01—Abstract
Summary
Summary of the 10-K filed February 24, 2017. Cited figures are marked; the original filing is the authoritative source.
Waters Corporation reported net sales of $2.17 billiona for 2016, up from $2.04 billion in 2015, with total sales growth of 6%.
Net income rose to $521.5 millionb from $469.1 million, and diluted EPS was $6.41 versus $5.65 a year earlier. Operating income reached $624.3 million, or 28.8% of sales. Growth was led by the pharmaceutical market, which grew 9%, and by Asia, where sales rose 13% with China up 19%.
Management cited instrument system sales growth of 4% and recurring revenues (chemistry consumables and services) growth of 8%. The company also noted that foreign currency translation reduced sales growth by 1% in 2016, and that it expects currency to negatively affect sales growth in 2017. Cash flow from operations was $629 millionc in 2016, compared with $560 million in 2015.
At year end the company held $2.81 billiond in cash, cash equivalents and investments, against $1.83 billion of total debt. Of the cash balance, $2.77 billion was held by foreign subsidiaries, which the filing identifies as a consideration for U.S. cash needs. The company repurchased $318 million of common stock under its May 2014 program during 2016 and had $123 million remaining authorized.
It has not paid dividends since its IPO. The filing also notes that the company had $468 million available under its credit agreement.
The filing describes two operating segments, Waters and TA, aggregated into one reporting segment. Investors should weigh the risks the filing highlights: about 69% of 2016 net sales came from outside the United States, roughly 56% of sales went to pharmaceutical and biotechnology customers, and the company's Singapore tax holiday at a 0% contractual rate depends on meeting milestones through 2020.
02—Key points
Key Highlights
- Net sales rose 6% to $2.17 billion in 2016, from $2.04 billion in 2015, with growth led by pharmaceutical customers (up 9%) and Asia (up 13%).
- Net income increased to $521.5 million ($6.41 per diluted share) from $469.1 million ($5.65 per diluted share) in 2015.
- Operating income was $624.3 million, or 28.8% of sales, compared with 27.8% in 2015.
- Recurring revenues (chemistry consumables and services) grew 8%, while instrument system sales grew 4%.
- Operating cash flow was $629 million in 2016, up from $560 million in 2015.
- The company held $2.81 billion of cash and investments against $1.83 billion of total debt, with $2.77 billion of cash held by foreign subsidiaries.
- No dividends have been paid since the IPO, and $318 million of stock was repurchased in 2016, with $123 million remaining under the May 2014 authorization.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2016, Waters kept $0.24.
- Revenue$2.17B100.0%
- Cost of revenue−$891.5M41.1%
- Gross profit$1.28B58.9%
- Operating costs−$650.9M30.0%
- Operating income$625.0M28.8%
- Interest, other & tax−$103.5M4.8%
- Net income$521.5M24.1%
Where FY2016 revenue went
$2.17B- Cost of revenue: $891.5M, 41% of revenue
- Net income: $521.5M, 24% of revenue
- SG&A: $512.3M, 24% of revenue
- R&D: $125.2M, 5.8% of revenue
- Other operating costs: $13.4M, 0.6% of revenue
- Interest, other & tax: $103.5M, 4.8% of revenue
Kept 24% as net incomeOther operating costs $13.4M · 0.6%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2016filed February 24, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $2.17B$2.04B | +6.1% |
| Cost of Revenue | $891.45M$842.67M | +5.8% |
| Gross Profit | $1.28B$1.20B | +6.4% |
| R&D Expenses | $125.19M$118.55M | +5.6% |
| SG&A Expenses | $512.33M$495.75M | +3.3% |
| Operating Expenses | $1.54B$1.47B | +4.6% |
| Operating Income | $625.04M$567.45M | +10.1% |
| Interest Expense | $44.91M$36.24M | +23.9% |
| Net Income | $521.50M$469.05M | +11.2% |
| EPS (Basic) | $6.46$5.70 | +13.3% |
| EPS (Diluted) | $6.41$5.65 | +13.5% |
| Shares Outstanding (Basic) | 80.79M82.34M | −1.9% |
| Shares Outstanding (Diluted) | 81.42M83.09M | −2.0% |
05—Questions
Frequently Asked Questions
How did Waters perform financially in 2016?
Net sales were $2.17 billion, up 6% from $2.04 billion in 2015. Net income was $521.5 million, or $6.41 per diluted share, compared with $5.65 in 2015. Operating income was $624.3 million, up 10% from $567.5 million.
What drove the sales growth?
The filing attributes growth mainly to continued strength in the pharmaceutical market, which grew 9%, followed by industrial growth of 6%. Asia grew 13%, led by China at 19%. Sales to governmental and academic customers declined 4%.
What are the main risks for investors?
The filing cites foreign exchange exposure, since about 69% of 2016 net sales were outside the U.S. It also cites dependence on customer capital spending, competition, and the risk of losing the 0% Singapore contractual tax rate if milestones are not met. Most of the company's cash is held outside the U.S., which may create tax costs if distributed.
How is the company funding its capital needs and shareholder returns?
At December 31, 2016, the company had $1.83 billion of debt, including $700 million of senior unsecured notes and $1.13 billion under its credit facilities. It had $468 million available to borrow under its credit agreement. In 2016 it repurchased $318 million of stock and issued $250 million of new senior notes. The company has not paid dividends and has no plans to do so.
06—Continue