01—Abstract
Summary
Summary of the 10-K filed February 27, 2009. Cited figures are marked; the original filing is the authoritative source.
Waters Corporation (WAT) reported net sales of $1,575 milliona for 2008, up from $1,473 million in 2007 and $1,280 million in 2006, with sales growth of 7% in 2008.
Operating income rose to $390 millionb from $349 million, and net income was $322.5 million, or $3.21 per diluted share, compared with $2.62 in 2007. The company attributed the results to new product introductions such as ACQUITY UPLC, higher chemistry consumables and service sales, acquisitions, and favorable currency translation. Management noted that fourth-quarter 2008 sales were hurt by reduced customer capital spending amid global economic conditions and a stronger U.S. dollar, and expects the currency effect to continue into 2009.
Balance sheet and capital allocation were central to the filing. Cash and cash equivalents were $428.5 millionc at year-end 2008, against $500 million of long-term debt. Operating cash flow was $418 million.
The company prepaid a $150 milliond term loan and repaid $340 million of revolving debt in October 2008 using cash repatriated from the liquidation of certain foreign legal entities, and the board authorized an additional $500 million share repurchase program in February 2009. The company also disclosed an ongoing patent litigation with Agilent Technologies, for which it recorded a $7 million provision, and a securities class action filed in November 2008.
The filing also flags risks including weaker demand from pharmaceutical and industrial customers, currency exposure (approximately 70% of 2008 net sales were outside the United States), and reliance on single-source suppliers. Management said the company does not expect a material impairment of goodwill and that its cash and credit facilities should be sufficient for at least the next twelve months.
02—Key points
Key Highlights
- Net sales rose 7% to $1,575 million in 2008, with Waters Division sales up 7% and TA Division sales up 10%.
- Diluted EPS was $3.21 in 2008, up from $2.62 in 2007, which included a $0.08 benefit from an out-of-period adjustment and charges of $0.05 for a tax provision and $0.04 for litigation.
- Gross margin improved to 58.0% from 57.2%, driven by higher volume and favorable currency effects.
- Fourth-quarter 2008 sales were affected by reduced customer capital spending and a stronger U.S. dollar, which reduced fourth-quarter sales growth by 4% from currency translation.
- Cash and cash equivalents were $428.5 million at December 31, 2008, against $500 million of long-term debt, after $340 million of revolver repayments and a $150 million term loan prepayment in October 2008.
- The board authorized an additional $500 million share repurchase program in February 2009, and the company repurchased 4.1 million shares in 2008 for $235 million.
- Pending Agilent patent litigation carries a $7 million provision, and a securities class action was filed in November 2008.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2008, Waters kept $0.20.
- Revenue$1.58B100.0%
- Cost of revenue−$661.3M42.0%
- Gross profit$913.9M58.0%
- Operating costs−$524.1M33.3%
- Operating income$389.8M24.7%
- Interest, other & tax−$67.3M4.3%
- Net income$322.5M20.5%
Where FY2008 revenue went
$1.58B- Cost of revenue: $661.3M, 42% of revenue
- SG&A: $426.7M, 27% of revenue
- Net income: $322.5M, 20% of revenue
- R&D: $81.6M, 5.2% of revenue
- Other operating costs: $15.8M, 1.0% of revenue
- Interest, other & tax: $67.3M, 4.3% of revenue
Kept 20% as net incomeOther operating costs $15.8M · 1.0%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2008filed February 27, 2009Financial Statements
FY2008 against FY2007
| Line item | FY2008FY2007 | Change |
|---|---|---|
| Revenue | $1.58B$1.47B | +6.9% |
| Cost of Revenue | $661.27M$631.12M | +4.8% |
| Gross Profit | $913.86M$841.93M | +8.5% |
| R&D Expenses | $81.59M$80.65M | +1.2% |
| SG&A Expenses | $426.70M$403.70M | +5.7% |
| Operating Income | $389.75M$348.88M | +11.7% |
| Interest Expense | $38.52M-$56.52M | +168.2% |
| Net Income | $322.48M$268.07M | +20.3% |
| EPS (Basic) | $3.25$2.67 | +21.7% |
| EPS (Diluted) | $3.21$2.62 | +22.5% |
| Shares Outstanding (Basic) | 99.20M100.50M | −1.3% |
| Shares Outstanding (Diluted) | 100.56M102.50M | −1.9% |
05—Questions
Frequently Asked Questions
How did Waters perform financially in 2008?
Net sales grew 7% to $1,575 million and operating income rose to $390 million from $349 million. Net income was $322.5 million, or $3.21 per diluted share, up from $2.62 in 2007.
What drove sales growth?
The filing attributes growth to new products, primarily ACQUITY UPLC and Synapt HDMS, increased chemistry consumables and service sales, acquisitions, and favorable currency translation. Government, academic and industrial customers contributed to demand, while pharmaceutical sales grew 3%.
What risks did management highlight for 2009?
Management cited continued weakness in customer capital spending, a strong U.S. dollar expected to keep reducing translated sales, and the potential for further deterioration in financial markets. The company also noted that about 70% of 2008 net sales were outside the United States.
How is the company returning capital to shareholders?
Waters repurchased $235 million of stock in 2008 and its board authorized up to an additional $500 million of repurchases in February 2009. The company has not paid dividends and does not plan to pay them in the foreseeable future.
What legal matters could affect investors?
The company has an ongoing patent dispute with Agilent Technologies, and a French court judgment in January 2009 led to a $7 million provision that the company is appealing. A class action filed in November 2008 alleges misrepresentation of projections and business activity in Japan, which the company intends to defend vigorously.
06—Continue