Waters Earnings 2019-06-29

WAT 10Q Quarterly Report

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

Balance Sheet	Income Statement	Cash Flow

10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form

10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended

June 29, 2019

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

Commission File Number:

01-14010

Waters Corporation

(Exact name of registrant as specified in its charter)


Delaware		13-3668640
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

34 Maple Street

Milford,

Massachusetts

01757

(Address, including zip code, of principal executive offices)

(

508)

478-2000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	WAT	New York Stock Exchange, Inc.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes

☒

☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation

S-T

(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes

☒

☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a

non-accelerated

filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule

12b-2

of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule

12b-2

of the Act). Yes

☐

☒

Indicate the number of shares outstanding of the registrant’s common stock as of July 26, 2019:

66,759,444

WATERS CORPORATION AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q

INDEX


		Page
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets (unaudited) as of June 29, 2019 and December 31, 2018		3
	Consolidated Statements of Operations (unaudited) for the three months ended June 29, 2019 and June 30, 2018		4
	Consolidated Statements of Operations (unaudited) for the six months ended June 29, 2019 and June 30, 2018		5
	Consolidated Statements of Comprehensive Income (unaudited) for the three and six months ended June 29, 2019 and June 30, 2018		6
	Consolidated Statements of Cash Flows (unaudited) for the six months ended June 29, 2019 and June 30, 2018		7
	Consolidated Statements of Stockholders’ Equity (unaudited) for the three months ended June 29, 2019 and June 30, 2018		8
	Consolidated Statements of Stockholders’ Equity (unaudited) for the six months ended June 29, 2019 and June 30, 2018		9
	Condensed Notes to Consolidated Financial Statements (unaudited)		10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		32
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		42
Item 4.	Controls and Procedures		42

PART II	OTHER INFORMATION
Item 1.	Legal Proceedings		43
Item 1A.	Risk Factors		43
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		43
Item 6.	Exhibits		44
	Signature		45

Item 1:

Financial Statements

WATERS CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(unaudited)


	June 29, 2019			December 31, 2018
		(In thousands, except per share data)
ASSETS
Current assets:
Cash and cash equivalents	$	587,998		$	796,280
Investments		87,775			938,944
Accounts receivable, net		518,520			568,316
Inventories		351,552			291,569
Other current assets		74,556			68,054

Total current assets		1,620,401			2,663,163
Property, plant and equipment, net		368,878			343,083
Intangible assets, net		244,094			246,902
Goodwill		355,890			355,614
Operating lease assets		91,060			—
Other assets		142,599			118,664

Total assets	$	2,822,922		$	3,727,426

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Notes payable and debt	$	100,295		$	178
Accounts payable		67,397			68,168
Accrued employee compensation		36,464			64,545
Deferred revenue and customer advances		220,711			164,965
Current operating lease liabilities		25,106			—
Accrued treasury stock repurchases		9,874			23,005
Accrued income taxes		38,517			22,943
Accrued warranty		11,583			12,300
Other current liabilities		101,749			92,827

Total current liabilities		611,696			448,931
Long-term liabilities:
Long-term debt		1,048,394			1,148,172
Long-term income tax liabilities		393,297			430,866
Long-term operating lease liabilities		66,713			—
Long-term portion of retirement benefits		55,825			55,853
Other long-term liabilities		90,752			76,346

Total long-term liabilities		1,654,981			1,711,237

Total liabilities		2,266,677			2,160,168
Commitments and contingencies (Notes 6, 7, 8 and 12)

Stockholders’ equity:
Preferred stock, par value $0.01 per share, 5,000 shares authorized, no ne issued at June 29, 2019 and December 31, 2018		—			—
Common stock, par value $0.01 per share, 400,000 shares authorized, 160,841 and 160,472 shares issued, 67,620 and 73,115 shares outstanding at June 29, 2019 and December 31, 2018, respectively		1,608			1,605
Additional paid-in capital		1,883,958			1,834,741
Retained earnings		6,248,601			5,995,205
Treasury stock, at cost, 93,221 and 87,357 shares at June 29, 2019 and December 31, 2018, respectively		(7,462,826	)		(6,146,322	)
Accumulated other comprehensive loss		(115,096	)		(117,971	)

Total stockholders’ equity		556,245			1,567,258

Total liabilities and stockholders’ equity	$	2,822,922		$	3,727,426

The accompanying notes are an integral part of the interim consolidated financial statements.

WATERS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)


	Three Months Ended
	June 29, 2019			June 30, 2018
	(In thousands, except per share data)
Revenues:
Product sales	$	387,265		$	388,869
Service sales		211,897			207,350

Total net sales		599,162			596,219
Costs and operating expenses:
Cost of product sales		156,975			159,979
Cost of service sales		92,571			83,156
Selling and administrative expenses		133,208			136,645
Research and development expenses		36,490			35,644
Purchased intangibles amortization		2,264			1,602

Total costs and operating expenses		421,508			417,026

Operating income		177,654			179,193
Other expense		(342	)		(1,828	)
Interest expense		(11,448	)		(11,692	)
Interest income		5,871			8,888

Income before income taxes		171,735			174,561
Provision for income taxes		27,325			18,884

Net income	$	144,410		$	155,677

Net income per basic common share	$	2.09		$	2.00
Weighted-average number of basic common shares		68,989			77,833
Net income per diluted common share	$	2.08		$	1.98
Weighted-average number of diluted common shares and equivalents		69,494			78,438

The accompanying notes are an integral part of the interim consolidated financial statements.

WATERS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)


	Six Months Ended
	June 29, 2019			June 30, 2018
	(In thousands, except per share data)
Revenues:
Product sales	$	707,768		$	727,986
Service sales		405,256			398,903

Total net sales		1,113,024			1,126,889
Costs and operating expenses:
Cost of product sales		289,365			300,445
Cost of service sales		181,212			164,111
Selling and administrative expenses		267,547			267,052
Research and development expenses		71,550			70,124
Purchased intangibles amortization		4,545			3,261
Litigation settlement		—			(1,672	)

Total costs and operating expenses		814,219			803,321

Operating income		298,805			323,568
Other expense		(867	)		(1,482	)
Interest expense		(23,011	)		(25,530	)
Interest income		14,186			18,554

Income before income taxes		289,113			315,110
Provision for income taxes		35,717			47,482

Net income	$	253,396		$	267,628

Net income per basic common share	$	3.60		$	3.42
Weighted-average number of basic common shares		70,331			78,330
Net income per diluted common share	$	3.57		$	3.39
Weighted-average number of diluted common shares and equivalents		70,904			79,041

The accompanying notes are an integral part of the interim consolidated financial statements.

WATERS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)


	Three Months Ended						Six Months Ended
	June 29, 2019			June 30, 2018			June 29, 2019			June 30, 2018
	(In thousands)						(In thousands)
Net income	$	144,410		$	155,677		$	253,396		$	267,628
Other comprehensive (loss) income:
Foreign currency translation		(7,031	)		(47,159	)		491			(23,246	)
Unrealized gains (losses) on investments before income taxes		710			1,453			3,054			(1,523	)
Income tax (expense) benefit		(157	)		164			(704	)		257

Unrealized gains (losses) on investments, net of tax		553			1,617			2,350			(1,266	)
Retirement liability adjustment before reclassifications		(41	)		669			(102	)		284
Amounts reclassified to other income		90			909			183			1,816

Retirement liability adjustment before income taxes		49			1,578			81			2,100
Income tax expense		(23	)		(306	)		(47	)		(422	)

Retirement liability adjustment, net of tax		26			1,272			34			1,678
Other comprehensive (loss) income		(6,452	)		(44,270	)		2,875			(22,834	)

Comprehensive income	$	137,958		$	111,407		$	256,271		$	244,794

The accompanying notes are an integral part of the interim consolidated financial statements.

WATERS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


	Six Months Ended
	June 29, 2019			June 30, 2018
	(In thousands)
Cash flows from operating activities:
Net income	$	253,396		$	267,628
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation		19,255			18,971
Deferred income taxes		1,632			(2,992	)
Depreciation		28,704			30,585
Amortization of intangibles		24,911			25,251
Change in operating assets and liabilities:
Decrease in accounts receivable		52,508			36,591
Increase in inventories		(62,200	)		(33,877	)
Increase in other current assets		(11,627	)		(15,264	)
Increase in other assets		(15,060	)		(2,857	)
Decrease in accounts payable and other current liabilities		(10,439	)		(77,848	)
Increase in deferred revenue and customer advances		54,672			40,134
Effect of the 2017 Tax & Jobs Act		(3,229	)		12,450
Decrease in other liabilities		(29,720	)		(22,215	)

Net cash provided by operating activities		302,803			276,557
Cash flows from investing activities:
Additions to property, plant, equipment and software capitalization		(65,188	)		(36,831	)
Investment in unaffiliated companies		(4,750	)		(3,215	)
Purchases of investments		(35,523	)		(513,342	)
Maturities and sales of investments		890,524			1,759,770

Net cash provided by investing activities		785,063			1,206,382
Cash flows from financing activities:
Proceeds from debt issuances		363			226
Payments on debt		(245	)		(850,000	)
Proceeds from stock plans		30,129			34,845
Purchases of treasury shares		(1,329,635	)		(553,144	)
Proceeds from (payments for) derivative contracts		4,654			(2,158	)

Net cash used in financing activities		(1,294,734	)		(1,370,231	)
Effect of exchange rate changes on cash and cash equivalents		(1,414	)		(12,823	)

(Decrease) increase in cash and cash equivalents		(208,282	)		99,885
Cash and cash equivalents at beginning of period		796,280			642,319

Cash and cash equivalents at end of period	$	587,998		$	742,204

The accompanying notes are an integral part of the interim consolidated financial statements.

WATERS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited, in thousands)


	Number of Common Shares		Common Stock		Additional Paid-In Capital		Retained Earnings		Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity
Balance March 31, 2018		160,200	$	1,602	$	1,779,142	$	5,513,362	$	(5,090,581	)	$	(88,631	)	$	2,114,894
Net income		—		—		—		155,677		—			—			155,677
Other comprehensive loss		—		—		—		—		—			(44,270	)		(44,270	)
Issuance of common stock for employees:
Employee Stock Purchase Plan		14		—		2,486		—		—			—			2,486
Stock options exercised		83		1		8,071		—		—			—			8,072
Treasury stock		—		—		—		—		(270,774	)		—			(270,774	)
Stock-based compensation		1		—		9,009		—		—			—			9,009

Balance June 30, 2018		160,298	$	1,603	$	1,798,708	$	5,669,039	$	(5,361,355	)	$	(132,901	)	$	1,975,094


	Number of Common Shares		Common Stock		Additional Paid-In Capital		Retained Earnings		Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity
Balance March 30, 2019		160,825	$	1,608	$	1,872,216	$	6,104,191	$	(6,901,629	)	$	(108,644	)	$	967,742
Net income		—		—		—		144,410		—			—			144,410
Other comprehensive loss		—		—		—		—		—			(6,452	)		(6,452	)
Issuance of common stock for employees:
Employee Stock Purchase Plan		15		—		2,498		—		—			—			2,498
Treasury stock		—		—		—		—		(561,197	)		—			(561,197	)
Stock-based compensation		1		—		9,244		—		—			—			9,244

Balance June 29, 2019		160,841	$	1,608	$	1,883,958	$	6,248,601	$	(7,462,826	)	$	(115,096	)	$	556,245

The accompanying notes are an integral part of the consolidated financial statements.

WATERS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited, in thousands)


	Number of Common Shares		Common Stock		Additional Paid-In Capital		Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity
Balance December 31, 2017		159,845	$	1,598	$	1,745,088	$	5,405,380		$	(4,808,211	)	$	(110,067	)	$	2,233,788
Adoption of new accounting pronouncement		—		—		—		(3,969	)		—			—			(3,969	)
Net income		—		—		—		267,628			—			—			267,628
Other comprehensive loss		—		—		—		—			—			(22,834	)		(22,834	)
Issuance of common stock for employees:
Employee Stock Purchase Plan		24		—		4,051		—			—			—			4,051
Stock options exercised		305		3		30,778		—			—			—			30,781
Treasury stock		—		—		—		—			(553,144	)		—			(553,144	)
Stock-based compensation		124		2		18,791		—			—			—			18,793

Balance June 30, 2018

Closing Price ($)	Shares Out (MM)	Market Cap ($MM)
$216.78	69	$15,060

10-Q	2019-06-29	Quarter: 2019-06-29
10-Q	2019-03-30	Quarter: 2019-03-30
10-K	2018-12-31	Annual: 2018-12-31
10-Q	2018-09-29	Quarter: 2018-09-29
10-Q	2018-06-30	Quarter: 2018-06-30
10-Q	2018-03-31	Quarter: 2018-03-31
10-K	2017-12-31	Annual: 2017-12-31
10-Q	2017-09-30	Quarter: 2017-09-30
10-Q	2017-07-01	Quarter: 2017-07-01
10-Q	2017-04-01	Quarter: 2017-04-01
10-K	2016-12-31	Annual: 2016-12-31
10-Q	2016-10-01	Quarter: 2016-10-01
10-Q	2016-07-02	Quarter: 2016-07-02
10-Q	2016-04-02	Quarter: 2016-04-02
10-K	2015-12-31	Annual: 2015-12-31
10-Q	2015-10-03	Quarter: 2015-10-03
10-Q	2015-07-04	Quarter: 2015-07-04
10-Q	2015-04-04	Quarter: 2015-04-04
10-K	2014-12-31	Annual: 2014-12-31
10-Q	2014-09-27	Quarter: 2014-09-27
10-Q	2014-06-28	Quarter: 2014-06-28
10-Q	2014-03-29	Quarter: 2014-03-29
10-K	2013-12-31	Annual: 2013-12-31

8-K	2019-07-30	Earnings, Exhibits
8-K	2019-05-14	Shareholder Vote
8-K	2019-04-23	Earnings, Exhibits
8-K	2019-01-23	Earnings, Other Events, Exhibits
8-K	2018-10-23	Earnings, Exhibits
8-K	2018-09-01	Officers
8-K	2018-07-24	Earnings, Exhibits
8-K	2018-05-09	Code of Ethics, Exhibits
8-K	2018-04-24	Earnings, Other Events, Exhibits
8-K	2018-01-23	Earnings, Exhibits

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KSU	Kansas City Southern	12,290
HBI	Hanesbrands	6,330
PBYI	Puma Biotechnology	1,160
CCF	Chase	922
BCOV	Brightcove	364
ROX	Castle Brands	101
SEND	Sendgrid	0
EXXP	Edgar Express	0
CINAV	Cole Real Estate Income Strategy	0

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