $ 15,941 $ 30,370
Supplemental noncash transactions:
Issuance of common stock for acquisition $ 11,241 $ -- $ --
Issuance of debt for acquisition $ 9,975 $ -- $ --
Income tax benefit related to stock option plans $ 2,976 $ -- $ --
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
27
<PAGE>
WATERS CORPORATION AND SUBSIDIARIES
WATERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Deferred
Stock
Additional Option
Common Paid-in Compen- Notes Accumulated
(In thousands) Stock Capital sation Warrants Receivable Deficit
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1994 $ 215 $ 67,494 $ -- $ 3,200 $ (5,055) $ (87,404)
Net income -- -- -- -- -- 2,001
Translation adjustment -- -- -- -- -- --
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) -- -- (86,403)
Net (loss) -- -- -- -- -- (2,405)
Translation adjustment -- -- -- -- -- --
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)
Net (loss) -- -- -- -- -- (8,288)
Translation adjustment -- -- -- -- -- --
Accretion of preferred stock -- (342) -- -- -- --
Dividend payable on preferred stock -- (600) -- -- -- --
Issuance of common stock for
acquisition 3 11,238 -- -- -- --
Issuance of common stock for Employee
Stock Purchase Plan 1 317 -- -- -- --
Compensatory stock option expense -- -- 220 -- -- --
Stock options exercised 3 2,170 -- -- -- --
Income tax benefit related to stock
option plans -- 2,976 -- -- -- --
-------------- -------------- -------------- -------------- -------------- -------------
Balance December 31, 1997 $ 296 $ 161,476 $ (606) $ -- $ -- $ (96,096)
============== ============== ============== ============== ============== =============
</TABLE>
<TABLE>
<CAPTION>
Minimum
Cumulative Pension
Translation Liability
(In thousands) Adjustments Adjustment Total
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance December 31, 1994 $ (1,120) $ -- $ (22,670)
Net income -- -- 2,001
Translation adjustment 515 -- 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 (605) (404) 58,118
Net (loss) -- -- (2,405)
Translation adjustment 1,013 -- 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 408 -- 57,780
Net (loss) -- -- (8,288)
Translation adjustment (3,181) -- (3,181)
Accretion of preferred stock -- -- (342)
Dividend payable on preferred stock -- -- (600)
Issuance of common stock for
acquisition -- -- 11,241
Issuance of common stock for Employee
Stock Purchase Plan -- -- 318
Compensatory stock option expense -- -- 220
Stock options exercised -- -- 2,173
Income tax benefit related to stock
option plans -- -- 2,976
-------------- -------------- --------------
Balance December 31, 1997 $ (2,773) $ -- $ 62,297
============== ============== ==============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
28
<PAGE>
WATERS CORPORATION AND SUBSIDIARIES
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 (the "Company") is the world's largest manufacturer,
distributor and provider of high performance liquid chromatography ("HPLC")
instruments, chromatography columns and other consumables, and related services.
HPLC, the largest product segment of the analytical instrument market, is
utilized in a broad range of industries to detect, identify, monitor and measure
the chemical, physical and biological composition of materials, and to purify a
full range of compounds. With its acquisition of TA Instruments, Inc. ("TAI") in
May 1996, the Company is also the world's leader in thermal analysis, a
prevalent and complementary technique used in the analysis of polymers. With its
September 1997 acquisition of Micromass Limited ("Micromass"), the Company is
also a market leader in the development, manufacture, and distribution of mass
spectrometry ("MS") instruments, which are complementary products that can be
integrated and used along with other analytical instruments, especially HPLC.
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 intercompany
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 sheets.
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 1997 net sales to the
pharmaceutical industry. None of the Company's individual customers account for
more than 2% 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 or deposits. 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.
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 - 30 years, and production and other equipment - 3 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.
29
<PAGE>
WATERS CORPORATION AND SUBSIDIARIES
SOFTWARE DEVELOPMENT COSTS
The Company capitalizes software development costs in accordance with Statement
of Financial Accounting Standard 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 $12,006 and $10,379 at
December 31, 1997 and 1996, respectively.
PURCHASED TECHNOLOGY AND GOODWILL
Purchased technology amounts are recorded at their fair market value as of the
acquisition date and amortized over estimated useful lives ranging from four to
fifteen years. Goodwill is amortized on a straight-line basis over its useful
life, 40 years for current goodwill components. Impairment of purchased
technology amounts 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, 1997, no amounts have been
determined impaired. Purchased technology amounts included in other assets
totalled $28,775 and $6,805, net of accumulated amortization of $6,573 and
$4,343, at December 31, 1997 and 1996, respectively.
DEBT ISSUANCE COSTS
Debt issuance costs are amortized over the life of the related debt using the
effective interest method. At December 31, 1997 and 1996, debt issuance costs
included in other assets amounted to $3,501 and $3,551, net of accumulated
amortization of $2,020 and $935, 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 sheets.
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.
(LOSS)INCOME PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards 128 (SFAS 128), "Earnings per Share," which is
effective for periods ending after December 15, 1997. Under SFAS 128, the
Company presents two earnings per share (EPS) amounts. (Loss) income per basic
common share is based on income available to common shareholders and the
weighted average number of common shares outstanding during the periods
presented. (Loss) income per diluted common share includes additional dilution
from potential common stock, such as stock issuable pursuant to the exercise of
stock options outstanding and the conversion of debt. Accretion of and
cumulative dividends on preferred stock have been included in computing income
(loss) per share.
3 BUSINESS COMBINATIONS
MICROMASS LIMITED ACQUISITION
On September 23, 1997, the Company acquired 100% of the capital stock of
Micromass Limited, a company headquartered in England, for approximately
$175,000 in cash, common stock (375 shares) and promissory notes. The
acquisition principally was financed through borrowings under the Company's Bank
Credit Agreement. Micromass develops, manufactures, and distributes mass
spectrometry instruments, products that are complementary to Waters' existing
product offering. Micromass offers products ranging from high-end stand-alone
instruments to smaller, easier-to-use detectors that can be integrated and used
along with other analytical instruments, especially HPLC. Micromass is a global
market leader in the field of mass spectrometry. Net sales for Micromass were
approximately $76,575 for the period from January 1, 1997 to September 30, 1997
and $91,000 for the year ended December 31, 1996.
The acquisition of Micromass was accounted for by the purchase method and
the results of its operations have been consolidated with the Company's results
from September 30, 1997, the effective accounting date of the acquisition. In
conjunction with the acquisition, the Company recorded a non-recurring charge of
$55,000 for the write-off of acquired in-process research and development and
revalued acquired inventory by $33,000 which amount is being amortized to cost
of sales over a period of approximately six months commencing October 1, 1997.
The technological feasibility of in-process research and development projects
had not been established at the date of acquisition and had no alternative
future use. The Company recorded other intangible assets of $24,200 and goodwill
of $66,914 which will be amortized for a period of 15 and 40 years,
respectively, on a straight line basis. The Company recorded $8,500 of reserves
in conjunction with the acquisition.
30
<PAGE>
WATERS CORPORATION AND SUBSIDIARIES
YMC, INC. ACQUISITION
On July 31, 1997, the Company acquired all of the capital stock of YMC, Inc.
("YMC"), a U.S. based company for approximately $9,000 in cash. The acquisition
of YMC was accounted for by the purchase method. YMC is a manufacturer and
distributor of chromatography chemicals and supplies which augment the Waters
consumables business. Net sales for YMC were approximately $4,300 for the period
from January 1, 1997 to July 31, 1997 and $6,500 for the year ended December 31,
1996.
TA INSTRUMENTS, INC. ACQUISITION
On May 1, 1996, the Company acquired all of the capital stock of TA Instruments,
Inc., a U.S. based company, for approximately $83,000 in cash. The acquisition
was financed through borrowings under the 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 for the year ended December 31, 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 been established at the date of acquisition and had no
alternative future use.
PRO FORMA RESULTS OF OPERATIONS
The following unaudited Pro Forma results of operations for the years ended
December 31, 1997 and 1996 give effect to the Company's acquisitions as if the
transactions had occurred at the beginning of each such period. The financial
data are based on the historical consolidated financial statements for the
Company, Micromass, YMC and TAI and include related adjustments. The Pro Forma
results of operations exclude the non-recurring charges that were recorded in
conjunction with the acquisitions in 1997 and 1996 and do not purport to
represent (i) what the Company's results of operations actually would have been
if the acquisitions 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>
Unaudited Pro Forma Results For the Year Ended
----------------------------------------------
December 31, 1997 December 31, 1996
--------------------- -----------------------
<S> <C> <C>
Net sales $ 542,045 $ 493,288
Income before extraordinary item 67,204 44,055
Net income 66,262 20,870
Income before extraordinary item per basic common share $ 2.25 $ 1.48
Net income per basic common share 2.25 0.71
Income before extraordinary item per diluted common share $ 2.04 $ 1.35
Net income per diluted common share 2.04 0.65
</TABLE>
4 PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
Property, plant and equipment consist of the following:
- -----------------------------------------------------------------------------------------------------------------------------------
December 31 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 3,092 $ 3,092
Leasehold improvements 1,469 1,083
Buildings and improvements 30,230 29,171
Production and other equipment 80,745 53,414
Construction in progress 3,206 7,746
---------------- ----------------
118,742 94,506
Less: accumulated depreciation and amortization (30,074) (19,729)
---------------- ----------------
Property, plant and equipment, net $ 88,668 $ 74,777
================ ================
</TABLE>
5 INVENTORIES
Inventories are classified as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
December 31 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Raw material $ 22,092 $ 14,860
Work in progress 15,315 6,180
Finished goods 33,468 26,311
Revaluation of acquired inventory 16,500 --
---------------- ----------------
Total inventories $ 87,375 $ 47,351
================ ================
</TABLE>
31
<PAGE>
WATERS CORPORATION AND SUBSIDIARIES
6 DEBT
In September 1997, the Company amended its Bank Credit Agreement, a revolving
credit facility, increasing maximum availability from $300,000 to $450,000. In
June 1997, the Company amended the agreement to reduce its LIBOR-based interest
rates by 25 basis points, relax certain debt covenants and extend the expiration
date to June 2002. Loans under the Bank Credit Agreement bear interest for each
calendar quarter at an annual rate equal to, at the Company's option, 1) the
applicable LIBOR rate plus a varying margin between .38% and 1.00% or 2) a
floating rate based on prime plus a varying margin between zero and .50 %.
Margins vary with Company financial performance. At December 31, 1997, the
Company had aggregate borrowings outstanding under the agreement of $295,365 and
approximately $141,700 in additional borrowings available, after outstanding
letters of credit. The weighted average interest rate at December 31, 1997 on
the borrowings was 6.625% on LIBOR borrowings, 8.5% on base rate borrowings and
6.78% overall on aggregate borrowings. Borrowings are collateralized by
substantially all of the Company's assets. The Company is also required to meet
certain covenants, none of which is considered restrictive to operations. The
Company was in compliance with all covenants as of December 31, 1997. The
Company's foreign subsidiaries also had available short-term lines of credit
totaling $29,804 at December 31, 1997 and $8,545 at December 31, 1996. At
December 31, 1997 and 1996, related borrowings were $7,319 at a weighted average
interest rate of 4.3% and $1,736 at a weighted average interest rate of 7.1%,
respectively.
Also, in September 1997, the Company entered into an interest rate swap
agreement with Bankers Trust Company expiring December 31, 2001. The Company
swapped $82,000 in 1997 ($135,000 in 1998, $151,000 in 1999, $143,000 in 2000
and $93,000 in 2001) in notional amount of floating rate LIBOR borrowings for an
equivalent notional amount of borrowings at a fixed interest rate of 6.3%. At
December 31, 1997, the fair value of this agreement was a loss of $1,616. The
Company also maintains several interest rate protection agreements contracted
prior to 1997. The agreements provide payments to the Company if the three-month
LIBOR rate exceeds 6.5% in 1998 and 1999 on borrowings of $70,000 and $30,000,
respectively. At December 31, 1997, the fair value of the agreements was $74.
In May 1997, the Company entered into a one-year debt swap agreement with
Bankers Trust Company to hedge the U.S. dollar value of its investment in the
net assets of its Canadian subsidiary and certain European subsidiaries,
effective in January 1998. The Company swapped $33,200 in notional amount of
floating rate LIBOR borrowings for equivalent notional amounts of borrowings in
Canadian dollars and five European currencies at fixed interest rates averaging
approximately 2.4% per annum. At representative interest rates and currency
exchange rates in effect at May 2, 1997, the transaction date of the agreement,
the Company lowered its annual interest costs by approximately $1,134 over the
term of the swap agreement. The Company could incur higher or lower principal
payments over the term of the swap agreement. At currency exchange rates in
effect on December 31, 1997, the principal repayment amount would have been
$32,300. At December 31, 1997, the Company also maintained several debt swap
agreements contracted prior to 1997 to hedge the U.S. dollar value of its
investment in Japanese subsidiaries. The Company swapped $29,500 in notional
amount of floating rate LIBOR borrowings for equivalent notional amounts of
borrowings in Japanese yen at fixed interest rates averaging approximately 1.77%
per annum. These agreements expire in 1999. At currency exchange rates on
December 31, 1997, the principal repayment amount would have been $24,189.
(During 1997, several multi-year debt swap agreements expired which were
initiated in 1996 with major banks to hedge the U.S. dollar value of its
investment in the net assets of certain foreign subsidiaries. The total notional
amount of these agreements totaled $64,900 of floating rate LIBOR borrowings for
equivalent notional amounts in European and Japanese currencies of borrowings at
fixed interest rates averaging 2.5%.)
Contemporaneously with the Company's initial public offering ("IPO") in 1995,
the Company retired all outstanding indebtedness under its prior bank credit
agreement and redeemed $25,000 of its prior outstanding $100,000 of Senior
Subordinated Notes. The Company recorded a $12,112 extraordinary loss for the
write-off of associated unamortized debt issuance costs, call premium paid and
interest rate protection premiums cancelled. In April 1996, the Company
consummated a tender offer to repurchase the remaining $75,000 of Senior
Subordinated Notes outstanding. The Company recorded an extraordinary loss of
$22,264 related to this early extinguishment.
32
<PAGE>
WATERS CORPORATION AND SUBSIDIARIES
7 INCOME TAXES
<TABLE>
<CAPTION>
Income tax data for 1997, 1996, and 1995 follow in the tables below:
- ---------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31 (In thousands) 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
The components of income (loss) from operations before
income taxes were as follows:
Domestic $ 64,751 $ 33,534 $ 18,322
Foreign (57,284) (2,445) (1,080)
------------- ------------- -------------
Total $ 7,467 $ 31,089 $ 17,242
============= ============= =============
The components of the current and deferred income tax provision
from operations were as follows:
Current $ 20,280 $ 15,430 $ 3,129
Deferred (4,525) (4,200) --
------------- ------------- -------------
Total $ 15,755 $ 11,230 $ 3,129
============= ============= =============
The components of the provision for income taxes from
operations were as follows:
Federal $ 9,383 $ 4,576 $ --
State 878 900 300
Foreign 5,494 5,754 2,829
------------- ------------- -------------
Total $ 15,755 $ 11,230 $ 3,129
============= ============= =============
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 $ 2,613 $ 10,881 $ 6,035
Foreign sales corporation (1,826) -- --
State income tax, net of federal income tax benefit 570 585 300
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Deferred tax assets (benefited) (12,307) (16,823) (6,271)
Net effect of foreign operations 1,005 7,339 2,858
Nondeductible acquisition costs 25,025 8,890 --
Other 675 358 207
---------------- ---------------- ----------------
Provision for income taxes $ 15,755 $ 11,230 $ 3,129
================ ================ ================
</TABLE>
<TABLE>
<CAPTION>
The tax effects of temporary differences and carryforwards which gave
rise to deferred tax liabilities and deferred tax (assets) were as
follows:
<S> <C> <C> <C>
Acquired net operating loss carryforwards $ (2,516) $ (3,995) $ --
Estimated loss on disposal of discontinued operations -- (991) (1,900)
Goodwill amortization (10,866) (11,731) (12,808)
Depreciation and capitalized software 4,629 3,919 3,357
Deferred compensation (3,605) (2,344) (1,840)
Tax credit carryforwards (1,300) (1,221) (1,221)
Other (2,896) (3,756) (2,056)
Net operating loss carryforward (2,833) (16,905) (17,704)
Valuation allowance 9,296 32,824 34,172
---------------- ---------------- ----------------
Total deferred taxes $ (10,091) $ (4,200) $ --
================ ================ ================
</TABLE>
At December 31, 1997 the Company had a U.S. net operating loss carryforward
of approximately $1,400 which begins to expire in the year 2009. The Company had
foreign net operating loss carryforwards of approximately $6,500, 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
$(10,091) 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 acquired net operating loss carryforward tax
benefit of $2,516 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 year ended December 31, 1997 was 20%.
33
<PAGE>
WATERS CORPORATION AND SUBSIDIARIES
8 LEASES
Lease agreements, expiring at various dates through 2019, cover buildings,
office equipment and automobiles. Rental expense was approximately $8,666 in
1997, $6,474 in 1996 and $5,684 in 1995. Future minimum rents payable as of
December 31, 1997 under non-cancelable leases with initial terms exceeding one
year were as follows:
1998 $ 9,203
1999 7,103
2000 5,109
2001 2,937
2002 2,237
Thereafter 12,876
9 COMMON STOCK
Prior to the Company's initial public offering in November 1995, 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
("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. 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. The Company issued 6,250 shares
of Common Stock in its IPO for net proceeds of $86,152.
As a publicly held company, the Company hasn't paid any dividends, and does
not plan to pay any dividends in the foreseeable future.
10 REDEEMABLE PREFERRED STOCK
In conjunction with the August 18, 1994 acquisition of the predecessor HPLC
business of Millipore Corporation ("Millipore"), the Company authorized and
issued one hundred shares of Redeemable Preferred Stock ("Preferred Stock") with
a par value of $.01 per share. The Preferred Stock has a liquidation value of
$10,000 and earns an annual 6% cumulative dividend on 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, 1997, 1996, and 1995, $342, $321, and
$301, respectively, were charged against additional paid-in capital for
accretion and $600 was charged in each year to additional paid-in capital for
the unpaid dividends. At December 31, 1997, the total liquidation value was
$12,022.
11 STOCK COMPENSATION AND PURCHASE PLANS
BASIS OF ACCOUNTING
The Company has four stock-based compensation plans, which are described
below. The Company uses the intrinsic value method of accounting prescribed by
the Accounting Principles Board Opinion 25, "Accounting for Stock Issued to
Employees", and related interpretations for its plans. Accordingly, no
compensation cost has been recognized for its fixed stock option plans and its
stock purchase plan under SFAS 123. 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 alternative method prescribed by SFAS 123, the
Company's pro forma net (loss)\income for 1997, 1996 and 1995, would have been
$(10,821), $(4,324), and $1,105. Basic (loss) income per share for 1997, 1996,
and 1995 would have been $(0.37), $(0.15), and $0.05, respectively. Diluted
(loss) income per share for 1997, 1996, and 1995 would have been $(0.37),
$(0.14), and $0.05, respectively. The pro forma amounts include amortized fair
value attributable to options granted after December 31, 1994 only and
therefore, 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:
1997 1996 1995
-------- -------- -------
Options issued 499 358 663
Risk-free interest rate 5.8% 6.4% 7.0%
Expected life in years 7.2 7.4 7.5
Expected volatility 0.609 0.674 0.693
Expected dividends 0 0 0
34
<PAGE>
WATERS CORPORATION AND SUBSIDIARIES
The following table details the weighted average exercise price and fair
values of options on the date of grant:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Options exercise prices are less than the market price
Exercise price $ 31.50 $ 9.50
Fair value $ 13.50 $ 10.51
Options exercise prices are equal to the market price
Exercise price $ 42.75 $ 4.07
Fair value $ 29.15 $ 3.07
Options exercise prices exceed the market price
Exercise price $ 34.21 $ 12.89
Fair value $ 20.89 $ 2.16
</TABLE>
The following table details the weighted average remaining contractual life
of options outstanding at December 31, 1997 by range of exercise prices:
<TABLE>
<CAPTION>
Remaining Contractual
Exercise Number of Shares Exercise Life of Options Number of Shares Exercise
Price Range Outstanding Price Outstanding Exercisable Price
----------- ---------------- -------- --------------------- ---------------- --------
<S> <C> <C> <C> <C> <C>
$ 0.00 to $ 5.00 940 $ 4.00 8 years 474 $ 4.00
$ 5.01 to $10.00 1,205 $ 9.50 7 years 1,054 $ 9.50
$ 10.01 to $20.00 2,477 $ 16.28 7 years 1,428 $ 16.28
$ 20.01 to $40.00 355 $ 34.14 8 years 72 $ 34.21
$ 40.01 to $50.00 483 $ 42.73 10 years 0 $ 0.00
--------- --------
5,460 3,028
========= ========
</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, in the form of incentive or non-qualified stock options, stock
appreciation rights ("SARs"), restricted stock or 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. On December 2,
1997, the Board of Directors approved an additional 2,000 shares of Common Stock
for issue under the 1996 Plan. 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 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, 1997.
The Company's 1994 Stock Option Plan ("1994 Plan") provided for the
granting of 205 common stock options to certain key employees of the Company.
Stock options under the 1994 Plan allowed the purchase of Class A Common Stock
of the Company. Concurrent with the Reclassification of the Company's stock,
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 was determined by a committee of the Board of Directors 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.
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. 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.
35
<PAGE>
WATERS CORPORATION AND SUBSIDIARIES
The following table summarizes stock option activity for the plans after
giving effect to the Reclassification of common stock:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Weighted Average
Exercise Price Number of Shares Price Per Share
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
Granted $ 42.40 499 $32.20 to $42.75
Exercised $ (7.90) (265) $ 4.00 to $34.21
Canceled $ (20.05) (36) $ 9.50 to $34.21
------------
Outstanding at December 31, 1997 $ 16.19 5,460 $ 4.00 to $42.75
------------ ------------ ---------------------
</TABLE>
Options exercisable at December 31, 1997, 1996, and 1995 were 3,028, 2,439, and
1,780, respectively. The weighted average exercise price of options exercisable
at December 31, 1997, 1996, and 1995 were $12.43, $11.30, and $10.76,
respectively. Available stock options for grant at December 31, 1997 were 2,236.
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, 1997, approximately 28 shares have been issued under the
plan. Each plan period lasts three months beginning on January 1, April 1, July
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.
12 WARRANT
On August 18, 1994, the date of the Company's inception and its acquisition
of the predecessor HPLC business of Millipore, 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 financing under its 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. The
estimated fair market value of $3,200 for the Warrant was recorded as a
component of stockholders' equity.
After the Reclassification of common stock, the Warrant allowed for the
purchase of 1,064 shares 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.
36
<PAGE>
WATERS CORPORATION AND SUBSIDIARIES
13 EARNINGS PER SHARE
SFAS 128, which now governs earnings per share computation, requires the
following reconciliation of the basic and diluted EPS calculations:
<TABLE>
<CAPTION>
-------------------------------------------------
Year Ended 1997
-------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
-------------- ------------- -------------
<S> <C> <C> <C>
Net (loss) $ (8,288)
Less: Accretion of and 6% dividend on
preferred stock 942
--------------
(Loss) per basic common share from
operations $ (9,230) 29,127 $ (.32)
============== ============= =============
Effect of dilutive securities --
(Loss) per diluted common share from operations $ (9,230) 29,127 $ (.32)
============== ============= =============
<CAPTION>
-------------------------------------------------
Year Ended 1996
-------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
-------------- ------------- -------------
<S> <C> <C> <C>
Net income before extraordinary item $ 19,859
Less: Accretion of and 6% dividend on
preferred stock 921
--------------
Income per basic common share from
operations $ 18,938 28,841 $ .66
============== ============= =============
Effect of dilutive securities:
Options outstanding 2,765
Options exercised 22
-------------
Income per diluted common share from operations $ 18,938 31,628 $ .60
============== ============= =============
<CAPTION>
-------------------------------------------------
Year Ended 1995
-------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
-------------- ------------- -------------
<S> <C> <C> <C>
Net income before extraordinary item $ 14,113
Less: Accretion of and 6% dividend on
preferred stock 902
--------------
Income per basic common share from operations $ 13,211 22,326 $ .59
============== ============= =============
Effect of dilutive securities:
Options outstanding 1,315
Options cancelled 1
Warrant 940
-------------
Income per diluted common share from operations $ 13,211 24,582 $ .54
============== ============= =============
</TABLE>
As of December 31, 1997, 1996, and 1995, the Company had 5,460, 350, and
2,560 stock option securities that were antidilutive, respectively. These
securities could potentially dilute basic EPS in the future, and were not
included in the computation of diluted EPS because to do so would have been
antidilutive for the periods presented.
37
<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.
At December 31, 1996, the Company had $3,342 of outstanding forward exchange
contracts, which hedged the dollar value equivalent of specified future customer
commitments. No contracts were outstanding at December 31, 1997.
15 RETIREMENT PLANS
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. The Waters Employee
Investment Plan includes amounts transferred, and to be transferred, from the
predecessor retirement plans of Millipore Corporation, parent of the predecessor
HPLC business acquired by the Company in August 1994.
The Company has asserted a claim contending that Millipore Corporation has
understated the amount of assets it is obligated to transfer from the Millipore
Retirement Plan to the Waters successor plan. The Federal court has recently
ruled in favor of Millipore's position with respect to the claim. The Company
appealed the decision in October, 1997. The Company believes it has meritorious
arguments and should prevail although the outcome is not certain. Regardless,
the outcome is not expected to have a material impact on the Company's financial
position.
Employees are eligible to participate after one month of service. Employees
may contribute from 1% to 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.
Employees are 100% vested in company matching contributions after one year of
service. For the years ended December 31, 1997 and December 31, 1996, the
Company's matching contributions amounted to $1,347 and $1,318, 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 and for 1997 were
$212.
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. 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 started with an account balance 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, 1997 and 1996 are
presented in the following table (these amounts include the TAI Pension Plan as
of December 31, 1996):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
December 31 1997 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits
of $13,156 and $9,127, respectively $ (13,834) $ (9,305)
============ =============
Projected benefit obligation for service rendered to date $ (15,904) $ (10,552)
Estimated plan assets at fair value 16,008 13,988
------------ -------------
Projected benefit obligation less than fair value of assets 104 3,436
Unrecognized prior service costs (1,423) (734)
Unrecognized net actuarial (gain) loss (1,183) (3,910)
------------ -------------
(Accrued) pension cost included in the financial statements $ (2,502) $ (1,208)
============ =============
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Year Ended December 31 1997 1996 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net periodic pension cost includes the following
components:
Service cost $ 2,043 $ 2,025 $ 1,780
Interest cost 1,054 938 321
Return on plan assets (1,653) (700) (137)
Amortization and deferral 326 (5) (8)
------------- ------------ -------------
Net periodic pension cost $ 1,770 $ 2,258 $ 1,956
============= ============ =============
The projected benefit obligation was calculated
using the following assumptions:
Discount rate 7.25% 7.75% 7.25%
Return on assets 9.00% 8.50% 8.50%
Increases in compensation levels 4.75% 4.75% 4.50%
</TABLE>
38
<PAGE>
WATERS CORPORATION AND SUBSIDIARIES
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. Summary
information is presented in the following tables:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Year Ended December 31 1997 1996 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits attributed to service
during the year $ 102 $ 95 $ 82
Interest cost on accumulated post retirement
benefit obligation 87 69 64
Net amortization and deferral (78) (83) (83)
------------- ------------ -------------
Net periodic post retirement benefit cost $ 111 $ 81 $ 63
============= ============ =============
<CAPTION>
- --------------------------------------------------------------------------------------------------------
December 31 1997 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated post-retirement benefit obligation:
Retirees $ 255 $ 137
Fully eligible active plan participants 136 229
Other active plan participants 839 682
Unrecognized amounts:
Prior service costs 1,312 1,348
Net (gain) loss (54) 33
------------ -------------
Accrued post retirement benefit cost $ 2,488 $ 2,429
============ =============
</TABLE>
The Company's accrued post-retirement benefit obligation was $2,488 and
$2,429 at December 31, 1997 and 1996, respectively, and is included in other
liabilities in the balance sheet. The discount rate used in determining the
accumulated post-retirement benefit obligation was 7.25% and 7.75% as of
December 31, 1997 and 1996, 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 1996 loans bear interest at 5.65% per annum and
mature on January 8, 2001. Loans receivable of $2,623 at December 31, 1997 and
$2,487 at December 31, 1996 are included in other assets in the balance sheet.
Loans receivable at December 31, 1995 were $2,062.
In connection with the acquisition of the predecessor HPLC business on August
18, 1994, 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 Transition was substantially complete as of
December 31, 1996. The Company believes that the costs incurred under the
Transition Agreement were representative of charges that would have been levied
by independent third parties for similar services. The Company incurred net
expenses pursuant to this agreement of $1,273, $4,165, and $5,210 for the years
ended December 31, 1997, 1996, and 1995, respectively.
During the years ended December 31, 1997, 1996, and 1995, the Company sold
product and services totaling $32, $86, and $104, respectively, to Millipore.
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 year ended December
31, 1995 was $254.
Again, in connection with the acquisition of the predecessor HPLC business,
the Company entered into a ten-year Management Services Agreement with AEA
Investors, Inc. and Bain Capital, Inc. pursuant to which it 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 on August 18, 1994. In connection with
the Company's IPO in November 1995, 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.
39
<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 Central Europe. Transfer sales between geographical areas are
generally made at a discount from list price.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
United States Europe Japan Asia Other Int'l Elimination Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1997
Sales:
Unaffiliated sales $ 182,258 $ 140,900 $ 46,077 $ 29,635 $ 35,538 $ -- $ 434,408
Unaffiliated export sales to Japan 3,421 4,060 -- -- -- -- 7,481
Unaffiliated export sales to Asia 7,536 1,320 -- -- -- -- 8,856
Unaffiliated export sales to Other
Int'l 14,284 441 -- -- -- -- 14,725
Transfers between areas 131,441 12,471 -- -- -- (143,912) --
---------- ---------- --------- --------- ----------- ---------- ------------
Total sales $ 338,940 $ 159,192 $ 46,077 $ 29,635 $ 35,538 $ (143,912) $ 465,470
========== ========== ========= ========= =========== ========== ============
Income from operations $ 76,625 $ (56,093) $ 9 $ (225) $ 871 $ -- $ 21,187
========== ========== ========= ========= =========== ========== ============
Total assets $ 599,642 $ 263,135 $ 25,281 $ 7,094 $ 16,835 $ (359,928) $ 552,059
========== ========== ========= ========= =========== ========== ============
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
1996
<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
========== ========== ========= ========= =========== ========== ============
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
1995
<S> <C> <C> <C> <C> <C> <C> <C>
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
========== ========== ========= ========= =========== ========== ============
</TABLE>
40
<PAGE>
WATERS CORPORATION AND SUBSIDIARIES
19 QUARTERLY RESULTS
The Company's unaudited quarterly results are summarized below (In thousands,
except per share data):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
1997 First Quarter Second Quarter Third Quarter Fourth Quarter Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 102,431 $ 106,240 $ 105,044 $ 151,755 $ 465,470
Cost of sales 37,765 38,703 38,598 58,209 173,275
Revaluation of acquired inventory -- -- -- 16,500 16,500
------------- -------------- -------------- -------------- ----------
Gross profit 64,666 67,537 66,446 77,046 275,695
Selling, general and administrative expenses 39,076 38,909 39,008 50,297 167,290
Research and development expenses 5,786 5,806 6,259 7,899 25,750
Goodwill and purchased technology amortization 1,357 1,415 1,444 2,252 6,468
Expensed in-process research and development -- -- 55,000 -- 55,000
------------- -------------- -------------- -------------- ----------
Operating income (loss) 18,447 21,407 (35,265) 16,598 21,187
Interest expense, net 3,024 2,959 2,334 5,403 13,720
------------- -------------- -------------- -------------- ----------
Income (loss) from operations before
income taxes 15,423 18,448 (37,599) 11,195 7,467
Provision for income taxes 3,085 3,689 3,480 5,501 15,755
------------- -------------- -------------- -------------- ----------
Net income (loss) 12,338 14,759 (41,079) 5,694 (8,288)
Less: Accretion of and dividend on
preferred stock 234 234 237 237 942
------------- -------------- -------------- -------------- ----------
Net income (loss) available to
common stockholders $ 12,104 $ 14,525 $ (41,316) $ 5,457 $ (9,230)
============= ============== ============== ============== ==========
Net income (loss) per basic common share $ .42 $ .50 $ (1.42) $ .18 $ (.32)
============= ============== ============== ============== ==========
Weighted average number of basic common shares 28,927 28,957 29,074 29,551 29,127
============= ============== ============== ============== ==========
Net income (loss) per diluted common share $ .38 $ .46 $ (1.42) $ .17 $ (.32)
============= ============== ============== ============== ==========
Weighted average number of diluted common
shares and equivalents 31,867 31,560 29,074 32,936 29,127
============= ============== ============== ============== ==========
Stock price range 26-31 3/8 23 1/8-37 3/4 31 7/16-45 1/4 36-48 7/16 26-48 7/16
</TABLE>
<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
------------- -------------- -------------- -------------- ----------
Income (loss) from operations
before income taxes 10,217 (6,922) 8,898 18,896 31,089
Provision for income taxes 2,042 2,932 2,502 3,754 11,230
------------- -------------- -------------- -------------- ----------
Income (loss) from 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 income (loss) available to
common stockholders $ 7,946 $ (32,347) $ 6,165 $ 14,910 $ (3,326)
============= ============== ============== ============== ==========
Basic per share information:
Income (loss) per common share
from operations $ .28 $ (.35) $ .21 $ .52 $ .66
Extraordinary income (loss)
per common share -- (.77) -- -- (.78)
------------- -------------- -------------- -------------- ----------
Net income (loss) per common
share $ .28 $ (1.12) $ .21 $ .52 $ (.12)
============= ============== ============== ============== ==========
Weighted average number of basic
common shares 28,796 28,823 28,843 28,903 28,841
============= ============== ============== ============== ==========
Diluted per share information:
Income (loss) per common share
from operations $ .26 $ (.35) $ .19 $ .47 $ .60
Extraordinary income (loss)
per common share -- (.77) -- -- (.71)
------------- -------------- -------------- -------------- ----------
Net income (loss) per common
share $ .26 $ (1.12) $ .19 $ .47 $ (.11)
============= ============== ============== ============== ==========
Weighted average number of diluted
common shares and equivalents 30,925 28,823 31,888 31,919 31,628
============= ============== ============== ============== ==========
Stock price range 16 3/4 - 24 5/8 24 3/8 - 33 25 1/4 - 33 25 7/8 - 33 5/8 16 3/4 - 33 5/8
</TABLE>
41
<PAGE>
WATERS COPORATION AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(In thousands, except per share data and employees)
<TABLE>
<CAPTION>
The Company Predecessor Business (A)
-------------------------------------------------------- -----------------------------------------
Year Ended Year Ended Year Ended August 19 January 1 to Year Ended Year Ended
December 31, December December to December August 18 December 31, December 31,
1997 31, 1996 31, 1995 31, 1994 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 465,470 $ 391,113 $ 332,972 $ 131,057 $ 176,097 $ 304,927 $ 309,287
Cost of sales 173,275 145,254 126,216 49,740 73,446 124,387 123,342
Revaluation of acquired inventory (C) 16,500 6,100 925 38,424 -- -- --
--------- --------- --------- --------- ---------- ---------- ----------
Gross profit 275,695 239,759 205,831 42,893 102,651 180,540 185,945
Selling, general and administrative
expenses 167,290 148,513 132,746 44,522 85,216 132,452 138,318
Research and development expenses 25,750 20,898 17,681 6,790 13,399 18,525 19,142
Goodwill and purchased technology
amortization 6,468 5,219 3,629 1,227 -- -- --
Expensed in-process research and
development (C) 55,000 19,300 -- 53,918 -- -- --
Management fee (C) -- -- 5,393 552 -- -- --
Restructuring Charge (C) -- -- -- 3,500 -- 13,000 --
--------- --------- --------- --------- ---------- ---------- ----------
Operating income (loss) 21,187 45,829 46,382 (67,616) 4,036 16,563 28,485
Interest expense, net (B) 13,720 14,740 30,315 12,011 828 2,072 2,107
(Gains) on cash flow hedges (C) -- -- (1,175) (923) -- -- --
--------- --------- --------- --------- ---------- ---------- ----------
Income (loss) from operations
before income taxes 7,467 31,089 17,242 (78,704) 3,208 14,491 26,378
Provision for income taxes 15,755 11,230 3,129 1,487 916 4,169 6,180
--------- --------- --------- --------- ---------- ---------- ----------
(Loss) income from operations (8,288) 19,859 14,113 (80,191) 2,292 10,322 20,198
(Loss) income from discontinued
operations, net of tax (C) -- -- -- (7,213) (448) (9) 108
--------- --------- --------- --------- ---------- ---------- ----------
(Loss) income before extraordinary
item (8,288) 19,859 14,113 (87,404) 1,844 10,313 20,306
Extraordinary item-(loss) on early
retirement of debt -- (22,264) (12,112) -- -- -- --
--------- --------- --------- --------- ---------- ---------- ----------
(Loss) income before cumulative effect
of change in accounting principle (8,288) (2,405) 2,001 (87,404) 1,844 10,313 20,306
Cumulative effect of change in
accounting principle (C) -- -- -- -- -- -- (2,228)
--------- --------- --------- --------- ---------- ---------- ----------
Net (loss) income $ (8,288) $ (2,405) $ 2,001 $ (87,404) $ 1,844 $ 10,313 $ 18,078
Less: Accretion of and dividend on --------- --------- --------- --------- ---------- ---------- ----------
preferred stock 942 921 902 330
--------- --------- --------- ---------
Net (loss) income available to
common stockholders $ (9,230) $ (3,326) $ 1,099 $ (87,734)
--------- --------- --------- ---------
(Loss) income per basic common share:
(Loss) income per common share before
extraordinary item $ (.32) $ .66 $ .59 $ (3.74)
(Loss) per common share from
discontinued operations -- -- -- (.34)
Extraordinary (loss) per common share -- (.78) (.54) --
--------- --------- --------- ---------
Net (loss) income per common share $ (.32) $ (.12) $ .05 $ (4.08)
--------- --------- --------- ---------
Weighted average number of basic
common shares 29,127 28,841 22,326 21,482
========= ========= ========= =========
(Loss) income per diluted common share:
(Loss) income per common share before
extraordinary item $ (.32) $ .60 $ .54 $ (3.74)
(Loss) per common share from
discontinued operations -- -- -- (.34)
Extraordinary (loss) per common share -- (.71) (.49) --
--------- --------- --------- ---------
Net (loss) income per common share $ (.32) $ (.11) $ .05 $ (4.08)
========= ========= ========= =========
Weighted average number of diluted common
shares and equivalents 29,127 31,628 24,582 21,482
========= ========= ========= =========
BALANCE SHEET AND OTHER DATA:
Working capital $ 42,468 $ 61,227 $ 56,385 $ 87,357 $ 100,528 $ 112,905
Total assets $552,059 $365,502 $299,816 $ 331,598 $ 189,592 $ 199,513
Long term debt, including current
maturities (B) $305,340 $210,470 $158,500 $ 275,000 $ -- $ --
Redeemable preferred stock $ 8,096 $ 7,153 $ 6,232 $ 5,330 $ -- $ --
Stockholders' equity (deficit)\parent
company investment $ 62,297 $ 57,780 $ 58,118 $ (22,670) $ 149,095 $ 163,157
Employees 2,640 2,135 1,934 2,021 2,069 2,009 2,180
Depreciation and amortization for
the period $ 20,010 $ 16,709 $ 13,774 $ 4,394 $ 6,323 $ 9,265 $ 8,857
Capital expenditures for the period $ 23,393 $ 13,822 $ 9,878 $ 2,191 $ 5,935 $ 8,439 $ 10,739
</TABLE>
(A) Results of predecessor HPLC business of former parent Millipore
Corporation acquired by Company on August 18,1994.
(B) 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.
(C) Nonrecurring charges.
42
<PAGE>
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<PAGE>
DIRECTORS
Douglas A. Berthiaume
Chairman, President, and Chief Executive Officer
Waters Corporation
Joshua Bekenstein
Managing Director
Bain Capital, Inc.
Philip Caldwell
Retired Senior Managing Director
Lehman Brothers Inc. and Retired Chairman
and Chief Executive Officer, Ford Motor Company
Edward Conard
Managing Director
Bain Capital, Inc.
Dr. Laurie H. Glimcher
Professor of Immunology and Medicine
Harvard School of Public Health and Harvard Medical School
William J. Miller
Chairman and Chief Executive Officer
Avid Technology, Inc.
Thomas P. Salice
Managing Director
AEA Investors, Inc.
OFFICERS
Douglas A. Berthiaume
Chairman, President, and Chief Executive Officer
Arthur G. Caputo
Senior Vice President
Worldwide Sales and Marketing
Thomas W. Feller
Senior Vice President
Operations
John R. Nelson
Senior Vice President
Research, Development, and Engineering
Philip S. Taymor
Senior Vice President
Finance and Administration and Chief Financial Officer
Brian K. Mazar
Vice President
Human Resources and Investor Relations
Devette W. Russo
Vice President
Chromatography Consumables Division
TRANSFER AGENT
BankBoston, N.A.
c/o Boston EquiServe, L.P.
P.O. Box 8040
Boston, Massachusetts 02266-8040
781-575-3120
www.equiserve.com
AUDITORS
Coopers and Lybrand L.L.P.
One Post Office Square
Boston, Massachusetts 02109
ATTORNEYS
Kirkland and Ellis
Citicorp Center
153 East 53rd Street
39th Floor
New York, New York 10022
STOCKHOLDERS' MEETING
Date: May 12, 1998, 11 a.m.
Place: Waters Corporation
34 Maple Street
Milford, Massachusetts
Directions: Call 800-252-4752 Ext. 3314
STOCKLIST SYMBOL
NYSE: WAT
FORM 10K
A copy of the Company's 10K, filed with the Securities and Exchange Commission,
is available without charge upon written request to:
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]
www.waters.com
Waters, Millennium, and Symmetry are registered trademarks of Waters
Corporation. Alliance, Integrity, TA Instruments, and Oasis are trademarks of
Waters Corporation. It's All Important and Connections are service marks of
Waters Corporation. Microsoft, Windows, and Windows NT are registered trademarks
of Microsoft Corporation.
44
<PAGE>
[Inside back cover]
[This page is intentionally left blank]
<PAGE>
[Back Cover]
Front cover image wraps around to back cover.
<PAGE>
Exhibit 22.1
WATERS
April 1, 1998
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 12,
1998 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 (i) the election of
directors of the Company, (ii) the ratification of auditors for the Company and
(iii) the reservation of an additional two million shares of the Company's
common stock for issuance upon the exercise of stock options granted under the
Company's Long-Term Performance Incentive Plan for senior executives of 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
<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 12, 1998, 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 1998;
3. To ratify the reservation of an additional two million shares of the
Company's common stock for issuance upon the exercise of stock options
granted under the Company's Long-Term Performance Incentive Plan for senior
executives of the Company; and
4. 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 23, 1998 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
April 1, 1998
<PAGE>
WATERS CORPORATION
34 MAPLE STREET
MILFORD, MASSACHUSETTS 01757
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
MAY 12, 1998, 11:00 O'CLOCK A.M.
The Proxy is solicited by the Board of Directors of Waters Corporation (the
"Company") for use at the 1998 Annual Meeting of Stockholders to be held on
May 12, 1998 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 broker solicitation for a fee of $4,500.00
plus reasonable out-of-pocket expenses. 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 23, 1998 (the "Record Date").
On the Record Date, there were 29,790,227 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 April 1, 1998. 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.
1
<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. Eight 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, 1998:
Douglas A. Berthiaume, 49, has served as Chairman of the Board of Directors
of the Company since February 1996 and has served as President, Chief
Executive Officer and a Director 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 Chairman of the Analytical and Life Science
Systems Association.
Joshua Bekenstein, 39, 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.
Michael J. Berendt, Ph.D., 49, has served as a Director of the Company since
March 1998 pending election by the stockholders at an annual meeting. Since
November 1996, Dr. Berendt has served as Senior Vice President, Pharmaceutical
Research of Bayer Corporation, Pharmaceutical Division. From January 1996 to
November 1996, Dr. Berendt served as Vice President, Institute for Bone &
Joint Disorders and Cancer, Bayer Corporation, Pharmaceutical Division. From
October 1993 to January 1996, Dr. Berendt served as Director, Institute for
Bone & Joint Disorders and Cancer, Bayer Corporation, Pharmaceutical Division.
Prior to joining Bayer, Dr. Berendt served as Group Director of Drug Discovery
at Pfizer, Inc., and was responsible for immunology and infectious diseases
research. Dr. Berendt is a member of the Board of Directors of Onyx
Pharmaceuticals, Inc., Myriad Genetics, Inc., and Connecticut's Regional
Growth Partnership.
Philip Caldwell, 78, has served as a Director of the Company since August
1994. Mr. Caldwell spent 32 years at Ford Motor Company where he served as
Chairman of the Board of Directors and Chief Executive Officer from 1980 to
1985 and as a Director from 1973 to 1990. He served as a Director and Senior
Managing Director of Lehman Brothers Inc. and its predecessor, Shearson Lehman
Brothers Holdings, Inc. from 1985 to February 1998. Mr. Caldwell is Chairman
of Mettler-Toledo International Inc. and a Director of Zurich Holding Company
of America, Inc., American Guarantee & Liability Insurance Company, The Mexico
Fund and Russell Reynolds Associates, Inc. Mr. Caldwell has also served as a
Director of The Chase Manhattan Corporation, The Chase Manhattan Bank, N.A.,
Digital Equipment Corporation, Federated Department Stores, Inc., Kellogg
Company, CasTech Aluminum Group, Inc., Specialty Coatings International, Inc.,
and Zurich Reinsurance Centre, Inc.,
Edward Conard, 41, has served as a Director of the Company since August
1994. Mr. Conard has been a Managing Director of Bain since March 1993. Mr.
Conard was previously a Managing Director of Wasserstein Perella and Company,
an investment banking firm that specializes in mergers and acquisitions, and a
Vice President of Bain & Company heading up the firm's operations practice
area. Mr. Conard is a Director of Medical Specialties Group, Inc.
Laurie H. Glimcher, M.D., 46, has served as a Director of the Company since
January 1998 pending election by the stockholders at an annual meeting. Dr.
Glimcher has been a Professor of Immunology and Medicine at the Harvard School
of Public Health and Harvard Medical School since 1990. Dr. Glimcher is a
Director of Bristol-Myers Squibb Company.
2
<PAGE>
William J. Miller, 51, has served as a Director of the Company since January
1998 pending election by the stockholders at an annual meeting. Since April
1996, Mr. Miller has served as Chief Executive Officer and Chairman of the
Board of Avid Corporation and since September 1996, he has served as
President. From March 1992 to September 1995, Mr. Miller served as Chief
Executive Officer of Quantum Corporation. From May 1992, Mr. Miller served as
a member of the Board of Directors of Quantum Corporation and from September
1993 to August 1995, he served as Chairman of the Board of Directors. From
1981 to March 1992, he served in various positions at Control Data
Corporation, most recently as Executive Vice President and President,
Information Services. Mr. Miller is a Director of NVidia Corporation and
Innovex, Inc.
Thomas P. Salice, 38, has served as a Director of the Company since July
1994. Mr. Salice is a Managing Director of AEA Investors Inc. ("AEA") and has
served with AEA since May 1989. Mr. Salice is a Director of Mettler-Toledo
International, Inc. and Manchester Tank & Equipment Company.
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, 1998. 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.
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. RESERVATION OF SHARES
The Board of Directors recommends that the stockholders vote FOR the
ratification of the reservation (the "Reservation") of an additional two
million shares of the Common Stock for issuance upon the exercise of stock
options granted under the Company's Long-Term Performance Incentive Plan (the
"Plan") for senior executives of the Company.
The Plan provides for the granting to employees and other key individuals
who perform services for the Company and its subsidiaries ("Participants") the
following types of incentive awards: stock options, stock appreciation rights,
restricted stock, performance units, performance grants and other types of
awards that the Compensation Committee of the Board of Directors deems to be
consistent with the purposes of the Plan. In 1996, the Plan was approved, and
an aggregate of 1,000,000 shares of Common Stock was reserved for issuance
under the Plan. If the Reservation is ratified, an additional 2,000,000 shares
of Common Stock will be reserved for issuance under the Plan. The Participants
are chosen at the discretion of the Compensation Committee and currently
number approximately 150.
4. 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.
3
<PAGE>
DIRECTORS MEETINGS AND COMPENSATION
DIRECTORS MEETINGS
The Board of Directors held five meetings during the year ended December 31,
1997. The Audit Committee, which currently consists of Messrs. Bekenstein,
Caldwell and Salice, oversees the activities of the Company's independent
auditors and recommends the engagement of auditors. 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 1997, all of the Company's directors
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 1997, the Compensation
Committee and the Audit Committee each met two times.
Marc Wolpow resigned on December 19, 1997 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 eight and
elected Michael J. Berendt, Ph.D, Laurie H. Glimcher, M.D. and William J.
Miller to fill the vacant director positions until such time as they or their
successors are elected by the stockholders at an annual meeting.
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 $17,500 per year (other than the Chairman who, if
an Outside Director, will receive an annual fee of $30,000), $1,000 for each
Board meeting, $750 for each committee meeting that they attend and an annual
grant of 1,000 options under the Company's 1996 Non-Employee Director Stock
Option Plan. All directors are reimbursed for expenses incurred in connection
with their attendance at meetings.
4
<PAGE>
MANAGEMENT COMPENSATION
SUMMARY COMPENSATION TABLE
The following Summary Compensation Table discloses, for the fiscal years
indicated, individual compensation information on Mr. Berthiaume and the four
other most highly compensated executive officers (collectively, the "named
executives") who were serving as executive officers at the end of fiscal year
1997.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------
SECURITIES
UNDERLYING
OPTIONS ALL OTHER
NAME AND PRINCIPAL SALARY BONUS (#) OF COMPENSATION
POSITION FISCAL YEAR ($) ($) SHARES ($)
- ------------------ ----------- ------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Douglas A. Berthiaume... 1997 400,000 490,000(1) 45,000 29,484(2)(3)(4)
Chairman, President and 1996 299,990 352,200(5) 38,500 22,696
Chief Executive Officer 1995 275,002 548,414(6)(7) -- 26,914
Arthur G. Caputo........ 1997 184,990 200,836(1) 27,000 12,967(2)(3)(4)
Senior Vice President, 1996 160,004 164,480(5) 22,000 11,446
Sales and Marketing 1995 149,994 345,714(6)(7) -- 15,685
Thomas W. Feller........ 1997 184,990 200,836(1) 27,000 15,310(2)(3)(4)
Senior Vice President,
Operations 1996 160,004 164,480(5) 22,000 13,655
1995 155,012 352,714(6)(7) -- 16,236
John R. Nelson.......... 1997 190,008 206,264(1) 27,000 12,712(2)(3)(4)
Senior Vice President, 1996 164,996 169,620(5) 22,000 11,053
Research and Develop-
ment 1995 160,004 359,714(6)(7) -- 18,086
Philip S. Taymor........ 1997 184,990 200,836(1) 27,000 12,289(2)(3)(4)
Senior Vice President,
Finance and 1996 160,004 164,480(5) 22,000 10,582
Administration and
Chief Financial 1995 149,994 395,714(6)(7) -- 16,799
Officer
</TABLE>
- --------
(1) Reflects bonus earned under the Company's Pay for Performance Plan in 1997
which was paid in 1998.
(2) Includes amounts contributed for the benefit of the named executive under
the Waters 401(k) Restoration Plan in 1997 as follows: Mr. Berthiaume
$22,131, Mr. Caputo $6,890, Mr. Feller $6,844, Mr. Nelson $7,227 and Mr.
Taymor $6,890.
(3) Includes amounts contributed for the benefit of the named executive under
the Waters Employee Investment Plan in 1997 as follows: Mr. Berthiaume
$4,569, Mr. Caputo $4,685, Mr. Feller $4,731, Mr. Nelson $4,662 and Mr.
Taymor $4,685.
(4) Includes amounts contributed for the benefit of the named executive under
Group Term Life Insurance in 1997 as follows: Mr. Berthiaume $2,784, Mr.
Caputo $1,392, Mr. Feller $3,735, Mr. Nelson $824 and Mr. Taymor $714.
(5) Reflects bonus earned under the Company's Pay for Performance Plan in 1996
which was paid in 1997.
(6) 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.
(7) 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 $185,714.
5
<PAGE>
OPTION GRANTS IN FISCAL YEAR 1997
The following table shows information regarding stock option grants to the
named executives in fiscal year 1997:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR
INDIVIDUAL GRANTS 10-YEAR OPTION TERM
----------------------------------- --------------------------------
PERCENT OF
NUMBER OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED EXERCISE
OPTIONS TO EMPLOYEES PRICE EXPIRATION
NAME GRANTED (#) IN FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
---- ----------- -------------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Douglas A. Berthiaume... 45,000 9.01% $42.75 12/02/07 $1,209,829 $3,065,957
Arthur G. Caputo........ 27,000 5.41% $42.75 12/02/07 $ 725,897 $1,839,574
Thomas W. Feller........ 27,000 5.41% $42.75 12/02/07 $ 725,897 $1,839,574
John R. Nelson.......... 27,000 5.41% $42.75 12/02/07 $ 725,897 $1,839,574
Philip S. Taymor........ 27,000 5.41% $42.75 12/02/07 $ 725,897 $1,839,574
</TABLE>
AGGREGATED OPTION EXERCISES, HOLDINGS AND YEAR END VALUES FOR FISCAL YEAR 1997
The following table shows information regarding (i) the number of shares of
Common Stock acquired upon exercise by the named executives of stock options
in 1997 and the value realized thereby and (ii) the number and value of any
unexercised stock options held by such executives as of December 31, 1997:
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
SHARES NUMBER OF SECURITIES IN-THE MONEY OPTIONS AT
ACQUIRED ON VALUE UNDERLYING UNEXERCISED FY-END ($)
EXERCISE REALIZED OPTIONS AT FY-END (#) EXERCISABLE/UNEXERCISABLE
NAME (#) ($) EXERCISABLE/UNEXERCISABLE (1)
---- ----------- ---------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Douglas A. Berthiaume... 0 0 915,868/492,872 $23,859,471/$10,613,793
Arthur G. Caputo........ 0 0 343,472/196,938 $ 8,985,626/$ 3,937,588
Thomas W. Feller........ 25,700 $1,100,217 317,772/196,938 $ 8,110,284/$ 3,937,588
John R. Nelson.......... 28,950 $1,229,999 314,522/196,938 $ 7,999,589/$ 3,937,588
Philip S. Taymor........ 38,700 $1,654,581 304,772/196,938 $ 7,667,504/$ 3,937,588
</TABLE>
- --------
(1) Value is based on the closing price of the Common Stock on December 31,
1997 of $38.125.
AMENDMENT OF 1996 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
In 1997, the Compensation Committee adopted, and the Board of Directors
approved, an amendment of the Company's 1996 Non-Employee Director Stock
Option Plan (the "Plan"). The amendment effected the following changes to the
Plan:
(i) the annual automatic grant of options under the Plan will be made on
December 1 (rather than July 1) of each year; (ii) the exercise price of
options granted under the Plan will be the fair market value of shares of
Common Stock on the date of grant (rather than 115% of fair market value)
and (iii) certain vesting and exercise provisions affecting options granted
under the Plan will be subject to the discretion of the Board of Directors.
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.
6
<PAGE>
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.
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 1997 were determined by the Committee after
consideration of the Company's financial performance in fiscal year 1996,
individual position and responsibilities, and general and industry market
surveys for comparable positions.
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 1997.
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 Chief Executive Officer.
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, retirement plan, employee stock
purchase plan and supplemental employee retirement plan.
Chief Executive Compensation
Mr. Berthiaume's 1997 annual base salary was based on the Compensation
Committee's (the "Committee") evaluation of the Company's overall performance
and the salaries and compensation practices of peer companies of comparable
size. The Committee also considered the unusual circumstances surrounding the
Company which continued from its inception as a private concern in 1994, when
it acquired the predecessor business of its former parent, and its initial
public offering in 1995. Mr. Berthiaume elected to take a salary
7
<PAGE>
reduction in 1994 and no base salary increase in 1995. After considering these
factors, the Committee elected to increase Mr. Berthiaume's annual base salary
for fiscal year 1997 to $400,000 from $300,000. Under the Pay for Performance
Plan, the Compensation Committee awarded Mr. Berthiaume a bonus of $490,000
for fiscal year 1997 based upon the Company's performance as compared to pre-
established criteria and targets. Mr. Berthiaume received a stock option grant
of 45,000 shares based on the considerations described under the Long Term
Performance Incentive Plan.
Limit on Deductible Compensation
The Compensation Committee has considered the application of Section 162(m)
of the Internal Revenue 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 reach the $1 million threshold, and it 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
8
<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, 1997 (the last day of public trading of the Common Stock
in fiscal year 1997) in the Common Stock of the Company, the NYSE Market Index
and the SIC Code 3826 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 CUMULATIVE TOTAL RETURN SINCE
THE DATE OF THE COMPANY'S INITIAL PUBLIC OFFERING,
NOVEMBER 17, 1995, AMONG WATERS CORPORATION,
NYSE MARKET INDEX AND SIC CODE INDEX
- -------------------------------------------------------------------------------
NEW YORK STOCK LABORATORY ANALYTICAL
EXCHANGE INSTRUMENTS INDEX
DATE WATERS CORPORATION MARKET INDEX (SIC CODE 3826)
- -------------------------------------------------------------------------------
11/17/95 100.00 100.00 100.00
12/13/95 120.66 102.31 108.68
12/31/96 200.83 123.24 130.06
12/31/97 252.07 162.13 154.29
9
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The table below sets forth certain information regarding beneficial
ownership of Common Stock as of March 23, 1998, 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
NUMBER OF SHARES OUTSTANDING
NAME OF COMMON STOCK(1) COMMON STOCK(1)
---- ------------------ ---------------
<S> <C> <C>
5% STOCKHOLDERS
Pilgrim Baxter & Associates, Ltd........... 3,137,900 10.53%
825 Duportail Road
Wayne, Pennsylvania 19087
FMR Corp................................... 3,734,000 12.53%
82 Devonshire Street
Boston, Massachusetts 02109
Directors and Executive Officers
Douglas A. Berthiaume (2)(3)............... 1,569,798 5.27%
Arthur G. Caputo (2)....................... 415,433 1.39%
Thomas W. Feller (2)(4).................... 377,579 1.27%
John R. Nelson (2)......................... 342,797 1.15%
Philip S. Taymor (2)(5)(6)................. 408,691 1.37%
Joshua Bekenstein (2)(7)(8) ............... 1,350 *
Michael J. Berendt, Ph.D................... -- *
Philip Caldwell (2)(7)(8)(9)............... 33,740 *
Edward Conard (2)(7)(10)................... 1,790 *
Dr. Laurie H. Glimcher..................... -- *
William J. Miller.......................... -- *
Thomas P. Salice (2)(7)(8)(10)(11)......... 31,346 *
All Directors and Executive Officers as a
group (14 persons)........................ 3,894,905
</TABLE>
- --------
* represents less than 1% of the total.
1. Figures are based upon 29,790,227 shares of Common Stock outstanding as
of March 23, 1998. 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 23, 1998 as follows: Mr. Berthiaume 915,868, Mr. Caputo
293,472, Mr. Feller 277,772, Mr. Nelson 283,472, Mr. Taymor 264,772, Mr.
Bekenstein 1,000, Mr. Caldwell 1,000, Mr. Conard 1,000 and Mr. Salice
1,000.
3. Includes 17,250 shares held by Mr. Berthiaume's wife, Diana M.
Berthiaume, 6,313 shares held in a family trust, 4,593 shares held in
Mr. Berthiaume's 401K Plan and 1,059 shares held in the GST Trust
account, for which shares he disclaims beneficial ownership. The
trustees of the GST Trust are his spouse and another reporting person of
the Company. Mr. Berthiaume gifted 100 shares to each of 5 nieces and
nephews.
4. Includes 19,917 shares held by Mr. Feller's wife, for which shares he
disclaims beneficial ownership.
5. Includes 19,355 shares held by Mr. Taymor's wife, for which he disclaims
beneficial ownership.
6. Reporting person was named a trustee of a trust established by another
reporting person of the Company. The trust holds 1,059 shares of Company
stock, for which shares he disclaims beneficial ownership.
7. Reporting person elected to received deferred compensation in the form of
phantom stock: Mr. Bekenstein 350.15 shares, Mr. Caldwell 957.82 shares,
Mr. Conard 790.22 shares, Mr. Salice 202.47 shares.
8. Member of the Audit Committee.
9. Includes 31,782 shares held in trust for Mr. Caldwell's wife, for which
shares he disclaims beneficial ownership.
10. Member of the Compensation Committee.
11. Transferred shares to an account held in joint custody with his spouse.
10
<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 $2,342,332
million, to certain executive officers of the Company. These loans 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.
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.
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. Four of the Company's
directors, Messrs. Conard, Salice, Caldwell and Bekenstein, filed certain
reports late during the fiscal year ended December 31, 1997.
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, 1997 all of the Company's officers, directors and greater-
than-ten-percent beneficial owners made all required filings.
11
<PAGE>
MATERIAL INCORPORATED BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1997 as filed with the Securities and Exchange Commission is hereby
incorporated by reference.
STOCKHOLDER PROPOSALS
Proposals of stockholders to be presented at the 1999 Annual Meeting of
Stockholders must be received by the Secretary of the Company by November 4,
1998 to be considered for inclusion in the Company's Proxy Statement and form
of proxy relating to that meeting. It is anticipated that the 1999 Annual
Meeting will be scheduled on or about May 12, 1999.
12
<PAGE>
1444-PS-97
<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 Nos. 333-08191 and 333-18371) of our report
dated January 23, 1998, on our audits of the consolidated financial statements
of Waters Corporation and Subsidiaries as of December 31, 1997 and 1996, and for
each of the three years in the period ended December 31, 1997, which report is
incorporated by reference in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
March 27, 1998
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