01—Abstract
Summary
Summary of the 10-K filed March 31, 1999. Cited figures are marked; the original filing is the authoritative source.
Waters Corporation (Milford, Massachusetts) filed its Form 10-K for the fiscal year ended December 31, 1998.
The company describes itself as the world's largest manufacturer and distributor of high performance liquid chromatography (HPLC) instruments, columns and consumables, and related service, and it also holds leading positions in thermal analysis (through TA Instruments) and mass spectrometry (through Micromass Limited, acquired in September 1997). Net sales for 1998 were $618.8 milliona, up 33% from $465.5 million in 1997, and the filing states that excluding the adverse effects of a stronger U.S. dollar, net sales increased 35%. Reported operating income was $119.8 million, while operating income excluding $16.5 million of nonrecurring inventory revaluation charges was $136.3 million, a 47% increase.
Net income was $74.4 millionb, or $2.27 per diluted share, compared with a net loss of $8.3 million in 1997, which included $71.5 million of Micromass-related nonrecurring charges. The balance sheet improved meaningfully during the year. Long-term debt fell to $218.3 million from $305.3 million, and net cash from operating activities was $110.2 million, funding $90.2 million of net bank debt repayment.
Stockholders' equity rose to $150.1 millionc from $62.3 million. The company has not paid dividends and does not plan to pay them in the foreseeable future. Approximately 58% of 1998 net sales were outside the United States, and about 60% were to the pharmaceutical industry.
The filing also discloses risk factors including competition, foreign exchange exposure, substantial indebtedness under the Bank Credit Agreement, and reliance on key management, along with Year 2000 readiness work, with remaining Y2K remediation costs estimated at less than $1.0 milliond. The filing notes ongoing patent litigation, including suits involving Perkin-Elmer and Hewlett-Packard, which management believes will not be material. Management's letter highlights new product launches planned for 1999, including the Alliance HT System, the CapLC System, and a new Quattro Ultima triple quadrupole, and reports a single January 1999 order of over $8 million from the Japan National Police Agency.
02—Key points
Key Highlights
- Net sales of $618.8 million in 1998, up 33% from $465.5 million in 1997
- Operating income excluding Micromass-related inventory revaluation charges of $136.3 million, up 47%; reported operating income was $119.8 million
- Net income of $74.4 million, or $2.27 per diluted share, versus a net loss of $8.3 million in 1997
- Net cash provided by operating activities of $110.2 million, used to repay $90.2 million of net bank debt
- Long-term debt reduced to $218.3 million from $305.3 million; stockholders' equity increased to $150.1 million from $62.3 million
- Approximately 58% of 1998 net sales came from outside the United States and about 60% from the pharmaceutical industry
- No dividends paid and none planned; new 1999 product launches include the Alliance HT System, CapLC System and Quattro Ultima
03—Questions
Frequently Asked Questions
What drove the increase in Waters' 1998 sales?
The filing states that net sales grew 33% to $618.8 million. Excluding the adverse effects of a stronger U.S. dollar, sales increased 35%. Core HPLC and thermal analysis products grew 12%, while the Micromass acquisition contributed the remaining 23 percentage points of growth. Pharmaceutical customer demand was described as especially strong across all geographies.
How did the Micromass acquisition affect 1997 and 1998 results?
The company recorded a $55.0 million charge for expensed in-process research and development and a $16.5 million charge for revaluation of acquired inventory in 1997, plus a further $16.5 million inventory revaluation charge in 1998. These nonrecurring items caused the 1997 net loss of $8.3 million. Management states the acquisition has been accretive to operating income.
How is Waters managing its debt?
Long-term debt decreased to $218.3 million at year end 1998 from $305.3 million, with net bank debt repayments of $90.2 million during the year. Borrowings under the Bank Credit Agreement, which provides a $450 million line of credit through June 2002, are collateralized by substantially all company assets. The filing notes covenants that restrict dividends, additional indebtedness and asset sales, and states the company was in compliance as of December 31, 1998.
What are the main risks identified in the filing?
The filing identifies competition from larger, better-resourced instrument manufacturers, periodic unfavorable conditions in the pharmaceutical market, which accounted for about 60% of net sales, and foreign exchange exposure, since about 58% of sales were outside the U.S. It also cites dependence on a limited number of facilities, substantial indebtedness with restrictive covenants, reliance on key management without employment contracts, and Year 2000 compliance risks.
Are there any significant pending legal matters?
The filing describes patent litigation with The Perkin-Elmer Corporation, in which a court granted judgment in favor of TAI and enjoined PE from infringing the TAI patents, with PE indicating it will appeal. Waters has also sued Hewlett-Packard over the Alliance mark and faces an infringement action from Cohesive Technologies. Management believes the outcome of these proceedings will not be material to the company.
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