<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________TO________.
COMMISSION FILE NUMBER: 01-14010
WATERS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN THE CHARTER)
DELAWARE 13-3668640
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
34 MAPLE STREET
MILFORD, MASSACHUSETTS 01757
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (508) 478-2000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days
Yes (X) No ( )
Number of shares outstanding of the Registrant's common stock as of May 11,
1999: 30,616,843
1
<PAGE>
WATERS CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1999 and December 31, 1998 3
Consolidated Statements of Operations for the three months ended March 31, 1999 and 1998 4
Consolidated Statements of Cash Flows for the three months ended March 31, 1999 and 1998 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9
PART II OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
</TABLE>
2
<PAGE>
WATERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, 1999 DECEMBER 31, 1998
-------------- -----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,757 $ 5,497
Accounts receivable, less allowances for doubtful accounts of
$2,849 and $2,966 at March 31, 1999 and December 31, 1998,
respectively 123,716 136,806
Inventories 77,492 80,281
Other current assets 29,424 29,040
--------- ---------
Total current assets 232,389 251,624
Property, plant and equipment, net of accumulated depreciation
of $48,456 and $45,421 at March 31, 1999 and December 31,
1998, respectively 88,596 89,029
Other assets 59,637 59,554
Goodwill, less accumulated amortization of $12,935 and $12,281 at
March 31, 1999 and December 31, 1998, respectively 175,312 177,494
--------- ---------
Total assets $ 555,934 $ 577,701
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of long term debt $ 6,014 $ 4,259
Accounts payable 36,301 36,510
Deferred revenue and customer advances 30,407 29,706
Other current liabilities 106,809 115,098
--------- ---------
Total current liabilities 179,531 185,573
Long term debt 180,580 218,250
Redeemable preferred stock 9,302 9,058
Other liabilities 9,097 14,701
--------- ---------
Total liabilities 378,510 427,582
Stockholders' Equity:
Common stock (par value $0.01, 50,000 shares authorized, 30,592
and 30,297 shares issued and outstanding at March 31,
1999 and December 31, 1998, respectively) 306 303
Additional paid-in capital 177,859 174,717
Deferred stock option compensation (331) (386)
Accumulated earnings (deficit) 1,277 (21,697)
Accumulated other comprehensive (loss) (1,687) (2,818)
--------- ---------
Total stockholders' equity 177,424 150,119
--------- ---------
Total liabilities and stockholders' equity $ 555,934 $ 577,701
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
3
<PAGE>
WATERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
---------------------------------
MARCH 31, 1999 MARCH 31, 1998
-------------- --------------
<S> <C> <C>
Net sales $160,362 $138,725
Cost of sales 60,622 51,920
Revaluation of acquired inventory - 16,500
---------- ----------
Gross profit 99,740 70,305
Selling, general and administrative expenses 54,504 49,988
Research and development expenses 8,686 8,372
Goodwill and purchased technology amortization 2,045 2,275
---------- ----------
Operating income 34,505 9,670
Interest expense, net 3,033 5,063
---------- ----------
Income from operations before income taxes 31,472 4,607
Provision for income taxes 8,498 4,363
---------- ----------
Net income 22,974 244
Less: accretion of and 6% dividend on preferred stock 244 239
---------- ----------
Net income available to common stockholders $22,730 $5
---------- ----------
---------- ----------
---------- ----------
Net income per basic common share $0.75 $0.00
---------- ----------
---------- ----------
Weighted average number of basic common shares 30,447 29,708
---------- ----------
Net income per diluted common share $0.69 $0.00
---------- ----------
---------- ----------
Weighted average number of diluted common shares and equivalents 32,920 33,161
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
4
<PAGE>
WATERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
---------------------------------------
MARCH 31, 1999 MARCH 31, 1998
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income $22,974 $244
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 6,769 6,250
Amortization of debt issuance costs 184 308
Compensatory stock option expense 55 55
Revaluation of acquired inventory - 16,500
Change in operating assets and liabilities:
Decrease (increase) in accounts receivable 8,996 (3,982)
Decrease (increase) in inventories 894 (8,662)
(Decrease) increase in accounts payable and other current
liabilities (6,635) 3,166
Increase in deferred revenue and customer advances 1,398 2,945
Other, net 437 (1,411)
---------------- ----------------
Net cash provided by operating activities 35,072 15,413
Cash flows from investing activities:
Additions to property, plant and equipment (4,610) (4,995)
Software capitalization and other intangibles (1,165) (1,734)
Loans to officers (34) (34)
---------------- ----------------
Net cash (used in) investing activities (5,809) (6,763)
Cash flows from financing activities:
Net (repayment) of bank debt (35,915) (10,873)
Proceeds from stock plans 3,387 1,476
---------------- ----------------
Net cash (used in) financing activities (32,528) (9,397)
Effect of exchange rate changes on cash (475) 225
---------------- ----------------
Net change in cash and cash equivalents (3,740) (522)
Cash and cash equivalents at beginning of period 5,497 3,113
---------------- ----------------
Cash and cash equivalents at end of period $1,757 $2,591
---------------- ----------------
---------------- ----------------
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
5
<PAGE>
WATERS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1. ORGANIZATION AND BASIS OF PRESENTATION
Waters Corporation ("Waters" or the "Company"), an analytical instrument
manufacturer, is the world's largest manufacturer and distributor of high
performance liquid chromatography ("HPLC") instruments, chromatography columns
and other consumables, and related service. HPLC, the largest product segment of
the analytical instrument market, is utilized in a broad range of industries to
detect, identify, monitor and measure the chemical, physical and biological
composition of materials, and to purify a full range of compounds. Through its
TA Instruments, Inc. ("TAI") subsidiary, the Company is also the world's leader
in thermal analysis, a prevalent and complementary technique used in the
analysis of polymers. Through its Micromass Limited ("Micromass") subsidiary,
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.
The accompanying unaudited interim financial statements have been prepared
in accordance with generally accepted accounting principles ("GAAP"). The
consolidated financial statements include the accounts of the Company and its
subsidiaries. All material intercompany balances and transactions have been
eliminated. Certain amounts from prior years have been reclassified in the
accompanying financial statements in order to be consistent with the current
year's classifications.
The preparation of financial statements in conformity with 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.
It is management's opinion that the accompanying interim financial
statements reflect all adjustments (which are normal and recurring) necessary
for a fair presentation of the results for the interim periods. The interim
financial statements should be read in conjunction with the consolidated
financial statements included in the Company's 10-K filing with the Securities
and Exchange Commission for the year ended December 31, 1998.
2. INVENTORIES
Inventories are classified as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---- ----
<S> <C> <C>
Raw materials $28,213 $27,327
Work in progress 11,517 9,572
Finished goods 37,762 43,382
-------- --------
Total Inventories $77,492 $80,281
-------- --------
-------- --------
</TABLE>
3. INCOME TAXES
The Company's effective tax rate for the three months ended March 31, 1999 and
1998, was 27% and 21%, respectively before nondeductible, acquisition-related
expenses.
6
<PAGE>
WATERS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
4. EARNINGS PER SHARE
Basic and diluted EPS calculations are detailed as follows:
<TABLE>
<CAPTION>
------------------------------------------------
Three Months Ended March 31, 1999
------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
------------- --------------- -----------
<S> <C> <C> <C>
Net income $22,974
Less: Accretion of and 6% dividend on preferred stock 244
------------- --------------- -----------
Income per basic common share from operations $22,730 30,447 $0.75
------------- --------------- -----------
------------- --------------- -----------
Effect of dilutive securities:
Options outstanding 2,388
Options exercised 85
------------- --------------- -----------
Income per diluted common share from operations $22,730 32,920 $0.69
------------- --------------- -----------
------------- --------------- -----------
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------
Three Months Ended March 31, 1998
------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
------------- --------------- -----------
<S> <C> <C> <C>
Net income $244
Less: Accretion of and 6% dividend on preferred stock 239
------------- --------------- -----------
Income per basic common share from operations $ 5 29,708 $0.00
------------- --------------- -----------
------------- --------------- -----------
Effect of dilutive securities:
Options outstanding 3,384
Options exercised 69
------------- --------------- -----------
Income per diluted common share from operations $ 5 33,161 $0.00
------------- --------------- -----------
------------- --------------- -----------
</TABLE>
As of March 31, 1998, the Company had one thousand stock option securities
that were antidilutive. These securities were not included in the computation of
diluted EPS. As of March 31, 1999, the Company had no stock option securities
that were antidilutive.
5. COMPREHENSIVE INCOME
Comprehensive income details follow:
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, March 31,
1999 1998
---- ----
<S> <C> <C>
Net income $ 22,974 $ 244
Other comprehensive income 1,131 57
---------- -----------
Comprehensive income $ 24,105 $ 301
---------- -----------
---------- -----------
</TABLE>
7
<PAGE>
WATERS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
6. BUSINESS SEGMENT INFORMATION
SFAS 131 establishes standards for reporting information about operating
segments in annual financial statements of public business enterprises. The
Company evaluated its business activities that are regularly reviewed by the
Chief Executive Officer for which discrete financial information is available.
As a result of this evaluation, the Company determined that it has three
operating segments: Waters, TAI and Micromass.
Waters is in the business of manufacturing and distributing HPLC
instruments, columns and other consumables, and related service; TAI is in the
business of manufacturing and distributing thermal analysis and rheology
instruments; and Micromass is in the business of manufacturing and distributing
mass spectrometry instruments that can be integrated and used along with other
analytical instruments, particularly HPLC. For all three of these operating
segments within the analytical instrument industry; economic characteristics,
production processes, products and services, types and classes of customers,
methods of distribution, and regulatory environments are similar. Because of
these similarities, the three segments have been aggregated into one reporting
segment for financial statement purposes. Please refer to the consolidated
financial statements for financial information regarding the one reportable
segment of the Company.
7. STOCK SPLIT
On February 25, 1999, the Board of Directors approved a two-for-one common
stock split, in the form of a 100% stock dividend, contingent upon
shareholder approval of a charter amendment increasing authorized common
stock. At the Company's Annual Meeting on May 4, 1999, shareholders approved
the charter amendment. Shareholders of record on May 27, 1999 will receive
the stock dividend on or about June 10, 1999. Because the effective date of
the stock split is June 10, 1999, financial information contained on this
Form 10-Q has not been adjusted to reflect the impact of the stock split.
Earnings per share amounts, after giving retroactive effect to the
two-for-one stock split, are presented below for all of the per share amounts
disclosed in the financial statements and the notes to the financial
statements.
<TABLE>
<CAPTION>
March 31, 1999 March 31, 1998
-------------- --------------
<S> <C> <C>
Net income per basic common share $0.37 $0.00
Weighted average number of basic common shares 60,894 59,416
Net income per diluted common share $0.35 $0.00
Weighted average number of diluted common shares 65,840 66,322
</TABLE>
8. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
Accounting for Derivative Instruments and Hedging Activities, which is
effective for all fiscal quarters of fiscal years beginning after June 15,
1999. Earlier application is permitted. The statement establishes accounting
and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure
those instruments at fair value. While management has not determined the
impact of the new standard, it is not expected to be material to the Company.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
NET SALES:
Net sales for the three month period ended March 31, 1999 (the "1999 Quarter")
were $160.4 million, compared to $138.7 million for the three month period ended
March 31, 1998 (the "1998 Quarter"), an increase of 16%. Excluding the favorable
effects of a weaker U.S. dollar, net sales increased by 15% over the 1998
Quarter. HPLC growth and pharmaceutical customer demand were generally
broad-based across all geographies. Sales of the Company's mass spectrometry
products grew strongly with increased use of mass spectrometry as an analytical
tool within the pharmaceutical industry, especially in conjunction with HPLC.
GROSS PROFIT:
Gross profit for the 1999 Quarter was $99.7 million, compared to $70.3
million for the 1998 Quarter, an increase of $29.4 million or 42%. Excluding
the $16.5 million nonrecurring charge for revaluation of acquired inventory
in 1998 related to purchase accounting for the acquisition of Micromass,
gross profit increased by 15% in the 1999 Quarter. Gross profit as a
percentage of sales excluding the inventory revaluation charge decreased to
62.2% in the 1999 Quarter from 62.6% in the 1998 Quarter. This decrease
resulted in part from the impact of one large sale in Japan.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES:
Selling, general and administrative expenses for the 1999 Quarter were $54.5
million, compared to $50.0 million for the 1998 Quarter. As a percentage of net
sales, selling, general and administrative expenses decreased to 34.0% for the
1999 Quarter from 36.0% for the 1998 Quarter as a result of higher sales volume
and expense controls. The $4.5 million or 9% increase in total expenditures
primarily resulted from increased headcount required to support increased sales
levels.
RESEARCH AND DEVELOPMENT EXPENSES:
Research and development expenses were $8.7 million for the 1999 Quarter
compared to $8.4 million for the 1998 Quarter, a $0.3 million or 4% increase
from the 1998 Quarter. The Company continued to invest significantly in the
development of new and improved HPLC, thermal analysis, rheology, and mass
spectrometry products.
GOODWILL AND PURCHASED TECHNOLOGY AMORTIZATION:
Goodwill and purchased technology amortization for the 1999 Quarter was $2.0
million, compared to $2.3 million for the 1998 Quarter, a decrease of $0.3
million or 13%.
OPERATING INCOME:
Operating income for the 1999 Quarter was $34.5 million, compared to $9.7
million for the 1998 Quarter, an increase of $24.8 million or 256%. Operating
income for the 1998 Quarter included a $16.5 million nonrecurring acquisition
related charge. Excluding the revaluation of acquired inventory charge in 1998
in connection with the Micromass acquisition, operating income was $26.2 million
for the 1998 Quarter, resulting in an $8.3 million or 32% increase for the 1999
Quarter. As in prior periods, Waters continued to improve operating income
levels on the strength of sales growth, volume leverage and continued focus on
cost reduction in all operating areas.
INTEREST EXPENSE, NET:
Net interest expense decreased by $2.0 million, or 40%, from $5.0 million in the
1998 Quarter to $3.0 million in the 1999 Quarter. The current quarter decrease
primarily reflected lower average debt levels as a result of repayments from the
Company's cash flow.
PROVISION FOR INCOME TAXES:
The Company's effective income tax rate, excluding the nonrecurring,
nondeductible charge related to the revaluation of acquired inventory in the
1998 Quarter, was 27% in the 1999 Quarter and 21% in the 1998 Quarter. The
primary reason for this increase was the utilization of remaining net operating
loss carryforwards in 1998.
9
<PAGE>
NET INCOME:
Income for the 1999 Quarter was $23.0 million, compared to $0.2 million for the
1998 Quarter. Excluding the nonrecurring acquisition related charge in the 1998
Quarter, the Company generated $16.7 million of income in the 1998 Quarter. The
improvement over the 1998 Quarter was a result of sales growth and continued
focus on cost reductions in all operating areas.
YEAR 2000
Year 2000 ("Y2K") issues concern the ability of information systems to properly
recognize and process date-sensitive information beyond December 31, 1999.
The Company has been engaged in a concerted effort to ready its business
systems and products in anticipation of Y2K. A special internal project team led
by senior management was organized in 1997 in an attempt to ensure that all
material business systems, instrument products and applications software are
compliant by January 1, 2000. Currently, the companywide planning and inventory
phases have been completed. The assessment phase was substantially completed by
December 31, 1998, and included the examination of products, worldwide
operations, manufacturing systems, business computer systems, manufacturing,
warehousing and servicing equipment, network hardware and software, telephone
systems, desktop application software, mainframe operating systems, and
environmental operations. Currently, the Company believes that most of its
internal systems and related software are likely to be Y2K compliant. The
Company is continuing to examine its material software and systems for Y2K
compliance and take corrective action to minimize any significant detrimental
effects on operations.
The remediation and testing phases of the Company's systems are scheduled
to be substantially completed by the middle of 1999. Based on the results of the
testing phase, a contingency plan will be completed. The Company has no plans to
engage in third party validation of its Y2K efforts. To date, approximately
$10.1 million has been spent over the past four years in connection with
bringing the Company's internal systems into compliance, primarily capital
expenditures for entirely new business and communications systems which replaced
predecessor systems. The remaining costs to fix Y2K problems are estimated at
less than $0.9 million, including capital expenditures to replace certain
predecessor capital items. These costs do not include any allocation for the
time devoted by regular employees of the Company to addressing Y2K problems, as
the Company does not separately track such time. The Company does not expect the
costs relating to the Y2K remediation phase to have a material effect on the
Company.
The Company has made public statements to customers regarding its state of
Year 2000 readiness for its products; however, the possibility of product
liability claims still exists. The Company also recognizes that Y2K disruptions
in customer operations could result in reduced sales and cash flow and increased
inventory or receivables. While these events are possible, the Company believes
that its customer base is broad enough to minimize the effects of a single
occurrence. To date, the Company has received communications from many of its
major customers which indicate an awareness of Y2K issues.
The Company is in the process of obtaining certificates of compliance from
its major systems vendors. Additionally, the Company is in the process of
surveying its financial services, utilities, and communication providers, as
well as its critical suppliers to ensure that they are compliant. Despite these
efforts, however, interruption of supplier operations due to Y2K issues could
potentially affect Company operations. The Company uses multiple suppliers, and,
in some instances, maintains an inventory of parts and supplies, which may
reduce the risks of interruption, but cannot eliminate the potential for
disruption due to third party failure.
The Company currently has identified contingency alternatives for certain
elements of Year 2000 risk. The contingency plan is intended to be completed
during fiscal 1999. The plan will address customer problems as well as temporary
remedies in the event of failure of Company or third party systems. The Company
will continue to review its business interruption contingency plans as it
completes its testing and remediation phases during the year. However, there can
be no assurance that any contingency plans will prevent Y2K problems from
occurring.
10
<PAGE>
While the Company believes its efforts will provide reasonable assurance
that material disruptions are not likely to occur due to internal failure, the
potential for interruption still exists. Specifically, the Company and its
subsidiaries could be materially adversely affected if utilities, private
businesses and governmental entities with which they do business or that provide
essential services are not Y2K compliant. The Company currently believes that
the greatest risk of disruption in its businesses exists in certain
international markets. Such interruptions could cause, among other things,
temporary plant closings, delays in the delivery of products, delays in the
receipt of supplies, invoice and collection errors, and inventory and supply
obsolescence. Recovery under existing insurance policies may be available
depending upon the circumstances of a Y2K related event.
The estimates and conclusions herein are based on management's best
estimates of future events. Risks that could cause results to differ from these
estimates and conclusions include the uncertainties involved in discovering and
correcting the potential Y2K sensitive problems which could have a serious
impact on specific facilities and the ability of suppliers and customers to
bring their systems into Y2K compliance.
EURO CURRENCY CONVERSION
Several countries of the European Union will adopt the euro as their legal
currency effective July 1, 2002. A transition period has been established from
January 1, 1999 to July 1, 2002 during which companies conducting business in
these countries may use the euro or their local currency. The Company has
considered the potential impact of the euro conversion on pricing competition,
its information technology systems, and currency risk and risk management.
Currently, the Company does not expect that the euro conversion will result in
any material increase in costs to the Company or have a material adverse effect
on its business or financial condition.
LIQUIDITY AND CAPITAL RESOURCES
During the 1999 Quarter, net cash provided by the Company's operating
activities was $35.1 million, primarily as a result of net income for the
period after adding back depreciation and amortization as well as seasonally
high proceeds received from collection efforts on fourth quarter 1998 sales.
Primary uses of this cash flow during the quarter were $35.9 million of net
bank debt repayment and $5.8 million of property, plant and equipment and
software capitalization investment.
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.
CAUTIONARY STATEMENT
Certain statements contained herein are forward looking. Many factors could
cause actual results to differ from these statements, including, but not limited
to, obsolescence resulting from the introduction of technologically advanced
products by other companies, pressure on prices from competitors with
significantly greater financial resources, regulatory obstacles to new product
introductions, reduction in capital spending of pharmaceutical customers, and
market risk. Please refer also to the Company's Form 10-K for additional risk
factors.
11
<PAGE>
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, the Company and its subsidiaries are involved in
various litigation matters arising in the ordinary course of its
business. The Company does not believe that the matters in which it or
its subsidiaries are currently involved, either individually or in the
aggregate, are material to the Company or its subsidiaries.
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. The U.S. District Court for
the District of Delaware granted judgment as a matter of law in favor
of TAI and enjoined PE from infringing the TAI patents. PE has appealed
the District Court judgment in favor of TAI. The Company 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 in the U.S. 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"). The action in the U.S. was dismissed for lack of
controversy. Actions seeking revocation or nullification of foreign HP
patents have been filed by the Company in Germany, France and England.
A German patent tribunal found the HP German patent to be valid. The
Company intends to pursue an appeal of the German decision. In England,
HP has brought an action alleging certain features of the Alliance pump
may infringe the HP patent. 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.
Cohesive Technologies, Inc. ("Cohesive") has filed an infringement
action against the Company alleging that one product, in a large
product line, infringes an issued Cohesive patent. The Company has
denied infringement. 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 2. Changes in Securities
On February 25, 1999, the Board of Directors approved an amendment to
the Company's Certificate of Incorporation to increase authorized
common stock from fifty million to one hundred million shares. The
Board of Directors also approved a two-for-one common stock split
through the payment of a stock dividend in an amount equal to one share
of common stock for each share of common stock issued and outstanding,
contingent upon shareholder approval of the amendment to the
Certificate of Incorporation at the Company's Annual Meeting. On May 4,
1999, shareholders approved the amendment. Shareholders of record on
May 27, 1999 will receive the stock dividend on or about June 10, 1999.
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
A. Exhibit 27 - Financial Data Schedule
Exhibit 99.1 - 1999 Management Incentive Plan
B. No reports on Form 8-K were filed during the three months
ended March 31, 1999.
12
<PAGE>
WATERS CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: May 11, 1999 Waters Corporation
/s/ Philip S. Taymor
--------------------
Philip S. Taymor
Senior Vice President and Chief Financial
Officer
13
<PAGE>
Exhibit 99.1
WATERS CORPORATION
1999 MANAGEMENT INCENTIVE PLAN
1. PURPOSE.
The purposes of this 1999 Management Incentive Plan (the "PLAN") of
Waters Corporation (the "COMPANY") are to promote the interests of the Company
and its stockholders by strengthening the Company's ability to attract, motivate
and retain key employees upon whose judgment, initiative and efforts the
financial success and growth of the business of the Company largely depend, and
to provide a means and the incentive for such employees to maintain and enhance
the long-term performance and profitability of the Company.
2. ADMINISTRATION.
The Compensation Committee of the Board of Directors (the "COMMITTEE")
has and may exercise such powers and authority of the Board as may be necessary
or appropriate for it to carry out its function as described in this Plan;
provided, however, that if the Committee does not consist exclusively of
"outside directors" within the meaning of Section 162(m) of the Internal Revenue
Code, then a subcommittee of the Committee shall be formed, consisting of the
members of the Committee who do qualify as outside directors, which shall have
the exclusive authority to carry out the responsibilities of the Committee under
this Plan. The Committee shall make all determinations required under the Plan,
including participant eligibility, performance objectives and incentive
payments. All interpretations, determinations and actions by the Committee will
be final, conclusive and binding upon all parties.
With respect to the Company's senior executives (each, a
"PARTICIPANT"), the Plan will be administered by the Committee as described
herein. The Committee will establish one or more performance objectives (the
"PERFORMANCE OBJECTIVES") for each Participant that will be used in determining
the Participant's incentive payment under the Plan for a fiscal year of the
Company (a "Plan Year"), within the first ninety (90) days of such Plan Year and
in any event while it remains substantially uncertain whether the Participant's
Performance Objectives will be met for the Plan Year. At the conclusion of each
Plan Year, the Committee will review the Company's audited financial results
against each Participant's Performance Objectives. Based on the review of actual
results against Performance Objectives, the Committee will determine the amount
of the incentive payment earned by each Participant, if any.
3. DETERMINATION OF INCENTIVE PAYMENT
Within the first ninety (90) days of each Plan Year and while it
remains substantially uncertain whether a Participant's Performance Objectives
will be met for the Plan Year, the Committee will establish a schedule of
potential incentive payments for such Participant if and to the extent that the
Performance Objectives for such Participant have been met for the Plan Year.
Incentive payments will be paid to the Participant in cash within two and
one-half months following the close of the Plan Year, or if so elected prior to
the beginning of the Plan Year, at such later time and upon such terms and
conditions as the Participant and Company may agree. Incentive payments will be
conditioned upon the Company's achievement of certain Performance Objectives.
The amount of the incentive payment will increase as the Company achieves a
greater percentage of (or exceeds) the Participant's Performance
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Objectives. Each Participant will become eligible to receive an incentive
payment only if the Company achieves, at a minimum, ninety percent (90%) of
such Participant's Performance Objectives. The maximum amount of any
Participant's incentive payment under the Plan will not exceed three hundred
percent (300%) of the Participant's base salary as of the beginning of that
Plan Year.
4. PERFORMANCE OBJECTIVE CRITERIA
The business criteria on which each Participant's Performance
Objectives are based will be determined by the Committee for each Plan Year.
Such business criteria may include, without limitation, one or more objectively
verifiable measures, such as, for example, growth in the Company's financial
performance, or improvement in the Company's income statement or balance sheet
position. Achievement of a Participant's Performance Objectives will be
determined and certified as to in writing (including in minutes of its meetings)
by the Committee based on the Company's audited financial statements and its
financial records at the end of each Plan Year before any payment of incentive
compensation will be made under the Plan to such Participant for such Plan Year.
5. GENERAL PROVISIONS.
No member of the Committee will be liable for any action taken or
determination made in good faith by the Committee with respect to the Plan.
Nothing in the Plan or in any instrument executed in connection with
the Plan will confer upon any Participant any right to continue in the employ of
the Company or any of its affiliates or affect the right of the Company to
terminate the employment of any Participant at any time, with or without cause
(or, if applicable, as may otherwise be specified in the Participant's
employment agreement).
6. AMENDMENT AND TERMINATION.
The Board of Directors shall have the power, in its discretion, to
amend, modify, suspend or terminate the Plan at any time, subject to applicable
law. To preserve the Plan's qualification under Section 162(m) of the Internal
Revenue Code, any material modification of the Plan will require the approval of
a majority of the Company's stockholders.
7. EFFECTIVE DATE.
The Plan will become effective upon its adoption by the Board of
Directors, and by the Company's stockholders at the annual meeting of
stockholders on May 4, 1999.
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<PAGE>
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