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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
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FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
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/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
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COMMISSION FILE NUMBER: 01-14010
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WATERS CORPORATION
(Exact name of registrant as specified in its charter)
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DELAWARE 13-3668640
(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization)
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34 MAPLE STREET
MILFORD, MASSACHUSETTS 01757
(Address, including zip code, of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (508) 478-2000
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Securities registered pursuant to Section 12(b) of the Common Stock, par value $.01 per share
Act: New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the None
Act:
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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 registrant's common stock held by
non-affiliates of the registrant as of March 22, 2000: $6,026,575,227.
Indicate the number of shares outstanding of the registrant's common stock
as of March 22, 2000: 63,271,131.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1999 Annual Report to Stockholders are incorporated by
reference in Parts I and II.
Portions of the proxy statement for the 2000 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
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INDEX NO. PAGE
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PART I
1. Business.................................................... 3
2. Properties.................................................. 8
3. Legal Proceedings........................................... 9
4. Submission of Matters to a Vote of Security Holders......... 10
Executive Officers.......................................... 10
PART II
5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 11
6. Selected Financial Data..................................... 12
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 12
7a. Quantitative and Qualitative Disclosures About Market
Risk...................................................... 12
8. Financial Statements and Supplementary Data................. 12
9. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure.................................. 12
PART III
10. Directors and Executive Officers of the Registrant.......... 12
11. Executive Compensation...................................... 13
12. Security Ownership of Certain Beneficial Owners and
Management................................................ 13
13. Certain Relationships and Related Transactions.............. 13
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form
8-K 13
Signatures.................................................. 16
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PART I
ITEM 1: BUSINESS
GENERAL
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: Micromass Limited ("Micromass") in
September 1997 and TA Instruments, Inc. ("TAI") in May 1996.
BUSINESS SEGMENTS
The Company operates in the analytical instrument industry, with
manufacturing and distribution expertise in three complementary technologies:
high performance liquid chromatography ("HPLC") instruments, chromatography
columns and other consumables, and related service; mass spectrometry
instruments that can be integrated and used along with other analytical
instruments, especially HPLC; and thermal analysis and rheology instruments. The
Company also operates in several geographic segments. See Footnote 15 to the
Financial Statements for detailed results by geographic segment and products and
service revenue found in the 1999 Annual Report which is incorporated herein by
reference.
BUSINESS
Waters, an analytical instrument manufacturer, is the world's largest
manufacturer and distributor of HPLC instruments, chromatography 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 Micromass subsidiary, Waters is a
market leader in the development, manufacture, and distribution of mass
spectrometry instruments, which are complementary products that can be
integrated and used along with other analytical instruments, especially HPLC.
Through its TAI subsidiary, Waters is also the world's leader in thermal
analysis, a prevalent and complementary technique used in the analysis of
polymers.
Developed in the 1950's, HPLC today is the standard technique used to
identify and analyze the constituent components of a variety of chemicals and
materials. HPLC's unique performance capabilities enable it to separate and
identify 80% of all known chemicals and materials. As a result, HPLC is used to
analyze substances in a wide variety of industries for research and development
purposes, quality control and process engineering applications. Within the
pharmaceutical and life science industries, its most significant 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
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the constituents. The data acquisition unit then records and stores the
information from the detector. 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 Micromass expanded 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
inductively-coupled plasma ("ICP") mass spectrometers typically combined with
HPLC, chemical electrophoresis, chemical electrophoresis chromatography, gas
chromatography or elemental analysis systems. Mass spectrometry is a powerful
analytical technique that is used to identify unknown compounds, to quantify
known materials, and to elucidate the structural and chemical properties of
molecules by measuring the masses of individual molecules that have been
converted into ions. These 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.
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.
Instruments comprise about two thirds of the Company's total revenue.
Consumable products and service comprise the remaining one third.
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 1999, 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 1999, 1998 and 1997, were $36.1 million, $34.4 million and
$25.8 million, respectively. Nearly all of the current HPLC 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. The majority of the mass spectrometry products have been developed
at facilities in England and nearly all of the current thermal analysis products
have been developed at the Company's research and development center in New
Castle, Delaware. There are approximately 350 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. Across all technologies, using respective specialized sales and
service forces, the Company serves its customer base through over 1,000 field
representatives in 83 sales offices throughout the world. 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.
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, monitors and
circuit boards to outside vendors that can meet the Company's quality
requirements.
The Company manufactures its HPLC columns at its facilities in Taunton,
Massachusetts and Wexford, Ireland, where it processes, sizes and treats silica
and polymer media that are packed into columns, solid phase extraction
cartridges and bulk shipping containers. These facilities meet the same ISO and
FDA standards met by the Milford, Massachusetts facility and are approved by the
FDA to produce Class 1 medical devices.
The Company manufactures its Mass spectrometry products at its facilities in
Manchester, England and Cheshire, England. Thermal analysis products are
manufactured at the Company's New Castle, Delaware facility and rheology
products are manufactured at the Company's Leatherhead, England facility.
COMPETITION
The analytical instrument and systems market is highly competitive. The
Company encounters competition from several worldwide instrument manufacturers
in both domestic and foreign markets. 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.
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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
Waters employs approximately 3,000 employees. 55% of the Company's employees
are located in the United States. Labor relations are considered to be
excellent, and Waters employees are not represented by any union.
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.
RISK FACTORS
FORWARD-LOOKING STATEMENTS
Certain of the statements in this Form 10-K and the documents incorporated
in this Form (including portions of our Annual Report) are forward-looking
statements, including statements regarding, among other items, (i) the impact of
the Company's new products, (ii) the Company's growth strategies, including
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its intention to make acquisitions and introduce new products,
(iii) anticipated trends in the Company's business and (iv) the Company's
ability to continue to control costs and maintain quality. You can identify
these forward-looking statements by our use of the words "believes",
"anticipates", "plans", "expects", "may", "will", "would", "intends",
"estimates" and similar expressions, whether in the negative or affirmative.
These statements are subject to various risks and uncertainties, many of which
are outside the control of the Company, including (i) changes in the HPLC, mass
spectrometry and thermal analysis portions of the analytical instrument
marketplace as a result of economic or regulatory influences, (ii) changes in
the competitive marketplace, including new products and pricing changes by the
Company's competitors and (iii) the ability of the Company to generate increased
sales and profitability from new product introductions, as well as additional
risk factors set forth below. Factual results or events could differ materially
from the plans, intentions and expectations disclosed in the forward-looking
statements we make, whether because of these factors or for other reasons. We do
not assume any obligations to update any forward-looking statement we make.
COMPETITION AND THE ANALYTICAL INSTRUMENT MARKET
The analytical instrument market; in particular, the portion related to the
Company's HPLC, mass spectrometry and thermal analysis product lines; is highly
competitive, and the Company encounters competition from several international
instrument manufacturers and other companies in both domestic and foreign
markets. Certain competitors are divisions of significantly larger companies
which have greater financial and other resources than the Company. There can be
no assurances that the Company's competitors will not introduce more effective
and less costly products than those of the Company, or that the Company will be
able to increase its sales and profitability from new product introductions.
Additionally, the market may, from time to time, experience low sales growth.
Approximately 61% of the Company's net sales in 1999 were to the worldwide
pharmaceutical industry, which may be periodically subject to unfavorable market
conditions and consolidations. Unfavorable industry conditions could have a
material adverse effect on the Company's results of operations.
RISK OF DISRUPTION
The Company manufactures HPLC instruments at its facility in Milford,
Massachusetts, separation columns at its facilities in Taunton, Massachusetts
and Wexford, Ireland, mass spectrometry products at its facilities in
Manchester, England and Cheshire, England, thermal analysis products at its
facility in New Castle, Delaware and rheology products at its facility in
Leatherhead, England. Any prolonged disruption to the operations at these
facilities, whether due to labor difficulties, destruction of or damage to
either facility or other reasons, could have a material adverse effect on the
Company's results of operations and financial condition.
FOREIGN OPERATIONS AND EXCHANGE RATES
Approximately 59% of Waters' 1999 net sales were outside of the United
States and were primarily denominated in foreign currencies. As a result, a
significant portion of the Company's sales and operations are subject to certain
risks, including adverse developments in the foreign political and economic
environment, tariffs and other trade barriers, difficulties in staffing and
managing foreign operations and potentially adverse tax consequences.
Additionally, the U.S. dollar value of the Company's net sales varies with
currency exchange rate fluctuations. Significant increases in the value of the
U.S. dollar relative to certain foreign currencies could have a material adverse
effect on Waters' result of operations.
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RELIANCE ON KEY MANAGEMENT
The operation of the Company requires managerial and operational expertise.
None of the key management employees has an employment contract with the
Company, and there can be no assurance that such individuals will remain with
the Company. If, for any reason, such key personnel do not continue to be active
in management, the Company's operations could be adversely affected.
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,
information technology systems, 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.
ITEM 2: PROPERTIES
Waters operates 16 United States facilities and 70 international facilities.
The Company believes its facilities are suitable and adequate for its current
production level and for reasonable growth over the next few years. The
Company's primary facilities are summarized in the table below.
PRIMARY FACILITY LOCATIONS
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LOCATION FUNCTION (1) OWNED/LEASED SQUARE FEET (000'S)
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Franklin, MA.................................... D Leased 30
Milford, MA..................................... M, R, S, A Owned 408(2)
Taunton, MA..................................... M Owned 32
Etten-Leur, Netherland.......................... D Leased 26
St. Quentin, France............................. S, A Leased 18
Singapore....................................... S, A Leased 5
Tokyo, Japan.................................... R, S, A Leased 17
Wexford, Ireland................................ M, R, S Leased 28
New Castle, DE.................................. M, R, S, D, A Leased 53
Leatherhead, England............................ M, R, S, D Leased 10
Beverly, MA..................................... S, D, A Leased 50
Cheshire, England............................... M, R, S Leased 28
Manchester, England............................. M, R, S, D, A Leased 54
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(1) M = Manufacturing; R = Research; S = Sales; D = Distribution; A =
Administration
(2) Excludes 57 thousand square feet of additional space for administration
purposes presently under construction and scheduled for occupancy in the
fall of 2000.
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Waters operates and maintains 11 field offices in the United States and 62
field offices abroad in addition to sales offices in the primary facilities
listed above. The Company's field office locations are listed below.
FIELD OFFICE LOCATIONS (3)
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UNITED STATES INTERNATIONAL
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Tustin, CA Australia India Switzerland
Wood Dale, IL Austria Italy Taiwan
Fairfax, V Belgium Japan United Kingdom
Cary, NC Brazil Mexico
Morristown, NJ Canada Netherlands
Houston, TX Czech Republic Norway
Dublin, CA Denmark People's Republic of China
Ann Arbor, MI Finland Poland
Capitola, CA France Puerto Rico
Rolling Meadows, IL Germany Russia
Spring, TX Hong Kong Spain
Hungary Sweden
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(3) Waters operates more than one office within certain states and foreign
countries.
ITEM 3: LEGAL PROCEEDINGS
From time to time, the Company and its subsidiaries are involved in various
litigation matters arising in the ordinary course of its business. 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. PE has also filed a motion for
post-judgment relief which motion has been denied. 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 is appealing the German decision. In England and Germany, 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 infringement actions
against the Company alleging that one product, out of many in a large product
line, infringes one or more Cohesive patents. 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.
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Viscotek Corporation ("Viscotek") has filed a civil action against the
Company alleging one option offered with a high temperature gel permeation
chromatography instrument is an infringement of two patents. These patents are
owned by E. I. Du Pont de Nemours and Company ("Du Pont") and claimed to be
exclusively licensed to Viscotek. Du Pont is not a party to the suit. The
Company has answered the complaint and believes it does not infringe the
patents. 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.
PE Corporation, MDS Inc. and Perkin-Elmer Sciex Instruments have filed a
civil action against the Micromass UK Limited and Micromass, Inc. wholly owned
subsidiaries of the Company alleging one or more mass spectroscopy instrument
products infringes upon a patent. The Company has not yet been served with the
complaint. The Company believes that it does not infringe the 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.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS
Douglas A. Berthiaume, 51, 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. Mr. Berthiaume is a Director of Genzyme Corporation.
Arthur G. Caputo, 48, has been Senior Vice President, Worldwide Sales and
Marketing of the Company since August 1994. He joined the Predecessor in
October 1977 and has held a number of positions in sales within the Predecessor
and Millipore. Prior to his current position, he was Senior Vice President and
General Manager of Millipore's North American Business Operations responsible
for establishing the Millipore North American Sales Subsidiary and also served
as the General Manager of Waters' North American field sales, support and
marketing functions.
Thomas W. Feller, 59, has been Senior Vice President, E-Business Initiative
of the Company since January 2000. Prior to his current position, he was Senior
Vice President, Operations of the Company from August 1994 to December 1999. He
joined Millipore in 1977 and moved to the Predecessor as Vice President of
Operations in 1980. Mr. Feller returned to Millipore Operations in 1985 before
becoming Senior Vice President of Manufacturing Operations for the Predecessor
in January 1991. Prior to joining Millipore, Mr. Feller held various production
and manufacturing positions at Johnson and Johnson, Jensen Speaker and Baxter
Travenol.
John R. Nelson, 56, has been Senior Vice President, Research, Development
and Engineering of the Company since August 1994. He joined the Predecessor in
August 1976 and has held a variety of positions in marketing as well as research
and development, including Vice President Waters Research Development and
Engineering, Senior Vice President Worldwide Marketing Operations and Senior
Vice President of Product Development. Mr. Nelson is also responsible for the
Company's Micromass Limited and TA Instruments, Inc. operations.
Philip S. Taymor, 44, has been Senior Vice President, Finance and
Administration, Chief Financial Officer, Treasurer and Assistant Secretary of
the Company since August 1994. He joined Millipore in May 1981 and held several
positions in the Millipore organization, including Corporate Controller,
Director of Finance of Millipore's Membrane Division and Manager of Corporate
Accounting. Mr. Taymor joined the Predecessor in early 1992. His current
responsibilities include business and financial planning, accounting and
financial reporting, treasury operations, legal, tax and information systems.
Mr. Taymor joined Millipore from Grant Thornton & Company, Certified Public
Accountants.
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Brian K. Mazar, 42, Senior Vice President, Human Resources and Investor
Relations, has directed Human Resources and Investor Relations since
August 1994. He joined the Predecessor in 1991 as Director of Human Resources
with responsibility for worldwide human resources functions. From 1986 to 1991,
Mr. Mazar was Director of Human Resources of GeneTrak Systems. Prior thereto,
Mr. Mazar worked at Exxon Corporation and Corning Glass Works.
Devette W. Russo, 47, Senior Vice President, Chromatography Consumables
Division, has directed the Chromatography Consumables Division since 1990. She
joined the Predecessor in 1975 as a Marketing Communications Account Manager,
and has held a variety of positions within the Predecessor and Millipore in
marketing before assuming her current responsibilities as Senior Vice President,
Chromatography Consumables Division. Prior positions include Director of
Corporate Communications for Millipore and Vice President of Marketing for the
Chemistry Division. Ms. Russo held various marketing and application support
roles before joining the Millipore organization.
John A. Ornell, 42, has been Vice President, Operations of the Company since
January 2000. He joined Waters in 1990 and most recently was Vice President of
Manufacturing and Engineering. During his years at Waters, he has had
responsibility for Operations Finance and Distribution and had a senior role in
the successful implementation of the Company's worldwide business systems.
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 22, 2000, the Company had approximately 286 common stockholders of record.
The Company has not declared or paid any dividends on its Common Stock in the
past two years and does not plan to pay dividends in the foreseeable future.
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 received the stock dividend on or about June 10, 1999.
The quarterly range of high and low sales prices for the Common Stock as
reported by the New York Stock Exchange (adjusted to reflect the two-for-one
stock split discussed above) is as follows:
<TABLE>
<CAPTION>
PRICE RANGE
--------------------------
FOR THE QUARTER ENDED HIGH LOW
- --------------------- ----------- ------------
<S> <C> <C>
March 31, 1998.............................................. 26 18 1/4
June 30, 1998............................................... 31 7/16 24 21/32
September 30, 1998.......................................... 34 5/32 26 3/16
December 31, 1998........................................... 43 3/4 26 9/16
March 31, 1999.............................................. 54 1/8 36 1/4
June 30, 1999............................................... 56 1/2 46 1/2
September 30, 1999.......................................... 67 5/8 48 3/4
December 31, 1999........................................... 66 1/8 37
</TABLE>
11
<PAGE>
ITEM 6: SELECTED FINANCIAL DATA
Reference is made to information contained in the section entitled "Selected
Financial Data" on page 52 of the 1999 Annual Report, which information is
incorporated herein by reference.
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Reference is made to the information on pages 19 to 25 of the 1999 Annual
Report, which information is incorporated herein by reference.
RECENT ACCOUNTING STANDARDS CHANGES
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") 101, Revenue Recognition in Financial
Statements which provides guidance related to revenue recognition based on
interpretations and practices followed by the SEC. SAB 101 is effective the
first fiscal quarter of fiscal years beginning after December 15, 1999 and
requires companies to report any changes in revenue recognition as a cumulative
change in accounting principle at the time of implementation in accordance with
Accounting Principles Board Opinion 20, Accounting Changes. In March 2000, the
SEC issued SAB 101A, Amendment Revenue Recognition in Financial Statements which
delays implementation of SAB 101 until the Company's second fiscal quarter of
2000. The Company will adopt SAB 101 and is currently in the process of
evaluating what impact, if any, SAB 101 will have on the financial position or
results of operations of the Company.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Reference is made to the information on page 24 of the 1999 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 27 to 51 of the 1999 Annual Report together with the
"Report of Independent Accountants" dated January 21, 2000 on page 26 and
including "Quarterly Results" on page 50, 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 "Section 16(A) Beneficial Ownership Reporting
Compliance". Such information is incorporated herein by reference.
12
<PAGE>
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.
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report
(1) Financial Statements: Reference is made to the Company's consolidated
financial statements and notes thereto on pages 27 to 51 of the 1999
Annual Report, which information is incorporated herein by reference.
(2) Financial Statement Schedules:
WATERS CORPORATION AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
for the years ended December 1999, 1998, and 1997
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING OF PERIOD ADDITIONS DEDUCTIONS END OF PERIOD
------------------- --------- ---------- -------------
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts:
1999.................................... $2,966 $1,197 $(422) $3,741
1998.................................... $2,785 $ 617 $(436) $2,966
1997.................................... $1,712 $1,471 $(398) $2,785
</TABLE>
(3) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------------------- ------------------------------------------------------------
<C> <S>
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 and amended on December 5,
1997.
3.1 Second Amended and Restated Certificate of Incorporation of
Waters Corporation, as amended to date. (1)
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------------------- ------------------------------------------------------------
<C> <S>
3.11 Certificate of Amendment of Second Amended and Restated
Certificate of Incorporation of Waters Corporation, as
amended May 12, 1999. (4)
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 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").
10.31 May 1998 Amendment to the Waters Corporation 1996 Long-Term
Performance Incentive Plan. (3)
10.32 November 1998 Amendment to the Waters Corporation 1996
Long-Term Performance Incentive Plan. (3)
10.4 Waters Corporation 1996 Employee Stock Purchase Plan.
Incorporated by reference to Exhibit B of the 1996 Proxy
Statement.
10.41 December 1999 Amendment to the Waters Corporation 1996
Employee Stock Purchase Plan.
10.42 March 2000 Amendment to the Waters Corporation 1996 Employee
Stock Purchase Plan.
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 1996 Non-Employee Director Stock Option
Plan. Incorporated by reference to Exhibit D of the 1996
Proxy Statement.
10.61 March 2000 Amendment to the Waters Corporation 1996
Non-Employee Director Stock Option Plan.
10.7 Agreement and Plan of Merger among Waters Corporation, TA
Merger Sub, Inc. and TA Instruments, Inc. dated as of March
28, 1996. Incorporated by reference to the Registrant's
Report on Form 8-K dated March 29, 1996.
10.8 Offer to Purchase and Consent Solicitation Statement, dated
March 7, 1996, of Waters Technologies Corporation.
Incorporated by reference to the Registrant's Report on Form
8-K dated March 11, 1996.
10.9 WCD Investors, Inc. Amended and Restated 1994 Stock Option
Plan, as amended (including Form of Amended and Restated
Stock Option Agreement). (2)
10.10 Waters Corporation Retirement Plan. (2)
10.11 Registration Rights Agreement made as of August 18, 1994, by
and among WCD Investors, Inc., AEA Investors, Inc., certain
investment funds controlled by Bain Capital, Inc. and other
stockholders of Waters Corporation. (2)
10.12 Form of Indemnification Agreement, dated as of August 18,
1994, between WCD Investors, Inc. and its directors and
executive officers. (2)
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------------------- ------------------------------------------------------------
<C> <S>
10.13 Form of Management Subscription Agreement, dated as of
August 18, 1994, between WCD Investors, Inc. and certain
members of management. (2)
10.14 1999 Management Incentive Plan. (4)
13.1 1999 Annual Report to Stockholders.
21.1 Subsidiaries of Waters Corporation. (1)
23.1 Consent of PricewaterhouseCoopers LLP
27.1 Financial Data Schedule.
--------------------
(1) Incorporated by reference to the Registrant's Report on
Form 10-K dated March 29, 1996.
(2) Incorporated by reference to the Registrant's
Registration Statement on Form S-1 (File No. 333-3810).
(3) Incorporated by reference to the Registrant's Report on
Form 10-K dated March 31, 1999.
(4) Incorporated by reference to the Registrant's Report on
Form 10-Q dated August 11, 1999.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the three month
period ended December 31, 1999.
(c) See (3) above.
(d) Not Applicable.
</TABLE>
15
<PAGE>
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.
<TABLE>
<S> <C> <C>
Date: March 30, 2000
WATERS CORPORATION
By: /s/ PHILIP S. TAYMOR
-----------------------------------------
Philip S. Taymor
SENIOR VICE PRESIDENT, FINANCE AND
ADMINISTRATION AND CHIEF FINANCIAL OFFICER
</TABLE>
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 30, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ DOUGLAS A. BERTHIAUME Chairman of the Board of Directors, Chief
- ------------------------------------------- Executive Officer, and President (principal
Douglas A. Berthiaume executive officer)
Senior Vice President, Finance and
/s/ PHILIP S. TAYMOR Administration, and Chief Financial Officer
- ------------------------------------------- (principal financial officer and principal
Philip S. Taymor accounting officer)
/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
</TABLE>
16
<PAGE>
Exhibit 10.41
FIRST AMENDMENT
TO THE
WATERS CORPORATION 1996 EMPLOYEE STOCK PURCHASE PLAN
WHEREAS, Waters Corporation (the "Company") has established
and maintains an employee stock purchase plan for the benefit of certain
employees of the Company entitled the Waters Corporation 1996 Employee Stock
Purchase Plan (the "Plan"); and
WHEREAS, the Company desires to amend the Plan in certain
respects in order to adjust the purchase price of Company stock in the event of
a dividend paid in Company stock, or in the event that shares of Company stock
outstanding are changed into or exchanged for a different number or kind of
shares or other securities of the Company or of another company, whether through
reorganization, recapitalization, split-up, combination of shares, merger, or
consolidation;
NOW, THEREFORE, in accordance with the power of amendment
contained in Section 20 of the Plan, the Plan is hereby amended, effective
November 1, 1999, as follows:
1. Section 12 of the Plan is deleted in its entirety and the
following new Section 12 is substituted therefor:
12. SHARE PURCHASES. The Plan Committee will use the entire balance of
funds in participants' cash accounts to purchase Shares to be allocated
to participants' share accounts by the fifteenth working day following
each deduction crediting date. The cost per Share to participants will
be the lesser of 90% of the closing price for the Shares on the New
York Stock Exchange ("NYSE") on the first day of the Plan period or
100% of the closing price on the last day of the Plan period with
respect to which such purchase was made; provided that if the last day
of the Plan period is a day on which the NYSE is closed, the price for
such day shall be determined as of the last preceding day on which the
NYSE is open and if the first day is a day which is closed, the price
for such day shall be determined as of the next following day on which
the NYSE is open; and provided further that if during any Plan period
there are any dividends paid in Company stock, or in the event that
shares of Company stock outstanding are changed into or exchanged for a
different number or kind of shares or other securities of the Company
or of another company, whether through reorganization,
recapitalization, split-up, combination of shares, merger, or
consolidation, and if the Plan Committee determines, in its sole
discretion, that such change equitably requires an adjustment in the
closing price as of the first day of the Plan period, the Plan
Committee may adjust the purchase price accordingly and may make such
adjusted purchase price effective for the entire Plan period.
IN WITNESS WHEREOF, the Company has caused this amendment to
be signed on its behalf by its duly authorized representative this 10th day of
December 1999.
WATERS CORPORATION
By: /s/ BRIAN K. MAZAR
------------------------------------
Its: VICE PRESIDENT, HUMAN RESOURCES
----------------------------------
<PAGE>
Exhibit 10.42
SECOND AMENDMENT
TO THE
WATERS CORPORATION 1996 EMPLOYEE STOCK PURCHASE PLAN
WHEREAS, Waters Corporation (the "Company") has established and
maintains an employee stock purchase plan for the benefit of certain employees
of the Company entitled the Waters Corporation 1996 Employee Stock Purchase Plan
(the "Plan"); and
WHEREAS, the Company desires to amend the Plan in certain respects in
order to include in the Plan domestic or foreign entities affiliated with the
Company;
NOW THEREFORE, in accordance with the power of amendment contained in
Section 20 of the Plan, the Plan is hereby amended, effective January 1, 2000,
as follows:
1. Section 23 of the Plan is deleted in its entirety and the
following new subsection is substituted therefore:
"23. ADOPTING SUBSIDIARIES. Any entity, foreign or domestic,
affiliated with the Company may adopt the Plan on behalf of its
employees either unilaterally or by collective bargaining by filing
with the Company a certified copy of a resolution of the Board of
Directors (or other appropriate authorization satisfactory to the
Secretary of the Company) of such affiliated entity providing for such
affiliated entity's adoption of the Plan and a certified copy of a
resolution of the Board of Directors of the Company (or any delegate
thereof) consenting to such adoption. Each such adopting entity is
referred to herein as a `Covered Entity.'."
IN WITNESS WHEREOF, the Company has caused this amendment to be signed
on its behalf by its duly authorized representative this 1st day of
March 2000.
WATERS CORPORATION
By: /s/BRIAN K. MAZAR
----------------------------------
Its: VICE PRESIDENT, HUMAN RESOURCES
----------------------------------
<PAGE>
Exhibit 10.61
AMENDMENT TO THE WATERS CORPORATION
1996 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
WHEREAS, Waters Corporation (the "Company") has established
and maintains a stock option plan for the benefit of non-employee directors of
the Company entitled the Waters Corporation 1996 Non-Employee Director Stock
Option Plan (the "Plan"); and
WHEREAS, the Company has previously taken action to amend the
Plan in certain respects;
NOW, THEREFORE, in accordance with the power of amendment contained in
Section 8 of the Plan, the Company having heretofore taken all necessary action
to amend the Plan, the Plan is hereby amended, as follows:
1. The first paragraph of Section 4(b) of the Plan is deleted
in its entirety and the following new first paragraph of Section 4(b) is
substituted therefor:
4(b). ADJUSTMENT. The maximum number of Shares referred to in Section
4(a), and the number of Shares which may be purchased under any
outstanding Option granted under Section 6 of the Plan shall be
proportionately adjusted for any increase or decrease in the number of
issued and outstanding Shares as the result of (i) the declaration and
payment of a dividend payable in Common Stock, or the division of the
Common Stock outstanding at the date hereof (or the date of the grant
of any such outstanding Option, as applicable) into a greater number of
Shares without the receipt of consideration therefor by the Company, or
any other increase in the number of such Shares of the Company
outstanding at the date hereof (or the date of the grant of any such
outstanding Option, as applicable) which is effective without the
receipt of consideration therefor by the Company (exclusive of any
Shares granted by the Company to employees of the Company or any of its
Subsidiaries without receipt of separate consideration by the Company),
or (ii) the consolidation of the Shares outstanding at the date hereof
(or the date of the grant of any such outstanding Option, as
applicable) into a smaller number of Shares without the payment of
consideration thereof by the Company, or any other decrease in the
number of such Shares outstanding at the date hereof (or the date of
the grant of any such outstanding Option, as applicable) effected
without the payment of consideration by the Company; PROVIDED, HOWEVER,
that the total option price for all Shares which may be purchased upon
the exercise of any Option granted pursuant to the Plan (computed by
multiplying the number of Shares originally purchasable thereunder,
reduced by the number of such Shares which have theretofore been
purchased thereunder, by the original option price per share before any
of the adjustments herein provided for) shall not be changed.
2. Section 6(a) of the Plan is deleted in its entirety and the
following new Section 6(a) is substituted therefor:
6(a). ANNUAL GRANT OF OPTIONS. Beginning December 1, 1997, on December
1 of each year through and including December 1, 1998, 1,000 options
shall automatically be granted to each Non-Employee Director serving on
the Board on such date. Beginning January 1, 2000, on January 1 of each
year, 2,000 options, subject to adjustment immediately upon the
occurrence of any of the events described in Sections 4(b)(i) and/or
4(b)(ii) hereof occurring after December 9, 1999, such adjustment to be
made in accordance with the provisions of Section 4(b) hereof, shall
automatically be granted to each Non-Employee Director serving on the
Board on such date (collectively, the "Annual Options").
3. Section 6(b) of the Plan is deleted in its entirety and the
following new Section 6(b) is substituted thereof:
6(b). INITIAL GRANT OF OPTIONS. On July 1, 1996, each Non-Employee
Director serving on the Board on such date shall automatically be
granted 1,000 options (the "Initial Options"), which shall be
exercisable on or after July 1, 1997. If after July 1, 1996, a
Non-Employee Director is initially elected or appointed to the Board
effective on any date other than January 1, such Non-Employee Director
<PAGE>
shall automatically be granted at the time of such appointment or
election, 1,000 Options if such date is prior to December 9, 1999, and
2000 options if such date is on or after December 9, 1999, in the
latter case subject to adjustment immediately upon the occurrence of
any of the events described in Sections 4(b)(i) and/or 4(b)(ii) hereof
occurring after December 9, 1999, such adjustment to be made in
accordance with the provisions of Section 4(b) hereof, which options
shall be exercisable after the one-year anniversary of such grant.
4. Section 6(c) of the Plan is deleted in its entirety and the
following new Section 6(c) is substituted thereof:
6(c) OPTION EXERCISE PRICE. The exercise price per Share for each
Option shall be the Fair Market Value of a Share on the date of the
grant, subject to Section 4(b).
5. Section 6(e) of the Plan is deleted in its entirety and the
following new Section 6(e) is substituted thereof:
6(e). CONDITIONS AND LIMITATIONS ON EXERCISE. Unless otherwise approved
by the Board in its discretion:
(i) VESTING.
A) Each Initial Option shall vest upon the first anniversary
of the date of grant.
(B) Twenty percent of each grant of Annual Options shall vest
on each December 1, as to Annual Options granted prior to January 1,
2000, and on each January 1 as to Annual Options granted on or after
January 1, 2000, in each case, of each of the five years following the
grant of such Annual Options beginning on the one-year anniversary of
such grant.
(C) Upon the termination of a Non-Employee Director's tenure
for any reason, the unvested portion of any outstanding Options shall
expire.
(ii) EXERCISE. Each Option shall be exercisable in one or more
installments and shall not exercisable for less than 100 Shares, unless
the exercise represents the entire remaining exercisable balance of a
grant or grants. Each Option shall be exercised by delivery to the
Company of written notice of intent to purchase a specific number of
Shares subject to the Option. The option price of any Shares as to
which an Option shall be exercised shall be paid in full at the time of
the exercise. Payment may, at the election of the Non-Employee
Director, be made in any one or any combination of the following forms:
(A) wire transfer of funds or check in such form as may be
satisfactory to the Committee;
(B) Shares (so long as such shares were held by the
Non-Employee Director for a period of six months prior to the date of
exercise) valued at their Fair Market Value on the date of exercise or,
if the date of exercise is not a business day, the next succeeding
business day; or
(C) through simultaneous sale through a broker of unrestricted
Shares acquired on exercise, as permitted under Regulation T of the
Federal Reserve Board.
IN WITNESS WHEREOF, the Company has caused this amendment to
be signed on its behalf by its duly authorized representative this 27th day of
March, 2000.
WATERS CORPORATION
By: /s/ Brian Mazar
-----------------------------------------
Its: Senior Vice President
Human Resources
----------------------------------------
<PAGE>
(FRONT COVER)
1999 ANNUAL REPORT
ANALYZING THE TIME OF OUR LIVES 1900-2000 WATERS
(Cover Image: In background, depicted is line art of a draftsman's drawing
of an early-model machine. Foreground pictures a modern-day device for
high-throughput analysis of test tube samples).
<PAGE>
(Inside Front Cover: Corporate Description)
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-Registered Trademark- products are used by pharmaceutical, life
science, industrial, university and government scientists in research and
development, quality assurance and in environmental testing laboratories. For
these customers, we provide technology that gives them 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 of life itself.
<PAGE>
FINANCIAL HIGHLIGHTS
ADJUSTED FINANCIAL RESULTS (A):
<TABLE>
<CAPTION>
($ IN THOUSANDS, EXCEPT PER SHARE DATA) 1999 1998 INCREASE
- --------------------------------------- -------- -------- --------
<S> <C> <C> <C>
For the year:
Net sales................................................... $704,400 $618,813 14%
Operating income............................................ $176,509 $136,325 29%
Percentage of sales......................................... 25.1% 22.0%
Income from operations before income taxes.................. $167,561 $118,047 42%
Net income available to common stockholders................. $121,876 $ 89,936 36%
Net income per basic common share........................... $ 1.98 $ 1.50 32%
Net income per diluted common share......................... $ 1.84 $ 1.39 32%
Return on average assets.................................... 21.0% 15.9%
Return on average equity.................................... 55.1% 84.7%
At year end:
Total assets................................................ $584,437 $577,701
Stockholders' equity........................................ $292,162 $150,119
Employees................................................... 2,968 2,758
</TABLE>
- ------------------------
(A) Adjusted financial results for 1998 reflect reported results of operations
excluding a $16,500 nonrecurring charge related to the September 1997
acquisition of Micromass Limited for revaluation of acquired inventory which
had no related tax effect. All per share amounts have been retroactively
restated to reflect a two-for-one common stock split distributed in the form
of a 100% stock dividend on June 10, 1999.
<PAGE>
1999 LETTER TO SHAREHOLDERS
[Photograph]
[Photograph of Douglas A. Berthiaume, Chairman, President, and Chief Executive
Officer]
The past year was a notable one. The business and market factors that have
driven the Company's growth over the last several years continued to build
momentum, while at the same time, several new exciting initiatives took center
stage.
Pharmaceutical and biotechnology customer demand has been our strongest
source of growth. These companies continue to invest heavily in technologies
that increase the number of compounds being synthesized and screened for early
stage drug discovery, and that accelerate promising compounds through the drug
development phase. Waters products and service offerings help increase
productivity at these companies, and appeal to their almost insatiable demand
for increased detection sensitivity and higher throughput. The combination of
our recently introduced HPLC systems--the Alliance-Registered Trademark- HT and
the CapLC-TM---and our market-leading Micromass-Registered Trademark- mass
spectrometry systems--the Quattro Ultima-TM-, the LCT-TM- with MUX
Technology-TM- and the Q-TOF-TM---have fulfilled customer needs and generated
significant revenues.
<PAGE>
Demand from customers in the proteomics research segment of the life
sciences market grew rapidly as 1999 progressed. In proteomics, scientists study
the protein content of cells, typically in the search for new drug targets. In
1999, we partnered with Bio-Rad Laboratories, a well-known life science company,
to introduce an integrated proteomics workstation and analysis system, anchored
by our industry-leading Q-TOF mass spectrometer. We believe that the life
science industry is in the early stages of investing in proteomics research, and
we are in the process of bringing to market more high-value products to this
important emerging area.
The combination of fast-growing markets, innovative products and a
dedication to operational excellence has resulted in the company's
industry-leading financial performance. In 1999, sales grew 14%, earnings per
share grew 32% and free cash flow reached a record $127 million. Our strong
financial performance gives us the flexibility to pursue growth aggressively.
I want to thank our customers and our employees across our business
units--Waters, TA Instruments and Micromass--for their dedicated efforts and
contributions to our success.
The key to our growth has been our rich pipeline of new products, and the
year 2000 is shaping up as yet another stellar new product year. We plan major
introductions and enhancements to our HPLC and HPLC-MS product lines that should
continue our strong leadership positions. In the fast-moving mass spectrometry
field, the number of major new product launches planned for 2000 is evidence of
our innovative capacity and our ability to rapidly commercialize these
innovations.
As we survey the field of new opportunities before us--evolving customer
needs in high-throughput combinatorial chemistry for drug discovery, the impact
of proteomics on understanding disease causation and the much anticipated
contribution of genomics on drug development and personalized medicine--we are
confident that Waters is in an extraordinary position to apply our technologies
and continue to produce outstanding business performance.
/s/ Douglas Berthiaume
- -------------------------------------------
Douglas A. Berthiaume
Chairman, President and Chief Executive Officer
3
<PAGE>
DISCOVERING NEW WAYS TO MAKE DISEASE HISTORY.
[Photographs]
[Period photographs illustrating pages 4 - 5 include photos of Alexander
Fleming, a polio victim in an iron lung, two photos of children being
vaccinated, and a photo of surgeons at work.]
1929--ALEXANDER FLEMING DISCOVERS THE BACTERIA-KILLING PROPERTIES OF
PENICILLIN NOTATUM, PAVING THE WAY FOR FUTURE EXPERIMENTATION THAT LEADS TO THE
INTRODUCTION OF PENICILLIN.
1938--THE U.S. FOOD, DRUG, AND COSMETIC ACT REPLACES THE 1906 FOOD AND DRUGS
ACT, CREATING THE U.S. FOOD AND DRUG ADMINISTRATION (FDA).
1953--JONAS SALK REFINES THE POLIO VACCINE AND SUCCESSFULLY TESTS IT ON
HUMANS FOR THE FIRST TIME.
1954--FIRST SUCCESSFUL KIDNEY TRANSPLANT USHERS IN A NEW ERA OF HUMAN ORGAN
TRANSPLANTATION.
4
<PAGE>
1988--U.S. SURGEON GENERAL C. EVERETT KOOP RELEASES THE SURGEON GENERAL'S
REPORT ON NUTRITION AND HEALTH, THE FEDERAL GOVERNMENT'S FIRST FORMAL
RECOGNITION OF THE ROLE OF DIET IN CERTAIN CHRONIC DISEASES.
1990'S--THANKS TO CHOLESTEROL-LOWERING STATIN DRUGS, HIGH BLOOD PRESSURE,
HEART FAILURE, IRREGULAR HEARTBEATS AND HEART ATTACKS ALL BECOME TREATABLE
CONDITIONS.
1991--INTERNATIONAL CONFERENCE ON HARMONIZATION BEGINS THE TASK OF
"HARMONIZING" THE TECHNICAL REQUIREMENTS FOR REGISTERING PHARMACEUTICAL PRODUCTS
AMONG THE EUROPEAN UNION, JAPAN AND THE U.S.
Today--The pharmaceutical industry has never held more promise than it does
today. Every day, discoveries are made leading to the development of new
lifesaving drugs. Waters products play a critical role in a broad range of
processes throughout drug discovery, development and manufacturing. Our
industry-leading high performance liquid chromatography (HPLC), mass
spectrometry (MS) and separation chemistry products are helping researchers
break substances down to their most fundamental, molecular level, and test them
for safety and effectiveness more efficiently than ever before. Our
chromatography software allows researchers to work more efficiently with their
data, build better audit trails and keep ahead of the curve by maintaining
compliance with the newest FDA regulations. As a result, our products help
pharmaceutical companies close the gap between the development of lifesaving
drugs for diseases like cancer and AIDS, and the availability of those drugs to
the people who need them most.
Tomorrow--Over the next five years, drugs accounting for $60 billion in
annual sales will come off patent. And pharmaceutical companies are racing to
create new drugs to replace old ones. Our products assist drug companies in
determining which of the thousands of compounds they generate using medicinal
and combinatorial chemistry show the most promise of becoming a new drug. In
fact, we're the leading supplier of HPLC and MS tools to the rapidly growing
$335 billion pharmaceutical market. These tools are far and away the most
prevalent techniques found in the pharmaceutical laboratory. In 1999, we
launched several new products for pre-clinical, drug discovery purposes. These
new HPLC, MS and separation chemistry products are all redefining automated
high-throughput drug analysis, shattering traditional HPLC/MS boundaries. And as
the demand for powerful new drugs increases--pharmaceutical research and
development spending is forecasted to double by the year 2005--the need for our
products will, too.
5
<PAGE>
SEARCHING FOR THE SECRET OF LIFE.
[Photographs]
[Period photographs illustrating pages 6 - 7 include photos of Archibald
Garrod, a chemist eyeing a sample through a microscope, of James Watson and
Francis Crick together, and a photo of Cary Mullis. Background
illustration--double helix structure of DNA.]
1909--ARCHIBALD GARROD FIRST PROPOSES THAT GENES MIGHT BE INVOLVED IN
CREATING THE PROTEINS THAT CARRY OUT THE CHEMICAL REACTIONS OF METABOLISM.
1924--MICROSCOPE STUDIES OF DNA AND PROTEIN SHOW THAT BOTH SUBSTANCES ARE
PRESENT IN CHROMOSOMES.
1953--JAMES WATSON AND FRANCIS CRICK DECIPHER THE STRUCTURE OF DNA, THE
MOLECULE THAT CARRIES THE GENETIC CODE.
1973--HERBERT BOYER AND STANLEY COHEN PIONEER RECOMBINANT DNA TECHNOLOGY,
USHERING IN THE MODERN BIOTECHNOLOGY ERA.
1982--GENENTECH LICENSES THE MARKETING RIGHTS TO THE FIRST RECOMBINANT
PROTEIN--HUMAN INSULIN--TO ELI LILLY AND CO.
6
<PAGE>
1983--KARY MULLIS CONCEIVES OF THE POLYMERASE CHAIN REACTION (PCR), ENABLING
DNA FINGERPRINTING, GENETIC DISEASE DIAGNOSIS AND DETECTION OF BACTERIA AND
VIRUSES (PARTICULARLY THE AIDS VIRUS).
1990--THE INTERNATIONAL HUMAN GENOME PROJECT IS INITIATED IN AN ATTEMPT TO
IDENTIFY THE ESTIMATED 100,000 GENES IN HUMAN DNA.
W. FRENCH ANDERSON PERFORMS THE FIRST GENE THERAPY ON A HUMAN PATIENT IN AN
EFFORT TO REPAIR A FAULTY IMMUNE SYSTEM.
Today--Fundamental advances are being made in understanding the relationship
between human genes, the proteins they encode and their impact on disease. Key
to this understanding is the use of sophisticated HPLC/MS instruments and
software available exclusively through the Micromass division of Waters. Today,
Waters technologies allow researchers to fully characterize biomolecules that
are present in inconceivably small quantities. As a result, drugs can be
developed that target the cause rather than the symptom of disease. And thanks
to our global distribution network, scientists can quickly and efficiently
access all of the critical instrumentation and software they require to expedite
their research.
Tomorrow--In 1990, a group of talented scientists initiated the
International Human Genome Project, a plan to sequence the estimated 100,000
genes in human DNA. If successful, this project could identify 25,000 or more
new targets for disease analysis. A subsequent mammoth undertaking will attempt
to determine the relationship between the DNA sequence, the proteins they
produce and what role those proteins play in human health. Known as
"proteomics," this new field of scientific endeavor will call for the most
advanced automated mass spectrometry systems. And Waters will be the company to
deliver those technologies. Our HPLC/MS systems will be instrumental in helping
scientists push the boundaries of proteomic research and will set new
performance standards in the painstaking process of finding cures for
gene-related diseases.
7
<PAGE>
LEADING LONGER, MORE FULFILLING LIVES.
[Photographs]
[Period photographs illustrating pages 8 - 9 include photos of Felix
Hoffman, woman with birth control pill dispenser, man and woman, Linus Pauling,
thermometers in glass beaker (background--top half of page 8) and microbes as
seen through microscope (background--bottom half of page 8)].
1900--FELIX HOFFMAN FORMULATES ACETYLSALICYLIC ACID, WHICH BAYER CORPORATION
LATER MARKETS UNDER THE NAME ASPIRIN-Registered Trademark-.
1912--FREDERICK HOPKINS AND CASIMIR FUNK ADVANCE THE VITAMIN HYPOTHESIS OF
DEFICIENCY, POSTULATING THAT THE ABSENCE OF SUFFICIENT AMOUNTS OF A VITAMIN MAY
LEAD TO CERTAIN DISEASES.
1945--SYNTHETIC DRUGS KNOWN AS ANTIHISTAMINES ARE INTRODUCED TO COMBAT
COMMON ALLERGIES.
GRAND RAPIDS, MICHIGAN, BECOMES THE FIRST CITY TO FLUORIDATE ITS DRINKING
WATER TO WARD OFF DENTAL CARIES.
1960--G.D. SEARLE AND COMPANY INTRODUCES THE FIRST ORAL CONTRACEPTIVE,
ENOVID-Registered Trademark-, DRAMATICALLY ALTERING THE FUTURE LIVES OF WOMEN
AND THE FAMILY.
8
<PAGE>
1970--LINUS PAULING PUBLISHES "VITAMIN C AND THE COMMON COLD," SINGLE-
HANDEDLY MAKING VITAMIN C THE WORLD'S FAVORITE DIETARY SUPPLEMENT.
1997--PFIZER INC. INTRODUCES VIAGRA-Registered Trademark-, SPOTLIGHTING THE
POPULARITY OF LIFESTYLE DRUGS.
Today--In 1900, life expectancy in the United States was 48 years. Today it
is 76. Thanks to discoveries made in health and nutrition, researchers are
empowering people to make informed dietary and lifestyle decisions that greatly
improve their quality of life. Today, effective treatments for conditions like
hair loss, allergies, and physical dysfunction are fueling greater demand for
lifestyle drugs. And as nutraceuticals like Ginseng Root, Melatonin and St.
John's Wort gain in popularity, so too, do our products. They provide both the
pharmaceutical and nutraceutical companies with the tools they need to develop,
test and deliver high-quality supplements.
Tomorrow--In the U.S., the functional foods market is expected to multiply
three times over the next ten years, from an estimated $20 billion industry to a
$60 billion industry in 2010. Because natural products are highly complex,
understanding their chemical nature requires sophisticated HPLC/MS tools. And as
more people turn to dietary supplements, the industry invokes the scrutiny of
the FDA. The companies that can prove their products are pure, contain
consistent levels of active ingredients and can prove efficacy to an
increasingly discerning consumer are the companies that will succeed. That means
future opportunity for our analytical instrumentation within the lifestyle
industry is strong. As government agencies and pharmaceutical companies keep
working together to find better ways to help people lead longer, quality lives,
our products will continue to push the limits of research farther.
9
<PAGE>
DEVELOPING A HEALTHIER CLIMATE FOR THE NEXT GENERATION.
[Photographs]
[Period photographs illustrating pages 10 - 11 include photos of men
enjoying an outing aboard a wooden rowboat, of Rachel Carson, a lakeshore, and
chemical storage drums. Background illustration on page 10--orienteering map.]
1916--THE U.S. NATIONAL PARK SERVICE IS FOUNDED TO PROTECT THE BIO-DIVERSITY
OF LARGE TRACTS OF WILDERNESS.
1935--THE WILDERNESS SOCIETY IS FOUNDED TO DEVELOP A NATIONWIDE NETWORK OF
WILD LANDS THROUGH PUBLIC EDUCATION, SCIENTIFIC ANALYSIS AND ADVOCACY.
1962--RACHEL CARSON'S BOOK "SILENT SPRING" INAUGURATES THE WORLDWIDE
ENVIRONMENTAL MOVEMENT, SHOWING HOW INDUSTRIAL CHEMICAL CONTAMINATION HARMS THE
ENVIRONMENT.
1970--EARTH DAY IS CELEBRATED FOR THE FIRST TIME.
THE U.S. ENVIRONMENTAL PROTECTION AGENCY (EPA) IS CREATED IN RESPONSE TO
CONFUSING AND INEFFECTIVE STATE AND MUNICIPAL ENVIRONMENTAL PROTECTION LAWS.
1980--COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION, AND LIABILITY ACT
IS PASSED, ESTABLISHING THE SUPERFUND PROGRAM TO CLEAN UP CONTAMINATED SITES
COLLECTIVELY DUBBED THE NATIONAL PRIORITIES LIST.
10
<PAGE>
1992--FRAMEWORK CONVENTION ON CLIMATE CHANGE IN RIO DE JANEIRO, BRAZIL,
COMMITS SIGNATORIES TO REDUCE LEVELS OF GREENHOUSE GASES.
1997--THE SUPERFUND PROGRAM COMPLETES CLEAN UP OF 35% OF HAZARDOUS WASTE
SITES ON THE EPA'S NATIONAL PRIORITIES LIST.
Today--Waters products are helping people everywhere to breathe a little
easier. Even before the worldwide environmental movement gained momentum in the
early "60s, Waters maintained a dual commitment, both internally and externally,
to the environment. Today, reports of dangerously high pesticide levels found in
fruits, vegetables and drinking water have created a demand for stricter
regulations regarding pesticide use. Our HPLC and MS products ensure that
pesticide levels in water, soil and food are within safe limits. Our MS sytems
are the instruments of choice for ultra low-level, trace dioxin analysis, a
process that is being given special attention, especially in Japan. In addition,
they are favored by numerous government agencies investigating the relationships
between suspected contaminants and adverse health effects in birds, fish and
mammals.
Tomorrow--World economic growth brings with it challenges to control
pollution in our air, water and soil. Our products are being used around the
world by countries and companies that have made point-of-source monitoring,
prevention, recycling and waste reduction not only a priority, but a mandate.
Recently, the EPA launched the Endocrine Disruptor Research Initiative. This
initiative will investigate the hypothesis that there are chemicals present in
our environment causing adverse health effects by interacting with the human
endocrine system. Understanding the molecular make-up of these compounds, where
they exist, how they bind to cells and what happens when they do is significant.
And all of our HPLC and MS products will be tools used to aid in these discovery
processes.
11
<PAGE>
REFINING THE NATURE OF THINGS.
[Photographs]
[Period photographs illustrating pages 12 - 13 include photos of Wallace
Carothers, a woman with nylon stockings, Dr. William DeVries with Barney Clark
and two background photos of workers engaged in making plastic domes.]
1907--CHARLES GOODYEAR PERFECTS THE ACCELERATED VULCANIZATION PROCESS FOR
MAKING RUBBER.
1909--LEO BAEKELAND INVENTS BAKELITE-Registered Trademark-, THE FIRST
THERMOSETTING PLASTIC THAT DOESN'T SOFTEN WHEN HEATED.
1935--WALLACE CAROTHERS INVENTS NYLON AND POLYESTER.
1940--DUPONT INTRODUCES NYLON STOCKINGS, SELLING FIVE MILLION PAIRS IN ONE
DAY TO A RIOTOUS PUBLIC.
1979--TOTAL VOLUME PRODUCTION OF PLASTICS SURPASSES THAT OF STEEL IN THE
U.S.
12
<PAGE>
1980'S--WALTER KAMINSKY AND HANS BRUITZINGER DEMONSTRATE THAT
METALLOCENE-BASED POLYMERS ARE SUPERIOR IN MANY WAYS TO TODAY'S COMMODITY
PLASTICS.
1982--DR. WILLIAM DEVRIES SUSTAINS BARNEY CLARK FOR 112 DAYS WITH THE FIRST
ARTIFICIAL HEART MADE OF POLYURETHANE AND DACRON-Registered Trademark- POLYESTER
FIBER MESH.
Today--Researchers are forever discovering new and innovative ways to expand
the role polymers play in our lives. From the most mundane plastic product, to
multi-layered engineered materials, researchers rely on Waters thermal analysis
and gel permeation chromatography products to help them design and develop
stronger and better performing materials, constituting the basis for a myriad of
innovative products. And these advances will grow more frequent in the year
2000, with our launch of the most advanced gel permeation chromatography system
ever created. This remarkable instrument's performance characteristics are
unavailable in competitive products, providing just what polymer scientists need
to develop tomorrow's advanced materials.
Tomorrow--Tomorrow will be the age of micro-thermal analysis, a process
combining the capabilities of thermal analysis with atomic force microscopy. As
scientists and astronauts venture farther into space and surgeons venture
farther into the realm of artificial organ transplants, micro-thermal analysis
will analyze the polymer-based materials used in these mission-critical
applications. Combinatorial synthesis techniques will become more practical as a
means of combining synthetic molecules into new and useful classes of polymers,
many of which will only lend themselves to high temperature analysis. And the
most capable instrumentation available for next generation room-to-high
temperature polymer analysis is our Alliance-Registered Trademark- GPC 2000. So
you can expect to see it being used for everything from testing various space
shuttle materials to artificial heart valves.
13
<PAGE>
1999 COMPANY OFFICERS
[Photographs]
[10 photographs of company officers on pages 14 - 15. Captions read as
follows:]
Douglas A. Berthiaume
Chairman, President and Chief Executive Officer
John Ornell
Vice President, Operations
Philip S. Taymor
Senior Vice President and Chief Financial Officer
John R. Nelson
Senior Vice President, Research, Development and Engineering
14
<PAGE>
Devette W. Russo
Vice President, Chromatography Consumables Division
Arthur G. Caputo
Senior Vice President, Worldwide Sales and Marketing
Bob Williams
Chairman, Micromass, Limited
Norman Lynaugh
Managing Director, Micromass, Limited
Thomas W. Feller
Senior Vice President, E-Business Initiative
Brian K. Mazar
Vice President, Human Resources and Investor Relations
15
<PAGE>
FORWARD THINKING
[Photograph]
[Photograph of rows of test tubes.]
Time marches on. And it's clear that, at Waters, our ingenuity does too.
Today, we're looking forward to our role in the adventure called "Tomorrow," and
to strengthening and solidifying our position as the leading supplier of
value-added solutions to the industries we serve. And yet, that focus represents
only part of our commitment to the analytical instrumentation industry as a
whole. We take special pride in providing our customers with industry-leading,
global service and support programs and instrumentation training. Doing so
reinforces the value we bring to our customer, our industry and to you, our
investors. By using our time wisely and bringing the best minds, products and
services together today, we're accelerating the discovery of the best solutions
for tomorrow's toughest problems.
16
<PAGE>
FINANCIAL TABLE OF CONTENTS
<TABLE>
<S> <C>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................... 19
REPORT OF INDEPENDENT ACCOUNTANTS........................... 26
CONSOLIDATED FINANCIAL STATEMENTS........................... 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.................. 32
QUARTERLY RESULTS........................................... 50
SELECTED FINANCIAL DATA..................................... 52
</TABLE>
<PAGE>
(This page is intentionally left blank.)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
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, 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 Micromass Limited ("Micromass") subsidiary,
the Company is 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. 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.
Sales grew by 14% in 1999 and by 33% in 1998. Sales growth in both years
reflected increased customer demand for new products and in 1998 was augmented
by the effect of 1997 acquisitions. Operating income for the year ended
December 31, 1999 was $176.5 million, a 29% increase over the $136.3 million
generated in 1998, excluding a $16.5 million nonrecurring charge in 1998 for
revaluation of acquired inventory related to the purchase of Micromass. Earnings
per diluted common share were $1.84 in 1999, a 32% increase over the $1.39 in
1998 excluding the nonrecurring charge.
During 1999, approximately 59% 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.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
NET SALES. Net sales for 1999 were $704.4 million, compared to
$618.8 million for the year ended December 31, 1998, an increase of 14%. The
impact of currency on 1999 net sales compared to 1998 net sales was negligible.
Demand growth was strongest for our mass spectrometry product family, in
particular, time-of-flight mass spectrometry products for protein analysis and
high-throughput drug discovery. Pharmaceutical customer demand was particularly
strong and generally was broad-based across all geographies.
GROSS PROFIT. Gross profit for 1999 was $447.3 million, compared to
$369.8 million for 1998, an increase of $77.5 million or 21%. Excluding the
$16.5 million nonrecurring charge for revaluation of acquired inventory in 1998
related to purchase accounting for the 1997 Micromass acquisition, gross profit
increased by 16% in 1999.
19
<PAGE>
Waters Corporation and Subsidiaries
Gross profit as a percentage of sales excluding the inventory revaluation
charge increased to 63.5% in 1999 from 62.4% in 1998, primarily as a result
of increased efficiencies in the Company's manufacturing operations and lower
raw material costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for 1999 were $226.6 million, compared to
$206.2 million for 1998. As a percentage of net sales, selling, general and
administrative expenses decreased to 32.2% for 1999 from 33.3% for 1998 as a
result of higher sales volume and expense controls. The $20.4 million or 10%
increase in total expenditures primarily resulted from increased headcount
required to support increased sales levels.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses were
$36.1 million for 1999 compared to $34.4 million for 1998, a $1.7 million or 5%
increase from prior year levels. 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 1999 was $8.1 million, compared to $9.4 million for
1998, a decrease of $1.3 million or 14%. Expense decreased as a portion of
purchased technology reached full amortization during the year.
OPERATING INCOME. Operating income for 1999 was $176.5 million, an increase
of $56.7 million or 47% from the prior year. Excluding the $16.5 million
nonrecurring charge for revaluation of acquired inventory, operating income was
$136.3 million for the year ended December 31, 1998, and 1999 results
represented a $40.2 million or 29% increase over 1998. Waters improved operating
income levels on the strength of sales growth, volume leverage and continued
focus on cost controls in all operating areas.
INTEREST EXPENSE, NET. Net interest expense decreased by $9.3 million, or
51%, from $18.3 million in 1998 to $9.0 million in 1999. The current year
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 was 27%
in 1999 and 23% in 1998, excluding the nonrecurring nondeductible charge related
to the revaluation of acquired inventory. The 1999 tax rate increased primarily
because a majority of the net operating loss carryforwards were utilized in
1998.
INCOME FROM OPERATIONS. Income from operations for 1999 was
$122.3 million, compared to $74.4 million for 1998, an increase of
$47.9 million or 64%. Excluding the nonrecurring acquisition related charge in
1998, the Company increased its $90.9 million of income in 1998 to
$122.3 million in 1999. The improvement over the prior year was a result of
sales growth, productivity improvement in all operating areas and a decline in
interest expense, offset by the impact of an increase in the Company's effective
income tax rate.
20
<PAGE>
Waters Corporation and Subsidiaries
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
NET SALES. Net sales for 1998 were $618.8 million, compared to
$465.5 million for the year ended December 31, 1997, an increase of 33%.
Excluding the adverse effects of a stronger U.S. dollar, net sales increased by
35% in 1998. The Company's core HPLC and thermal analysis products grew by 12%,
while the impact of the Micromass acquisition resulted in the remaining 23%
points of growth. HPLC growth was generally broad based across all geographies
except the Pacific Rim, and particularly strong in the U.S. and Europe
offsetting declines in the Pacific Rim. Japan had moderate sales growth for the
year. Pharmaceutical customer demand was especially strong across all
geographies. Sales of the Company's mass spectrometry products grew strongly as
well with increased use of mass spectrometry as an analytical tool within the
pharmaceutical industry, especially in conjunction with HPLC.
GROSS PROFIT. Gross profit for 1998 was $369.8 million, compared to
$275.7 million for 1997, an increase of $94.1 million or 34%. Excluding each
$16.5 million nonrecurring charge in 1997 and 1998 for revaluation of acquired
inventory related to purchase accounting for the Micromass acquisition, gross
profit increased by 32% in 1998. Gross profit as a percentage of sales excluding
the inventory revaluation charges decreased to 62.4% in 1998 from 62.8% in 1997,
reflecting the inclusion of Micromass results after its September 1997
acquisition. (Micromass mass spectrometry gross margins were lower than Waters
HPLC historical gross margins, but its operating expenses were commensurately
lower, and its overall operating margins were comparable to those of Waters.)
Excluding the impact of Micromass results, gross profit as a percentage of sales
increased in 1998, primarily as a result of increased efficiencies in the
Company's manufacturing operations and lower raw material costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for 1998 were $206.2 million, compared to
$167.3 million for 1997. As a percentage of net sales, selling, general and
administrative expenses decreased to 33.3% for 1998 from 35.9% for 1997 as a
result of higher sales volume and expense controls. The $38.9 million or 23%
increase in total expenditures primarily resulted from including the expenses of
Micromass.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
were $34.4 million for 1998 compared to $25.8 million for 1997, an $8.6
million or 33% increase from prior year levels. Spending increased in 1998
due to the inclusion of acquired company expenses. 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 1998 was $9.4 million, compared to $6.5 million for
1997, an increase of $2.9 million or 45%. This increase primarily was related to
the acquisition of Micromass.
21
<PAGE>
Waters Corporation and Subsidiaries
OPERATING INCOME. Operating income for 1998 was $119.8 million, an increase
of $98.6 million from the prior year. Operating income in 1998 included a
$16.5 million nonrecurring acquisition related charge while 1997 included
$71.5 million of similar charges. Excluding the revaluation of acquired
inventory charges in 1998 and 1997 and the expensed in-process research and
development charge in 1997, all in connection with the Micromass acquisition,
operating income was $136.3 million for the year ended December 31, 1998 and
represented a $43.6 million or 47% increase over 1997. As in 1997, Waters
continued to improve operating income levels in 1998 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 increased by $4.6 million, or
34%, from $13.7 million in 1997 to $18.3 million in 1998. The 1998 increase
reflected higher average 1998 debt levels as a result of borrowings which
financed the late 1997 acquisition of Micromass, reduced by 1998 repayments from
the Company's cash flow.
PROVISION FOR INCOME TAXES. The Company's effective income tax rate,
excluding nonrecurring nondeductible charges related to the revaluation of
acquired inventory in 1998 and revaluation of acquired inventory and expensed
in-process research and development in 1997, was 23% in 1998 and 20% in 1997.
INCOME (LOSS) FROM OPERATIONS. Income from operations for 1998 was
$74.4 million, compared to an $(8.3) million loss from operations for 1997.
Excluding nonrecurring acquisition related charges in 1998 and 1997, the Company
generated $90.9 million of income in 1998 compared to $63.2 million in 1997. The
improvement over 1997 was a result of sales growth, continued focus on cost
reductions in all operating areas and the accretive impact of the Micromass
acquisition.
YEAR 2000
The Company engaged in a concerted effort to ready its business systems and
products in anticipation of Year 2000 ("Y2K"). The Company did not experience
any significant Y2K related issues at year end and believes its internal systems
and related software are Y2K compliant. The Company has experienced no signs of
disruption to its business and will continue to monitor its material software
and systems. Corrective action, if necessary, will be taken to minimize any
significant detrimental effects on operations.
While the Company believes its efforts have provided reasonable assurance
that future material disruptions are not likely to occur, the potential for
interruption and adverse effects still remotely exists. However, the company
does not expect that any potential Y2K disruptions would have a material effect
on the Company. In addition, recovery under existing insurance policies may be
available depending upon the circumstances of a Y2K related event. To date,
approximately $11.0 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 that replaced predecessor systems. These costs do not include any
allocation for the time devoted by regular employees of the Company addressing
Y2K problems, as the Company did not separately track such time.
22
<PAGE>
Waters Corporation and Subsidiaries
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, information technology systems, 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 1999, net cash provided by the Company's operating activities was
$150.2 million, primarily as a result of net income for the year after adding
back depreciation and amortization. In addition, the Company received
$11.2 million of proceeds from the exercise of stock options and its employee
stock purchase plan. Primary uses of this cash flow during the year were
$127.2 million of net bank debt repayment, $24.4 million of property, plant and
equipment and software capitalization investments, and a $9.5 million redemption
of its preferred stock.
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.
As a publicly held company, the Company has not paid any dividends and does
not plan to pay any dividends 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.
23
<PAGE>
Waters Corporation and Subsidiaries
RECENT ACCOUNTING STANDARDS CHANGES
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") 137, Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective Date of SFAS 133.
SFAS 137 amends SFAS 133, Accounting for Derivative Instruments and Hedging
Activities, which was issued in June 1998 and was to be effective previously for
all fiscal quarters of fiscal years beginning after June 15, 1999. SFAS 137
defers the effective date of SFAS 133 to June 15, 2000. Earlier application is
permitted. SFAS 133 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.
FORWARD-LOOKING INFORMATION
SAFE HARBOR STATEMENT UNDER PRIVATE SECURITIES LITIGATION REFORM ACT OF 1996
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 described below. Please refer also
to the Company's Form 10-K for additional risk factors.
MARKET RISK
The Company is exposed to financial risk in several areas including changes
in foreign exchange rates and interest rates. The Company attempts to minimize
its exposures by using certain financial instruments, for purposes other than
trading, in accordance with the Company's overall risk management guidelines.
Further information regarding the Company's accounting policies for financial
instruments and disclosures of financial instruments can be found in Notes 2 and
6 to the Company's consolidated financial statements.
FOREIGN EXCHANGE
The Company has operations in various countries and currencies all over the
world. As a result, the Company's financial position, results of operations and
cash flows can be affected by fluctuations in foreign currency exchange rates.
The Company uses debt swap agreements to mitigate partially such effects.
In February 1999, the Company closed certain outstanding debt swap
agreements and entered into new debt swap agreements in European currencies,
which hedged foreign exchange exposures. These new debt swap agreements also
extended the time period of the agreements until February 2001. These
agreements combined with other outstanding debt swap agreements that the
Company maintained at December 31, 1999 effectively swapped higher U.S.
dollar fixed rate borrowings for lower fixed rate borrowings denominated in
the respective currencies. The effect of these debt swap agreements lowers
overall annual interest cost by approximately $3.3 million over the lives of
the swap agreements at interest rates in effect under the respective
contracts on December 31, 1999. The Company
24
<PAGE>
Waters Corporation and Subsidiaries
could incur higher or lower principal payments over the term of the swap
agreements. At currency exchange rates in effect on December 31, 1999, the
fair market value of those instruments was an unrealized gain of $6.1
million. Details of these swap agreements are as follows:
<TABLE>
<CAPTION>
NOTIONAL AMOUNT (IN
GEOGRAPHY THOUSANDS) COMPOSITE INTEREST RATE EXPIRATION DATES
- --------- ----------------------- ----------------------- ----------------
<S> <C> <C> <C>
Japan........................... $ 32,933 1.10% January 2001
Europe.......................... 73,000 4.20% February 2001
Canada.......................... 6,400 4.05% January 2000
--------
Total......................... $112,333
========
</TABLE>
Assuming a hypothetical adverse change of 10% in year-end exchange rates (a
weakening of the U.S. dollar), the fair market value of those instruments would
decrease by $11.2 million.
INTEREST RATES
The Company is exposed to risk of interest rate fluctuations in connection
with its Bank Credit Agreement. As a result, the Company attempts to minimize
its interest rate exposures by using certain financial instruments described
below for purposes other than trading.
In November 1999, the Company closed an interest swap agreement with Bankers
Trust Company and entered into a new agreement with decreased notional amounts.
During 1999 and 1998, the Company swapped $103 million and $135 million,
respectively, in notional amount of floating rate LIBOR borrowings for an
equivalent notional amount of borrowings at a fixed interest rate of 6.3%. The
new interest swap agreement reduces notional amounts progressively to zero over
a thirteen-month period and expires on December 29, 2000. The notional amount of
the interest swap exceeded the aggregate borrowings at December 31, 1999 by
$21.9 million. At December 31, 1999 and 1998, the fair market value of the swap
agreements was an unrealized loss of $16 thousand and $4.4 million,
respectively. At December 31, 1999, a one percentage point decrease in the LIBOR
rate would decrease the fair market value by approximately $.5 million.
The Company's debt swap agreements also fix the interest rate on its Bank
Credit Agreement. At December 31, 1999, a one percentage point decrease in the
LIBOR rate would increase the fair market value of the debt swaps by
approximately $.6 million.
25
<PAGE>
Waters Corporation and Subsidiaries
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Waters Corporation:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity, and cash flows
present fairly, in all material respects, the financial position of Waters
Corporation and Subsidiaries at December 31, 1999 and 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States. 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 of these
statements in accordance with auditing standards generally accepted in the
United States, which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
Boston, Massachusetts PricewaterhouseCoopers LLP
January 21, 2000
26
<PAGE>
CONSOLIDATED BALANCE SHEETS
WATERS CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1999 1998
--------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 3,803 $ 5,497
Accounts receivable, less allowances for doubtful accounts
of $3,741 and $2,966 at December 31, 1999 and 1998,
respectively............................................ 149,271 136,806
Inventories............................................... 80,363 80,281
Other current assets...................................... 13,893 16,448
-------- --------
Total current assets.................................. 247,330 239,032
Property, plant and equipment, net.......................... 91,841 89,029
Other assets................................................ 74,530 72,146
Goodwill, less accumulated amortization of $16,068 and
$12,281 at December 31, 1999 and 1998, respectively....... 170,736 177,494
-------- --------
Total assets.......................................... $584,437 $577,701
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of long-term debt....... $ 14,164 $ 4,259
Accounts payable.......................................... 34,771 36,510
Deferred revenue and customer advances.................... 31,406 29,706
Accrued retirement plan contributions..................... 5,181 5,934
Accrued income taxes...................................... 16,350 16,112
Accrued other taxes....................................... 4,026 4,225
Other current liabilities................................. 91,943 88,827
-------- --------
Total current liabilities............................. 197,841 185,573
Long-term debt.............................................. 81,105 218,250
Redeemable preferred stock.................................. -- 9,058
Other liabilities........................................... 13,329 14,701
-------- --------
Total liabilities..................................... 292,275 427,582
Stockholders' equity:
Common stock, par value $0.01 per share, 100,000 shares
authorized, 62,259 and 60,594 shares issued and
outstanding at December 31, 1999 and 1998,
respectively............................................ 623 606
Additional paid-in capital................................ 195,455 174,414
Deferred stock option compensation........................ (166) (386)
Retained earnings (deficit)............................... 100,041 (21,697)
Accumulated other comprehensive (loss).................... (3,791) (2,818)
-------- --------
Total stockholders' equity............................ 292,162 150,119
-------- --------
Total liabilities and stockholders' equity............ $584,437 $577,701
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
27
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
WATERS CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 (IN THOUSANDS, EXCEPT PER SHARE DATA) 1999 1998 1997
- ------------------------------------------------------------ -------- -------- --------
<S> <C> <C> <C>
Net sales................................................... $704,400 $618,813 $465,470
Cost of sales............................................... 257,136 232,497 173,275
Revaluation of acquired inventory........................... -- 16,500 16,500
-------- -------- --------
Gross profit.............................................. 447,264 369,816 275,695
Selling, general and administrative expenses................ 226,593 206,211 167,290
Research and development expenses........................... 36,094 34,433 25,750
Goodwill and purchased technology amortization.............. 8,068 9,347 6,468
Expensed in-process research and development................ -- -- 55,000
-------- -------- --------
Operating income.......................................... 176,509 119,825 21,187
Interest expense, net....................................... 8,948 18,278 13,720
-------- -------- --------
Income from operations before income taxes................ 167,561 101,547 7,467
Provision for income taxes.................................. 45,243 27,148 15,755
-------- -------- --------
Net income (loss)......................................... 122,318 74,399 (8,288)
Accretion of and 6% dividend on preferred stock............. (825) (963) (942)
Gain on redemption of preferred stock....................... 383 -- --
-------- -------- --------
Net income (loss) available to common stockholders........ $121,876 $ 73,436 $ (9,230)
======== ======== ========
Net income (loss) per basic common share.................... $ 1.98 $ 1.23 $ (.16)
======== ======== ========
Weighted average number of basic common shares.............. 61,506 59,860 58,254
======== ======== ========
Net income (loss) per diluted common share.................. $ 1.84 $ 1.14 $ (.16)
======== ======== ========
Weighted average number of diluted common shares and
equivalents............................................... 66,316 64,642 58,254
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
28
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
WATERS CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 (IN THOUSANDS) 1999 1998 1997
- ------------------------------------- --------- -------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ 122,318 $ 74,399 $ (8,288)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Deferred income taxes................................... 3,407 (10,366) (5,891)
Depreciation and amortization........................... 28,947 27,248 20,010
Amortization of debt issuance costs..................... 737 1,240 1,085
Compensatory stock option expense....................... 220 220 220
Tax benefit related to stock option plans............... 9,747 7,623 2,976
Expensed in-process research and development............ -- -- 55,000
Revaluation of acquired inventory....................... -- 16,500 16,500
Change in operating assets and liabilities, net of
acquisitions:
(Increase) in accounts receivable....................... (15,566) (21,978) (8,127)
(Increase) in inventories............................... (1,474) (8,230) (2,270)
Increase in accounts payable and other current
liabilities........................................... 4,343 14,034 11,399
Increase in deferred revenue and customer advances...... 2,406 4,284 5,375
Other, net.............................................. (4,877) 5,196 8,377
--------- -------- ---------
Net cash provided by operating activities............... 150,208 110,170 96,366
Cash flows from investing activities:
Additions to property, plant and equipment................ (19,399) (15,040) (18,216)
Software capitalization and other intangibles............. (5,017) (5,576) (5,177)
Business acquisitions, net of cash acquired............... (2,412) (3,157) (160,985)
Loans to officers......................................... 1,098 187 (136)
--------- -------- ---------
Net cash (used in) investing activities............... (25,730) (23,586) (184,514)
Cash flows from financing activities:
Net (repayment) borrowings of bank debt................... (127,240) (90,225) 87,452
Redemption of preferred stock............................. (9,500) -- --
Proceeds from stock plans................................. 11,173 6,588 2,491
Other, net................................................ -- -- 1,113
--------- -------- ---------
Net cash (used in) provided by financing activities... (125,567) (83,637) 91,056
Effect of exchange rate changes on cash and cash
equivalents............................................... (605) (563) (434)
--------- -------- ---------
(Decrease) increase in cash and cash equivalents...... (1,694) 2,384 2,474
Cash and cash equivalents at beginning of period............ 5,497 3,113 639
--------- -------- ---------
Cash and cash equivalents at end of period............ $ 3,803 $ 5,497 $ 3,113
========= ======== =========
29
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Supplemental cash flow information:
Income taxes paid......................................... $ 29,014 $ 14,993 $ 10,022
Interest paid............................................. $ 12,214 $ 19,601 $ 12,754
Supplemental noncash transactions:
Issuance of common stock for acquisition.................. $ -- $ -- $ 11,241
Issuance of notes for acquisition......................... $ -- $ -- $ 9,975
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
WATERS CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL DEFERRED RETAINED OTHER STATEMENT OF
COMMON PAID-IN STOCK OPTION EARNINGS COMPREHENSIVE COMPREHENSIVE
(IN THOUSANDS) STOCK CAPITAL COMPENSATION (DEFICIT) INCOME (LOSS) TOTAL INCOME
- -------------- -------- ---------- ------------- --------- -------------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1996........ $578 $145,428 $(826) $(87,808) $ 408 $ 57,780
Comprehensive (loss), net of tax:
Net (loss)..................... -- -- -- (8,288) -- (8,288) $ (8,288)
Other comprehensive (loss):
Foreign currency translation
adjustments................ -- -- -- -- (3,181) (3,181) (3,181)
------- -------- --------
Other comprehensive (loss)..... -- -- -- -- (3,181) (3,181) (3,181)
--------
Comprehensive (loss)............. -- -- -- -- -- -- $(11,469)
========
Accretion of preferred stock..... -- (342) -- -- -- (342)
Dividend payable on preferred
stock.......................... -- (600) -- -- -- (600)
Issuance of common stock for
acquisition.................... 6 11,235 -- -- -- 11,241
Issuance of common stock for
Employee Stock Purchase Plan... 2 316 -- -- -- 318
Compensatory stock option
expense........................ -- -- 220 -- -- 220
Stock options exercised.......... 6 2,167 -- -- -- 2,173
Tax benefit related to stock
option plans................... -- 2,976 -- -- -- 2,976
---- -------- ----- -------- ------- --------
Balance December 31, 1997........ $592 $161,180 $(606) $(96,096) $(2,773) $ 62,297
30
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
Comprehensive income, net of tax:
Net income..................... -- -- -- 74,399 -- 74,399 $ 74,399
Other comprehensive (loss):
Foreign currency translation
adjustments................ -- -- -- -- (45) (45) (45)
------- -------- --------
Other comprehensive (loss)..... -- -- -- -- (45) (45) (45)
--------
Comprehensive income............. -- -- -- -- -- -- $ 74,354
========
Accretion of preferred stock..... -- (363) -- -- -- (363)
Dividend payable on preferred
stock.......................... -- (600) -- -- -- (600)
Issuance of common stock for
Employee Stock Purchase Plan... 2 864 -- -- -- 866
Compensatory stock option
expense........................ -- -- 220 -- -- 220
Stock options exercised.......... 12 5,710 -- -- -- 5,722
Tax benefit related to stock
option plans................... -- 7,623 -- -- -- 7,623
---- -------- ----- -------- ------- --------
Balance December 31, 1998........ $606 $174,414 $(386) $(21,697) $(2,818) $150,119
Comprehensive income, net of tax:
Net income....................... -- -- -- 122,318 -- 122,318 $122,318
Other comprehensive (loss):
Foreign currency translation
adjustments.................... -- -- -- -- (973) (973) (973)
------- -------- --------
Other comprehensive (loss)....... -- -- -- -- (973) (973) (973)
--------
Comprehensive income............. -- -- -- -- -- -- $121,345
========
Accretion of preferred stock..... -- (92) -- (230) -- (322)
Dividend payable on preferred
stock.......................... -- (153) -- (350) -- (503)
Gain on redemption of preferred
stock.......................... -- 383 -- -- -- 383
Issuance of common stock for
Employee Stock Purchase Plan... 1 1,250 -- -- -- 1,251
Compensatory stock option
expense........................ -- -- 220 -- -- 220
Stock options exercised.......... 16 9,906 -- -- -- 9,922
Tax benefit related to stock
option plans................... -- 9,747 -- -- -- 9,747
---- -------- ----- -------- ------- --------
Balance December 31, 1999........ $623 $195,455 $(166) $100,041 $(3,791) $292,162
==== ======== ===== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1 DESCRIPTION OF BUSINESS, ORGANIZATION AND
BASIS OF PRESENTATION
Waters Corporation ("Waters" or the "Company"), 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
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. 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.
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 accumulated other comprehensive (loss) 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.
32
<PAGE>
Waters Corporation and Subsidiaries
CONCENTRATION OF CREDIT RISK
The Company sells its products to a significant number of large and small
customers throughout the world, with approximately 61% of 1999 net sales to the
pharmaceutical industry. None of the Company's individual customers accounts 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 the straight-line
method over the following estimated useful lives: buildings and improvements--
thirty years, leasehold improvements--fifteen years or life of lease, and
production and other equipment--three to ten years. Upon retirement or sale, the
cost of assets disposed and the related accumulated depreciation are eliminated
from the balance sheet and related gains or losses are reflected in income.
SOFTWARE DEVELOPMENT COSTS
The Company capitalizes software development costs for products offered for
sale in accordance with Statement of Financial Accounting Standard ("SFAS") 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 $15,430 and $14,191 at December 31, 1999 and 1998,
respectively.
The Company capitalizes internal software development costs in accordance
with Statement of Position 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use. Capitalized internal software
development costs are amortized on a straight-line basis over ten years. For the
years ended December 31, 1999 and 1998, capitalized internal software included
in property, plant and equipment, net of accumulated amortization, totaled
$3,275 and $3,375, 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, forty years for current goodwill components. Under SFAS 121, impairment of
purchased technology and goodwill are 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, 1999, no amounts have been
determined to be impaired. Purchased technology included in other assets totaled
$27,105 and $30,034, net of accumulated amortization of $14,282 and $11,360, at
December 31, 1999 and 1998, respectively.
33
<PAGE>
Waters Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
DEBT ISSUANCE COSTS
Debt issuance costs are amortized over the life of the related debt using
the effective interest method. At December 31, 1999 and 1998, debt issuance
costs included in other assets amounted to $1,072 and $1,809, net of accumulated
amortization of $2,591 and $1,854, respectively.
STOCKHOLDERS' EQUITY
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 received the stock dividend on
or about June 10, 1999. All share and per share amounts have been retroactively
restated to reflect the stock split.
HEDGE TRANSACTIONS
The Company maintains debt swap agreements which hedge the U.S. dollar value
of the Company's investment in the net assets of certain foreign subsidiaries.
The Company records any unrealized or realized gains or losses on these
transactions in accumulated other comprehensive income (loss) in the
consolidated balance sheets.
In June 1999, the Financial Accounting Standards Board issued SFAS 137,
Accounting for Derivative Instruments and Hedging Activities--Deferral of the
Effective Date of SFAS 133. SFAS 137 amends SFAS 133, Accounting for Derivative
Instruments and Hedging Activities, which was issued in June 1998 and previously
was to be effective for all fiscal quarters of fiscal years beginning after
June 15, 1999. SFAS 137 defers the effective date of SFAS 133 to fiscal years
beginning after June 15, 2000. Earlier application is permitted. SFAS 133
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.
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
consolidated 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 in the consolidated statements of
operations.
RECLASSIFICATION
Certain amounts in previous years' financial statements have been
reclassified to conform to current presentation.
34
<PAGE>
Waters Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME (LOSS) PER SHARE
In accordance with SFAS 128, Earnings Per Share, the Company presents two
earnings per share ("EPS") amounts. Income (loss) 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. Income (loss) 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, cumulative dividends and gain
on redemption of preferred stock have been included in computing income (loss)
per share.
COMPREHENSIVE (LOSS) INCOME
The Company accounts for comprehensive (loss) income under SFAS 130,
Reporting Comprehensive Income. 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.
RETIREMENT PLAN
The Company adopted SFAS 132, Employers' Disclosures about Pensions and
Other Postretirement Benefits. The statement standardizes employer disclosure
requirements about pension and other postretirement benefit plans by requiring
additional information on changes in the benefit obligations and fair values of
plan assets and eliminating certain disclosures that are no longer useful. It
does not change the measurement or recognition of those plans.
BUSINESS SEGMENTS
The Company discloses business segments under SFAS 131, Disclosures about
Segments of an Enterprise and Related Information. 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.
35
<PAGE>
Waters Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
3 BUSINESS COMBINATIONS
MICROMASS LIMITED ACQUISITION
On September 23, 1997, the Company acquired all of the capital stock of
Micromass Limited, a company headquartered in England, for approximately
$175,000 in cash, common stock (750 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 $76,600 for the period from January 1, 1997 to September 30, 1997.
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 was 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
purchased technology in the transaction of $24,200 and goodwill of $66,914
which will be amortized for a period of fifteen and forty years,
respectively, on a straight line basis. The Company recorded $8,500 of
purchase accounting liabilities in conjunction with the acquisition in 1997,
and reversed $4,000 of those purchase accounting liabilities against goodwill
in 1998.
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 product line. Net sales for YMC were
approximately $4,300 for the period from January 1, 1997 to July 31, 1997.
PRO FORMA RESULTS OF OPERATIONS
The following unaudited Pro Forma results of operations for the year ended
December 31, 1997 give effect to the Company's acquisitions as if the
transactions had occurred at the beginning of that period. The financial data
are based on the historical consolidated financial statements for the Company,
Micromass and YMC and include related adjustments. The Pro Forma results of
operations exclude the nonrecurring charges that were recorded in conjunction
with the Micromass acquisition in 1997 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 period or (ii) what such results will be
for any future periods. The financial data are based upon assumptions that the
Company believes are reasonable and should be read in conjunction with the
consolidated financial statements and accompanying notes thereto included
elsewhere in this report. As there were no significant acquisitions made in 1998
and 1999, reference is hereby made to the consolidated statements of operations
for 1998 and 1999 financial data.
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA RESULTS FOR THE YEAR ENDED
DECEMBER 31, 1997
----------------------------------------------
<S> <C>
Net sales............................................. $542,045
Income before extraordinary item...................... 67,204
Net income............................................ 66,262
Net income per basic common share..................... $ 1.13
Net income per diluted common share................... $ 1.02
</TABLE>
36
<PAGE>
Waters Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
4 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1999 1998
--------- ---------
<S> <C> <C>
Land and land improvements............................ $ 3,887 $ 3,146
Buildings and leasehold improvements.................. 35,321 34,087
Production and other equipment........................ 103,855 92,592
Construction in progress.............................. 5,190 4,625
--------- ---------
Total property, plant and equipment............. 148,253 134,450
Less: accumulated depreciation and amortization....... (56,412) (45,421)
--------- ---------
Property, plant and equipment, net.............. $ 91,841 $ 89,029
========= =========
</TABLE>
5 INVENTORIES
Inventories are classified as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1999 1998
-------- --------
<S> <C> <C>
Raw material.............................................. $27,155 $27,327
Work in progress.......................................... 14,446 9,572
Finished goods............................................ 38,762 43,382
------- -------
Total inventories................................... $80,363 $80,281
======= =======
</TABLE>
37
<PAGE>
Waters Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
6 DEBT
The Company has a Bank Credit Agreement ("Agreement") that was renegotiated
in 1997 which provides a $450,000 line of credit through June 2002. Loans under
the 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 .30% and 1.00% or 2) prime rate. Margins on LIBOR borrowings vary with
Company financial performance. At December 31, 1999 and 1998, the Company had
aggregate borrowings outstanding under the Agreement of $81,105 and $208,275,
respectively, and had additional amounts available to borrow of $354,978 and
$228,617, respectively, after outstanding letters of credit. The weighted
average interest rate on the borrowings at December 31, 1999 and 1998 was 6.54%
and 5.64%, respectively. 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, 1999 and 1998. The Company's
foreign subsidiaries also had available short-term lines of credit totaling
$32,413 at December 31, 1999 and $31,616 at December 31, 1998. At December 31,
1999 and 1998, related short-term borrowings were $4,183 at a weighted average
interest rate of 5.25% and $4,144 at a weighted average interest rate of 3.1%,
respectively. In addition, the Company has promissory notes of $9,975 due in
September 2000 in conjunction with the Micromass acquisition. These notes bear
interest at a fixed rate of 6.25% payable semiannually.
In November 1999, the Company closed an interest swap agreement with Bankers
Trust Company and entered into a new agreement with decreased notional amounts.
During 1999 and 1998, the Company swapped $103,000 and $135,000, respectively,
in notional amount of floating rate LIBOR borrowings for an equivalent notional
amount of borrowings at a fixed interest rate of 6.3%. The new interest swap
agreement reduces notional amounts progressively to zero over a thirteen-month
period and expires on December 29, 2000. The notional amount of the interest
swap exceeded the aggregate borrowings at December 31, 1999 by $21,895. At
December 31, 1999 and 1998, the fair value of this agreement was an unrealized
loss of $16 and $4,437, respectively.
In February 1999, the Company closed certain outstanding debt swap
agreements and entered into new debt swap agreements in European currencies
which hedged foreign exchange exposures. These new debt swap agreements also
extended the time period of the agreements until February 2001. These agreements
combined with other outstanding debt swap agreements that the Company maintained
at December 31, 1999 effectively swapped higher U.S. dollar fixed rate
borrowings for lower fixed rate borrowings denominated in the respective
currencies. The effect of these debt swap agreements lowers overall annual
interest cost by approximately $3,348 over the lives of the swap agreements at
interest rates in effect under the respective contracts on December 31, 1999.
The Company could incur higher or lower principal payments over the term of the
swap agreements. At currency exchange rates in effect on December 31, 1999, the
fair market value of those instruments was an unrealized gain of $6,104. Details
of these swap agreements are as follows:
<TABLE>
<CAPTION>
GEOGRAPHY NOTIONAL AMOUNT COMPOSITE INTEREST RATE EXPIRATION DATES
- --------- --------------- ----------------------- ----------------
<S> <C> <C> <C>
Japan...................... $ 32,933 1.10% January 2001
Europe..................... 73,000 4.20% February 2001
Canada..................... 6,400 4.05% January 2000
--------
Total................ $112,333
========
</TABLE>
38
<PAGE>
Waters Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
7 INCOME TAXES
Income tax data for 1999, 1998 and 1997 follow in the tables below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
The components of income from operations before income
taxes were as follows:
Domestic................................................ $ 66,082 $ 62,873 $ 64,751
Foreign................................................. 101,479 38,674 (57,284)
-------- -------- --------
Total................................................. $167,561 $101,547 $ 7,467
======== ======== ========
The components of the current and deferred income tax
provision from operations were as follows:
Current................................................. $ 41,560 $ 34,264 $ 20,280
Deferred................................................ 3,683 (7,116) (4,525)
-------- -------- --------
Total................................................. $ 45,243 $ 27,148 $ 15,755
======== ======== ========
The components of the provision for income taxes from
operations were as follows:
Federal................................................. $ 16,428 $ 6,001 $ 9,383
State................................................... 1,187 1,336 878
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Foreign................................................... 27,628 19,811 5,494
-------- -------- --------
Total................................................. $ 45,243 $ 27,148 $ 15,755
======== ======== ========
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.................................................. $ 58,646 $ 35,541 $ 2,613
Foreign sales corporation............................... (3,075) (2,333) (1,826)
State income tax, net of federal income tax benefit..... 772 868 570
Deferred tax assets (benefited)......................... (4,891) (13,254) (12,307)
Net effect of foreign operations........................ (7,243) (191) 1,005
Nondeductible acquisition costs......................... -- 5,775 25,025
Other................................................... 1,034 742 675
-------- -------- --------
Provision for income taxes............................ $ 45,243 $ 27,148 $ 15,755
======== ======== ========
The tax effects of temporary differences and carryforwards
which gave rise to deferred tax assets and deferred tax
(liabilities)
were as follows:
Acquired net operating loss carryforwards............... $ -- $ 608 $ 2,516
Tax benefit of net operating loss and credits........... 27,778 18,006 4,133
Goodwill amortization................................... 8,588 10,598 10,866
Deferred compensation................................... 9,908 7,984 3,605
Inventory............................................... 2,586 6,388 2,452
Other................................................... 645 (68) 2,296
Depreciation and capitalized software................... (9,890) (7,620) (6,481)
Valuation allowance..................................... (22,565) (15,439) (9,296)
-------- -------- --------
Total deferred taxes.................................. $ 17,050 $ 20,457 $ 10,091
======== ======== ========
</TABLE>
39
<PAGE>
Waters Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
At December 31, 1999, the Company had foreign net operating loss
carryforwards of approximately $1,570, some of which begin to expire in the year
2001 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. Deferred tax assets included in other current assets
totaled $5,591 and $7,865 at December 31, 1999 and 1998, respectively. Deferred
tax assets included in other assets totaled $11,459 and $12,592 at December 31,
1999 and 1998, respectively. The valuation allowance relates to foreign net
operating losses and foreign tax credits, the realization of which is contingent
upon future taxable income.
The Company's effective tax rate before the nondeductible acquisition
related expenses for the years ended December 31, 1999, 1998 and 1997 was 27%,
23% and 20%, respectively.
8 LEASES
Lease agreements, expiring at various dates through 2019, cover buildings,
office equipment and automobiles. Rental expense was approximately $11,812 in
1999, $10,766 in 1998 and $8,666 in 1997.
Future minimum rents payable as of December 31, 1999 under non-cancelable leases
with initial terms exceeding one year were as follows:
<TABLE>
<S> <C>
2000........................................................ $11,230
2001........................................................ 9,064
2002........................................................ 6,400
2003........................................................ 4,637
2004........................................................ 3,870
Thereafter.................................................. 9,521
</TABLE>
9 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 had a liquidation value of
$10,000 and earned an annual 6% cumulative dividend on the liquidation value.
Any accumulated but unpaid dividends added to the liquidation value. The Company
could, 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 was being accreted by periodic
charges to additional paid-in capital or available retained earnings since the
date of issue.
On November 2, 1999, the Company redeemed all outstanding shares of
Preferred Stock, including cumulative unpaid dividends, for $9,500 in cash. The
carrying value of the one hundred shares of Preferred Stock and cumulative
dividends payable was $9,883 on that date and the transaction resulted in a gain
on redemption of $383 which was credited to additional paid-in capital.
40
<PAGE>
Waters Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
During the years ended December 31, 1999, 1998 and 1997, $322, $363 and
$342, respectively, for accretion and $503, $600 and $600, respectively, for
unpaid dividends were charged against additional paid-in capital or available
retained earnings.
10 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 expense has been recognized for its fixed stock option plans and
its stock purchase plan under SFAS 123, Accounting for Stock-Based Compensation.
Had compensation expense 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
income (loss) for 1999, 1998 and 1997, would have been $115,857, $70,043, and
$(10,821), respectively. Basic income (loss) per share for 1999, 1998, and 1997
would have been $1.88, $1.17, and $(0.19), respectively. Diluted income (loss)
per share for 1999, 1998, and 1997 would have been $1.75, $1.09, and $(0.19),
respectively. The pro forma amounts include amortized fair values 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 was estimated on the date
of grant using the Black-Scholes option-pricing model. Relevant data are
described below:
<TABLE>
<CAPTION>
SIGNIFICANT ASSUMPTIONS USED TO ESTIMATE OPTION FAIR VALUES 1999 1998 1997
- ----------------------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
Options issued.............................................. 934 1,056 998
Risk-free interest rate..................................... 6.2% 4.7% 5.8%
Expected life in years...................................... 7.5 7.5 7.2
Expected volatility......................................... 0.437 0.454 0.609
Expected dividends.......................................... 0 0 0
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED AVERAGE EXERCISE PRICE AND FAIR VALUES OF OPTIONS ON THE DATE OF GRANT 1999 1998 1997
- ------------------------------------------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
Options exercise prices are less than the market price
Exercise price................................................... $15.75
Fair value....................................................... $ 6.75
Options exercise prices are equal to the market price
Exercise price................................................... $46.13 $39.27 $21.38
Fair value....................................................... $26.62 $21.86 $14.58
</TABLE>
41
<PAGE>
Waters Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table details the weighted average remaining contractual life
of options outstanding at December 31, 1999 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 $ 4.00.... 754 $ 2.04 4.7 years 703 $ 2.04
$4.01 to $10.00.... 5,609 $ 7.33 4.7 years 5,457 $ 7.37
$10.01 to $20.00... 605 $17.08 6.4 years 327 $17.10
$20.01 to $30.00... 898 $21.36 7.9 years 333 $21.34
$30.01 to $40.00... 1,041 $39.37 8.9 years 209 $39.37
$40.01 to $50.00... 934 $46.13 9.9 years 0 $ 0.00
------ ------ --------- ----- ------
9,841 $15.87 6.1 years 7,029 $ 8.90
====== ====== ========= ===== ======
</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 2,000 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 4,000 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, 1999.
The Company's 1994 Stock Option Plan ("1994 Plan") provided for the
granting of 10,070 options to purchase shares of common stock to certain key
employees of the Company. 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 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 two hundred
shares of Common Stock have been reserved. Under the Director Stock Option Plan,
each outside director will receive an annual option to purchase two thousand
shares of Common Stock. One hundred thousand shares of Common Stock may be
issued under the 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.
42
<PAGE>
Waters Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table summarizes stock option activity for the plans:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF SHARES PRICE PER SHARE EXERCISE PRICE
---------------- ---------------- ----------------
<S> <C> <C> <C>
Outstanding at December 31, 1996............. 10,524 $ 2.04 to $17.25 $ 6.66
Granted.................................. 998 $16.10 to $21.38 $ 21.20
Exercised................................ (530) $ 2.04 to $17.11 $ (3.95)
Canceled................................. (72) $ 4.75 to $17.11 $(10.03)
------
Outstanding at December 31, 1997............. 10,920 $ 2.04 to $21.38 $ 8.10
Granted.................................. 1,056 $18.78 to $39.38 $ 39.27
Exercised................................ (1,388) $ 2.04 to $21.38 $ (4.13)
Canceled................................. (14) $16.10 to $21.38 $(19.84)
------
Outstanding at December 31, 1998............. 10,574 $ 2.04 to $39.38 $ 11.71
Granted.................................. 934 $ 46.13 $ 46.13
Exercised................................ (1,636) $ 2.04 to $39.38 $ (6.06)
Canceled................................. (31) $17.11 to $39.38 $(24.57)
------
Outstanding at December 31, 1999............. 9,841 $ 2.04 to $46.13 $ 15.87
====== ================ =======
</TABLE>
Options exercisable at December 31, 1999, 1998, and 1997 were 7,029, 6,564
and 6,056, respectively. The weighted average exercise prices of options
exercisable at December 31, 1999, 1998, and 1997 were $8.90, $7.33 and $6.22,
respectively. Available stock options for grant at December 31, 1999 were 2,527.
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 500 shares of the Company's Common Stock commencing October 1, 1996.
As of December 31, 1999, approximately 123 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.
43
<PAGE>
Waters Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
11 EARNINGS PER SHARE
Basic and diluted EPS calculations are detailed as follows:
<TABLE>
<CAPTION>
YEAR ENDED 1999
---------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
Net income................................................ $122,318
Accretion of and 6% dividend on preferred stock........... (825)
Gain on redemption of preferred stock..................... 383
-------- ------ -----
Income per basic common share from operations............. $121,876 61,506 $1.98
======== ====== =====
Effect of dilutive securities:
Options outstanding..................................... 4,394
Options exercised....................................... 416
-------- ------ -----
Income per diluted common share from operations........... $121,876 66,316 $1.84
======== ====== =====
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED 1998
---------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
Net income................................................ $74,399
Accretion of and 6% dividend on preferred stock........... (963)
------- ------ -----
Income per basic common share from operations............. $73,436 59,860 $1.23
======= ====== =====
Effect of dilutive securities:
Options outstanding..................................... 4,404
Options exercised....................................... 378
------- ------ -----
Income per diluted common share from operations........... $73,436 64,642 $1.14
======= ====== =====
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED 1997
---------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
Net (loss)................................................ $(8,288)
Accretion of and 6% dividend on preferred stock........... (942)
------- ------ -----
(Loss) per basic common share from operations............. $(9,230) 58,254 $(.16)
======= ====== =====
Effect of dilutive securities............................. --
------- ------ -----
(Loss) per diluted common share from operations........... $(9,230) 58,254 $(.16)
======= ====== =====
</TABLE>
For the years ended December 31, 1999, 1998, and 1997, the Company had 0,
1,050, and 10,920 stock option securities that were antidilutive, respectively.
These securities were not included in the computation of diluted EPS.
44
<PAGE>
Water Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
12 COMPREHENSIVE INCOME
Comprehensive income details follow:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net income (loss)........................................... $122,318 $74,399 $ (8,288)
Foreign currency translation adjustments before income
taxes..................................................... (1,333) (58) (3,976)
Income tax (benefit)........................................ (360) (13) (795)
-------- ------- --------
Foreign currency translation adjustments, net of tax........ (973) (45) (3,181)
-------- ------- --------
Other comprehensive (loss).................................. (973) (45) (3,181)
-------- ------- --------
Comprehensive income (loss)................................. $121,345 $74,354 $(11,469)
======== ======= ========
</TABLE>
13 RETIREMENT PLANS
The Company has two retirement plans for employees: the Waters Employee
Investment Plan, a defined contribution plan, and the Waters Retirement Plan, a
defined benefit cash balance plan.
In conjunction with its 1994 acquisition of the predecessor HPLC business of
Millipore, the Company had asserted a claim contending that Millipore had
understated the amount of assets it was obligated to transfer from the Millipore
retirement plan to the Waters Retirement Plan. The Federal court subsequently
ruled in favor of Millipore's position with respect to the claim. On appeal, the
Federal court ruling was upheld, and $2,440 was transferred to the Waters
Retirement Plan on June 2, 1998.
U.S. employees are eligible to participate in the Waters Employee Investment
Plan after one month of service. Employees may contribute from 1% to 20% 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, 1999, 1998 and 1997, the Company's matching contributions amounted
to $1,984, $1,839 and $1,559, respectively. Effective January 1, 1998, the
Micromass, Inc. 401(k) Plan was merged into and YMC employees joined the Waters
Employee Investment Plan.
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.
The net periodic pension cost under SFAS 87 is made up of several components
that reflect different aspects of the Company's financial arrangements as well
as the cost of benefits earned by employees. These components are determined
using the projected unit credit actuarial cost method and are based on certain
actuarial
45
<PAGE>
Waters Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
assumptions. The Company's accounting policy is to reflect in the projected
benefit obligation all benefit changes to which the Company is committed as
of the current valuation date; use a market-related value of assets to
determine pension expense; amortize increases in prior service costs on a
straight-line basis over the expected future service of active participants
as of the date such costs are first recognized; and amortize cumulative
actuarial gains and losses in excess of 10% of the larger of the
market-related value of plan assets and the projected benefit obligation over
the expected future service of active participants. Summary data for the
Waters Retirement Plan are presented in the following tables:
<TABLE>
<CAPTION>
RECONCILIATION OF PROJECTED BENEFIT OBLIGATION 1999 1998
- ---------------------------------------------- -------- --------
<S> <C> <C>
Benefit obligation, January 1............................. $20,930 $15,904
</TABLE>
<TABLE>
<CAPTION>
RECONCILIATION OF PROJECTED BENEFIT OBLIGATION 1999 1998
- ---------------------------------------------- -------- --------
<S> <C> <C>
Service cost............................................ 2,878 2,513
Interest cost........................................... 1,696 1,369
Employee rollovers...................................... 45 160
Actuarial (gain) loss................................... (2,544) 1,312
Disbursements........................................... (295) (328)
------- -------
Benefit obligation, December 31........................... $22,710 $20,930
======= =======
</TABLE>
<TABLE>
<CAPTION>
RECONCILIATION OF FAIR VALUE OF ASSETS 1999 1998
- -------------------------------------- -------- --------
<S> <C> <C>
Fair value of assets, January 1........................... $17,162 $16,008
Actual return on plan assets............................ 1,896 1,322
Company contributions................................... 4,078 --
Disbursements........................................... (295) (328)
Employee rollovers...................................... 45 160
------- -------
Fair value of assets, December 31......................... $22,886 $17,162
======= =======
</TABLE>
<TABLE>
<CAPTION>
RECONCILIATION OF FUNDED STATUS, DECEMBER 31 1999 1998
- -------------------------------------------- -------- --------
<S> <C> <C>
Projected benefit obligation............................ $(22,710) $(20,930)
Fair value of plan assets............................. 22,886 17,162
-------- --------
Projected benefit obligation less than (in excess of)
fair value of plan assets........................... 176 (3,768)
Unrecognized prior service cost....................... (1,225) (1,324)
Unrecognized net actuarial (gain) loss................ (2,597) 198
-------- --------
Accrued benefit (liability)............................. $ (3,646) $ (4,894)
======== ========
The projected benefit obligation was calculated using
the following weighted average assumptions:
Discount rate......................................... 8.00% 7.00%
Return on assets...................................... 9.00% 9.00%
Increases in compensation levels...................... 4.75% 4.75%
</TABLE>
46
<PAGE>
Waters Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
COMPONENTS OF NET PERIODIC PENSION COST, YEAR ENDED DECEMBER 31 1999 1998 1997
- --------------------------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
Service cost............................................. $2,878 $2,513 $2,043
Interest cost............................................ 1,696 1,369 1,054
Return on plan assets.................................... (1,645) (1,391) (1,190)
Net amortization:
Prior service cost..................................... (99) (99) (99)
Net actuarial (gain)................................... -- -- (39)
------ ------ ------
Net periodic pension cost................................ $2,830 $2,392 $1,769
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
RECONCILIATION OF (ACCRUED) PENSION COST 1999 1998 1997
- ---------------------------------------- -------- -------- --------
<S> <C> <C> <C>
(Accrued) pension cost, January 1................. $(4,894) $(2,502) $(1,208)
FAS 87 (cost)................................... (2,830) (2,392) (1,769)
Contributions made during the year.............. 4,078 -- 475
------- ------- -------
(Accrued) pension cost, December 31............... $(3,646) $(4,894) $(2,502)
======= ======= =======
</TABLE>
The Company also 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. The
Company's accrued post-retirement benefit obligation was $2,596 and $2,532 at
December 31, 1999 and 1998, respectively, and is included in other liabilities
in the consolidated balance sheets.
14 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 $1,337 at December 31,
1999 and $2,436 at December 31, 1998 are included in other assets in the
consolidated balance sheets.
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, primarily rent, pursuant to this agreement of $875, $1,178 and $1,273,
for the years ended December 31, 1999, 1998, and 1997, respectively. These
expenses are included in selling, general and administrative expenses in the
consolidated statements of operations.
During the years ended December 31, 1999, 1998 and 1997, the Company sold
products and service totaling $66, $148 and $32, respectively, to Millipore.
These sales are included in net sales in the consolidated statements of
operations.
47
<PAGE>
Waters Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
15 BUSINESS SEGMENT INFORMATION
SFAS 131 establishes standards for reporting information about operating
segments in annual financial statements of public business enterprises. It also
establishes standards for related disclosures about products and service,
geographic areas and major customers. 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; 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; and TAI is in the business of manufacturing
and distributing thermal analysis and rheology instruments. 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. The
accounting policies of the reportable segment are the same as those described
in the Summary of Significant Accounting Policies. Please refer to the
consolidated financial statements for financial information regarding the one
reportable segment of the Company. The Company sells products and service
within this reportable segment, detailed as follows:
<TABLE>
<CAPTION>
REVENUE 1999 1998 1997
- ------- -------- -------- --------
<S> <C> <C> <C>
Products...................................... $569,504 $504,956 $371,928
Service....................................... 134,896 113,857 93,542
-------- -------- --------
Total......................................... $704,400 $618,813 $465,470
======== ======== ========
</TABLE>
Geographic information is presented below:
<TABLE>
<CAPTION>
OTHER
UNITED STATES EUROPE JAPAN ASIA INT'L ELIMINATION TOTAL
------------- -------- -------- -------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1999
Sales:
Unaffiliated sales........... $289,538 $228,181 $65,137 $27,603 $51,134 $ -- $661,593
Unaffiliated export sales to
Japan...................... -- 16,119 -- -- -- -- 16,119
Unaffiliated export sales to
Asia....................... 5,831 5,007 -- -- -- -- 10,838
Unaffiliated export sales to
Other Int'l................ 14,326 1,524 -- -- -- -- 15,850
Transfers between areas...... 182,471 59,510 -- -- -- (241,981) --
-------- -------- ------- ------- ------- --------- --------
Total sales.................... $492,166 $310,341 $65,137 $27,603 $51,134 $(241,981) $704,400
======== ======== ======= ======= ======= ========= ========
Long-lived assets:
Unaffiliated................. $221,907 $100,516 $ 3,279 $ 192 $11,213 $ -- $337,107
Between affiliates........... 227,246 24,011 2,181 -- 3,795 (257,233) --
-------- -------- ------- ------- ------- --------- --------
Total long-lived assets........ $449,153 $124,527 $ 5,460 $ 192 $15,008 $(257,233) $337,107
======== ======== ======= ======= ======= ========= ========
</TABLE>
48
<PAGE>
Waters Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Geographic Information (continued):
<TABLE>
<CAPTION>
OTHER
UNITED STATES EUROPE JAPAN ASIA INT'L ELIMINATION TOTAL
------------- -------- -------- -------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1998
Sales:
Unaffiliated sales........... $258,050 $208,168 $46,098 $21,923 $44,578 $ -- $578,817
Unaffiliated export sales to
Japan...................... -- 12,199 -- -- -- -- 12,199
Unaffiliated export sales to
Asia....................... 5,276 6,896 -- -- -- -- 12,172
Unaffiliated export sales to
Other Int'l................ 12,347 3,278 -- -- -- -- 15,625
Transfers between areas...... 153,666 49,148 -- -- -- (202,814) --
-------- -------- ------- ------- ------- --------- --------
Total sales.................... $429,339 $279,689 $46,098 $21,923 $44,578 $(202,814) $618,813
======== ======== ======= ======= ======= ========= ========
Long-lived assets:
Unaffiliated................. $225,811 $ 98,058 $ 2,775 $ 367 $11,658 $ -- $338,669
Between affiliates........... 234,652 20,963 2,180 -- 3,790 (261,585) --
-------- -------- ------- ------- ------- --------- --------
Total long-lived assets........ $460,463 $119,021 $ 4,955 $ 367 $15,448 $(261,585) $338,669
======== ======== ======= ======= ======= ========= ========
1997
Sales:
Unaffiliated sales........... $187,136 $138,591 $46,077 $29,635 $37,744 $ -- $439,183
Unaffiliated export sales to
Japan...................... 74 4,132 -- -- -- -- 4,206
Unaffiliated export sales to
Asia....................... 8,009 1,792 -- -- -- -- 9,801
Unaffiliated export sales to
Other Int'l................ 12,280 -- -- -- -- -- 12,280
Transfers between areas...... 131,441 12,471 -- -- -- (143,912) --
-------- -------- ------- ------- ------- --------- --------
Total sales.................... $338,940 $156,986 $46,077 $29,635 $37,744 $(143,912) $465,470
======== ======== ======= ======= ======= ========= ========
Long-lived assets:
Unaffiliated................. $230,258 $103,500 $ 2,444 $ 550 $ 5,808 $ -- $342,560
Between affiliates........... 219,149 20,550 2,181 -- 24 (241,904) --
-------- -------- ------- ------- ------- --------- --------
Total long-lived assets........ $449,407 $124,050 $ 4,625 $ 550 $ 5,832 $(241,904) $342,560
======== ======== ======= ======= ======= ========= ========
</TABLE>
The United States category includes Puerto Rico. The Other category 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. None of the Company's individual customers accounts for more than 2%
of annual Company sales.
49
<PAGE>
Waters Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
16 QUARTERLY RESULTS
The Company's unaudited quarterly results are summarized below:
<TABLE>
<CAPTION>
1999 FIRST QUARTER SECOND QUARTER THIRD QUARTER
- ---- ----------------------------- ----------------------------- -----------------------------
<S> <C> <C> <C>
Net sales......................... $ 160,362 $ 172,280 $ 171,090
Cost of sales..................... 60,622 63,712 61,903
----------------------------- ----------------------------- -----------------------------
Gross profit.................... 99,740 108,568 109,187
Selling, general and
administrative expenses......... 54,504 55,537 57,075
Research and development
expenses........................ 8,686 9,021 8,634
Goodwill and purchased technology
amortization.................... 2,045 2,034 1,999
----------------------------- ----------------------------- -----------------------------
Operating income................ 34,505 41,976 41,479
Interest expense, net............. 3,033 2,379 1,794
----------------------------- ----------------------------- -----------------------------
Income from operations before
income taxes.................. 31,472 39,597 39,685
Provision for income taxes........ 8,498 10,691 10,715
----------------------------- ----------------------------- -----------------------------
Net income...................... 22,974 28,906 28,970
Accretion of and dividend on
preferred stock................. (244) (245) (247)
----------------------------- ----------------------------- -----------------------------
Gain on redemption of preferred
stock........................... -- -- --
----------------------------- ----------------------------- -----------------------------
Net income available to common
stockholders.................. $ 22,730 $ 28,661 $ 28,723
============================= ============================= =============================
Net income per basic common
share........................... $ .37 $ .47 $ .47
============================= ============================= =============================
Weighted average number of basic
common shares................... 60,894 61,222 61,754
============================= ============================= =============================
Net income per diluted common
share........................... $ .35 $ .43 $ .43
============================= ============================= =============================
Weighted average number of diluted
common shares and equivalents... 65,840 66,167 66,611
============================= ============================= =============================
Stock price range................. 36 1/4-54 1/8 46 1/2-56 1/2 48 3/4-67 5/8
<CAPTION>
1999 FOURTH QUARTER TOTAL
- ---- -------------------- -----------------------------
<S> <C> <C>
Net sales......................... $ 200,668 $ 704,400
Cost of sales..................... 70,899 257,136
-------------------- -----------------------------
Gross profit.................... 129,769 447,264
Selling, general and
administrative expenses......... 59,477 226,593
Research and development
expenses........................ 9,753 36,094
Goodwill and purchased technology
amortization.................... 1,990 8,068
-------------------- -----------------------------
Operating income................ 58,549 176,509
Interest expense, net............. 1,742 8,948
-------------------- -----------------------------
Income from operations before
income taxes.................. 56,807 167,561
Provision for income taxes........ 15,339 45,243
-------------------- -----------------------------
Net income...................... 41,468 122,318
Accretion of and dividend on
preferred stock................. (89) (825)
-------------------- -----------------------------
Gain on redemption of preferred
stock........................... 383 383
-------------------- -----------------------------
Net income available to common
stockholders.................. $ 41,762 $ 121,876
==================== =============================
Net income per basic common
share........................... $ .67 $ 1.98
==================== =============================
Weighted average number of basic
common shares................... 62,204 61,506
==================== =============================
Net income per diluted common
share........................... $ .63 $ 1.84
==================== =============================
Weighted average number of diluted
common shares and equivalents... 66,621 66,316
==================== =============================
Stock price range................. 37-66 1/8 36 1/4-67 5/8
</TABLE>
50
<PAGE>
Waters Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1998 FIRST QUARTER SECOND QUARTER
- ---- ----------------------------- -------------------------------
<S> <C> <C>
Net sales........................................... $ 138,725 $ 149,311
Cost of sales....................................... 51,920 55,848
Revaluation of acquired inventory................... 16,500 --
----------------------------- -------------------------------
Gross profit...................................... 70,305 93,463
Selling, general and administrative expenses........ 49,988 51,952
Research and development expenses................... 8,372 8,246
Goodwill and purchased technology amortization...... 2,275 2,231
----------------------------- -------------------------------
Operating income.................................. 9,670 31,034
Interest expense, net............................... 5,063 4,888
----------------------------- -------------------------------
Income from operations before income taxes........ 4,607 26,146
Provision for income taxes.......................... 4,363 6,033
----------------------------- -------------------------------
Net income........................................ 244 20,113
Accretion of and dividend on preferred stock........ (239) (240)
Net income available to common stockholders....... $ 5 $ 19,873
============================= ===============================
Net income per basic common share................... $ .00 $ .33
============================= ===============================
Weighted average number of basic common shares...... 59,416 59,754
============================= ===============================
Net income per diluted common share................. $ .00 $ .30
============================= ===============================
Weighted average number of diluted common shares and
equivalents....................................... 66,322 67,038
============================= ===============================
Stock price range................................... 18 1/4-26 24 21/32-31 7/16
<CAPTION>
1998 THIRD QUARTER FOURTH QUARTER
- ---- ----------------------------- -----------------------------
<S> <C> <C>
Net sales........................................... $ 151,793 $ 178,984
Cost of sales....................................... 57,832 66,897
Revaluation of acquired inventory................... -- --
----------------------------- -----------------------------
Gross profit...................................... 93,961 112,087
Selling, general and administrative expenses........ 49,276 54,995
Research and development expenses................... 8,512 9,303
Goodwill and purchased technology amortization...... 2,537 2,304
----------------------------- -----------------------------
Operating income.................................. 33,636 45,485
Interest expense, net............................... 4,416 3,911
----------------------------- -----------------------------
Income from operations before income taxes........ 29,220 41,574
Provision for income taxes.......................... 7,264 9,488
----------------------------- -----------------------------
Net income........................................ 21,956 32,086
Accretion of and dividend on preferred stock........ (241) (243)
Net income available to common stockholders....... $ 21,715 $ 31,843
============================= =============================
Net income per basic common share................... $ .36 $ .53
============================= =============================
Weighted average number of basic common shares...... 60,028 60,330
============================= =============================
Net income per diluted common share................. $ .33 $ .49
============================= =============================
Weighted average number of diluted common shares and
equivalents....................................... 64,822 65,228
============================= =============================
Stock price range................................... 26 3/16-34 5/32 26 9/16-43 3/4
<CAPTION>
1998 TOTAL
- ---- -----------------------------
<S> <C>
Net sales........................................... $ 618,813
Cost of sales....................................... 232,497
Revaluation of acquired inventory................... 16,500
-----------------------------
Gross profit...................................... 369,816
Selling, general and administrative expenses........ 206,211
Research and development expenses................... 34,433
Goodwill and purchased technology amortization...... 9,347
-----------------------------
Operating income.................................. 119,825
Interest expense, net............................... 18,278
-----------------------------
Income from operations before income taxes........ 101,547
Provision for income taxes.......................... 27,148
-----------------------------
Net income........................................ 74,399
Accretion of and dividend on preferred stock........ (963)
Net income available to common stockholders....... $ 73,436
=============================
Net income per basic common share................... $ 1.23
=============================
Weighted average number of basic common shares...... 59,860
=============================
Net income per diluted common share................. $ 1.14
=============================
Weighted average number of diluted common shares and
equivalents....................................... 64,642
=============================
Stock price range................................... 18 1/4-43 3/4
</TABLE>
51
<PAGE>
Waters Corporation and Subsidiaries
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND EMPLOYEES DATA)
<TABLE>
<CAPTION>
THE COMPANY
---------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED AUGUST 19 TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.......................... $704,400 $618,813 $465,470 $391,113 $332,972 $131,057
Cost of sales...................... 257,136 232,497 173,275 145,254 126,216 49,740
Revaluation of acquired inventory
(B).............................. -- 16,500 16,500 6,100 925 38,424
-------- -------- -------- -------- -------- --------
Gross profit..................... 447,264 369,816 275,695 239,759 205,831 42,893
Selling, general and administrative
expenses......................... 226,593 206,211 167,290 148,513 132,746 44,522
Research and development
expenses......................... 36,094 34,433 25,750 20,898 17,681 6,790
Goodwill and purchased technology
amortization..................... 8,068 9,347 6,468 5,219 3,629 1,227
Expensed in-process research and
development (B).................. -- -- 55,000 19,300 -- 53,918
Management fee (B)................. -- -- -- -- 5,393 552
Restructuring charge (B)........... -- -- -- -- -- 3,500
-------- -------- -------- -------- -------- --------
Operating income (loss).......... 176,509 119,825 21,187 45,829 46,382 (67,616)
Interest expense, net (C).......... 8,948 18,278 13,720 14,740 30,315 12,011
(Gains) on cash flow hedges (B).... -- -- -- -- (1,175) (923)
-------- -------- -------- -------- -------- --------
Income (loss) from operations
before income taxes............ 167,561 101,547 7,467 31,089 17,242 (78,704)
Provision for income taxes......... 45,243 27,148 15,755 11,230 3,129 1,487
-------- -------- -------- -------- -------- --------
Income (loss) from operations.... 122,318 74,399 (8,288) 19,859 14,113 (80,191)
Income (loss) from discontinued
operations, net of tax (B)....... -- -- -- -- -- (7,213)
-------- -------- -------- -------- -------- --------
Income (loss) before
extraordinary item............. 122,318 74,399 (8,288) 19,859 14,113 (87,404)
Extraordinary item-(loss) on early
retirement of debt (B)........... -- -- -- (22,264) (12,112) --
-------- -------- -------- -------- -------- --------
Income (loss) before cumulative
effect of change in accounting
principle........................ 122,318 74,399 (8,288) (2,405) 2,001 (87,404)
Cumulative effect of change in
accounting principle (B)......... -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Net income (loss)................ 122,318 74,399 (8,288) (2,405) 2,001 (87,404)
Less: Accretion of and dividend on
preferred stock, net of gain..... 442 963 942 921 902 330
-------- -------- -------- -------- -------- --------
Net income (loss) available to
common stockholders............ $121,876 $ 73,436 $ (9,230) $ (3,326) $ 1,099 $(87,734)
======== ======== ======== ======== ======== ========
52
<PAGE>
Waters Corporation and Subsidiaries
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND EMPLOYEES DATA)
Income (loss) per basic common
share:
Income (loss) per common share
before extraordinary item...... $ 1.98 $ 1.23 $ (.16) $ .33 $ .30 $ (1.87)
(Loss) per common share from
discontinued operations........ -- -- -- -- -- (.17)
Extraordinary (loss) per common
share.......................... -- -- -- (.39) (.27) --
-------- -------- -------- -------- -------- --------
Net income (loss) per common
share............................ $ 1.98 $ 1.23 $ (.16) $ (.06) $ .03 $ (2.04)
======== ======== ======== ======== ======== ========
Weighted average number of basic
common shares.................... 61,506 59,860 58,254 57,682 44,652 42,964
======== ======== ======== ======== ======== ========
Income (loss) per diluted common
share:
Income (loss) per common share
before extraordinary item...... $ 1.84 $ 1.14 $ (.16) $ .30 $ .27 $ (1.87)
(Loss) per common share from
discontinued operations........ -- -- -- -- -- (.17)
Extraordinary (loss) per common
share.......................... -- -- -- (.35) (.25) --
-------- -------- -------- -------- -------- --------
Net income (loss) per common
share............................ $ 1.84 $ 1.14 $ (.16) $ (.05) $ .02 $ (2.04)
======== ======== ======== ======== ======== ========
Weighted average number of diluted
common shares and equivalents.... 66,316 64,642 58,254 63,256 49,164 42,964
======== ======== ======== ======== ======== ========
<CAPTION>
PREDECESSOR BUSINESS (A)
------------------------------------------
JANUARY 1 TO YEAR ENDED YEAR ENDED
AUGUST 18, DECEMBER 31, DECEMBER 31,
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.......................... $176,097 $304,927 $309,287
Cost of sales...................... 73,446 124,387 123,342
Revaluation of acquired inventory
(B).............................. -- -- --
-------- -------- --------
Gross profit..................... 102,651 180,540 185,945
Selling, general and administrative
expenses......................... 85,216 132,452 138,318
Research and development
expenses......................... 13,399 18,525 19,142
Goodwill and purchased technology
amortization..................... -- -- --
Expensed in-process research and
development (B).................. -- -- --
Management fee (B)................. -- -- --
Restructuring charge (B)........... -- 13,000 --
-------- -------- --------
Operating income (loss).......... 4,036 16,563 28,485
Interest expense, net (C).......... 828 2,072 2,107
(Gains) on cash flow hedges (B).... -- -- --
-------- -------- --------
Income (loss) from operations
before income taxes............ 3,208 14,491 26,378
Provision for income taxes......... 916 4,169 6,180
-------- -------- --------
Income (loss) from operations.... 2,292 10,322 20,198
Income (loss) from discontinued
operations, net of tax (B)....... (448) (9) 108
-------- -------- --------
Income (loss) before
extraordinary item............. 1,844 10,313 20,306
Extraordinary item-(loss) on early
retirement of debt (B)........... -- -- --
-------- -------- --------
Income (loss) before cumulative
effect of change in accounting
principle........................ 1,844 10,313 20,306
Cumulative effect of change in
accounting principle (B)......... -- -- (2,228)
-------- -------- --------
Net income (loss)................ $ 1,844 $ 10,313 $ 18,078
-------- -------- --------
Less: Accretion of and dividend on
preferred stock, net of gain.....
Net income (loss) available to
common stockholders............
Income (loss) per basic common
share:
Income (loss) per common share
before extraordinary item......
(Loss) per common share from
discontinued operations........
Extraordinary (loss) per common
share..........................
Net income (loss) per common
share............................
Weighted average number of basic
common shares....................
Income (loss) per diluted common
share:
Income (loss) per common share
before extraordinary item......
(Loss) per common share from
discontinued operations........
Extraordinary (loss) per common
share..........................
Net income (loss) per common
share............................
Weighted average number of diluted
common shares and equivalents....
</TABLE>
<TABLE>
<CAPTION>
THE COMPANY
---------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED AUGUST 19 TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET AND OTHER DATA (D):
Working capital.................... $ 49,489 $ 53,459 $ 45,843 $ 61,227 $ 56,385 $ 87,357
Total assets....................... $584,437 $577,701 $552,059 $365,502 $299,816 $331,598
Long term debt, including current
maturities (C)................... $ 91,080 $218,250 $305,340 $210,470 $158,500 $275,000
Redeemable preferred stock......... -- $ 9,058 $ 8,096 $ 7,153 $ 6,232 $ 5,330
Stockholders' equity
(deficit)/parent company
investment....................... $292,162 $150,119 $ 62,297 $ 57,780 $ 58,118 $(22,670)
Employees.......................... 2,968 2,758 2,640 2,135 1,934 2,021
Depreciation and amortization for
the period....................... $ 28,947 $ 27,248 $ 20,010 $ 16,709 $ 13,774 $ 4,394
Capital expenditures for the
period........................... $ 24,416 $ 20,616 $ 23,393 $ 13,822 $ 9,878 $ 2,191
<CAPTION>
PREDECESSOR BUSINESS (A)
------------------------------------------
JANUARY 1 TO YEAR ENDED YEAR ENDED
AUGUST 18, DECEMBER 31, DECEMBER 31,
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
BALANCE SHEET AND OTHER DATA (D):
Working capital.................... $100,528 $112,905
Total assets....................... $189,592 $199,513
Long term debt, including current
maturities (C)................... $ -- $ --
Redeemable preferred stock......... $ -- $ --
Stockholders' equity
(deficit)/parent company
investment....................... $149,095 $163,157
Employees.......................... 2,069 2,009 2,180
Depreciation and amortization for
the period....................... $ 6,323 $ 9,265 $ 8,857
Capital expenditures for the
period........................... $ 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) Nonrecurring charges and (gains).
(C) 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.
(D) As a publicly held company, the Company has not declared or paid any
dividends on common stock.
53
<PAGE>
INDEX
1. PAGE 12, 13
Steiner Plastics Images courtesy of The Library of Congress, Prints and
Photographs division, Gottscho-Schleisner collection.
2. PAGE 9
Linus Pauling image courtesy of The Archives, California Institute of
Technology.
3. PAGE 12
Wallace Carothers image courtesy of The Hagley Museum & Library.
(Inside Back Cover)
<PAGE>
DIRECTORS
Douglas A. Berthiaume
Chairman, President
and Chief Executive Officer
Waters Corporation
Joshua Bekenstein
Managing Director
Bain Capital, Inc.
Dr. Michael J. Berendt
Senior Vice President
Bayer Corporation
Philip Caldwell
Chairman of the Board
and Chief Executive Officer (Retired),
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
Independent Investor and Consultant
Thomas P. Salice
President and Chief Executive Officer
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
E-Business Initiative
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
John Ornell
Vice President
Operations
TRANSFER AGENT
BankBoston, N.A.
c/o EquiServe
P.O. Box 8040
Boston, Massachusetts 02216
781-575-3120
www.equiserve.com
AUDITORS
PricewaterhouseCoopers LLP
One Post Office Square
Boston, Massachusetts 02109
ATTORNEYS
Bingham Dana LLP
150 Federal Street
Boston, Massachusetts 02110-1726
<PAGE>
STOCKHOLDERS' MEETING
<TABLE>
<S> <C>
Date: May 4, 2000, 11 a.m.
Place: Waters Corporation
34 Maple Street
Milford, Massachusetts
Directions: Call 800-252-4752 Ext. 3314
</TABLE>
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]
URL: www.waters.com
Waters, Micromass, CapLC, Q-TOF, TA Instruments, Quattro Ultima, LCT, MUX
Technology and Alliance are trademarks of Waters Corporation.
Dacron is a registered trademark of E. I. DuPont de Nemours and Company.
Aspirin is a registered trademark of Bayer Corporation.
Enovid is a trademark of G.D. Searle and Company.
1444-AR-00
<PAGE>
(Back Cover)
(Front Cover Image wraps around to Back Cover)
34 Maple Street, Milford, MA 01757
Waters 2000
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (File Nos. 333-08191, 333-18371 and 333-81723) of Waters
Corporation of our report dated January 21, 2000 relating to the financial
statements, which appears in the Annual Report to Shareholders, which is
incorporated in this Annual Report on Form 10-K. We also consent to the
incorporation by reference of our report dated January 21, 2000 relating to the
financial statement schedule, which appears in this Form 10-K.
Boston, Massachusetts PricewaterhouseCoopers LLP
March 29, 2000
<TABLE> <S> <C>
<PAGE>
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 3,803
<SECURITIES> 0
<RECEIVABLES> 153,012
<ALLOWANCES> 3,741
<INVENTORY> 80,363
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<PP&E> 148,253
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0
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