<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________TO__________.
COMMISSION FILE NUMBER: 01-14010
WATERS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN THE CHARTER)
DELAWARE 13-3668640
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
34 MAPLE STREET
MILFORD, MASSACHUSETTS 01757
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (508) 478-2000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days
Yes (X) No ( )
Number of shares outstanding of the Registrant's common stock as of August 4,
2000: 63,925,073.
1
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WATERS CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE
------
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2000 and December 31, 1999 3
Consolidated Statements of Operations for the three months ended June 30, 2000 and 1999
4
Consolidated Statements of Operations for the six months ended June 30, 2000 and 1999
5
Consolidated Statements of Cash Flows for the six months ended June 30, 2000 and 1999
6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
11
PART II OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
</TABLE>
2
<PAGE>
WATERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, 2000 DECEMBER 31, 1999
------------- -----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,461 $ 3,803
Accounts receivable, less allowances for doubtful accounts of
$2,719 and $3,741 at June 30, 2000 and December 31, 1999,
respectively 150,227 149,271
Inventories 82,978 80,363
Other current assets 17,607 13,893
------------- -------------
Total current assets 253,273 247,330
Property, plant and equipment, net of accumulated depreciation of $62,527 and
$56,412 at June 30, 2000 and December 31, 1999, respectively 95,249 91,841
Other assets 75,154 74,530
Goodwill, less accumulated amortization of $17,635 and $16,068 at
June 30, 2000 and December 31, 1999, respectively 167,314 170,736
------------- -------------
Total assets $ 590,990 $ 584,437
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of long term debt $ 10,527 $ 14,164
Accounts payable 38,485 34,771
Deferred revenue and customer advances 36,964 31,406
Accrued retirement plan contributions 5,285 5,181
Accrued income taxes 17,151 16,350
Accrued other taxes 4,098 4,026
Other current liabilities 86,936 91,943
------------- -------------
Total current liabilities 199,446 197,841
Long term debt 2,915 81,105
Other liabilities 10,601 13,329
------------- -------------
Total liabilities 212,962 292,275
Stockholders' equity:
Common stock, par value $0.01 per share, 200,000 shares authorized,
63,913 and 62,259 shares issued and outstanding at June 30,
2000 and December 31, 1999, respectively 639 623
Additional paid-in capital 218,068 195,455
Deferred stock option compensation (56) (166)
Retained earnings 167,615 100,041
Accumulated other comprehensive (loss) (8,238) (3,791)
------------- -------------
Total stockholders' equity 378,028 292,162
------------- -------------
Total liabilities and stockholders' equity $ 590,990 $ 584,437
============= =============
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
3
<PAGE>
WATERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
-----------------------------------
JUNE 30, 2000 JUNE 30, 1999
------------- -------------
<S> <C> <C>
Net sales $195,276 $172,280
Cost of sales 71,199 63,712
------------- -------------
Gross profit 124,077 108,568
Selling, general and administrative expenses 61,060 55,537
Research and development expenses 10,557 9,021
Goodwill and purchased technology amortization 1,760 2,034
------------- -------------
Operating income 50,700 41,976
Interest expense, net 343 2,379
------------- -------------
Income before income taxes 50,357 39,597
Provision for income taxes 13,102 10,691
------------- -------------
Net income 37,255 28,906
Less: accretion of and 6% dividend on preferred stock - 245
------------- -------------
Net income available to common stockholders $37,255 $28,661
============= =============
------------- -------------
Net income per basic common share $0.59 $0.47
============= =============
Weighted average number of basic common shares 63,457 61,222
------------- -------------
Net income per diluted common share $0.55 $0.43
============= =============
Weighted average number of diluted common shares and equivalents 68,111 66,167
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
4
<PAGE>
WATERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
----------------------------------
JUNE 30, 2000 JUNE 30, 1999
--------------- ---------------
<S> <C> <C>
Net sales $375,917 $332,642
Cost of sales 137,612 124,334
----------- -----------
Gross profit 238,305 208,308
Selling, general and administrative expenses 121,455 110,041
Research and development expenses 20,919 17,707
Goodwill and purchased technology amortization 3,571 4,079
----------- -----------
Operating income 92,360 76,481
Interest expense, net 1,044 5,412
----------- -----------
Income before income taxes 91,316 71,069
Provision for income taxes 23,742 19,189
----------- -----------
Net income 67,574 51,880
Less: accretion of and 6% dividend on preferred stock - 489
=========== ===========
Net income available to common stockholders $67,574 $51,391
=========== ===========
=========== ===========
Net income per basic common share $1.07 $0.84
=========== ===========
Weighted average number of basic common shares 63,123 61,060
=========== ===========
Net income per diluted common share $1.00 $0.78
=========== ===========
Weighted average number of diluted common shares and equivalents 67,860 66,014
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
5
<PAGE>
WATERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
--------------------------------------
JUNE 30, 2000 JUNE 30, 1999
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $67,574 $51,880
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 13,943 12,938
Amortization of debt issuance costs 368 368
Compensatory stock option expense 110 110
Tax benefit related to stock option activity 9,887 9,353
Change in operating assets and liabilities:
(Increase) decrease in accounts receivable (5,858) 8,148
(Increase) in inventories (5,115) (2,823)
Increase (decrease) in accounts payable and other current
liabilities 3,001 (1,914)
Increase (decrease) in deferred revenue and customer
advances 6,537 (216)
Other, net (6,473) (1,960)
------------- -------------
Net cash provided by operating activities 83,974 75,884
Cash flows from investing activities:
Additions to property, plant and equipment (13,145) (8,817)
Software capitalization (2,686) (2,518)
Loans to officers 328 218
------------- -------------
Net cash (used in) investing activities (15,503) (11,117)
Cash flows from financing activities:
Net (repayment) of bank debt (81,827) (72,490)
Proceeds from stock option and stock purchase plan activity 12,741 4,905
------------- -------------
Net cash (used in) financing activities (69,086) (67,585)
Effect of exchange rate changes on cash and cash equivalents (727) (647)
------------- -------------
(Decrease) in cash and cash equivalents (1,342) (3,465)
Cash and cash equivalents at beginning of period 3,803 5,497
------------- -------------
Cash and cash equivalents at end of period $2,461 $2,032
============= =============
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
6
<PAGE>
WATERS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1. ORGANIZATION AND BASIS OF PRESENTATION
Waters Corporation ("Waters" or the "Company"), an analytical instrument
manufacturer, is the world's largest manufacturer and distributor of high
performance liquid chromatography ("HPLC") instruments, chromatography columns
and other consumables, and related service. HPLC, the largest product segment of
the analytical instrument market, is utilized in a broad range of industries to
detect, identify, monitor and measure the chemical, physical and biological
composition of materials, and to purify a full range of compounds. Through its
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.
The accompanying unaudited interim financial statements have been prepared
in accordance with generally accepted accounting principles ("GAAP"). The
consolidated financial statements include the accounts of the Company and its
subsidiaries. All material intercompany balances and transactions have been
eliminated. Certain amounts from prior years have been reclassified in the
accompanying financial statements in order to be consistent with the current
year's classifications.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect (i) the reported amounts of assets and liabilities, (ii)
disclosure of contingent assets and liabilities at the dates of the financial
statements and (iii) the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
It is management's opinion that the accompanying interim financial
statements reflect all adjustments (which are normal and recurring) necessary
for a fair presentation of the results for the interim periods. The interim
financial statements should be read in conjunction with the consolidated
financial statements included in the Company's 10-K filing with the Securities
and Exchange Commission for the year ended December 31, 1999.
2. INVENTORIES
Inventories are classified as follows:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
-------- ------------
<S> <C> <C>
Raw materials $31,071 $27,155
Work in progress 17,339 14,446
Finished goods 34,568 38,762
------- --------
Total Inventories $82,978 $80,363
======= =======
</TABLE>
3. INCOME TAXES
The Company's effective tax rate for the three months ended June 30, 2000 and
1999, was 26% and 27%, respectively. The Company's effective tax rate for the
six months ended June 30, 2000 and 1999, was 26% and 27%, respectively.
7
<PAGE>
WATERS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
4. EARNINGS PER SHARE
Basic and diluted EPS calculations are detailed as follows:
<TABLE>
<CAPTION>
------------------------------------------------
Six Months Ended June 30, 2000
------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
------------- --------------- -----------
<S> <C> <C> <C>
Net income $ 67,574
------------- --------------- -----------
Income per basic common share $ 67,574 63,123 $ 1.07
============= =============== ===========
Effect of dilutive securities:
Options outstanding 4,275
Options exercised 462
------------- --------------- -----------
Income per diluted common share $ 67,574 67,860 $ 1.00
============= =============== ===========
------------------------------------------------
Six Months Ended June 30, 1999
------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
------------- --------------- -----------
Net income $ 51,880
Less: Accretion of and 6% dividend on preferred stock 489
------------- --------------- -----------
Income per basic common share $ 51,391 61,060 $ 0.84
============= =============== ===========
Effect of dilutive securities:
Options outstanding 4,819
Options exercised 135
------------- --------------- -----------
Income per diluted common share $ 51,391 66,014 $ 0.78
============= =============== ===========
------------------------------------------------
Three Months Ended June 30, 2000
------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
------------- --------------- -----------
Net income $ 37,255
Income per basic common share ------------- --------------- -----------
$ 37,255 63,457 $ 0.59
============= =============== ===========
Effect of dilutive securities:
Options outstanding 4,379
Options exercised 275
------------- --------------- -----------
Income per diluted common share $ 37,255 68,111 $ 0.55
============= =============== ===========
------------------------------------------------
Three Months Ended June 30, 1999
------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
------------- --------------- -----------
Net income $ 28,906
Less: Accretion of and 6% dividend on preferred stock 245
------------- --------------- -----------
Income per basic common share $ 28,661 61,222 $ 0.47
============= =============== ===========
Effect of dilutive securities:
Options outstanding 4,908
Options exercised 37
------------- --------------- -----------
Income per diluted common share $ 28,661 66,167 $ 0.43
============= =============== ===========
</TABLE>
8
<PAGE>
WATERS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
For the three months and six months ended June 30, 2000, the Company had
0 and 22 stock option securities that were antidilutive, respectively. These
securities were not included in the computation of diluted EPS. For the three
months and six months ended June 30, 1999, the Company had no stock option
securities that were antidilutive.
5. COMPREHENSIVE INCOME
Comprehensive income details follow:
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS THREE MONTHS THREE MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, 2000 JUNE 30, 1999 JUNE 30, 2000 JUNE 30, 1999
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income $ 67,574 $ 51,880 $ 37,255 $ 28,906
Other comprehensive income (loss):
Foreign currency translation adjustments, net of tax (4,447) 575 (4,131) (556)
---------- ---------- ---------- ----------
Comprehensive income $ 63,127 $ 52,455 $ 33,124 $ 28,350
========== ========== ========== ==========
</TABLE>
6. BUSINESS SEGMENT INFORMATION
SFAS 131 establishes standards for reporting information about operating
segments in annual financial statements of public business enterprises. The
Company evaluated its business activities that are regularly reviewed by the
Chief Executive Officer for which discrete financial information is available.
As a result of this evaluation, the Company determined that it has three
operating segments: Waters, Micromass and TAI.
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. Please refer to the consolidated
financial statements for financial information regarding the one reportable
segment of the Company.
7. STOCKHOLDERS' EQUITY
On February 29, 2000, the Board of Directors approved an amendment to the
Company's Certificate of Incorporation to increase authorized common stock from
one hundred million to two hundred million shares, contingent upon shareholder
approval at the Company's Annual Meeting. On May 4, 2000, shareholders approved
the amendment.
On July 13, 2000, the Board of Directors approved a two-for-one common
stock split, in the form of a 100% stock dividend. Shareholders of record on
August 4, 2000 will receive the stock dividend on or about August 25, 2000.
Because the effective date of the stock split is August 25, 2000, financial
information contained on this Form 10-Q has not been adjusted to reflect the
impact of the stock split.
9
<PAGE>
WATERS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Earnings per share amounts, after giving retroactive effect to the
two-for-one stock split, are presented below for all of the per share amounts
disclosed in the financial statements and the notes to the financial statements.
<TABLE>
<CAPTION>
Six Months Six Months Three Months Three Months
Ended Ended Ended Ended
JUNE 30, 2000 JUNE 30, 1999 JUNE 30, 2000 JUNE 30, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income per basic common share $0.54 $0.42 $0.29 $0.23
Weighted average number of basic common shares 126,246 122,120 126,914 122,444
Net income per diluted common share $0.50 $0.39 $0.27 $0.22
Weighted average number of diluted common shares 135,720 132,028 136,222 132,334
</TABLE>
8. NEW ACCOUNTING PRONOUNCEMENTS
In March 2000, the Financial Accounting Standards Board ("FASB") issued
Interpretation ("FIN") 44, Accounting for Certain Transactions Involving Stock
Compensation - an interpretation of Accounting Principles Board ("APB") Opinion
25. FIN 44 clarifies the application of APB Opinion 25 and among other issues
clarifies the following: the definition of an employee for purposes of applying
APB Opinion 25; the criteria for determining whether a plan qualifies as a
non-compensatory plan; the accounting consequence of various modifications to
the terms of previously fixed stock options or awards; and the accounting for an
exchange of stock compensation awards in a business combination. FIN 44 is
effective July 1, 2000, but certain conclusions in FIN 44 cover specific events
that occurred after either December 15, 1998 or January 12, 2000. The Company
does not expect the application of FIN 44 to have a material impact on the
Company's financial position or results of operations.
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 promulgated by the SEC. Before modification by SAB
101A, SAB 101 was to be effective with 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 March 2000, the SEC issued SAB 101A, Amendment:
Revenue Recognition in Financial Statements, which delayed implementation of SAB
101 until the Company's second fiscal quarter of 2000. SAB 101B, Second
Amendment: Revenue Recognition in Financial Statements, was issued in June 2000
which further delays implementation of SAB 101 until the Company's fourth fiscal
quarter of 2000. The Company is currently determining the effect implementation
will have on the financial statements.
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 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. In June 2000, the FASB issued SFAS 138,
Accounting for Certain Derivative Instruments and Certain Hedging Activities.
SFAS 138 establishes accounting and reporting standards for a limited number of
derivative instruments and hedging activities when implementing SFAS 133. 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 fully determined the
impact of the new standards, they are not expected to be material to the
Company.
9. VARIAGENICS ALLIANCE
In June 2000, the Company formed a strategic alliance with Variagenics, Inc.
("Variagenics") to develop and commercialize genetic variance reagent kits for
use in the clinical development of pharmaceutical products. Variagenics is a
leader in applying genetic variance information to the drug development process.
In July 2000, the Company paid Variagenics $10.5 million for a minority equity
ownership and a license to manufacture and sell reagents. The Company could pay
up to $4 million in future milestone payments and is obligated to pay royalties
on net sales of the reagent kits.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
NET SALES:
Net sales for the three month period ended June 30, 2000 (the "2000 Quarter")
and the six month period ended June 30, 2000 (the "2000 Period") were $195.3
million and $375.9 million, respectively, compared to $172.3 million for the
three month period ended June 30, 1999 (the "1999 Quarter") and $332.6 million
for the six month period ended June 30, 1999 (the "1999 Period"), an increase of
13% for both the quarter and the period. Excluding the adverse effects of a
stronger U.S. dollar, net sales increased by 15% over the 1999 Quarter and the
1999 Period. The 2000 Quarter and 2000 Period reflected continued strong demand,
particularly from life science customers and particularly for mass spectrometry
products. Time-of-flight mass spectrometry products continued to perform well
and sales grew in excess of 50% in the 2000 Quarter with high demand from
customers in both high throughput drug discovery and proteomics applications.
Growth in the 2000 Quarter was broad-based with double-digit increases across
all major geographies, excluding currency effects, except Europe which grew in
the mid-single digits consistent with the first quarter of the year.
GROSS PROFIT:
Gross profit for the 2000 Quarter and the 2000 Period was $124.1 million and
$238.3 million, respectively, compared to $108.6 million for the 1999 Quarter
and $208.3 million for the 1999 Period, an increase of $15.5 million or 14% for
the quarter and $30.0 million or 14% for the period. Gross profit as a
percentage of sales increased to 63.5% in the 2000 Quarter from 63.0% in the
1999 Quarter, primarily as a result of increased efficiencies in the Company's
manufacturing operations. Gross profit as a percentage of sales increased to
63.4% in the 2000 Period from 62.6% in the 1999 Period.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES:
Selling, general and administrative expenses for the 2000 Quarter and the 2000
Period were $61.1 million and $121.5 million, respectively, compared to $55.5
million for the 1999 Quarter and $110.0 million for the 1999 Period. As a
percentage of net sales, selling, general and administrative expenses decreased
to 31.3% for the 2000 Quarter from 32.2% for the 1999 Quarter and 32.3% for the
2000 Period from 33.1% for the 1999 Period as a result of higher sales volume
and expense controls. The $5.5 million or 10% increase for the quarter and $11.4
million or 10% increase for the period in total expenditures primarily resulted
from increased headcount required to support increased sales levels.
RESEARCH AND DEVELOPMENT EXPENSES:
Research and development expenses were $10.6 million for the 2000 Quarter and
$20.9 million for the 2000 Period, compared to $9.0 million for the 1999 Quarter
and $17.7 million for the 1999 Period, an increase of $1.6 million or 17% from
the 1999 Quarter and $3.2 million or 18% from the 1999 Period, respectively. The
Company continued to invest significantly in the development of new and improved
HPLC, mass spectrometry, thermal analysis and rheology products.
GOODWILL AND PURCHASED TECHNOLOGY AMORTIZATION:
Goodwill and purchased technology amortization for the 2000 Quarter and the 2000
Period was $1.8 million and $3.6 million, respectively, compared to $2.0 million
for the 1999 Quarter and $4.1 million for the 1999 Period, a decrease of $.2
million or 13% for the quarter and $.5 million or 12% for the period. The
expense decreased primarily because a portion of purchased technology reached
full amortization in 1999.
OPERATING INCOME:
Operating income for the 2000 Quarter and the 2000 Period was $50.7 million and
$92.4 million, respectively, compared to $42.0 million for the 1999 Quarter and
$76.5 million for the 1999 Period, an increase of $8.7 million or 21% for the
quarter and $15.9 million or 21% for the period. Waters improved operating
income levels on the strength of sales growth, volume leverage and continued
focus on cost control in all operating areas.
INTEREST EXPENSE, NET:
Net interest expense decreased by $2.1 million or 86% for the quarter and $4.4
million or 81% for the period, from $2.4 million and $5.4 million in the 1999
Quarter and 1999 Period, respectively, to $.3 million and $1.0 million in the
2000 Quarter and 2000 Period, respectively. The current quarter and period
decrease primarily reflected lower average debt levels as a result of debt
repayments from the Company's cash flow.
11
<PAGE>
PROVISION FOR INCOME TAXES:
The Company's effective income tax rate was 26% in the 2000 Quarter and 2000
Period and 27% in the 1999 Quarter and 1999 Period. The 2000 tax rate decreased
primarily due to a favorable shift in the mix of taxable income to lower tax
rate jurisdictions.
NET INCOME:
Income for the 2000 Quarter and the 2000 Period was $37.3 million and $67.6
million, respectively, compared to $28.9 million for the 1999 Quarter and $51.9
million for the 1999 Period, an increase of $8.4 million or 29% from the 1999
Quarter and $15.7 million or 30% from the 1999 Period, respectively. The
improvement over 1999 was a result of sales growth, productivity improvement in
all operating areas, a decline in interest expense and the impact of a decrease
in the Company's effective income tax rate.
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 the 2000 Period, net cash provided by the Company's operating activities
was $84.0 million, primarily as a result of net income for the period after
adding back depreciation and amortization. Within operating activities, $11.0
million of cash was used for accounts receivable and inventory growth to support
current and future sales, which was offset by cash provided from an increase in
current liabilities, including a $6.5 million increase in deferred revenue and
customer advances. Cash was also provided to the Company from $12.7 million of
combined proceeds from the exercise of stock options and the purchase of stock
by its employees. Primary uses of cash flow during the period were $81.8 million
of net bank debt repayment and $15.8 million of property, plant and equipment
and software capitalization investments.
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.
FORWARD-LOOKING INFORMATION
SAFE HARBOR STATEMENT UNDER PRIVATE SECURITIES LITIGATION REFORM ACT OF 1996
Certain statements contained herein are forward looking. 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 in the Company's Form 10-K. 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.
12
<PAGE>
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, the Company and its subsidiaries are involved in
various litigation matters arising in the ordinary course of its
business. The Company does not believe that the matters in which it or
its subsidiaries are currently involved, either individually or in the
aggregate, are material to the Company or its subsidiaries.
The Company, through its subsidiary TAI, asserted a claim against The
Perkin-Elmer Corporation ("PE") alleging patent infringement of three
patents owned by TAI ("the TAI patents"). PE counterclaimed for
infringement of a patent owned by PE ("the PE patent"). PE withdrew its
claim for infringement preserving its right to appeal rulings
interpreting the claims of the PE patent. The U.S. District Court for
the District of Delaware granted judgment as a matter of law in favor
of TAI and enjoined PE from infringing the TAI patents. PE has appealed
the District Court judgment in favor of TAI. PE has also filed a motion
for post-judgment relief which motion has been denied. The District
Court's judgment, with respect to PE's infringement of the TAI patents,
has been affirmed. The District Court's judgment with respect to TAI's
non-infringement of the PE patent has been reversed and remanded to the
District Court for further proceedings. 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 several products in a large product
line infringe 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.
Viscotek Corporation ("Viscotek") has filed a civil action against the
Company alleging one option offered by the Company with a high
temperature gel permeation chromatography instrument is an infringement
of two of its 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
believes it has meritorious arguments and should prevail, although the
outcome is not certain. The Company believes that any outcome of the
proceedings will not be material to the Company.
Item 2. Changes in Securities
On July 13, 2000, the Board of Directors 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. Shareholders of record on August 4, 2000 will receive the
stock dividend on or about August 25, 2000.
13
<PAGE>
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
The Waters Corporation annual meeting of stockholders was held on
May 4, 2000, at which the following matters were submitted to a vote
of security holders: the election of directors of the Company as
previously reported to the Commission and the approval of an amendment
to the Company's Certificate of Incorporation to increase the number of
shares of authorized common stock from 100,000,000 to 200,000,000
shares.
As of March 15, 2000, the record date for said meeting, there were
63,270,131 shares of Waters Corporation common stock entitled to vote
at the meeting. At such meeting, the holders of 54,988,563 shares were
represented in person or by proxy, constituting a quorum. At such
meeting, the vote with respect to the matters proposed to the
stockholders was as follows:
<TABLE>
<CAPTION>
MATTER FOR WITHHELD OR AGAINST
------ ---------- -------------------
<S> <C> <C>
Election of Directors
For Joshua Bekenstein 54,696,675 291,888
For Michael J. Berendt, Ph.D. 54,693,374 295,189
For Douglas A. Berthiaume 54,699,335 289,228
For Philip Caldwell 54,689,614 298,949
For Edward Conard 54,303,755 684,808
For Laurie H. Glimcher, M.D. 46,209,718 8,778,845
For William J. Miller 54,695,856 292,207
For Thomas P. Salice 54,305,337 683,226
Amendment to Increase Authorized Shares 52,621,099 2,367,464
</TABLE>
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
A. Exhibit 3.12 Certificate of Amendment of Second Amended
and Restated Certificate of Incorporation
of Waters Corporation, as amended July 27,
2000
Exhibit 27.1 Financial Data Schedule
B. No reports on Form 8-K were filed during the three months ended
June 30, 2000.
14
<PAGE>
WATERS CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: August 8, 2000 Waters Corporation
/s/ PHILIP S. TAYMOR
-----------------------------------------
Philip S. Taymor
Senior Vice President and Chief Financial
Officer
15
