01—Abstract
Summary
Summary of the 10-K filed February 26, 2013. Cited figures are marked; the original filing is the authoritative source.
Waters Corporation, an analytical instrument manufacturer, reported net sales of $1.84 billiona for 2012, essentially flat compared with $1.85 billion in 2011.
Management attributed the flat result to a 4% increase in combined chemistry consumables and services sales, offset by a 4% decrease in instrument system sales. Net income rose to $461.4 millionb, or $5.19 per diluted share, from $433.0 million, or $4.69 per diluted share, in 2011. The filing notes that tax benefits of $36 million and $6 million added $0.48 per diluted share in 2012, and that the company's effective tax rate fell to 5.4%.
Operating income declined 3% to $511.5 millionc, reflecting one-time charges for a $4 million trade name intangible write-off and $7.4 million in litigation provisions. The company operates two segments, the Waters Division (LC, LC-MS and chemistry consumables with services) and the TA Division (thermal analysis, rheometry and calorimetry). Waters Division product sales fell 4% in 2012, while service sales grew 6%, and the filing states that service revenue has increased consistently each year.
Sales outside the United States were 71% of the total. The filing also notes that the company held $1.54 billiond in cash and short-term investments at year-end, of which $1.49 billion was held by foreign subsidiaries, against $1.18 billion of debt, and that management plans to continue its share repurchase program in 2013, with $643 million authorized remaining. The filing signals a few items for 2013.
Management expects foreign currency translation to be neutral to sales but negative to operating profit, and expects selling and administrative expenses to increase. Amortization expense is estimated at $40 million to $45 million per year over the next five years, reflecting new software platforms launched in early 2013. The company also disclosed an unfavorable December 2012 patent ruling in Germany with Agilent, for which it recorded a $4 million provision.
02—Key points
Key Highlights
- Net sales were $1,843.6 million in 2012, flat versus $1,851.2 million in 2011, as a 4% rise in combined chemistry consumables and services offset a 4% decline in instrument system sales.
- Net income rose 7% to $461.4 million, and diluted EPS rose 11% to $5.19, helped by $36 million and $6 million tax benefits that added $0.48 per diluted share.
- Operating income fell 3% to $511.5 million, with operating margin at 27.7% versus 28.6% in 2011, partly due to a one-time $4 million intangible write-off and $7.4 million in litigation provisions.
- Service sales grew 6% to $563.1 million, and the filing states that servicing represents over 25% of Waters Division sales and that service revenues have increased consistently each year.
- Cash, cash equivalents and short-term investments totaled $1,539.0 million, of which $1,489 million was held by foreign subsidiaries, against total debt of $1,177.8 million.
- Share repurchases totaled $290 million in 2012 under the May 2012 $750 million authorization, with $643 million remaining, and the company plans to continue repurchases in 2013; the company has paid no dividends.
- Management expects 2013 foreign currency translation to be neutral to sales but negative to operating profit, and expects amortization expense of $40 million to $45 million per year for the next five years.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2012, Waters kept $0.25.
- Revenue$1.84B100.0%
- Cost of revenue−$737.6M40.0%
- Gross profit$1.11B60.0%
- Operating costs−$594.5M32.2%
- Operating income$511.5M27.7%
- Interest, other & tax−$50.0M2.7%
- Net income$461.4M25.0%
Where FY2012 revenue went
$1.84B- Cost of revenue: $737.6M, 40% of revenue
- SG&A: $477.3M, 26% of revenue
- Net income: $461.4M, 25% of revenue
- R&D: $96.0M, 5.2% of revenue
- Other operating costs: $21.3M, 1.2% of revenue
- Interest, other & tax: $50.0M, 2.7% of revenue
Kept 25% as net incomeOther operating costs $21.3M · 1.2%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2012filed February 26, 2013Financial Statements
FY2012 against FY2011
| Line item | FY2012FY2011 | Change |
|---|---|---|
| Revenue | $1.84B$1.85B | −0.4% |
| Cost of Revenue | $737.61M$730.49M | +1.0% |
| Gross Profit | $1.11B$1.12B | −1.3% |
| R&D Expenses | $96.00M$92.35M | +4.0% |
| SG&A Expenses | $477.27M$490.01M | −2.6% |
| Operating Income | $511.49M$528.60M | −3.2% |
| Interest Expense | $28.07M$21.97M | +27.8% |
| Net Income | $461.44M— | — |
| EPS (Basic) | $5.25$4.77 | +10.1% |
| EPS (Diluted) | $5.19$4.69 | +10.7% |
| Shares Outstanding (Basic) | 87.84M90.83M | −3.3% |
| Shares Outstanding (Diluted) | 88.98M92.33M | −3.6% |
05—Questions
Frequently Asked Questions
How did Waters perform financially in 2012?
Net sales were $1,843.6 million, essentially flat versus $1,851.2 million in 2011. Net income increased 7% to $461.4 million, and diluted EPS increased 11% to $5.19. Operating income declined 3% to $511.5 million. The filing attributes the gap between net income and operating income growth largely to lower tax expense, including $36 million and $6 million tax benefits recognized in 2012.
What drove the flat sales result?
The filing says instrument system sales decreased 4%, mainly due to customer capital spending timing amid uncertain global economic conditions, the weaker Euro and Indian rupee. This was offset by a 4% increase in combined chemistry consumables and services sales. Service sales grew 6% to $563.1 million, and China sales grew 21%.
How strong is the company's balance sheet and cash position?
At December 31, 2012, the company had $1,539.0 million in cash, cash equivalents and short-term investments and $1,177.8 million in total debt. Of the cash, $1,489 million was held by foreign subsidiaries, and the filing notes that U.S. cash requirements are funded by U.S. operating cash flow and revolving credit facilities. The company had $428 million available to borrow under its credit agreements and was in compliance with all debt covenants.
What are the key risks highlighted in the filing?
The filing highlights exposure to global economic conditions and customer capital spending, with about 53% of 2012 net sales going to pharmaceutical and biotechnology customers. It notes approximately 71% of net sales were outside the United States, creating currency and political risks. It also cites intense competition, dependence on single-source suppliers, and an unfavorable German patent ruling in December 2012 involving Agilent, for which a $4 million provision was recorded.
What does the company plan for 2013?
Management expects demand for instrument systems to improve in 2013 across most major regions, except China, where double-digit growth is expected to continue. It expects foreign currency translation to be neutral for sales but negative for operating profit, expects selling and administrative expenses to rise due to headcount additions and restored incentive compensation, and plans to continue its share repurchase program.
06—Continue