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Waters Annual Report, Year Ended Dec 31, 2006

Filing Date
Filed March 1, 2007
Period End
December 31, 2006
Security
WAT
In the record · 2016–202610-K1210-Q338-K109

WAT filed 12 annual reports (10-K), 33 quarterly reports (10-Q) and 109 current reports (8-K) between 2016 and 2026.

  1. Leadership change8-K · Jul ’17Jul ’17
  2. Material agreement8-K · Sep ’19Sep ’19
  3. Leadership change8-K · Oct ’21Oct ’21
  4. Material agreement8-K · Jul ’25Jul ’25

01—Abstract

Summary

Summary of the 10-K filed March 1, 2007. Cited figures are marked; the original filing is the authoritative source.

Waters Corporation (NYSE: WAT) reported net sales of $1,280.2 milliona for 2006, up from $1,158.2 million in 2005 and $1,104.5 million in 2004, with sales growth of 11% in 2006.

Net income was $222.2 millionb, or $2.13 per diluted share, compared with $201.975 million ($1.74 per diluted share) in 2005. Operating income was $295.2 million, and operating cash flow was $263.6 million, down from $298.1 million in 2005. The 2006 results absorbed $28.0 million of additional stock-based compensation from adopting SFAS 123(R), $8.5 million of restructuring costs from a February 2006 cost reduction initiative, and a $5.8 million impairment on the Caprion Pharmaceuticals investment.

The Waters Division grew 11%c and the TA Division grew 9%, with sales in Asia up 19% and Europe up 12%. Growth was driven by ACQUITY UPLC instruments, chemistry consumables, and new mass spectrometry systems introduced in the second half of 2006. The balance sheet strengthened in some areas and tightened in others.

Cash and cash equivalents were $514.2 milliond at year-end 2006, and total debt was $885.0 million, of which $500.0 million was classified as long-term. Waters repurchased 5.8 million shares for $249.2 million during 2006, leaving $34.7 million authorized under the $500.0 million program. In January 2007 the company refinanced its credit facilities into a new agreement with a $500 million term loan and revolving tranches, with capacity of up to $1.1 billion and a maturity of January 11, 2012.

Interest expense rose to $51.7 million from $24.7 million, reflecting higher rates and borrowings used for buybacks. The effective tax rate fell to 15.5% from 26.4%, largely because the 2005 rate included $24.0 million of repatriation tax under the American Jobs Creation Act. The filing also describes ongoing risks.

Approximately 52% of 2006 net sales came from the pharmaceutical and biotechnology industries, and about 68% of sales were outside the United States. The company is still litigating patent claims brought by Hewlett-Packard and Agilent over the Alliance pump; a French hearing is scheduled for June 2007, and the company has recorded provisions for this litigation.

02—Key points

Key Highlights

  1. Net sales rose 11% to $1,280.2 million in 2006, with the Waters Division up 11% and the TA Division up 9%.
  2. Net income was $222.2 million, or $2.13 per diluted share, versus $1.74 per diluted share in 2005.
  3. Operating income was $295.2 million, held back by $28.0 million of additional stock-based compensation under SFAS 123(R) and $8.5 million of restructuring costs.
  4. Operating cash flow declined to $263.6 million from $298.1 million, reflecting a $29.9 million inventory increase and a $9.0 million AJCA tax payment.
  5. The company repurchased 5.8 million shares for $249.2 million in 2006 and had $34.7 million remaining under its $500.0 million authorization.
  6. In January 2007 the company refinanced its credit facilities with a new agreement that expands debt capacity to $1.1 billion and extends maturity to January 2012.
  7. Approximately 68% of 2006 net sales were outside the United States, and about 52% came from pharmaceutical and biotechnology customers.

03—Questions

Frequently Asked Questions

  1. What drove Waters' revenue growth in 2006?

    The filing attributes growth to new products and sustained growth in Asia. The ACQUITY UPLC system, Quattro Premier XE based systems, and chemistry consumables such as columns and sample preparation products contributed, as did the SQD, TQD and Synapt HDMS mass spectrometry systems introduced in the second half of 2006. Asian sales rose 19%, and European sales rose 12%.

  2. Why did net income and margins face pressure in 2006 despite higher sales?

    Gross margin slipped to 58.1% from 58.7%, partly due to $4.3 million of stock-based compensation in cost of sales and transition costs for moving Alliance manufacturing to Singapore. Selling and administrative expenses rose $36.0 million, including $18.6 million of stock-based compensation. Operating income also absorbed $8.5 million of restructuring costs from the February 2006 cost reduction plan.

  3. How is Waters financing its share repurchases and debt?

    At December 31, 2006, the company had $885.0 million of borrowings under two credit agreements. In January 2007 it entered a new credit agreement providing a $500 million term loan and revolving tranches, with a $1.1 billion total capacity and a maturity of January 11, 2012. The company stated that its cash of $514.2 million and expected operating cash flow are sufficient to fund working capital, capital spending, authorized share repurchases and acquisitions for at least the next twelve months.

  4. What litigation risks does the filing disclose?

    The main matter is patent litigation with Hewlett-Packard and Agilent over the Alliance pump. Courts in England and Germany ruled in the company's favor on non-infringement, while the French court found infringement, and the company has appealed. A hearing in France is scheduled for June 2007. The company has recorded provisions for estimated damages and legal costs related to the ongoing litigation.

04—Continue

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