e10vq
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2007
or
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number: 01-14010
Waters Corporation
(Exact name of registrant as specified in its charter)
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Delaware
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13-3668640 |
(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
34 Maple Street
Milford, Massachusetts 01757
(Address, including zip code, of principal executive offices)
Registrants 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 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 þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated
filer in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ Accelerated filer o Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Act). Yes o No þ
Indicate the number of shares outstanding of the registrants common stock as of July 27,
2007: 99,868,000
WATERS CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
INDEX
2
WATERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(unaudited)
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June 30, 2007 |
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December 31, 2006 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
544,304 |
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$ |
514,166 |
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Accounts receivable, less allowances for doubtful accounts and sales returns
of $8,945 and $8,439 at June 30, 2007 and December 31, 2006, respectively |
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270,015 |
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272,157 |
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Inventories |
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178,491 |
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168,437 |
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Other current assets |
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41,597 |
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44,920 |
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Total current assets |
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1,034,407 |
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999,680 |
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Property, plant and equipment, net of accumulated depreciation
of $173,047 and $160,816 at June 30, 2007 and December 31, 2006, respectively |
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151,967 |
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149,262 |
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Intangible assets, net |
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134,780 |
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131,653 |
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Goodwill |
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265,648 |
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265,207 |
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Other assets |
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79,939 |
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71,511 |
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Total assets |
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$ |
1,666,741 |
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$ |
1,617,313 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities: |
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Notes payable and debt |
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$ |
389,418 |
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$ |
403,461 |
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Accounts payable |
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53,520 |
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47,073 |
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Accrued employee compensation |
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26,500 |
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35,824 |
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Deferred revenue and customer advances |
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98,470 |
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76,131 |
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Accrued income taxes |
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4,802 |
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58,011 |
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Accrued warranty |
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12,319 |
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12,619 |
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Other current liabilities |
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58,822 |
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52,715 |
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Total current liabilities |
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643,851 |
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685,834 |
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Long-term liabilities: |
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Long-term debt |
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500,000 |
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500,000 |
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Long-term portion of post retirement benefits |
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65,005 |
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58,187 |
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Long-term income tax liability |
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65,820 |
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Other long-term liabilities |
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13,386 |
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10,909 |
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Total long-term liabilities |
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644,211 |
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569,096 |
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Total liabilities |
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1,288,062 |
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1,254,930 |
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Commitments and contingencies (Notes 8, 9, 10, 11 and 14) |
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Stockholders equity: |
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Preferred stock, par value $0.01 per share, 5,000 shares authorized, none
issued at June 30, 2007 and December 31, 2006 |
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Common stock, par value $0.01 per share, 400,000 shares authorized,
145,240 and 144,092 shares issued, 99,808 and 101,371 shares
outstanding at June 30, 2007 and December 31, 2006, respectively |
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1,452 |
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1,441 |
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Additional paid-in capital |
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609,952 |
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554,169 |
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Retained earnings |
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1,438,698 |
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1,326,757 |
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Treasury stock, at cost, 45,432 and 42,721 shares at June
30, 2007
and December 31, 2006, respectively |
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(1,720,148 |
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(1,563,649 |
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Accumulated other comprehensive income |
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48,725 |
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43,665 |
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Total stockholders equity |
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378,679 |
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362,383 |
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Total liabilities and stockholders equity |
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$ |
1,666,741 |
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$ |
1,617,313 |
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The accompanying notes are an integral part of the interim consolidated financial statements.
3
WATERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(unaudited)
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Three Months Ended |
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June 30, 2007 |
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July 1, 2006 |
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Product sales |
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$ |
255,386 |
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$ |
214,491 |
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Service sales |
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97,244 |
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87,408 |
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Total net sales |
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352,630 |
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301,899 |
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Cost of product sales |
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103,602 |
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83,880 |
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Cost of service sales |
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48,617 |
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42,124 |
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Total cost of sales |
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152,219 |
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126,004 |
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Gross profit |
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200,411 |
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175,895 |
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Selling and administrative expenses |
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102,223 |
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88,968 |
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Research and development expenses |
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19,115 |
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19,655 |
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Purchased intangibles amortization |
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2,133 |
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1,383 |
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Restructuring and other unusual charges (Note 11) |
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2,974 |
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Operating income |
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76,940 |
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62,915 |
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Interest expense |
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(13,335 |
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(12,477 |
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Interest income |
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6,939 |
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6,205 |
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Income from operations before income taxes |
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70,544 |
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56,643 |
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Provision for income taxes |
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10,635 |
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8,863 |
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Net income |
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$ |
59,909 |
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$ |
47,780 |
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Net income per basic common share |
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$ |
0.60 |
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$ |
0.46 |
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Weighted average number of basic common shares |
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100,327 |
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103,010 |
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Net income per diluted common share |
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$ |
0.59 |
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$ |
0.46 |
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Weighted average number of diluted common shares
and equivalents |
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102,130 |
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104,337 |
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The accompanying notes are an integral part of the interim consolidated financial statements.
4
WATERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(unaudited)
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Six Months Ended |
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June 30, 2007 |
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July 1, 2006 |
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Product sales |
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$ |
494,390 |
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$ |
423,056 |
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Service sales |
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189,017 |
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169,061 |
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Total net sales |
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683,407 |
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592,117 |
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Cost of product sales |
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201,725 |
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165,030 |
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Cost of service sales |
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93,726 |
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81,602 |
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Total cost of sales |
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295,451 |
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246,632 |
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Gross profit |
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387,956 |
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345,485 |
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Selling and administrative expenses |
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196,130 |
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174,506 |
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Research and development expenses |
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37,837 |
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38,698 |
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Purchased intangibles amortization |
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4,258 |
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2,577 |
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Restructuring and other unusual charges (Note 11) |
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7,326 |
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Operating income |
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149,731 |
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122,378 |
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Interest expense |
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(26,523 |
) |
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(23,905 |
) |
Interest income |
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13,292 |
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11,497 |
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Income from operations before income taxes |
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136,500 |
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109,970 |
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Provision for income taxes |
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20,654 |
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18,035 |
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Net income |
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$ |
115,846 |
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$ |
91,935 |
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Net income per basic common share |
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$ |
1.15 |
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$ |
0.89 |
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Weighted average number of basic common shares |
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100,880 |
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103,795 |
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Net income per diluted common share |
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$ |
1.13 |
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$ |
0.87 |
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Weighted average number of diluted common shares
and equivalents |
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102,702 |
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105,192 |
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The accompanying notes are an integral part of the interim consolidated financial statements.
5
WATERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(unaudited)
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Six Months Ended |
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June 30, 2007 |
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July 1, 2006 |
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Cash flows from operating activities: |
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Net income |
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$ |
115,846 |
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$ |
91,935 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Provisions for doubtful accounts on accounts receivable |
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4,437 |
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1,682 |
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Provisions on inventory |
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3,351 |
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2,974 |
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Stock-based compensation |
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13,796 |
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14,616 |
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Deferred income taxes |
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(1,312 |
) |
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(4,629 |
) |
Depreciation |
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13,227 |
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12,785 |
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Amortization of intangibles |
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12,774 |
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9,787 |
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Change in operating assets and liabilities, net of acquisitions: |
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Decrease in accounts receivable |
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1,505 |
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21,456 |
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Increase in inventories |
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(11,257 |
) |
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(29,136 |
) |
Decrease (increase) in other current assets |
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1,387 |
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(3,332 |
) |
Increase in other assets |
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(5,494 |
) |
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(6,434 |
) |
Increase in accounts payable and other current liabilities |
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8,825 |
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11,557 |
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Increase in deferred revenue and customer advances |
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20,965 |
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18,170 |
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Increase in other liabilities |
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8,659 |
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2,667 |
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Net cash provided by operating activities |
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186,709 |
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144,098 |
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Cash flows from investing activities: |
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Additions to property, plant, equipment and software capitalization |
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(27,307 |
) |
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(24,678 |
) |
Business acquisition |
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(13,825 |
) |
Investment in unaffiliated company |
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(3,500 |
) |
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Cash received from escrow related to business acquisition |
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724 |
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Net cash used in investing activities |
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(30,083 |
) |
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(38,503 |
) |
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Cash flows from financing activities: |
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Proceeds from debt issuances |
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1,045,040 |
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213,661 |
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Payments on debt |
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(1,059,083 |
) |
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(177,602 |
) |
Payments of debt issuance costs |
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(1,081 |
) |
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Proceeds from stock plans |
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32,225 |
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20,791 |
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Purchase of treasury shares |
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(156,499 |
) |
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(169,876 |
) |
Excess tax benefit related to stock option plans |
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|
9,559 |
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4,707 |
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Net proceeds (payments) of debt swaps and other dervatives contracts |
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401 |
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(5,599 |
) |
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Net cash used in financing activities |
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(129,438 |
) |
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|
(113,918 |
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Effect of exchange rate changes on cash and cash equivalents |
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|
2,950 |
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|
4,291 |
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Increase (decrease) in cash and cash equivalents |
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30,138 |
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(4,032 |
) |
Cash and cash equivalents at beginning of period |
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514,166 |
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|
493,588 |
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Cash and cash equivalents at end of period |
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$ |
544,304 |
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$ |
489,556 |
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The accompanying notes are an integral part of the interim consolidated financial statements.
6
WATERS CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 Basis of Presentation and Significant Accounting Policies
Waters Corporation (Waters or the Company), an analytical instrument manufacturer, designs,
manufactures, sells and services, through its Waters Division, high performance liquid
chromatography (HPLC), ultra performance liquid chromatography (UPLC and together with HPLC,
herein referred to as LC) and mass spectrometry (MS) instrument systems and support products,
including chromatography columns, other consumable products and comprehensive post-warranty service
plans. These systems are complementary products that can be integrated together and used along
with other analytical instruments. LC is a standard technique and 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. MS instruments are used in drug
discovery and development, including clinical trial testing, the analysis of proteins in disease
processes (known as proteomics) and environmental testing. LC is often combined with MS to
create LC-MS instruments that include a liquid phase sample introduction and separation system with
mass spectrometric compound identification and quantification. Through its TA Division (TA), the
Company designs, manufactures, sells and services thermal analysis, calorimetry and rheometry
instruments which are used in predicting the suitability of polymers and viscous liquids for
various industrial, consumer goods and health care products. The Company is also a developer and
supplier of software based products that interface with the Companys instruments and are typically
purchased by customers as part of the instrument system.
The Companys interim fiscal quarter typically ends on the thirteenth Saturday of each
quarter. Since the Companys fiscal year end is December 31, the first and fourth fiscal quarters
may not consist of thirteen complete weeks. The Companys second fiscal quarters for 2007 and 2006
ended on June 30, 2007 and July 1, 2006, respectively.
The accompanying unaudited interim consolidated financial statements have been prepared in
accordance with the instructions to Form 10-Q and do not include all of the information and note
disclosures required by generally accepted accounting principles (GAAP) in the United States of
America. The consolidated financial statements include the accounts of the Company and its
subsidiaries, most of which are wholly owned. All material inter-company balances and transactions
have been eliminated.
The preparation of financial statements in conformity with GAAP requires the Company to make
estimates and judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent liabilities at the dates of the financial
statements. Actual amounts may differ from these estimates under different assumptions or
conditions.
It is managements opinion that the accompanying interim consolidated financial statements
reflect all adjustments (which are normal and recurring) that are necessary for a fair statement of
the results for the interim periods. The interim consolidated financial statements should be read
in conjunction with the consolidated financial statements included in the Companys annual report
on Form 10-K filing with the Securities and Exchange Commission (SEC) for the year ended December
31, 2006.
Income Taxes
Effective January 1, 2007, the Company adopted Financial Accounting Standards Board (FASB)
Interpretation No. 48, Accounting for Uncertainty in Income Taxes an Interpretation of FASB
Statement No. 109 (FIN 48). This interpretation prescribes a new methodology by which a company
must measure, report, present and disclose in its financial statements the effects of any uncertain
tax return reporting positions that a company has taken or expects to take. See Note 9, Income
Taxes, for additional information.
Product Warranty Costs
The Company accrues estimated product warranty costs at the time of sale which are included in cost
of sales in the consolidated statements of operations. While the Company engages in extensive
product quality programs and processes, including actively monitoring and evaluating the quality of
its component supplies, the Companys
7
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
warranty obligation is affected by product failure rates, material usage and service delivery costs
incurred in correcting a product failure. The amount of the accrued warranty liability is based on
historical information such as past experience, product failure rates, number of units repaired and
estimated costs of material and labor. The liability is reviewed for reasonableness at least
quarterly.
The following is a summary of the activity of the Companys accrued warranty liability for the
six months ended June 30, 2007 and July 1, 2006 (in thousands):
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Balance at |
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Accruals for |
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Settlements |
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Balance at |
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|
Beginning of Period |
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Warranties |
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Made |
|
End of Period |
Accrued warranty liability: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2007 |
|
$ |
12,619 |
|
|
$ |
5,514 |
|
|
$ |
(5,814 |
) |
|
$ |
12,319 |
|
July 1, 2006 |
|
$ |
11,719 |
|
|
$ |
8,995 |
|
|
$ |
(8,380 |
) |
|
$ |
12,334 |
|
Stockholders Equity
In February 2007, the Companys Board of Directors authorized the Company to repurchase up to
$500.0 million of its outstanding common stock over a two-year period. During the six months ended
June 30, 2007, the Company repurchased 2.1 million shares at a cost of $122.0 million under this
program.
In October 2005, the Companys Board of Directors authorized the Company to repurchase up to
$500.0 million of its outstanding common stock over a two-year period. During the six months ended
June 30, 2007 and July 1, 2006, the Company repurchased 0.6 million and 4.0 million shares at a
cost of $34.5 million and $169.9 million, respectively, under this program. As of June 30, 2007,
the Company repurchased an aggregate of 11.9 million shares of its common stock under the October
2005 program for an aggregate of $499.8 million, effectively completing this program.
2 Stock-Based Compensation
The Company maintains various shareholder approved stock-based compensation plans which allow for
the issuance of incentive or non-qualified stock options, stock appreciation rights (SARs),
restricted stock or other types of awards (e.g. restricted stock units).
The Company accounts for stock-based compensation costs in accordance with Statement of
Financial Accounting Standard (SFAS) No. 123(R), Share-Based Payment, and SEC Staff Accounting
Bulletin (SAB) No. 107, Share-Based Payment. These standards require that all share-based
payments to employees be recognized in the statements of operations based on their fair values. The
Company has used the Black-Scholes model to determine the fair value of its stock option awards at
the time of grant.
The consolidated statements of operations for the three and six months ended June 30, 2007 and
July 1, 2006 include the following stock-based compensation expense related to stock option awards,
restricted stock, restricted stock unit awards and the employee stock purchase plan (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
July 1, |
|
|
June 30, |
|
|
July 1, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Cost of sales |
|
$ |
775 |
|
|
$ |
1,101 |
|
|
$ |
1,690 |
|
|
$ |
2,252 |
|
Selling and administrative |
|
|
5,140 |
|
|
|
4,813 |
|
|
|
10,163 |
|
|
|
9,796 |
|
Research and development |
|
|
943 |
|
|
|
1,188 |
|
|
|
1,943 |
|
|
|
2,568 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation |
|
$ |
6,858 |
|
|
$ |
7,102 |
|
|
$ |
13,796 |
|
|
$ |
14,616 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Option Plans
The fair value of each option grant was estimated on the date of grant using the Black-Scholes
option pricing model. In determining the fair value of the stock options, the Company makes a
variety of assumptions and estimates, including volatility measures, expected yields and expected
stock option lives. The stock-based compensation expense recognized in the consolidated statements
of operations is based on awards that ultimately are expected to
vest; therefore, the amount of expense has been reduced for estimated forfeitures. SFAS No. 123(R)
requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent
periods if actual forfeitures
8
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
differ from those estimates. Forfeitures were estimated based on historical experience. If actual
results differ significantly from these estimates, stock-based compensation expense and the
Companys results of operations could be materially impacted. In addition, if the Company employs
different assumptions in the application of SFAS No. 123(R), the compensation expense that the
Company records in the future periods may differ significantly from what the Company has recorded
in the current period.
The Company uses implied volatility on its publicly traded options as the basis for its
estimate of expected volatility. The Company believes that implied volatility is the most
appropriate indicator of expected volatility because it is generally reflective of historical
volatility and expectations of how future volatility will differ from historical volatility. The
expected life assumption for grants is based on historical experience for the population of
non-qualified stock optionees. The risk-free interest rate is the yield currently available on U.S.
Treasury zero-coupon issues with a remaining term approximating the expected term used as the input
to the Black-Scholes model. The relevant data used to determine the value of the stock options
granted during the six months ended June 30, 2007 and July 1, 2006 are as follows:
|
|
|
|
|
|
|
|
|
Options Issued and Significant Assumptions Used to Estimate Option Fair Values |
|
June 30, 2007 |
|
July 1, 2006 |
Options issued in thousands |
|
|
47 |
|
|
|
39 |
|
Risk-free interest rate |
|
|
4.5 |
% |
|
|
4.3 |
% |
Expected life in years |
|
|
6.0 |
|
|
|
6.0 |
|
Expected volatility |
|
|
.280 |
|
|
|
.270 |
|
Expected dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average Exercise Price and Fair Values of Options on the Date of Grant |
|
June 30, 2007 |
|
July 1, 2006 |
Exercise price |
|
$ |
48.88 |
|
|
$ |
42.99 |
|
Fair value |
|
$ |
18.19 |
|
|
$ |
14.16 |
|
The following table summarizes stock option activity for the plans (in thousands, except per
share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
Number of Shares |
|
Price per Share |
|
Exercise Price |
Outstanding at December 31, 2006 |
|
|
9,507 |
|
|
$9.39 to $80.97 |
|
$ |
38.44 |
|
Granted |
|
|
47 |
|
|
$ |
48.88 |
|
|
$ |
48.88 |
|
Exercised |
|
|
(1,052 |
) |
|
$10.69 to $49.03 |
|
$ |
29.29 |
|
Canceled |
|
|
(48 |
) |
|
$21.39 to $72.06 |
|
$ |
48.35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2007 |
|
|
8,454 |
|
|
$9.39 to $80.97 |
|
$ |
39.58 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock
During each of the six months ended June 30, 2007 and July 1, 2006, the Company granted eight
thousand shares of restricted stock. The restrictions on these shares lapse in equal installments
over a three-year period. The fair value of these awards on the grant date for the six months ended
June 30, 2007 and July 1, 2006 was $48.88 and $39.64, respectively.
9
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Restricted Stock Units
The following summarizes the unvested restricted stock unit award activity for the six months ended
June 30, 2007 and July 1, 2006 (in thousands, except for per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2007 |
|
|
July 1, 2006 |
|
|
|
|
|
|
|
Weighted-Average |
|
|
|
|
|
|
Weighted-Average |
|
|
|
Shares |
|
|
Price |
|
|
Shares |
|
|
Price |
|
Unvested at the beginning of the period |
|
|
315 |
|
|
$ |
43.02 |
|
|
|
|
|
|
$ |
|
|
Granted |
|
|
246 |
|
|
$ |
53.90 |
|
|
|
300 |
|
|
$ |
42.73 |
|
Vested |
|
|
(56 |
) |
|
$ |
42.73 |
|
|
|
|
|
|
$ |
|
|
Forfeited |
|
|
(11 |
) |
|
$ |
46.54 |
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested at the end of period |
|
|
494 |
|
|
$ |
48.40 |
|
|
|
300 |
|
|
$ |
42.73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock units are generally issued annually at the end of February and vest in equal
annual installments over a five year period.
3 Inventories
Inventories are classified as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, 2007 |
|
|
December 31, 2006 |
|
Raw materials |
|
$ |
53,949 |
|
|
$ |
51,568 |
|
Work in progress |
|
|
18,795 |
|
|
|
17,400 |
|
Finished goods |
|
|
105,747 |
|
|
|
99,469 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total inventories |
|
$ |
178,491 |
|
|
$ |
168,437 |
|
|
|
|
|
|
|
|
4 Property, Plant and Equipment
During the six months ended June 30, 2007 and July 1, 2006, the Company retired and disposed of
approximately $1.8 million and $15.1 million, respectively, of property, plant and equipment, most
of which was fully depreciated and no longer in use. Gains or losses on disposal were immaterial
for the three and six months ended June 30, 2007 and July 1, 2006.
5 Acquisitions
Environmental Resource Associates
In December 2006, the Company acquired all of the outstanding capital stock of Environmental
Resource Associates, Inc. (ERA), a provider of environmental testing products for quality
control, proficiency testing and specialty calibration chemicals used in environmental
laboratories, for approximately $61.8 million, including $0.4 million of acquisition-related
transaction costs and the assumption of $3.8 million of debt. This acquisition was accounted for
under the purchase method of accounting and the results of operations of ERA have been included in
the consolidated results of the Company from the acquisition date. The purchase price of the
acquisition was allocated to tangible and intangible assets and assumed liabilities based on their
estimated fair values. The Company has allocated $29.9 million of the purchase price to intangible
assets comprised of customer relationships, non-compete agreements, acquired technology and other
purchased intangibles. The Company is amortizing the customer relationships, acquired technology
and other purchased intangibles over ten years. The non-compete agreements are being amortized
over five years. These intangible assets are being amortized over a weighted-average period of
approximately 10 years. Included in intangible assets is a trademark in the amount of $3.7 million
that has been assigned an indefinite life. ERA was acquired because the Company believes its
existing distribution channels can be leveraged with ERAs strong reputation within environmental
laboratories. The excess purchase price of $44.6 million has been accounted for as
goodwill and reflects a reimbursement of $0.7 million received in the first quarter of 2007 from
the sellers in connection with finalization of the purchase price in accordance with the purchase
and sales agreement. The sellers also have provided the Company with normal representation,
warranty and indemnification which would be settled in the future if and when the contractual representation
or warranty condition occurs. The goodwill is not deductible for tax purposes.
10
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company has determined the fair value of the assets and liabilities and the following
table presents the fair values of assets and liabilities recorded in connection with the ERA
acquisition (in thousands):
|
|
|
|
|
Accounts receivable |
|
$ |
368 |
|
Inventory |
|
|
4,408 |
|
Other current assets |
|
|
68 |
|
Goodwill |
|
|
44,608 |
|
Intangible assets |
|
|
29,866 |
|
Fixed assets |
|
|
1,417 |
|
|
|
|
|
|
|
|
|
|
|
|
|
80,735 |
|
|
|
|
|
Accrued expenses and other current liabilities |
|
|
3,636 |
|
Debt |
|
|
3,774 |
|
Deferred tax liability |
|
|
11,574 |
|
|
|
|
|
|
|
|
|
|
Cash consideration paid, net of cash acquired |
|
$ |
61,751 |
|
|
|
|
|
VICAM
In February 2006, the Company acquired the net assets of the food safety business of VICAM Limited
Partnership (VICAM) for approximately $13.8 million, including $0.3 million of
acquisition-related transaction costs. This acquisition was accounted for under the purchase
method of accounting and the results of operations of VICAM have been included in the consolidated
results of the Company from the acquisition date. The purchase price of the acquisition was
allocated to tangible and intangible assets and assumed liabilities based on their estimated fair
values. The Company has allocated $7.7 million of the purchase price to intangible assets
comprised of customer relationships, non-compete agreements, acquired technology and other
purchased intangibles. The Company is amortizing acquired technology and other purchased
intangibles over twelve years and customer relationships over fifteen years. The non-compete
agreements are being amortized over five years. These intangible assets are being amortized over a
weighted-average period of 13 years. Included in intangible assets is a trademark in the amount of
$2.1 million that has been assigned an indefinite life. The excess purchase price of $3.7 million
after this allocation has been accounted for as goodwill. The goodwill is deductible for tax
purposes.
The Company has determined the fair value of the assets and liabilities and the following
table presents the fair values of assets and liabilities recorded in connection with the VICAM
acquisition (in thousands):
|
|
|
|
|
Accounts receivable |
|
$ |
950 |
|
Inventory |
|
|
1,837 |
|
Other current assets |
|
|
142 |
|
Goodwill |
|
|
3,716 |
|
Intangible assets |
|
|
7,707 |
|
Fixed assets |
|
|
285 |
|
|
|
|
|
|
|
|
|
|
|
|
|
14,637 |
|
|
|
|
|
|
|
|
|
|
Accrued expenses and other current liabilities |
|
|
812 |
|
|
|
|
|
|
|
|
|
|
Cash consideration paid |
|
$ |
13,825 |
|
|
|
|
|
Other
In August 2006, the Company acquired all of the outstanding capital stock of Thermometric AB
(Thermometric), a manufacturer of high performance microcalorimeters, and certain net assets and
customer lists from an Asian distributor of thermal analysis products for a total of $3.2 million
in cash. As part of the Thermometric acquisition, the Company assumed $1.2 million of debt. These
acquisitions were accounted for under the purchase method of accounting and the results of
operations of these acquisitions have been included in the consolidated results of the Company from
the acquisition dates. The combined purchase price of the acquisitions was allocated to tangible
and intangible assets and assumed liabilities based on their estimated fair values. The Company has
allocated $2.2 million of the combined purchase price to intangible assets comprised of customer
relationships, non-compete
11
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
agreements and acquired technology. The combined excess purchase price of $1.5 million after this
allocation has been accounted for as goodwill. The goodwill is not deductible for tax purposes.
The following represents the unaudited pro forma results of the ongoing operations for Waters,
ERA, VICAM and Thermometric as though the acquisitions of ERA, VICAM and Thermometric had occurred
at the beginning of each period shown (in thousands, except per share data). The pro forma
information, however, is not necessarily indicative of the results that would have resulted had the
acquisition occurred at the beginning of the periods presented, nor is it necessarily indicative of
future results.
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
June 30, 2007 |
|
July 1, 2006 |
Net revenues |
|
$ |
683,407 |
|
|
$ |
605,845 |
|
Net income |
|
$ |
115,846 |
|
|
$ |
93,377 |
|
Net income per basic common share |
|
$ |
1.15 |
|
|
$ |
0.90 |
|
Net income per diluted common share |
|
$ |
1.13 |
|
|
$ |
0.89 |
|
The pro forma effects of other acquisitions are immaterial.
6 Investment in Unaffiliated Company
In June 2007, the Company made an equity investment in Thar Instruments, Inc., a privately held
global leader in the design, development and manufacture of analytical and preparative
supercritical fluid chromatography and supercritical fluid extraction systems, for $3.5 million in
cash. This investment is accounted for under the cost method of accounting.
7 Goodwill and Other Intangibles
The carrying amount of goodwill was $265.6 million and $265.2 million at June 30, 2007 and December
31, 2006, respectively. Goodwill decreased by $0.7 million as a result of a purchase price
adjustment received from the previous owners of ERA (Note 5). Currency translation adjustments
increased goodwill approximately $1.1 million.
The Companys intangible assets included in the consolidated balance sheets are detailed as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2007 |
|
|
December 31, 2006 |
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
Gross Carrying |
|
|
Accumulated |
|
|
Amortization |
|
|
Gross Carrying |
|
|
Accumulated |
|
|
Amortization |
|
|
|
Amount |
|
|
Amortization |
|
|
Period |
|
|
Amount |
|
|
Amortization |
|
|
Period |
|
Purchased intangibles |
|
$ |
104,462 |
|
|
$ |
37,758 |
|
|
10 years |
|
$ |
103,930 |
|
|
$ |
33,294 |
|
|
10 years |
Capitalized software |
|
|
120,872 |
|
|
|
67,289 |
|
|
4 years |
|
|
108,072 |
|
|
|
60,223 |
|
|
4 years |
Licenses |
|
|
10,445 |
|
|
|
6,736 |
|
|
9 years |
|
|
10,352 |
|
|
|
6,166 |
|
|
9 years |
Patents and other
intangibles |
|
|
17,564 |
|
|
|
6,780 |
|
|
8 years |
|
|
14,813 |
|
|
|
5,831 |
|
|
8 years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
253,343 |
|
|
$ |
118,563 |
|
|
7 years |
|
$ |
237,167 |
|
|
$ |
105,514 |
|
|
8 years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The gross carrying value of intangible assets increased by approximately $0.7 million in the
six months ended June 30, 2007 due to the effect of foreign currency translation.
For the three months ended June 30, 2007 and July 1, 2006, amortization expense for intangible
assets was $6.5 million and $5.0 million, respectively. For the six months ended June 30, 2007 and
July 1, 2006, amortization expense for intangible assets was $12.8 million and $9.8 million, respectively. Amortization
expense for intangible assets is estimated to be approximately $25.4 million for each of the next
five years. Accumulated amortization for intangible assets increased approximately $0.3 million in
the six months ended June 30, 2007 due to the effect of foreign currency translation.
12
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8 Debt
In January 2007, Waters Corporation and Waters Technologies Ireland Ltd. entered into a new credit
agreement (the 2007 Credit Agreement). The 2007 Credit Agreement provides for a $500 million
term loan facility; a $350 million revolving facility (U.S. Tranche), which includes both a
letter of credit and a swingline subfacility; and a $250 million revolving facility (European
Tranche) that is available to Waters Corporation in U.S. dollars and Waters Technologies Ireland
Ltd. in either U.S. dollars or Euro. Waters Corporation may on one or more occasions request of
the lender group that commitments for the U.S. Tranche or European Tranche be increased by an
amount of not less than $25 million, up to an aggregate additional amount of $250 million.
Existing lenders are not obligated to increase commitments and the Company can seek to bring in
additional lenders. The term loan facility and the revolving facilities both mature on January 11,
2012 and require no scheduled prepayments before that date.
In January 2007, the Company borrowed $500 million under the new term loan facility, $115
million under the new European Tranche and $270 million under the new U.S. Tranche revolving
facility. The Company used the proceeds of the term loan and the revolving borrowings to repay the
outstanding amounts under the Companys existing multi-borrower credit agreements entered into in
December 2004 and November 2005. Waters Corporation terminated such agreements early without
penalty.
The interest rates applicable to the term loan and revolving loans under the 2007 Credit
Agreement are, at the Companys option, equal to either the base rate (which is the higher of the
prime rate or the federal funds rate plus 1/2%) or the applicable 1, 2, 3, 6, 9 or 12 month LIBOR
rate, in each case, plus an interest rate margin based upon the Companys leverage ratio, which can
range between 33 basis points and 72.5 basis points. The facility fee on the 2007 Credit Agreement
ranges between 7 basis points and 15 basis points. The 2007 Credit Agreement requires that the
Company comply with an interest coverage ratio test of not less than 3.50:1 and a leverage ratio
test of not more than 3.25:1 for any period of four consecutive fiscal quarters, respectively, the
same as the terminated credit agreements. In addition, the 2007 Credit Agreement includes negative
covenants that are customary for investment grade credit facilities and are similar in nature to
ones contained in the terminated credit agreements. The 2007 Credit Agreement also contains
certain customary representations and warranties, affirmative covenants and events of default which
are similar in nature to those in the terminated credit agreements.
As of June 30, 2007, the Company had $875.0 million borrowed under the 2007 Credit Agreement
and an amount available to borrow of $223.6 million after outstanding letters of credit. At June
30, 2007, $500.0 million of the debt was classified as long-term debt and $375.0 million classified
as short-term debt in the consolidated balance sheets. At December 31, 2006, the Company had a
total of $885.0 million borrowed under the previous credit agreements. In total, $500.0 million of
the debt was classified as long-term debt and $385.0 million classified as short-term debt at
December 31, 2006 in the consolidated balance sheets. The weighted-average interest rates
applicable to these borrowings were 5.87% and 6.02% at June 30, 2007 and December 31, 2006,
respectively.
The Company and its foreign subsidiaries also had available short-term lines of credit,
totaling $96.7 million and $96.8 million at June 30, 2007 and December 31, 2006, respectively. At
June 30, 2007 and December 31, 2006, the related short-term borrowings were $14.4 million at a
weighted-average interest rate of 2.72% and $18.5 million at a weighted-average interest rate of
3.21%, respectively.
Hedge Transactions
Cash Flow Hedges
The Company uses interest rate swap agreements to hedge the risk to earnings associated with
fluctuations in interest rates related to outstanding U.S. dollar floating rate debt. In the
fourth quarter of 2005, the Company entered into a floating to fixed rate interest rate swap with a
notional amount of $200.0 million to hedge floating rate debt related to the term loan facility of
its outstanding debt, with a maturity date of June 2007. In December 2006, the Company closed out
the swap, resulting in a pre-tax gain of $0.4 million. The gain was deferred and has been
recognized in earnings in 2007 over the original term of the interest rate swap.
Hedges of Net Investments in Foreign Operations
During the six months ended June 30, 2007, the Company hedged its net investment in Euro foreign
affiliates with cross-currency interest rate swaps, with notional values of $100.0 million. At
both June 30, 2007 and December 31,
13
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2006, the notional amounts of outstanding contracts were $100.0 million. The Company has
designated the cross-currency interest rate swaps as hedges of net investments in foreign
operations and, accordingly, the changes in fair value associated with these agreements are
recorded in accumulated other comprehensive income in the consolidated balance sheets.
Other
The Company enters into forward foreign exchange contracts, principally to hedge the impact of
currency fluctuations on certain inter-company balances. Principal hedged currencies include the
Euro, Japanese Yen and British Pound. The periods of these forward contracts typically range from
one to three months and have varying notional amounts which are intended to be consistent with
changes in inter-company balances. Gains and losses on these forward contracts are recorded in
selling and administrative expenses in the consolidated statements of operations. At June 30, 2007
and December 31, 2006, the Company held forward foreign exchange contracts with notional amounts
totaling approximately $72.6 million and $70.9 million, respectively.
9 Income Taxes
In July 2006, the FASB issued FIN 48, Accounting for Uncertainty in Income Taxesan Interpretation
of FASB Statement No. 109. FIN 48 prescribes a new methodology by which a company must identify,
recognize, measure and disclose in its financial statements the effects of any uncertain tax return
reporting positions that a company has taken or expects to take. FIN 48, which became effective on
January 1, 2007, requires financial statement reporting of the expected future tax consequences of
uncertain tax return reporting positions on the presumption that all relevant tax authorities
possess full knowledge of those tax reporting positions, as well as all of the pertinent facts and
circumstances, but it prohibits any discounting of any of the related tax effects for the time
value of money. In addition, FIN 48 also mandates expanded financial statement disclosure about
uncertainty in income tax reporting positions.
The Company implemented the methodology prescribed in FIN 48 as of January 1, 2007. The
Company recorded the effect of adopting FIN 48 with a $3.9 million charge to beginning retained
earnings in the consolidated balance sheet as of January 1, 2007.
The Companys policy is to record estimated interest and penalties related to the underpayment
of income taxes, net of related tax effects, as a component of its income tax provision. For the
three and six months ended June 30, 2007, the Company included approximately $0.2 million and $0.5
million, respectively, of interest expense, net of related tax benefits. No tax penalty expense
was recorded in its income tax provision for the three and six months ended June 30, 2007. As of
January 1, 2007 and June 30, 2007, the Company had accrued approximately $2.8 million and $3.3
million, respectively, of estimated interest expense, net of related tax benefits. The Company had
no accrued tax penalties at either January 1, 2007 or June 30, 2007.
Following the measurement methodology of FIN 48, the Company had $62.4 million of unrecognized
tax benefits as of January 1, 2007. During the three and six months ended June 30, 2007, the
Company recorded increases of approximately $1.2 million and $2.5 million, respectively, in its
unrecognized tax benefits for a total of $64.9 million at June 30, 2007. If all of the Companys
unrecognized tax benefits as of June 30, 2007 were to become recognizable in the future, the
Company would record a total reduction of $66.7 million in income tax provision but the Company
does not expect that any portion of that total reduction will occur within the next twelve months;
therefore, the unrecognized tax benefit at June 30, 2007 has been classified in the consolidated
balance sheet as a long-term income tax liability.
The Companys uncertain tax positions are taken with respect to income tax return reporting
periods beginning after December 31, 1999, which are the periods that remain generally open to
income tax audit examination by the various income tax authorities that have jurisdiction over the
Companys income tax reporting as of June 30, 2007. The Company has monitored and will continue to
monitor the lapsing of statutes of limitations on potential tax assessments for related changes in the measurement of unrecognized tax benefits and deferred
tax assets and liabilities. As of June 30, 2007, however, the Company does not expect to be able
to estimate the effects of the future lapsing of those statutes of limitations within the next
twelve months.
14
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Companys effective tax rates for the three months ended June 30, 2007 and July 1, 2006
were 15.1% and 15.6%, respectively. The decrease in the effective tax rates for the three months
ended June 30, 2007 compared to July 1, 2006 is primarily attributable to the increase in income in
international jurisdictions, primarily Ireland and Singapore, in which effective tax rates are
lower than those generally in effect elsewhere.
The Companys effective tax rates for the six months ended June 30, 2007 and July 1, 2006 were
15.1% and 16.4%, respectively. The decrease in the effective tax rates for the six months ended
June 30, 2007 compared to July 1, 2006 is primarily attributable to the increase in income in
international jurisdictions, primarily Ireland and Singapore, in which effective tax rates are
lower than those generally in effect elsewhere.
10 Patent Litigation
Hewlett-Packard Company
The Company filed suit in the United States against Hewlett-Packard Company and Hewlett-Packard
GmbH (collectively, HP), seeking a declaration that certain products sold under the mark
Alliance did not constitute an infringement of one or more patents owned by HP or its foreign
subsidiaries (the HP patents). The action in the United States was dismissed for lack of
controversy. Actions seeking revocation or nullification of foreign HP patents were filed by the
Company in Germany, France and England. A German patent tribunal found the HP German patent to be
valid. In Germany, France and England, HP and its successor, Agilent Technologies Deutschland GmbH
(Agilent), brought actions alleging that certain features of the Alliance pump may infringe the
HP patents. In England, the Court of Appeal found the HP patent valid and infringed. The Companys
petitions for leave to appeal to the House of Lords were denied. A trial on damages was scheduled
for November 2004.
In March 2004, Agilent brought a new action against the Company alleging that certain features
of the Alliance pump continued to infringe the HP patents. At a hearing held in the UK in June
2004, the UK court postponed the previously scheduled November 2004 damages trial until March 2005.
Instead, the court scheduled the trial in the new action for November 2004. In December 2004,
following a trial in the new action, the UK court ruled that the Company did not infringe the HP
patents. Agilent filed an appeal in that action, which was heard in July 2005, and the UK
Appellate Court upheld the lower courts ruling of non-infringement. The damages trial scheduled
for March 2005 was postponed pending this appeal and rescheduled for December 2005. In December
2005, a trial on damages commenced in the first action and continued for six days prior to a
holiday recess. In February 2006, the Company, HP and Agilent entered into a settlement agreement
(the Agilent Settlement Agreement) with respect to the first action and a consent order
dismissing the case was entered. The Agilent Settlement Agreement provides for the release of the
Company and its UK affiliate from each and every claim under Agilents European patent (UK) number
309,596 arising out of the prior sale by either of them of Alliance Separations Modules
incorporating the patented technology. In consideration of entering into the Agilent Settlement
Agreement and the consent order, the Company made a payment to Agilent of 3.5 million British
Pounds, in full and final settlement of Agilents claim for damages and in relation to all claims
for costs and interest in the case.
In France, the Paris District Court found the HP patent valid and infringed by the Alliance
pump. The Company appealed the French decision and, in April 2004, the French appeals court
affirmed the Paris District Courts finding of infringement. The Company filed a further appeal in
the case and the appeal was dismissed in March 2007. The Company has sought a declaration from the
French court that, as was found in both the UK and Germany, certain modified features of the
Alliance pump do not infringe the HP patents. A hearing on this matter is currently scheduled for
September 2007. In the German case, a German court found the patent infringed. The Company appealed
the German decision and, in December 2004, the German appeals court reversed the trial court and
issued a finding of non-infringement in favor of the Company. Agilent sought an appeal in that
action and the appeal was heard on April 17, 2007. Following the hearing, the German Federal Court
of Justice set aside the judgment of the appeals court and remanded the case back to the appeals
court for further proceedings. In July 2005, Agilent brought a new action against the Company
alleging that certain features of the Alliance pump continue to infringe the HP patents. In August
2006, following a trial in this new action the German court ruled that the Company did not infringe
the HP patents. Agilent has filed an appeal in this action.
The Company recorded a provision of $3.1 million during 2005 for damages and fees to be
incurred with respect to the litigation, which was settled in February 2006. The Company recorded
a provision of $7.8 million in the first quarter of 2004 for estimated damages and fees to be
incurred with respect to the ongoing litigation for the England
15
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
and France suits. No provision has been made for the Germany suit and the Company believes
the outcome, if the plaintiff ultimately prevails, will not have a material impact on the Companys
financial position. The accrued patent litigation expense in other current liabilities in the
consolidated balance sheets at June 30, 2007 and December 31, 2006 was $0.8 million and $0.9
million, respectively, for the France suit. The change in the liability in the first half of 2007
is attributable to payment of legal fees directly associated with the cases.
11 Restructuring and Other Charges
In February 2006, the Company implemented a cost reduction plan, primarily affecting operations in
the U.S. and Europe, that resulted in the employment of 74 employees being terminated, all of which
had left the Company as of December 31, 2006. In addition, the Company closed a sales and
demonstration office in the Netherlands in the second quarter of 2006. The Company implemented
this cost reduction plan primarily to realign its operating costs with business opportunities
around the world. In 2006, the Company incurred $8.5 million of charges related to the February
2006 initiative, of which $7.3 million was recorded in the first half of 2006. The Company does
not expect to incur any additional charges in connection with this restructuring.
The following is a summary of activity of the Companys restructuring liability included in
other current liabilities on the consolidated balance sheets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance |
|
|
|
|
|
|
|
|
|
|
Balance |
|
|
|
December 31, |
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
|
2006 |
|
|
Charges |
|
|
Utilization |
|
|
2007 |
|
Severance |
|
$ |
1,433 |
|
|
$ |
|
|
|
$ |
(600 |
) |
|
$ |
833 |
|
Other |
|
|
48 |
|
|
|
|
|
|
|
(48 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,481 |
|
|
$ |
|
|
|
$ |
(648 |
) |
|
$ |
833 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 Earnings Per Share
Basic and diluted earnings per share (EPS) calculations are detailed as follows (in thousands,
except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2007 |
|
|
|
|
|
|
|
Weighted-Average |
|
|
|
|
|
|
Net Income |
|
|
Shares |
|
|
Per Share |
|
|
|
(Numerator) |
|
|
(Denominator) |
|
|
Amount |
|
Net income per basic common share |
|
$ |
59,909 |
|
|
|
100,327 |
|
|
$ |
0.60 |
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive stock option, restricted stock and restricted
stock unit securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding |
|
|
|
|
|
|
1,765 |
|
|
|
|
|
Exercised and cancellations |
|
|
|
|
|
|
38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per diluted common share |
|
$ |
59,909 |
|
|
|
102,130 |
|
|
$ |
0.59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 1, 2006 |
|
|
|
|
|
|
|
Weighted-Average |
|
|
|
|
|
|
Net Income |
|
|
Shares |
|
|
Per Share |
|
|
|
(Numerator) |
|
|
(Denominator) |
|
|
Amount |
|
Net income per basic common share |
|
$ |
47,780 |
|
|
|
103,010 |
|
|
$ |
0.46 |
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive stock option, restricted stock and restricted
stock unit securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding |
|
|
|
|
|
|
1,226 |
|
|
|
|
|
Exercised and cancellations |
|
|
|
|
|
|
101 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per diluted common share |
|
$ |
47,780 |
|
|
|
104,337 |
|
|
$ |
0.46 |
|
|
|
|
|
|
|
|
|
|
|
16
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2007 |
|
|
|
Weighted-Average |
|
|
|
Net Income |
|
|
Shares |
|
|
Per Share |
|
|
|
(Numerator) |
|
|
(Denominator) |
|
|
Amount |
|
Net income per basic common share |
|
$ |
115,846 |
|
|
|
100,880 |
|
|
$ |
1.15 |
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive stock option, restricted stock and restricted
stock unit securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding |
|
|
|
|
|
|
1,694 |
|
|
|
|
|
Exercised and cancellations |
|
|
|
|
|
|
128 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per diluted common share |
|
$ |
115,846 |
|
|
|
102,702 |
|
|
$ |
1.13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended July 1, 2006 |
|
|
|
Weighted-Average |
|
|
|
Net Income |
|
|
Shares |
|
|
Per Share |
|
|
|
(Numerator) |
|
|
(Denominator) |
|
|
Amount |
|
Net income per basic common share |
|
$ |
91,935 |
|
|
|
103,795 |
|
|
$ |
0.89 |
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive stock option, restricted stock and restricted
stock unit securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding |
|
|
|
|
|
|
1,218 |
|
|
|
|
|
Exercised and cancellations |
|
|
|
|
|
|
179 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per diluted common share |
|
$ |
91,935 |
|
|
|
105,192 |
|
|
$ |
0.87 |
|
|
|
|
|
|
|
|
|
|
|
For both the three months and six months ended June 30, 2007, the Company had 1.1 million
stock option securities that were antidilutive due to having higher exercise prices than the
average price during the period. For the both the three months and six months ended July 1, 2006,
the Company had 3.1 million stock option securities that were antidilutive. These securities were
not included in the computation of diluted EPS. The effect of dilutive securities was calculated
using the treasury stock method.
13 Comprehensive Income
Comprehensive income details follow (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, 2007 |
|
|
July 1, 2006 |
|
|
June 30, 2007 |
|
|
July 1, 2006 |
|
Net income |
|
$ |
59,909 |
|
|
$ |
47,780 |
|
|
$ |
115,846 |
|
|
$ |
91,935 |
|
Foreign currency translation |
|
|
5,241 |
|
|
|
6,807 |
|
|
|
8,364 |
|
|
|
10,054 |
|
Net depreciation and realized losses on derivative
instruments |
|
|
(2,928 |
) |
|
|
(7,826 |
) |
|
|
(4,758 |
) |
|
|
(9,314 |
) |
Income tax benefit |
|
|
(1,025 |
) |
|
|
(2,739 |
) |
|
|
(1,665 |
) |
|
|
(3,260 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net depreciation and realized losses on derivative
instruments, net of tax |
|
|
(1,903 |
) |
|
|
(5,087 |
) |
|
|
(3,093 |
) |
|
|
(6,054 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net foreign currency adjustments |
|
|
3,338 |
|
|
|
1,720 |
|
|
|
5,271 |
|
|
|
4,000 |
|
Unrealized losses on investments before income taxes |
|
|
(482 |
) |
|
|
|
|
|
|
(325 |
) |
|
|
|
|
Income tax (benefit) |
|
|
(169 |
) |
|
|
|
|
|
|
(114 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized losses on investments, net of tax |
|
|
(313 |
) |
|
|
|
|
|
|
(211 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income |
|
|
3,025 |
|
|
|
1,720 |
|
|
|
5,060 |
|
|
|
4,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
62,934 |
|
|
$ |
49,500 |
|
|
$ |
120,906 |
|
|
$ |
95,935 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14 Retirement Plans
The Company sponsors various retirement plans. The summary of the components of net periodic
pension costs for the plans for the three and six months ended June 30, 2007 and July 1, 2006,
respectively, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
June 30, 2007 |
|
|
July 1, 2006 |
|
|
|
|
|
|
|
U.S. |
|
|
|
|
|
|
|
|
|
|
U.S. |
|
|
|
|
|
|
U.S. |
|
|
Retirement |
|
|
Non-U.S. |
|
|
U.S. |
|
|
Retirement |
|
|
Non-U.S. |
|
|
|
Pension |
|
|
Healthcare |
|
|
Pension |
|
|
Pension |
|
|
Healthcare |
|
|
Pension |
|
|
|
Plans |
|
|
Plan |
|
|
Plans |
|
|
Plans |
|
|
Plan |
|
|
Plans |
|
Service cost |
|
$ |
1,941 |
|
|
$ |
64 |
|
|
$ |
290 |
|
|
$ |
1,979 |
|
|
$ |
68 |
|
|
$ |
279 |
|
Interest cost |
|
|
1,301 |
|
|
|
69 |
|
|
|
196 |
|
|
|
1,132 |
|
|
|
60 |
|
|
|
166 |
|
Expected return on plan assets |
|
|
(1,333 |
) |
|
|
(30 |
) |
|
|
(97 |
) |
|
|
(1,174 |
) |
|
|
(23 |
) |
|
|
(79 |
) |
Net amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service costs |
|
|
(22 |
) |
|
|
(14 |
) |
|
|
|
|
|
|
(21 |
) |
|
|
(14 |
) |
|
|
|
|
Net actuarial loss |
|
|
202 |
|
|
|
|
|
|
|
5 |
|
|
|
309 |
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost |
|
$ |
2,089 |
|
|
$ |
89 |
|
|
$ |
394 |
|
|
$ |
2,225 |
|
|
$ |
91 |
|
|
$ |
369 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
June 30, 2007 |
|
|
July 1, 2006 |
|
|
|
|
|
|
|
U.S. |
|
|
|
|
|
|
|
|
|
|
U.S. |
|
|
|
|
|
|
U.S. |
|
|
Retirement |
|
|
Non-U.S. |
|
|
U.S. |
|
|
Retirement |
|
|
Non-U.S. |
|
|
|
Pension |
|
|
Healthcare |
|
|
Pension |
|
|
Pension |
|
|
Healthcare |
|
|
Pension |
|
|
|
Plans |
|
|
Plan |
|
|
Plans |
|
|
Plans |
|
|
Plan |
|
|
Plans |
|
Service cost |
|
$ |
3,882 |
|
|
$ |
128 |
|
|
$ |
580 |
|
|
$ |
3,958 |
|
|
$ |
136 |
|
|
$ |
558 |
|
Interest cost |
|
|
2,602 |
|
|
|
138 |
|
|
|
392 |
|
|
|
2,264 |
|
|
|
120 |
|
|
|
332 |
|
Expected return on plan assets |
|
|
(2,666 |
) |
|
|
(60 |
) |
|
|
(194 |
) |
|
|
(2,348 |
) |
|
|
(46 |
) |
|
|
(158 |
) |
Net amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service costs |
|
|
(44 |
) |
|
|
(28 |
) |
|
|
|
|
|
|
(42 |
) |
|
|
(28 |
) |
|
|
|
|
Net actuarial loss |
|
|
404 |
|
|
|
|
|
|
|
10 |
|
|
|
618 |
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost |
|
$ |
4,178 |
|
|
$ |
178 |
|
|
$ |
788 |
|
|
$ |
4,450 |
|
|
$ |
182 |
|
|
$ |
738 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2007 and July 1, 2006, the Company made no
contributions to the Plans. During the fiscal year 2007, the Company expects to contribute
approximately $4.0 million to $8.0 million to the Plans.
15 Business Segment Information
The Companys business activities, for which discrete financial information is available, are
regularly reviewed and evaluated by the chief operating decision-makers. As a result of this
evaluation, the Company determined that it has two operating segments: Waters Division and TA
Division.
Waters Division is in the business of designing, manufacturing, distributing and servicing LC
and MS technology instrument systems, columns and other chemistry consumables that can be
integrated and used along with other
analytical instruments. TA Division is in the business of designing, manufacturing,
distributing and servicing thermal analysis, microcalorimetry and rheometry instruments. The
Companys two divisions are its operating segments and each has similar economic characteristics,
product processes, products and services, types and classes of customers, methods of distribution
and regulatory environments. Because of these similarities, the two 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.
18
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Net sales for the Companys products and services are as follows for the three and six months
ended June 30, 2007 and July 1, 2006 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, 2007 |
|
|
July 1, 2006 |
|
|
June 30, 2007 |
|
|
July 1, 2006 |
|
Product net sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Waters instrument systems |
|
$ |
179,878 |
|
|
$ |
150,591 |
|
|
$ |
342,077 |
|
|
$ |
299,270 |
|
Chemistry |
|
|
53,607 |
|
|
|
43,771 |
|
|
|
107,785 |
|
|
|
87,226 |
|
TA instrument systems |
|
|
21,901 |
|
|
|
20,129 |
|
|
|
44,528 |
|
|
|
36,560 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total product net sales |
|
|
255,386 |
|
|
|
214,491 |
|
|
|
494,390 |
|
|
|
423,056 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service net sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Waters service |
|
|
87,026 |
|
|
|
79,413 |
|
|
|
169,442 |
|
|
|
153,744 |
|
TA service |
|
|
10,218 |
|
|
|
7,995 |
|
|
|
19,575 |
|
|
|
15,317 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total service net sales |
|
|
97,244 |
|
|
|
87,408 |
|
|
|
189,017 |
|
|
|
169,061 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
|
$ |
352,630 |
|
|
$ |
301,899 |
|
|
$ |
683,407 |
|
|
$ |
592,117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16 Recent Accounting Standards Changes and Developments
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. This standard addresses
how companies should measure fair value when they are required to use a fair value measure for
recognition or disclosure purposes under GAAP. This standard was effective for all financial
statements issued for fiscal years beginning after November 15, 2007. The Company is in the process
of evaluating whether the adoption of this standard will have a material effect on its financial
position, results of operations or cash flows.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities Including an Amendment of FASB Statement No. 115, which is effective
for fiscal years beginning after November 15, 2007. This statement permits an entity to choose to
measure many financial instruments and certain other items at fair value at specified election
dates. Subsequent unrealized gains and losses on items for which the fair value option has been
elected will be reported in earnings. The Company is in the process of evaluating whether the
adoption of this standard will have a material effect on its financial position, results of
operations or cash flows.
19
Item 2: Managements Discussion and Analysis of Financial Condition and Results of Operations
Business and Financial Overview
The Companys sales were $352.6 million and $301.9 million for the three months ended June 30, 2007
(the 2007 Quarter) and July 1, 2006 (the 2006 Quarter), respectively. The Companys sales were
$683.4 million and $592.1 million for the six months ended June 30, 2007 (the 2007 Period) and
July 1, 2006 (the 2006 Period), respectively. Sales grew 17% in the 2007 Quarter over the 2006
Quarter and 15% in the 2007 Period over the 2006 Period. Overall, the sales growth achieved in the
2007 Quarter and 2007 Period can be primarily attributed to the Companys introduction of new
products; an increase in spending by the Companys pharmaceutical customers; the benefit from
acquisitions completed in 2006, which benefited sales growth by approximately 2%, and the effect of
foreign currency translation.
The effect of foreign currency translation benefited the 2007 Quarter and 2007 Period sales
growth rate by 2%, both increases principally in Europe. U.S. sales increased 18%, European sales
increased 19% and Asian sales (including Japan) increased 13% during the 2007 Quarter. U.S. sales
increased 20%, European sales increased 17% and Asian sales increased 12% during the 2007 Period.
In the 2007 Quarter and 2007 Period, global sales to pharmaceutical customers grew 21% and
19%, respectively, as customers increased their capital spending on the Companys new products.
Sales to government and academic customers were 26% higher in the 2007 Quarter and 19% higher in
the 2007 Period and can be primarily attributed to strong demand of the Companys new products in
the U.S. and Asia. Global sales to industrial and food safety customers grew 7% in the 2007
Quarter and 11% in the 2007 Period.
Sales growth for the TA Division (TA), a business with a heavy industrial focus, grew 14% in
the 2007 Quarter as compared to the 2006 Quarter. TAs sales growth for the 2007 Quarter can be
primarily attributed to new product introductions and the full quarter sales impact of the August
2006 Thermometric AB (Thermometric) acquisition. TAs sales grew 24% in the 2007 Period as
compared to the 2006 Period. TAs sales growth for the 2007 Period benefited from a larger than
normal backlog of orders in 2006 shipped in the first quarter of 2007, as well as the introduction
of new products and Thermometric sales. Thermometric sales benefited TAs sales growth rate by
approximately 5% for the 2007 Quarter and 6% for the 2007 Period.
The Waters Division sales grew 17% in the 2007 Quarter and 15% in the 2007 Period. The Waters
Divisions products and services consist of high performance liquid chromatography (HPLC), ultra
performance liquid chromatography (UPLC and together with HPLC, herein referred to as LC), mass
spectrometry (MS) products, chemistry consumable products and services. The Waters Division
sales growth was strongly influenced by ACQUITY UPLC® sales; the new high resolution Q-Tof
PremierTM and new SynaptTM HDMSTM systems; organic sales growth
from the chemistry consumables business and the 2006 acquisitions. The 2006 acquisitions added 2%
to the 2007 Quarter and 2007 Period sales growth.
Operating income was $76.9 million and $62.9 million in the 2007 Quarter and 2006 Quarter,
respectively. The $14.0 million net increase in operating income is primarily a result of the
increase in sales and partially offset by the impact of the $3.0 million of restructuring costs
incurred in the 2006 Quarter relating to the February 2006 cost reduction initiative. Operating
income was $149.7 million and $122.4 million in the 2007 Period and 2006 Period, respectively. The
$27.3 million net increase in operating income is primarily a result of the increase in sales and
partially offset by the impact of the $7.3 million of restructuring costs incurred in the 2006
Period relating to the February 2006 cost reduction initiative.
Operating cash flow was $186.7 million and $144.1 million in the 2007 Period and 2006 Period,
respectively. The increase is primarily a result of the increase in net income. In cash flows
used in investing activities, capital expenditures were $27.3 million and $24.7 million in the 2007
Period and 2006 Period, respectively. In June 2007, the Company made an equity investment in Thar
Instruments, Inc., a privately held global leader in the design, development and manufacture of
analytical and preparative supercritical fluid chromatography and supercritical fluid extraction
systems, for $3.5 million in cash. The 2006 Period included the acquisition of VICAM Limited
Partnership (VICAM) of $13.8 million. In cash flows used in financing activities, the Company
repurchased $156.5 million and $169.9 million of the Companys outstanding common stock in the 2007
Period and 2006
20
Period, respectively. In addition, the Company received $32.2 million and $20.8 million of
proceeds from stock plans in the 2007 Period and 2006 Period, respectively.
Results of Operations
Net Sales
Net sales for the 2007 Quarter and the 2006 Quarter were $352.6 million and $301.9 million,
respectively, an increase of 17%. Net sales for the 2007 Period and the 2006 Period were $683.4
million and $592.1 million, respectively, an increase of 15%. Foreign currency translation
benefited sales growth for both the 2007 Quarter and 2007 Period by 2%. Product sales were $255.4
million and $214.5 million for the 2007 Quarter and the 2006 Quarter, respectively, an increase of
19%. Product sales were $494.4 million and $423.1 million for the 2007 Period and the 2006 Period,
respectively, an increase of 17%. The increase in product sales for both the 2007 Quarter and
2007 Period was primarily due to the overall positive growth in Waters instrument system sales (LC and
MS) and TA instrument systems sales and an increase in chemistry consumables sales.
The impact of acquisitions accounted for 2% of the product sales growth for both the 2007 Quarter
and 2007 Period, respectively. Service sales were $97.2 million and $87.4 million in the 2007
Quarter and the 2006 Quarter, respectively, an increase of 11%. Service sales were $189.0 million
and $169.1 million in the 2007 Period and the 2006 Period, respectively, an increase of 12%. The
increase for both the 2007 Quarter and 2007 Period was primarily attributable to growth in the
Companys installed base of instruments and higher sales of service contracts.
Waters Division Net Sales
The Waters Division sales grew 17% in the 2007 Quarter and 15% in the 2007 Period. The effect of
foreign currency translation benefited the Waters Division sales growth by approximately 2% in both
the 2007 Quarter and 2007 Period. Chemistry consumables sales grew approximately 22% in the 2007
Quarter and 24% in the 2007 Period. This growth was driven by increased column sales of ACQUITY
UPLC proprietary column technology, new XBridge columns, Oasis® sample preparation products and
the sales associated with newly acquired Environmental Resource Associates (ERA) and VICAM
product lines. These acquisitions benefited the chemistry consumable sales growth rate by 9% in
the 2007 Quarter and 11% in the 2007 Period. Waters service sales grew 10% in both the 2007 Quarter
and 2007 Period due to increased sales of service plans to the higher installed base of customers.
Waters instrument system sales grew 19% in the 2007 Quarter and 14% in the 2007 Period. The
increase in Waters instrument systems sales during the 2007 Quarter and 2007 Period is primarily
attributable to higher sales of ACQUITY UPLC systems and higher Q-Tof Premier, SQD, TQD and Synapt
HDMS systems sales. The Waters Division sales by product mix were substantially unchanged in the
2007 Quarter and 2007 Period with instruments, chemistry and service representing approximately
55%, 18% and 27%, respectively. Geographically, the Waters Division sales in the U.S., Europe and
Asia strengthened approximately 19%, 18% and 13%, respectively, in the 2007 Quarter and 19%, 16%
and 11%, respectively, in the 2007 Period. Sales to the rest of the world increased 17% in the
2007 Quarter and 6% in the 2007 Period. The effects of foreign currency translation increased
sales growth by 5% in Europe and reduced sales growth by 1% in Asia in the 2007 Quarter. The
effects of foreign currency translation increased sales growth by 7% in Europe and did not have an
effect in Asia in the 2007 Period. U.S., Europe and Asia sales growth in the 2007 Quarter and 2007
Period was primarily due to higher demand from the Companys pharmaceutical, government and
academic customers. Europes sales growth in the 2007 Quarter and 2007 Period was geographically
broad-based. Sales growth in the 2007 Quarter and 2007 Period in Asia continues to be primarily
driven by increased sales in India and China.
TA Division Net Sales
TAs sales grew 14% in the 2007 Quarter and 24% in the 2007 Period primarily as a result of TAs
new product introductions, strong sales growth in the U.S. and Europe and expansion of its Asian
businesses, as well as a larger than normal backlog of orders in 2006 shipped in the first quarter
of 2007. In addition, the 2007 Quarter and 2007 Period sales growth rate also benefited from the
Thermometric acquisition. This August 2006 acquisition added approximately 5% and 6% to the TA
sales growth rate in the 2007 Quarter and 2007 Period, respectively. The effect of foreign
currency translation benefited the TA sales growth by approximately 1% in the 2007 Quarter and 2%
in the 2007 Period. Instrument sales grew 9% in the 2007 Quarter and 22% in the 2007 Period. The
increase is due primarily to new product introductions and the addition of microcalorimetry
instruments through the acquisition of Thermometric. Instrument system sales represented
approximately 68% and 72% of sales in the 2007 Quarter and 2006 Quarter, respectively. Instrument
system sales represented approximately 69% and 70% of sales in the 2007 Period and 2006 Period,
respectively. TA service sales grew 28% in both the 2007 Quarter and 2007 Period and can
21
be primarily attributed to the increased sales of service plans to the higher installed base of
customers. Geographically, sales growth for the 2007 Quarter and 2007 Period was predominantly in
the U.S., Europe and Asia.
Gross Profit
Gross profit for the 2007 Quarter was $200.4 million compared to $175.9 million for the 2006
Quarter, an increase of $24.5 million, or 14%. Gross profit for the 2007 Period was $388.0 million
compared to $345.5 million for the 2006 Period, an increase of $42.5 million, or 12%. The increase
in gross profit for the 2007 Quarter and 2007 Period can be primarily attributed to the increase in
sales. Gross profit as a percentage of sales decreased to 56.8% for both the 2007 Quarter and 2007
Period from 58.3% for both the 2006 Quarter and 2006 Period. This decrease is primarily due to a
higher mix of Waters instrument system sales as well as sales of new products which have higher
manufacturing costs and the unfavorable foreign currency impact related to the cost of MS products
manufactured in the United Kingdom. The Company believes gross profit percentages should improve
later in the year as volume efficiencies are achieved on new products.
Selling and Administrative Expenses
Selling and administrative expenses for the 2007 Quarter and 2006 Quarter were $102.2 million and
$89.0 million, respectively, an increase of 15%. Approximately $6.2 million of the $13.2 million
increase in total selling and administrative expenses for the 2007 Quarter is primarily due to
annual merit increases across most divisions and headcount additions and related costs from
acquisitions. In addition, selling and administrative expenses were impacted by increased
headcount in support of the increased sales volume and the impact of foreign currency translation.
Selling and administrative expenses for the 2007 Period and 2006 Period were $196.1 million and
$174.5 million, respectively, an increase of 12%. Approximately $13.2 million of the $21.6 million
increase in total selling and administrative expenses for the 2007 Period is primarily due to
annual merit increases across most divisions and headcount additions and related costs from
acquisitions. In addition, selling and administrative expenses were impacted by increased
headcount in support of the increased sales volume and the impact of foreign currency translation.
As a percentage of net sales, selling and administrative expenses were 29.0% for the 2007 Quarter
and 28.7% for the 2007 Period compared to 29.5% for both the 2006 Quarter and 2006 Period.
Management anticipates selling and administrative expenses to increase at a lower rate throughout
the remainder of 2007.
Research and Development Expenses
Research and development expenses were $19.1 million and $19.7 million for the 2007 Quarter and
2006 Quarter, respectively, a decrease of $0.6 million, or 3%. Research and development expenses
were $37.8 million and $38.7 million for the 2007 Period and 2006 Period, respectively, a decrease
of $0.9 million, or 2%. The decrease in research and development expense for both the 2007 Quarter
and 2007 Period is primarily due to project expenses incurred in the 2006 Quarter and 2006 Period
on multiple new products launched in late 2006 that did not occur in the 2007 Quarter and 2007
Period.
2006 Restructuring
In February 2006, the Company implemented a cost reduction plan primarily affecting operations in
the U.S. and Europe that resulted in the employment of 74 employees being terminated, all of which
had left the Company as of December 31, 2006. In addition, the Company closed a sales and
demonstration office in the Netherlands in the second quarter of 2006. The Company implemented
this cost reduction plan primarily to realign its operating costs with business opportunities
around the world. In 2006, the Company incurred $8.5 million of charges related to the February
2006 initiative, of which $3.0 million and $7.3 million was recorded in the 2006 Quarter and 2006
Period, respectively. The Company does not expect to incur any additional charges in connection
with the February 2006 restructuring initiative.
The following is a summary of activity of the Companys 2006 restructuring liability included
in other current liabilities on the consolidated balance sheet (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance |
|
|
|
|
|
|
|
|
|
|
Balance |
|
|
|
December 31, |
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
|
2006 |
|
|
Charges |
|
|
Utilization |
|
|
2007 |
|
Severance |
|
$ |
1,433 |
|
|
$ |
|
|
|
$ |
(600 |
) |
|
$ |
833 |
|
Other |
|
|
48 |
|
|
|
|
|
|
|
(48 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,481 |
|
|
$ |
|
|
|
$ |
(648 |
) |
|
$ |
833 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
Interest Expense
Interest expense was $13.3 million and $12.5 million for the 2007 Quarter and 2006 Quarter,
respectively. Interest expense was $26.5 million and $23.9 million for the 2007 Period and 2006
Period, respectively. The increase in interest expense in the 2007 Quarter and 2007 Period is
primarily attributable to an increase in average interest rates on the Companys outstanding debt
and an increase in average borrowings in the U.S. to fund the stock repurchase programs.
Interest Income
Interest income was $6.9 million and $6.2 million for the 2007 Quarter and 2006 Quarter,
respectively. Interest income was $13.3 million and $11.5 million for the 2007 Period and 2006
Period, respectively. The increase in interest income for the 2007 Quarter and 2007 Period is
primarily due to higher interest rate yields and higher invested cash balances.
Provision for Income Taxes
In January 2007, the Company adopted Financial Accounting Standards Board (FASB) Interpretation
No. 48, Accounting for Uncertainty in Income Taxesan Interpretation of FASB Statement No. 109
(FIN 48). This interpretation prescribes new methodology by which a company must measure, report,
present and disclose in its financial statements the effects of any uncertain tax return reporting
positions that a company has taken or expects to take. See Note 9, Income Taxes, in the Condensed
Notes to Consolidated Financial Statements for additional information.
The Companys effective tax rates for the 2007 Quarter and 2006 Quarter were 15.1% and 15.6%,
respectively. The Companys effective tax rates for the 2007 Period and 2006 Period were 15.1% and
16.4%, respectively. The decrease in the effective tax rates for the 2007 Quarter and 2007 Period
compared to the 2006 Quarter and 2006 Period is primarily attributable to the increase in income in
international jurisdictions, primarily Ireland and Singapore, in which effective tax rates are
lower than those generally in effect elsewhere.
Liquidity and Capital Resources
Condensed Consolidated Statements of Cash Flows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
June 30, 2007 |
|
|
July 1, 2006 |
|
Net income |
|
$ |
115,846 |
|
|
$ |
91,935 |
|
Depreciation and amortization |
|
|
26,001 |
|
|
|
22,572 |
|
Stock-based compensation |
|
|
13,796 |
|
|
|
14,616 |
|
Change in accounts receivable |
|
|
1,505 |
|
|
|
21,456 |
|
Change in inventories |
|
|
(11,257 |
) |
|
|
(29,136 |
) |
Change in accounts payable and other current liabilities |
|
|
8,825 |
|
|
|
11,557 |
|
Change in deferred revenue and customer advances |
|
|
20,965 |
|
|
|
18,170 |
|
Other changes |
|
|
11,028 |
|
|
|
(7,072 |
) |
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
186,709 |
|
|
|
144,098 |
|
Net cash used in investing activities |
|
|
(30,083 |
) |
|
|
(38,503 |
) |
Net cash used in financing activities |
|
|
(129,438 |
) |
|
|
(113,918 |
) |
Effect of exchange rate changes on cash and cash equivalents |
|
|
2,950 |
|
|
|
4,291 |
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents |
|
$ |
30,138 |
|
|
$ |
(4,032 |
) |
|
|
|
|
|
|
|
23
Cash Flow from Operating Activities
Net cash provided by operating activities was $186.7 million and $144.1 million in the 2007 Period
and 2006 Period, respectively. The $42.6 million increase in the net cash provided from operating
activities in the 2007 Period compared to the 2006 Period is attributed primarily to the following
significant changes in the sources and uses of the net cash provided from operating activities,
aside from the increase in net income:
|
|
|
The change in accounts receivable in the 2007 Period compared to the 2006 Period is
primarily attributable to the timing of payments made by customers and the higher sales
volume in the 2007 Period as compared to the 2006 Period. The days-sales-outstanding
(DSO) decreased to 70 days at June 30, 2007 from 72 days at July 1, 2006. |
|
|
|
|
Inventory growth was lower in the 2007 Period compared to the 2006 Period primarily
due to the 2006 Period having a higher ramp-up of new products launched later in that year
and the increased levels of Alliance inventory during the outsourcing transition. |
|
|
|
|
The 2007 Period changes in accounts payable and other current liabilities and other
changes compared to the 2006 Period is primarily attributable to the reclassification
within these line items of certain pension and income tax liabilities from current to
long-term liabilities required by the recently adopted Financial Accounting Standard No.
158 Employers Accounting for Defined Benefit Pension and Other Postretirement Plans (FAS
No. 158) and FIN 48. The overall net change in these items can be attributed to an
increase in pension and post retirement liabilities, income taxes liabilities and
long-term deferred revenue. |
|
|
|
|
Net cash provided from deferred revenue and customer advances in both the 2007 Period
and 2006 Period was a result of the installed base of customers renewing annual service
contracts. |
Cash Used in Investing Activities
Net cash used in investing activities totaled $30.1 million and $38.5 million in the 2007 Period
and 2006 Period, respectively. Additions to fixed assets and capitalized software were $27.3
million in the 2007 Period and $24.7 million in the 2006 Period. Capital spending additions during
the 2007 and 2006 Periods were consistent with capital spending trends and expectations to
accommodate the Companys growth. In June 2007, the Company made an equity investment in Thar
Instruments, Inc., a privately held global leader in the design, development and manufacture of
analytical and preparative supercritical fluid chromatography and supercritical fluid extraction
systems, for $3.5 million in cash. In addition, in 2007 the Company received $0.7 million from the
former shareholders of ERA in connection with the finalization of the purchase price in accordance
with the purchase and sales agreement. Business acquisitions were $13.8 million in the 2006
Period, related to the acquisition of the net assets of VICAM. There were no business acquisition
expenditures in the 2007 Period.
Cash Used in Financing Activities
During the 2007 Period, the Companys net debt borrowings decreased by $14.0 million compared to a
$36.1 million increase in the 2006 Period.
In January 2007, Waters Corporation and Waters Technologies Ireland Ltd. entered into a new
credit agreement (the 2007 Credit Agreement). The 2007 Credit Agreement provides for a $500
million term loan facility; a $350 million revolving facility (U.S. Tranche), which includes both
a letter of credit and a swingline subfacility; and a $250 million revolving facility (European
Tranche) that is available to Waters Corporation in U.S. dollars and Waters Technologies Ireland
Ltd. in either U.S. dollars or Euro. Waters Corporation may on one or more occasions request of
the lender group that commitments for the U.S. Tranche or European Tranche be increased by an
amount of not less than $25 million, up to an aggregate additional amount of $250 million.
Existing lenders are not obligated to increase commitments and the Company can seek to bring in
additional lenders. The term loan facility and the revolving facilities both mature on January 11,
2012 and require no scheduled prepayments before that date.
In January 2007, the Company borrowed $500 million under the new term loan facility, $115
million under the new European Tranche and $270 million under the new U.S. Tranche revolving
facility. The Company used the proceeds of the term loan and the revolving borrowings to repay the
outstanding amounts under the Companys existing multi-borrower credit agreement dated as of
December 15, 2004 and amended as of October 12, 2005 and
24
the Companys existing term loan agreement dated as of November 28, 2005. Waters Corporation
terminated such agreements early without penalty.
The interest rates applicable to the term loan and revolving loans under the 2007 Credit
Agreement are, at the Companys option, equal to either the base rate (which is the higher of the
prime rate or the federal funds rate plus 1/2%) or the applicable 1, 2, 3, 6, 9 or 12 month LIBOR
rate, in each case, plus an interest rate margin based upon the Companys leverage ratio, which can
range between 33 basis points and 72.5 basis points. The facility fee on the 2007 Credit Agreement
ranges between 7 basis points and 15 basis points. The 2007 Credit Agreement requires that the
Company comply with an interest coverage ratio test of not less than 3.50:1 and a leverage ratio
test of not more than 3.25:1 for any period of four consecutive fiscal quarters, respectively, the
same as the terminated credit agreements. In addition, the 2007 Credit Agreement includes negative
covenants that are customary for investment grade credit facilities and are similar in nature to
ones contained in the terminated credit agreements. The 2007 Credit Agreement also contains
certain customary representations and warranties, affirmative covenants and events of default which
are similar in nature to those in the terminated credit agreements.
As of June 30, 2007, the Company had $875.0 million borrowed under the credit agreement dated
as of January 2007 and an amount available to borrow of $223.6 million after outstanding letters of
credit.
In February 2007, the Companys Board of Directors authorized the Company to repurchase up to
$500.0 million of its outstanding common stock over a two-year period. During the 2007 Period, the
Company repurchased 2.1 million shares at a cost of $122.0 million under this program, leaving
$378.0 million authorized for future repurchases. In October 2005, the Companys Board of Directors
authorized the Company to repurchase up to $500.0 million of its outstanding common stock over a
two-year period. During the 2007 Period and 2006 Period, the Company repurchased 0.6 million and
4.0 million shares at a cost of $34.5 million and $169.9 million, respectively, under this program.
As of June 30, 2007, the Company repurchased an aggregate of 11.9 million shares of its common
stock under the October 2005 program for an aggregate of $499.8 million, effectively completing
this program. The Company believes that the share repurchase program benefits shareholders by
increasing earnings per share through reducing the number of shares outstanding while maintaining
adequate financial flexibility given current cash and debt levels.
The Company received $32.2 million and $20.8 million of proceeds from the exercise of stock
options and the purchase of shares pursuant to employee stock purchase plans in the 2007 Period and
2006 Period, respectively. Proceeds from stock option exercises were higher in the 2007 Period
compared to the 2006 Period and believed to be attributable to the increase in the Companys stock
price.
The Company believes that the cash and cash equivalents balance of $544.3 million at the end
of the 2007 Period and expected cash flow from operating activities, together with borrowing
capacity from committed credit facilities, will be sufficient to fund working capital, capital
spending requirements, authorized share repurchase amounts, potential acquisitions and any adverse
final determination of ongoing litigation for at least the next twelve months. Management
believes, as of the date of this report, that its financial position, along with expected future
cash flows from earnings based on historical trends and the ability to raise funds from a number of
external financing alternatives and external sources, will be sufficient to meet future operating
and investing needs for the foreseeable future.
Contractual Obligations and Commercial Commitments
A summary of the Companys contractual obligations and commercial commitments is included in the
Companys Annual Report on Form 10-K for the year ended December 31, 2006. The Company reviewed
its contractual obligations and commercial commitments as of June 30, 2007 and determined that
there were no significant changes from the ones set forth in the Form 10-K, with the exception of
the changes related to the adoption of FIN 48 and the new credit agreement dated January 2007. FIN
48 prescribes a new methodology by which a company must measure, report, present and disclose in
its financial statements the effects of any uncertain tax return reporting positions that a company
has taken or expects to take. Following the measurement methodology of FIN 48, the Company had
$64.9 million of unrecognized tax benefits as of June 30, 2007. See Note 9, Income Taxes, in the
Condensed Notes to Consolidated Financial Statements for additional information. The maturity date
of the credit
25
agreement dated January 2007 is January 11, 2012. See Note 8, Debt, in the Condensed Notes to
Consolidated Financial Statements for additional information.
From time to time, the Company and its subsidiaries are involved in various litigation matters
arising in the ordinary course of business. The Company believes it has meritorious arguments in
its current litigation matters and any outcome, either individually or in the aggregate, will not
be material to its financial position or results of operations.
During fiscal year 2007, the Company expects to contribute approximately $4.0 million to $8.0
million to the Companys pension plans. No payments were made in the 2007 Period.
The Company is not aware of any undisclosed risks and uncertainties, including but not limited
to product technical obsolescence, regulatory compliance, protection of intellectual property
rights, changes in pharmaceutical industry spending, competitive advantages, current and pending
litigation, and changes in foreign exchanges rates, that are reasonably likely to occur and could
materially and negatively affect the Companys existing cash balance or its ability to borrow funds
from its credit facility. The Company also believes there are no provisions in its credit
facilities, its real estate leases or supplier and collaborative agreements that would accelerate
payments, require additional collateral or impair its ability to continue to enter into critical
transactions. The Company has not paid any dividends and does not plan to pay any dividends in the
foreseeable future.
Critical Accounting Policies and Estimates
In the Companys Annual Report on Form 10-K for the year ended December 31, 2006, the Companys
most critical accounting policies and estimates upon which its financial status depends were
identified as those relating to revenue recognition; loss provisions on accounts receivable and
inventory; valuation of long-lived assets, intangible assets and goodwill; warranty; income taxes;
pension and other postretirement benefit obligations; litigation and stock-based compensation. The
Company reviewed its policies and determined that those policies remain the Companys most critical
accounting policies for the 2007 Period. The Company did not make any changes in those policies
during the 2007 Period except for the changes related to the adoption of FIN 48. FIN 48 prescribes
a new methodology by which a company must measure, report, present and disclose in its financial
statements the effects of any uncertain tax return reporting positions that a company has taken or
expects to take. See Note 9, Income Taxes, in the Condensed Notes to Consolidated Financial
Statements for additional information.
New Accounting Pronouncements
Refer to Note 16, Recent Accounting Standards Changes and Developments, in the Condensed Notes to
Consolidated Financial Statements.
Forward-Looking Statements
Certain of the statements in this quarterly report on Form 10-Q may contain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), regarding future
results and events, including statements regarding, among other items, (i) the impact of the
Companys new products, (ii) the Companys growth strategies, including its intention to make
acquisitions and introduce new products, (iii) anticipated trends in the Companys business and
(iv) the Companys ability to continue to control costs and maintain quality. You can identify
these forward-looking statements by the use of the words believes, anticipates, plans,
expects, may, will, would, intends, estimates, projects, 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 and without
limitation, fluctuations in capital expenditures by our customers, in particular, large
pharmaceutical companies; introduction of competing products by other companies and loss of market
share; pressures on prices from competitors and/or customers; regulatory obstacles to new product
introductions; lack of acceptance of new products; other changes in the demands of the Companys
healthcare and pharmaceutical company customers; risks associated with lawsuits and other legal
actions, particularly involving claims for infringement of patents and other intellectual property
rights; and foreign exchange rate fluctuations potentially adversely affecting translation of the
Companys future non-U.S. operating results. Such factors and others are discussed in Part II,
Item 1A of this
26
quarterly report. The forward-looking statements included in this quarterly report represent the
Companys estimates or views as of the date of this quarterly report and should not be relied upon
as representing the Companys estimates or views as of any date subsequent to the date of this
quarterly report. Actual results or events could differ materially from the plans, intentions and
expectations disclosed in the forward-looking statements, whether because of these factors or for
other reasons. The Company does not assume any obligation to update any forward-looking statements.
Item 3: Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes in the Companys market risk during the six months ended June
30, 2007. For additional information regarding the Companys market risk, refer to Item 7a of Part
II of the Companys Form 10-K for the year ended December 31, 2006, as filed with the Securities
and Exchange Commission (SEC) on March 1, 2007.
Item 4: Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
The Companys management, with the participation of the Companys chief executive officer and chief
financial officer, evaluated the effectiveness of the Companys disclosure controls and procedures
(as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period
covered by this quarterly report on Form 10-Q. Based on this evaluation, the Companys chief
executive officer and chief financial officer concluded that the Companys disclosure controls and
procedures were (1) designed to ensure that material information relating to the Company, including
its consolidated subsidiaries, is made known to the Companys chief executive officer and chief
financial officer by others within those entities, particularly during the period in which this
report was being prepared and (2) effective, in that they provide reasonable assurance that
information required to be disclosed by the Company in the reports that it files or submits under
the Exchange Act is recorded, processed, summarized and reported within the time periods specified
in the SECs rules and forms.
(b) Changes in Internal Controls Over Financial Reporting
No change in the Companys internal control over financial reporting (as defined in Rules 13a-15(f)
and 15d-15(f) under the Exchange Act) occurred during the quarter ended June 30, 2007 that has
materially affected, or is reasonably likely to materially affect, the Companys internal control
over financial reporting.
Part II: Other Information
Item 1: Legal Proceedings
There have been no material changes in the Companys legal proceedings during the six months ended
June 30, 2007 as described in Item 3 of Part I of the Companys Form 10-K for the year ended
December 31, 2006, as filed with the SEC on March 1, 2007.
Item 1A: Risk Factors
Please read Risk factors in the Companys Annual Report on Form 10-K for the fiscal year end
December 31, 2006, some of which are updated below. These risks are not the only ones facing the
Company. Additional risks and uncertainties not currently known to the Company or that the Company
currently deems to be immaterial also may materially adversely effect the Companys business,
financial condition and its operating results.
Competition and the Analytical Instrument Market
The analytical instrument market and, in particular, the portion related to the Companys HPLC,
UPLC, MS, LC-MS, thermal analysis and rheometry product lines, is highly competitive and the
Company encounters competition from several international instrument manufacturers and other
companies in both domestic and foreign markets. Some competitors have instrument businesses that
are more diversified than the Companys business but are typically less focused on the Companys
chosen markets. There can be no assurances that the Companys
27
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. There can be no assurances that the Companys sales and marketing forces will
compete successfully against its competitors in the future. A significant portion of the Companys
sales are to the worldwide pharmaceutical and biotechnology industries which may be periodically
subject to unfavorable market conditions and consolidations. Approximately 53% of the Companys
net sales in the 2007 Period were to worldwide pharmaceutical and biotechnology industries compared
to 51% in the 2006 Period. Unfavorable industry conditions could have a material adverse effect on
the Companys results of operations or financial condition.
Risk of Disruption
The Company manufactures LC instruments at facilities in Milford, Massachusetts and Singapore;
chemistry separation columns at its facilities in Taunton, Massachusetts and Wexford, Ireland; MS
products at its facilities in Manchester, England, Cheshire, England and Wexford, Ireland; thermal
analysis products at its facility in New Castle, Delaware; rheometry products at its facilities in
New Castle, Delaware and Crawley, England and other instruments and consumables at various smaller
locations as a result of the 2006 acquisitions. Any prolonged disruption to the operations at any
of 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 Companys results of operations or
financial condition.
Foreign Operations and Exchange Rates
Approximately 68% and 70% of the Companys net sales in the first six months of 2007 and 2006,
respectively, were outside of the United States and were primarily denominated in foreign
currencies. In addition, the Company has considerable manufacturing operations in Ireland and the
United Kingdom. As a result, a significant portion of the Companys 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 Companys net sales and cost of sales varies with
currency exchange rate fluctuations. Significant increases or decreases in the value of the U.S.
dollar relative to certain foreign currencies could have a material effect on the Companys results
of operations or financial condition.
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. There has been no change in key management
employees in the first six months of 2007. If, for any reason, such key personnel do not continue
to be active in management, the Companys results of operations or financial condition could be
adversely affected.
Protection of Intellectual Property
The Company vigorously protects its intellectual property rights and seeks patent coverage on all
developments that it regards as material and patentable. There has been no material change in the
claims against the Companys intellectual property rights or patents in the first six months of
2007. If the Company is unable to protect its intellectual property rights, it could have an
adverse and material effect on the Companys results of operations and financial condition.
Reliance on Customer Demand
The demand for the Companys products is dependent upon the size of the markets for its LC, MS,
thermal analysis and rheometry products, the level of capital expenditures of the Companys
customers, the rate of economic growth in the Companys major markets and competitive
considerations. There can be no assurances that the Companys results of operations or financial
condition will not be adversely impacted by a change in any of the factors listed above.
Reliance on Suppliers
Most of the raw materials, components and supplies purchased by the Company are available from a
number of different suppliers; however, a number of items are purchased from limited or single
sources of supply and disruption of these sources could have a temporary adverse effect on
shipments and the financial results of the
28
Company. The Company believes alternative sources could ordinarily be obtained to supply these
materials, but a prolonged inability to obtain certain materials or components could have an
adverse effect on the Companys financial condition or results of operations and could result in
damage to its relationships with its customers and, accordingly, adversely affect the Companys
business.
Reliance on Outside Manufacturers
Certain components or modules of the Companys MS instruments are manufactured by long-standing
outside contractors. In April 2006, the Company transitioned the manufacturing of the Alliance
HPLC instrument system to a company in Singapore. Disruptions of service by these outside
contractors could have an adverse effect on the supply chain and the financial results of the
Company. The Company believes that it could obtain alternative sources for these components or
modules but a prolonged inability to obtain these components or modules could have an adverse
effect on the Companys financial condition or results of operations.
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides information about purchases by the Company during the three months
ended June 30, 2007 of equity securities registered by the Company under to the Exchange Act (in
thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number |
|
|
|
|
|
|
|
|
|
|
|
|
of Shares |
|
Maximum |
|
|
Total |
|
|
|
|
|
Purchased as Part |
|
Dollar Value of |
|
|
Number of |
|
Average |
|
of Publicly |
|
Shares that May Yet |
|
|
Shares |
|
Price Paid |
|
Announced |
|
Be Purchased Under |
Period |
|
Purchased |
|
per Share |
|
Programs (1) |
|
the Programs |
April 1 to 28, 2007 |
|
|
200 |
|
|
$ |
59.94 |
|
|
|
200 |
|
|
$ |
440,959 |
|
April 29 to May 26, 2007 |
|
|
915 |
|
|
|
60.07 |
|
|
|
915 |
|
|
|
385,995 |
|
May 27 to June 30, 2007 |
|
|
133 |
|
|
|
60.44 |
|
|
|
133 |
|
|
|
377,956 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1,248 |
|
|
|
60.09 |
|
|
|
1,248 |
|
|
|
377,956 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Company purchased an aggregate of 2.1 million shares of its
outstanding common stock in the 2007 Period in open market
transactions pursuant to a repurchase program that was announced on
February 27, 2007 (the 2007 Program). The 2007 Program authorized
the repurchase of up to $500.0 million of common stock in open market
transactions over a two-year period. |
Item 3: Defaults Upon Senior Securities
Not Applicable
29
Item 4: Submission of Matters to a Vote of Security Holders
The Companys annual meeting of stockholders was held on May 15, 2007, at which the following
matters were submitted to a vote of security holders: 1) the election of directors of the Company
and 2) ratification of the selection of PricewaterhouseCoopers LLP as the Companys independent
registered public accounting firm for the fiscal year ending December 31, 2007. As of March 20,
2007, the record date for the meeting, there were 100,897,647 shares of the Companys common stock
entitled to vote at the meeting. At the meeting, the holders of 88,573,070 shares were represented
in person or by proxy, constituting a quorum. At that meeting, the vote with respect to the
matters proposed to the stockholders was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Matter |
|
For |
|
|
Withheld |
|
|
Against |
|
|
Abstain |
|
Election of Directors: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joshua Bekenstein |
|
|
85,472,496 |
|
|
|
3,100,574 |
|
|
|
|
|
|
|
|
|
Michael J. Berendt, Ph.D. |
|
|
84,895,734 |
|
|
|
3,677,336 |
|
|
|
|
|
|
|
|
|
Douglas A. Berthiaume |
|
|
86,338,771 |
|
|
|
2,234,299 |
|
|
|
|
|
|
|
|
|
Edward Conard |
|
|
84,178,327 |
|
|
|
4,394,743 |
|
|
|
|
|
|
|
|
|
Laurie H. Glimcher, M.D. |
|
|
87,392,581 |
|
|
|
1,180,489 |
|
|
|
|
|
|
|
|
|
Christopher A. Kuebler |
|
|
87,535,979 |
|
|
|
1,037,091 |
|
|
|
|
|
|
|
|
|
William J. Miller |
|
|
85,525,746 |
|
|
|
3,047,324 |
|
|
|
|
|
|
|
|
|
JoAnn A. Reed |
|
|
87,594,946 |
|
|
|
978,124 |
|
|
|
|
|
|
|
|
|
Thomas P. Salice |
|
|
85,952,697 |
|
|
|
2,620,373 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratification of the selection of PricewaterhouseCoopers LLP
as the Companys independent registered public accounting
firm for the fiscal year ending December 31, 2007 |
|
|
86,519,623 |
|
|
|
|
|
|
|
1,419,459 |
|
|
|
633,988 |
|
Item 5: Other Information
Not Applicable
Item 6: Exhibits
|
|
|
Exhibit |
|
|
Number |
|
Description of Document |
31.1
|
|
Chief Executive Officer Certification Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
|
|
|
31.2
|
|
Chief Financial Officer Certification Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
|
|
|
32.1
|
|
Chief Executive Officer Certification Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
|
|
|
32.2
|
|
Chief Financial Officer Certification Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
30
SIGNATURE
Pursuant to the requirements 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.
|
|
|
|
|
|
Waters Corporation |
|
|
|
|
|
|
/s/ John Ornell |
|
|
|
|
|
|
|
John Ornell
Vice President, Finance and
Administration and Chief Financial Officer |
Date: August 3, 2007
31