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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 01-14010
WATERS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-3668640
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
34 MAPLE STREET
MILFORD, MASSACHUSETTS 01757
(Address, including zip code, of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (508) 478-2000
Securities registered pursuant to Section Common Stock, par value $.01 per
12(b) of the Act: share New York Stock Exchange, Inc.
Securities registered pursuant to Section
12(g) of the Act: None
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 (X) No ( )
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
( )
State the aggregate market value of the registrant's common stock held by
non-affiliates of the registrant as of March 23, 1999: $3,028,097,556.
Indicate the number of shares outstanding of the registrant's common stock as of
March 23, 1999: 30,586,844.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1998 Annual Report to Stockholders are incorporated by reference
in Parts I and II.
Portions of the proxy statement for the 1999 Annual Meeting of Stockholders are
incorporated by reference in Part III.
1
WATERS CORPORATION AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10K
INDEX
Index No. Page
- --------- ----
PART I
1. Business ..................................................................... 3
2. Properties ................................................................... 9
3. Legal Proceedings ............................................................ 10
4. Submission of Matters to a Vote of Security Holders .......................... 11
Executive Officers ........................................................... 11
PART II
5. Market for the Registrant's Common Equity and Related Stockholder Matters..... 12
6. Selected Financial Data ...................................................... 12
7. Management's Discussion and Analysis of Financial Condition and Results
of Operations ................................................................ 12
7a. Quantitative and Qualitative Disclosures About Market Risk ................... 13
8. Financial Statements and Supplementary Data .................................. 13
9. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure ......................................................... 13
PART III
10. Directors and Executive Officers of the Registrant ........................... 13
11. Executive Compensation ....................................................... 13
12. Security Ownership of Certain Beneficial Owners and Management ............... 13
13. Certain Relationships and Related Transactions ............................... 13
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K .............. 14
Signatures ................................................................... 16
2
PART I
ITEM 1: BUSINESS
GENERAL
Waters Corporation ("Waters" or the "Company") is a holding company
which owns only and all of the outstanding common stock of Waters Technologies
Corporation, the operating subsidiary. Waters Corporation was established to
acquire ("Acquisition") the predecessor Waters Chromatography Division
("Predecessor") of Millipore Corporation ("Millipore") on August 18, 1994.
Waters Corporation became a publicly traded company with its initial public
offering ("IPO") in November 1995. The Company has made two significant
acquisitions since its inception: TA Instruments, Inc. ("TAI") in May 1996 and
Micromass Limited ("Micromass") in September 1997.
BUSINESS SEGMENTS
The Company operates in the analytical instrument industry, with
manufacturing and distribution expertise in three complementary technologies:
HPLC instruments, columns and other consumables, and related service; thermal
analysis and rheology instruments; and mass spectrometry instruments that can be
integrated and used along with other analytical instruments, particularly HPLC.
The Company also operates in several geographic segments. See Footnote 15 to the
Financial Statements for detailed results by geographic segment and products and
service revenue found in the 1998 Annual Report which is incorporated herein by
reference.
BUSINESS
Waters, an analytical instrument manufacturer, is the world's largest
manufacturer and distributor of high performance liquid chromatography ("HPLC")
instruments, columns and other consumables, and related service. The Company has
the largest HPLC market share in the United States, Europe and non-Japan Asia
and has a leading position in Japan. HPLC, the largest product segment of the
analytical instrument market, is utilized in a broad range of industries to
detect, identify, monitor and measure the chemical, physical and biological
composition of materials, and to purify a full range of compounds. Through its
TAI subsidiary, Waters is also the world's leader in thermal analysis, a
prevalent and complementary technique used in the analysis of polymers. Also,
through its Micromass subsidiary, Waters is a market leader in mass
spectrometry, which can be integrated and used along with other analytical
instruments, especially HPLC.
Developed in the 1950's, HPLC today is the standard technique used to
identify and analyze the constituent components of a variety of chemicals and
materials. HPLC's unique performance capabilities enable it to separate and
identify 80% of all known chemicals and materials. As a result, HPLC is used to
analyze substances in a wide variety of industries for research and development
purposes, quality control and process engineering applications. Within the
pharmaceutical and life science industries, its most important end-use market,
HPLC is used extensively to identify new drugs, to develop manufacturing
methods, and to assure the potency and purity of new pharmaceuticals. HPLC is
used to identify food content for nutritional labeling in the food and beverages
industry and to test water and air purity within the environmental testing
industry. HPLC is also used in a variety of applications in other industries,
such as chemical and consumer products, as well as by universities and
government agencies. In many instances, Food and Drug Administration ("FDA") and
Environmental Protection Agency ("EPA") regulations, and those of their
international counterparts, mandate testing that requires HPLC instrumentation.
Waters manufactures over 100 HPLC instrument types. A complete HPLC
system consists of five basic components: the solvent delivery system, the
sample injector, the separation column, the detector and the data acquisition
unit. The solvent delivery system pumps the solvent through the HPLC system,
while the sample injector injects the sample into the solvent flow. The
separation column then separates the sample into its components for analysis by
the detector which measures the presence and amount of
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the constituents. The data acquisition unit then records and stores the
information from the detector. Consumable products primarily are columns packed
with separation media used in the HPLC testing process and are replaced at
regular intervals. The separation column contains one of several types of
packing, typically stationary phase packing made from silica. As the sample
flows through the column, it is separated into its constituent components.
The acquisition of TAI expanded the Company's product offerings to
include thermal analysis and rheology products. TAI develops, manufactures,
sells and services thermal analysis and rheology instruments which are used for
the physical characterization of polymers and related materials. Thermal
analysis measures the physical characteristics of materials as a function of
temperature. Changes in temperature affect several characteristics of materials
such as their physical state, weight, dimension and mechanical and electrical
properties, which may be measured by one or more thermal analysis techniques.
Consequently, thermal analysis techniques are widely used in the development,
production and characterization of materials in various industries such as
plastics, chemicals, automobiles, pharmaceuticals and electronics. Rheology
instruments complement thermal analyzers in characterizing materials. Rheology
characterizes the flow properties of materials and measures their viscosity,
elasticity and deformation under different types of loading. The information
obtained provides insight with regard to a material's behavior during
manufacture, transport, usage and storage.
The acquisition of Micromass expanded the Company's product offerings
in mass spectrometry instruments. Micromass is a world leader in the
development, manufacture, sale and support of organic, inorganic, stable isotope
and ICP mass spectrometers typically coupled with HPLC, chemical
electrophoresis, chemical electrophoresis chromatography, gas chromatography or
elemental analysis systems. Mass spectrometry is a powerful analytical technique
that is used to identify unknown compounds, to quantify known materials, and to
elucidate the structural and chemical properties of molecules by measuring the
masses of individual molecules that have been converted into ions. These
products supply a diverse market with a strong emphasis on the life science,
pharmaceutical, biomedical, clinical, environmental and geochemistry markets
worldwide. With the acquisition of Micromass, Waters became one of the leading
worldwide manufacturers of HPLC-MS systems, "hyphenated" analytical systems that
bring together HPLC and mass spectrometry detection. Design innovations in
HPLC-MS interfacing technology have drastically improved the operating
efficiencies of these systems, greatly simplifying their operation, driving down
their overall cost and making them much more affordable for the average
analytical laboratory. These laboratories previously relied on expert mass
spectrometrists to provide them the information they now get in minutes. The
largest market for HPLC-MS is the pharmaceutical market where new drug
development technologies are placing greater demands on laboratories to screen
and analyze new drug compounds.
Instruments comprise about two thirds of the Company's total revenue.
Consumable products and service comprise the remaining one third.
CUSTOMERS
Waters has a broad and diversified customer base that includes
pharmaceutical accounts, other industrial accounts, universities and government
agencies. The pharmaceutical segment represents the Company's largest sector and
includes multinational pharmaceutical companies, generic drug manufacturers and
biotechnology companies. The Company's other industrial customers include
chemical manufacturers, polymer manufacturers, food and beverage companies and
environmental testing laboratories. The Company also sells to various
universities and government agencies worldwide and Waters' technical support
staff work closely with these customers in developing and implementing
applications that meet their full range of analytical requirements.
The Company does not rely on any one customer or group of customers for
a material portion of its sales. During fiscal 1998, no customer accounted for
more than 2% of the Company's net sales.
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RESEARCH AND DEVELOPMENT
Waters maintains an active research and development program focused on
the development and commercialization of products which both complement and
update the existing product offering. The Company's research and development
expenditures for 1998, 1997 and 1996, were $34.4 million, $25.8 million, and
$20.9 million, respectively. Nearly all of the current HPLC products of the
Company have been developed at the main research and development center in
Milford, Massachusetts, with input and feedback from Waters' extensive field
organization. Nearly all of the current thermal analysis products have been
developed at the Company's research and development center in New Castle,
Delaware and the majority of the mass spectrometry products have been developed
at facilities in England. There are approximately 320 employees involved in the
Company's research and development efforts.
SALES AND SERVICE
Waters has the largest sales and service team focused exclusively on
HPLC in the industry. Across all technologies, using respective specialized
sales and service forces, the Company serves its customer base through over 944
field representatives in 75 sales offices throughout the world. Many field
representatives are former customers. The sales representatives have direct
responsibility for account relationships, while service representatives work in
the field to install instruments and minimize instrument downtime for customers.
Technical support representatives work directly with customers, helping them to
develop customized applications and procedures. Waters provides customers with
comprehensive product literature and also makes consumable products available
through a dedicated catalog.
MANUFACTURING
Waters provides high quality HPLC products by controlling each stage of
production of its instruments and columns. The Company assembles most of its
instruments at its facility in Milford, Massachusetts, where it performs
machining, wiring, assembly and testing. The Milford facility employs
manufacturing techniques that meet the strict ISO 9002 quality manufacturing
standards and FDA mandated Good Manufacturing Practices. The Company outsources
manufacturing of certain electronic components such as computers and screens to
outside vendors that can meet the Company's quality requirements.
The Company manufactures its HPLC columns at its facilities in Taunton,
Massachusetts and Wexford, Ireland, where it processes, sizes and treats silica
and polymer media that are packed into columns, solid phase extraction
cartridges and bulk shipping containers. These facilities meet the same ISO and
FDA standards met by the Milford, Massachusetts facility and are approved by the
FDA to produce Class 1 medical devices.
The Company manufactures its thermal analysis products at its New
Castle, Delaware facility and its rheology products at its Leatherhead, England
facility. Mass spectrometry products are manufactured at the Company's
Manchester, England facilities.
COMPETITION
The analytical instrument and systems market is highly competitive. The
Company encounters competition from several worldwide instrument manufacturers
in both domestic and foreign markets. Waters competes in its markets primarily
on the basis of instrument performance, reliability and service and, to a lesser
extent, price. Some competitors have instrument businesses that are much larger
than the Company's business, but are typically less focused on Waters' chosen
markets. Certain competitors have greater financial and other resources than the
Company.
5
The market for consumable HPLC products, including separation columns,
is also highly competitive but is more fragmented than the analytical
instruments market. Waters encounters competition in the columns market from
chemical companies that produce column chemicals and small specialized companies
that pack and distribute columns. The Company believes that it is one of the few
suppliers that processes silica, packs columns, and distributes its own product.
Waters competes in this market on the basis of reproducibility, reputation and
performance, and, to a lesser extent, price.
PATENTS, TRADEMARKS AND LICENSES
Waters owns a number of United States and foreign patents and has
patent applications pending in the United States and abroad. Certain technology
and software is licensed from third parties. Waters also owns a number of
trademarks. While the patents, licenses and trademarks are viewed as valuable
assets, the Company's patent position is not of material importance to its
operations.
EMPLOYEES
Waters employs approximately 2,800 employees. 57% of the Company's
employees are located in the United States. Labor relations are considered to be
excellent and no Waters employees have union affiliations.
ENVIRONMENTAL MATTERS
The Company is subject to Federal, state and local laws, regulations
and ordinances that (i) govern activities or operations that may have adverse
environmental effects, such as discharges to air and water, as well as handling
and disposal practices for solid and hazardous wastes, and (ii) impose liability
for the costs of cleaning up, and certain damages resulting from sites of past
spills, disposals or other releases of hazardous substances. The Company
believes that it currently conducts its operations, and in the past has operated
its business, in substantial compliance with applicable environmental laws. From
time to time, operations of the Company have resulted or may result in
noncompliance with or liability for cleanup pursuant to environmental laws. The
Company does not currently anticipate any material adverse effect on its
operations, financial condition or competitive position as a result of its
efforts to comply with environmental laws.
With respect to the Predecessor operations of the Company's HPLC
business, Millipore has been notified that the United States Environmental
Protection Agency has determined that a release or a threat of a release of
hazardous substances as defined by CERCLA has occurred at certain sites to which
chemical wastes generated by its manufacturing operations have been sent. In
each instance, Millipore was only one of a large number of corporations and
entities which received such notification, and anticipates that any ultimate
liability for remedial costs will be shared by others. In any instances
involving chemical wastes generated by the Predecessor, Millipore has entered
into partial settlements, paid its proportionate financial obligation and
received partial releases.
In connection with the Acquisition, Millipore agreed to retain
environmental liabilities resulting from pre-acquisition operations of the
Company's facilities. Notwithstanding this contractual agreement, under CERCLA
and similar environmental laws, the Company may remain primarily liable to
certain persons for environmental cleanup costs.
RISK FACTORS
COMPETITION AND THE ANALYTICAL INSTRUMENT MARKET
The analytical instrument market; in particular, the portion related to
the Company's HPLC, thermal analysis and mass spectrometry product lines; is
highly competitive, and the Company encounters competition from several
international instrument manufacturers and other companies in both domestic
6
and foreign markets. Certain competitors are divisions of significantly larger
companies which have greater financial and other resources than the Company.
There can be no assurances that the Company's competitors will not introduce
more effective and less costly products than those of the Company, or that the
Company will be able to increase its sales and profitability from new product
introductions. Additionally, the market may, from time to time, experience low
sales growth. Approximately 60% of the Company's net sales in 1998 were to the
worldwide pharmaceutical industry, which may be periodically subject to
unfavorable market conditions and consolidations. Unfavorable industry
conditions could have a material adverse effect on the Company's results of
operations.
RISK OF DISRUPTION
The Company manufactures HPLC instruments at its facility in Milford,
Massachusetts, separation columns at its facilities in Taunton, Massachusetts
and Wexford, Ireland, thermal analysis products at its facility in New Castle,
Delaware, and mass spectrometry products at its facilities in Manchester,
England and Cheshire, England. Any prolonged disruption to the operations at
these facilities, whether due to labor difficulties, destruction of or damage to
either facility or other reasons, could have a material adverse effect on the
Company's results of operations and financial condition.
FOREIGN EXCHANGE RATES
Approximately 58% of Waters' 1998 net sales were outside of the United
States and were primarily denominated in foreign currencies. As a result, a
significant portion of the Company's sales and operations are subject to certain
risks, including adverse developments in the foreign political and economic
environment, tariffs and other trade barriers, difficulties in staffing and
managing foreign operations and potentially adverse tax consequences.
Additionally, the U.S. dollar value of the Company's net sales varies
with currency exchange rate fluctuations. Significant increases in the value of
the U.S. dollar relative to certain foreign currencies could have a material
adverse effect on Waters' result of operations.
SUBSTANTIAL INDEBTEDNESS
The Company has substantial indebtedness. Subject to the terms and
conditions of the Bank Credit Agreement, Waters may incur additional
indebtedness from time to time to finance acquisitions or capital expenditures
or for other purposes. The level of the Company's indebtedness could have
important consequences to holders of the Common Stock, given that: (i) the
Company's ability to obtain additional debt financing in the future for working
capital, capital expenditures or acquisitions may be limited; and (ii) the
Company's level of indebtedness could limit its flexibility in reacting to
changes in the industry and economic conditions. Certain of the Company's
competitors currently operate on a less leveraged basis and, as a result, have
significantly greater financing flexibility than the Company.
The Bank Credit Agreement imposes operating and financial restrictions
on the Company. The Bank Credit Agreement contains covenants which limit
(subject to certain exceptions): (i) the incurrence of additional indebtedness;
(ii) the payment of dividends; (iii) transactions with affiliates; (iv) asset
sales, acquisitions, mergers and consolidations; (v) prepayments of other
indebtedness; (vi) the creation of liens and encumbrances; and (vii) other
matters customarily restricted in such agreements. In addition, substantially
all of the Company's assets, including the stock of its subsidiaries, are
pledged to secure indebtedness under the Bank Credit Agreement. There can be no
assurance that the Company's existing cash balances and cash flow from
operations together with borrowings under the Bank Credit Agreement will be
sufficient to meet all of its debt service requirements and to fund its capital
expenditure requirements for the foreseeable future.
FORWARD LOOKING STATEMENTS
Certain of the statements in this Form 10-K and the Annual Report are
forward-looking statements, including statements regarding, among other items,
(i) the impact of the Company's new
7
products, (ii) the Company's growth strategies, including its intention to make
acquisitions and introduce new products, (iii) anticipated trends in the
Company's business and (iv) the Company's ability to continue to control costs
and maintain quality. These statements are subject to various risks and
uncertainties, many of which are outside the control of the Company, including
(i) changes in the HPLC, thermal analysis and mass spectrometry portions of the
analytical instrument marketplace as a result of economic or regulatory
influences, (ii) changes in the competitive marketplace, including new products
and pricing changes by the Company's competitors and (iii) the ability of the
Company to generate increased sales and profitability from new product
introductions. In light of these risks and uncertainties, there can be no
assurance that the forward-looking information contained in this document and
the Annual Report will transpire.
RELIANCE ON KEY MANAGEMENT
The operation of the Company requires managerial and operational
expertise. None of the key management employees has an employment contract with
the Company, and there can be no assurance that such individuals will remain
with the Company. If, for any reason, such key personnel do not continue to be
active in management, the Company's operations could be adversely affected.
YEAR 2000
Year 2000 ("Y2K") issues concern the ability of information systems to
properly recognize and process date-sensitive information beyond December 31,
1999.
The Company has been engaged in a concerted effort to ready its
business systems and products in anticipation of Y2K. A special internal project
team led by senior management was organized in 1997 in an attempt to ensure that
all material business systems, instrument products and applications software are
compliant by January 1, 2000. Currently, the companywide planning and inventory
phases have been completed. The assessment phase was substantially completed by
December 31, 1998, and included the examination of products, worldwide
operations, manufacturing systems, business computer systems, manufacturing,
warehousing and servicing equipment, network hardware and software, telephone
systems, desktop application software, mainframe operating systems, and
environmental operations. Currently, the Company believes that most of its
internal systems and related software are likely to be Y2K compliant. The
Company is continuing to examine its material software and systems for Y2K
compliance and take corrective action to minimize any significant detrimental
effects on operations.
The remediation and testing phases of the Company's systems are
scheduled to be completed by the middle of 1999. Based on the results of the
testing phase, a contingency plan will be completed. The Company has no plans to
engage in third party validation of its Y2K efforts. To date, approximately
$10.0 million has been spent over the past four years in connection with
bringing the Company's internal systems into compliance, primarily capital
expenditures for entirely new business and communications systems which replaced
predecessor systems. The remaining costs to fix Y2K problems are estimated at
less than $1.0 million, including capital expenditures to replace certain
predecessor capital items. These costs do not include any allocation for the
time devoted by regular employees of the Company to addressing Y2K problems, as
the Company does not separately track such time. The Company does not expect the
costs relating to the Y2K remediation phase to have a material effect on the
Company.
The Company has made public statements to customers regarding its state
of Year 2000 readiness for its products; however, the possibility of product
liability claims still exists. The Company also recognizes that Y2K disruptions
in customer operations could result in reduced sales and cash flow and increased
inventory or receivables. While these events are possible, the Company believes
that its customer base is broad enough to minimize the effects of a single
occurrence. To date, the Company has received communications from many of its
major customers which indicate an awareness of Y2K issues.
8
The Company is in the process of obtaining certificates of compliance
from its major systems vendors. Additionally, the Company is in the process of
surveying its financial services, utilities, and communication providers, as
well as its critical suppliers to ensure that they are compliant. Despite these
efforts, however, interruption of supplier operations due to Y2K issues could
potentially affect Company operations. The Company uses multiple suppliers, and,
in some instances, maintains an inventory of parts and supplies, which may
reduce the risks of interruption, but cannot eliminate the potential for
disruption due to third party failure.
The Company currently has identified contingency alternatives for
certain elements of Year 2000 risk. The contingency plan is intended to be
completed during fiscal 1999. The plan will address customer problems as well as
temporary remedies in the event of failure of Company or third party systems.
The Company will continue to review its business interruption contingency plans
as it completes its testing and remediation phases during the year. However,
there can be no assurance that any contingency plans will prevent Y2K problems
from occurring.
While the Company believes its efforts will provide reasonable
assurance that material disruptions are not likely to occur due to internal
failure, the potential for interruption still exists. Specifically, the Company
and its subsidiaries could be materially adversely affected if utilities,
private businesses and governmental entities with which they do business or that
provide essential services are not Y2K compliant. The Company currently believes
that the greatest risk of disruption in its businesses exists in certain
international markets. Such interruptions could cause, among other things,
temporary plant closings, delays in the delivery of products, delays in the
receipt of supplies, invoice and collection errors, and inventory and supply
obsolescence. Recovery under existing insurance policies may be available
depending upon the circumstances of a Y2K related event.
The estimates and conclusions herein are based on management's best
estimates of future events. Risks that could cause results to differ from these
estimates and conclusions include the uncertainties involved in discovering and
correcting the potential Y2K sensitive problems which could have a serious
impact on specific facilities and the ability of suppliers and customers to
bring their systems into Y2K compliance.
EURO CURRENCY CONVERSION
Several countries of the European Union will adopt the euro as their
legal currency effective July 1, 2002. A transition period has been established
from January 1, 1999 to July 1, 2002 during which companies conducting business
in these countries may use the euro or their local currency. The Company has
considered the potential impact of the euro conversion on pricing competition,
its information technology systems, and currency risk and risk management.
Currently, the Company does not expect that the euro conversion will result in
any material increase in costs to the Company or have a material adverse effect
on its business or financial condition.
ITEM 2: PROPERTIES
Waters operates 17 United States facilities and 70 international
facilities. The Company believes its facilities are suitable and adequate for
its current production level and for reasonable growth over the next few years.
The Company's primary facilities are summarized in the table below.
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PRIMARY FACILITY LOCATIONS
LOCATION FUNCTION (1) OWNED/LEASED SQUARE FEET (000'S)
- --------------------------------------------------------------------------------
Etten-Leur, Netherlands D Leased 26
Franklin, MA D Leased 30
Milford, MA M, R, S Owned 408
Taunton, MA M Owned 32
Singapore S Leased 5
Tokyo, Japan R, S Leased 12
Wexford, Ireland M Leased 20
New Castle, DE M, R, S, D Leased 53
Leatherhead, England M, R, S, D Leased 10
Manchester, England M, R, S, D Leased 54
Cheshire, England M, R, S Leased 28
- ---------------------
(1) M = Manufacturing; R = Research; S = Sales; D = Distribution
Waters operates and maintains 13 field offices in the United States and
62 field offices abroad in addition to sales offices in the primary facilities
listed above. The Company's primary field office locations are listed below.
FIELD OFFICE LOCATIONS (2)
UNITED STATES INTERNATIONAL
- -------------------------------------------------------------------------------------
Tustin, CA Australia India Switzerland
Wood Dale, IL Austria Italy Taiwan
Fairfax, VA Belgium Japan United Kingdom
Cary, NC Brazil Mexico
Morristown, NJ Canada Netherlands
Houston, TX Czech Republic Norway
Pleasanton, CA Denmark People's Republic of China
Ann Arbor, MI Finland Poland
Capitola, CA France Puerto Rico
Rolling Meadows, IL Germany Russia
Beverly, MA Hong Kong Spain
Spring, TX Hungary Sweden
- --------------
(2) Waters operates more than one office within certain states and foreign
countries.
ITEM 3: LEGAL PROCEEDINGS
From time to time, the Company and its subsidiaries are involved in
various litigation matters arising in the ordinary course of its business. None
of the matters in which the Company or its subsidiaries are currently involved,
either individually or in the aggregate, is material to the Company or its
subsidiaries.
The Company, through its subsidiary TAI, asserted a claim against The
Perkin-Elmer Corporation ("PE") alleging patent infringement of three patents
owned by TAI ("the TAI patents"). PE counterclaimed for infringement of a patent
owned by PE ("the PE patent"). PE withdrew its claim for infringement preserving
its right to appeal rulings interpreting the claims of the PE patent. The U.S.
District Court for the District of Delaware granted judgment as a matter of law
in favor of TAI and
10
enjoined PE from infringing the TAI patents. PE has indicated its intention to
appeal. The Company believes it has meritorious arguments and should prevail,
although the outcome is not certain. The Company believes that any outcome will
not be material to the Company.
The Company has filed suit against Hewlett-Packard Company and
Hewlett-Packard GmbH ("HP"), seeking a declaration that certain products sold
under the mark Alliance do not constitute an infringement of one or more patents
owned by HP or its foreign subsidiaries ("the HP patents"). Similar actions
seeking revocation or nullification of foreign HP patents have been filed in
Europe. The Company believes it has meritorious arguments and should prevail,
although the outcome is not certain. The Company believes that any outcome of
the proceedings will not be material to the Company.
Cohesive Technologies, Inc. ("Cohesive") has filed an infringement
action against the Company alleging that one product, in a large product line,
infringes an issued Cohesive patent. The Company has denied infringement. The
Company believes it has meritorious arguments and should prevail, although the
outcome is not certain. The Company believes that any outcome of the proceedings
will not be material to the Company.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS
Douglas A. Berthiaume, 50, has served as Chairman of the Board of
Directors of the Company since February 1996 and has served as President, Chief
Executive Officer and a Director of the Company since August 1994. From 1990 to
1994, Mr. Berthiaume served as President of the Waters Chromatography Division
of Millipore. Mr. Berthiaume is a Director of Genzyme Corporation.
Arthur G. Caputo, 47, has been Senior Vice President, Sales and
Marketing of the Company since August 1994. He joined the Predecessor in October
1977 and has held a number of positions in sales within the Predecessor and
Millipore. Prior to his current position, he was Senior Vice President and
General Manager of Millipore's North American Business Operations responsible
for establishing the Millipore North American Sales Subsidiary and also served
as the General Manager of Waters' North American field sales, support and
marketing functions.
Thomas W. Feller, 58, has been Senior Vice President, Operations of
the Company since August 1994. He joined Millipore in 1977 and moved to the
Predecessor as Vice President of Operations in 1980. Mr. Feller returned to
Millipore Operations in 1985 before becoming Senior Vice President of
Manufacturing Operations for the Predecessor in January 1991. Prior to
joining Millipore, Mr. Feller held various production and manufacturing
positions at Johnson and Johnson, Jensen Speaker and Baxter Travenol.
John R. Nelson, 55, has been Senior Vice President, Research and
Development of the Company since August 1994. He joined the Predecessor in
August 1976 and has held a variety of positions in marketing as well as
research and development, including Vice President Waters Research
Development and Engineering, Senior Vice President Worldwide Marketing
Operations and Senior Vice President of Product Development. Mr. Nelson is
also responsible for the Company's TA Instruments, Inc. and Micromass Limited
operations.
Philip S. Taymor, 43, has been Senior Vice President, Finance and
Administration, Chief Financial Officer, Treasurer and Assistant Secretary of
the Company since August 1994. He joined
11
Millipore in May 1981 and held several positions in the Millipore organization,
including Corporate Controller, Director of Finance of Millipore's Membrane
Division and Manager of Corporate Accounting. Mr. Taymor joined the Predecessor
in early 1992. His current responsibilities include business and financial
planning, accounting and financial reporting, treasury operations, legal, tax
and information systems. Mr. Taymor joined Millipore from Grant Thornton &
Company, Certified Public Accountants.
Brian K. Mazar, 41, has been Vice President, Human Resources of the
Company since August 1994. He joined the Predecessor in 1991 as Director of
Human Resources with responsibility for worldwide human resources functions.
From 1986 to 1991, Mr. Mazar was Director of Human Resources of GeneTrak
Systems. Prior thereto, Mr. Mazar worked at Exxon Corporation and Corning
Glass Works.
Devette W. Russo, 46, has been Vice President, Chromatography
Consumables Division of the Company, since 1990. She joined the Predecessor in
1975 as a Marketing Communications Account Manager, and has held a variety of
positions within the Predecessor and Millipore in marketing before assuming
her current responsibilities as Vice President, Chromatography Consumables
Division. Prior positions include Director of Corporate Communications for
Millipore and Vice President of Marketing for the Chemistry Division. Ms.
Russo held various marketing and application support roles before joining the
Millipore organization.
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is registered under the Securities Exchange
Act of 1934 and is listed on the New York Stock Exchange under the symbol WAT.
As of March 23, 1999, the Company had approximately 279 common stockholders of
record. The Company has not declared or paid any dividends on its Common Stock
in the past two years and does not plan to pay dividends in the foreseeable
future.
The quarterly range of high and low sales prices for the Common Stock
as reported by the New York Stock Exchange is as follows:
PRICE RANGE
-----------
FOR THE QUARTER ENDED HIGH LOW
--------------------- ---- ---
March 31, 1997 31 3/8 26
June 30, 1997 37 3/4 23 1/8
September 30, 1997 45 1/4 31 7/16
December 31, 1997 48 7/16 36
March 31, 1998 52 36 1/2
June 30, 1998 62 14/16 49 5/16
September 30, 1998 68 5/16 52 6/16
December 31, 1998 87 1/2 53 2/16
ITEM 6: SELECTED FINANCIAL DATA
Reference is made to information contained in the section entitled
"Selected Financial Data" on page 42 of the 1998 Annual Report, which
information is incorporated herein by reference.
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Reference is made to the information on pages 19 to 23 of the 1998
Annual Report, which information is incorporated herein by reference.
12
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Reference is made to the information on page 23 of the 1998 Annual
Report, which information is incorporated herein by reference.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the Company's consolidated financial statements
and notes thereto on pages 25 to 40 of the 1998 Annual Report together with the
"Report of Independent Accountants" dated January 22, 1999 on page 24 and
"Quarterly Results" on page 41, which information is incorporated herein by
reference.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
a. Information concerning the Registrant's directors is set forth in
the Proxy Statement under the headings "Election of Directors" and "Directors
Meetings and Compensation." Such information is incorporated herein by
reference.
b. Information required by Item 405 of Regulation S-K is set forth in
the Proxy Statement under the heading "Director and Officer and Ten Percent
Stockholder Securities Reports." Such information is incorporated herein by
reference.
ITEM 11: EXECUTIVE COMPENSATION
Information concerning compensation of the Registrant's executive
officers is set forth in the Proxy Statement under the heading "Management
Compensation." Such information is incorporated herein by reference.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information concerning security ownership of certain beneficial owners
and management is set forth in the Proxy Statement under the heading "Security
Ownership of Certain Beneficial Owners." Such information is incorporated herein
by reference.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relationships and related transactions
is set forth in the Proxy Statement under the heading "Certain Relationships and
Related Transactions." Such information is incorporated herein by reference.
13
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report
(1) Financial Statements: Reference is made to the Company's consolidated
financial statements and notes thereto on pages 25 to 40 of the 1998
Annual Report, which information is incorporated herein by reference.
(2) Financial Statement Schedules:
WATERS CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
for the years ended December 1998, 1997 and 1996
Balance at
Beginning of Balance at End
Period Additions Deductions of Period
-------------------------------------------------------------
Allowance for Doubtful
Accounts:
1998 $ 2,785 $ 617 $ (436) $ 2,966
1997 $ 1,712 $ 1,471 $ (398) $ 2,785
1996 $ 1,513 $ 779 $ (580) $ 1,712
(3) Exhibits:
Exhibit
Number Description of Document
------- -----------------------
2.1 Agreement for the Sale and Purchase of Micromass Limited
dated as of September 12, 1997, between Micromass
Limited, Schroder UK Buy-Out Fund III Trust I and
Others, Waters Corporation and Waters Technologies
Corporation. (Incorporated by reference to the
Registrant's Report on Form 8-K, filed on October 8,
1997 and amended on December 5, 1997.)
3.1 Second Amended and Restated Certificate of Incorporation
of Waters Corporation, as amended to date. (1)
3.2 Amended and Restated Bylaws of Waters Corporation, as
amended to date. (1)
10.1 Credit Agreement, dated as of November 22, 1995, among
Waters Corporation, Waters Technologies Corporation,
Bankers Trust Company and other Lenders party thereto. (2)
10.2 First Amendment to Credit Agreement, dated as of March
6, 1996 among Waters Corporation, Waters Technologies
Corporation, Bankers Trust Company and other Lenders
party thereto. (2)
10.3 Waters Corporation Amended and Restated 1996 Long-Term
Performance Incentive Plan. Incorporated by reference to
Exhibit A of the Proxy Statement for the 1996 Annual
Meeting of Stockholders ("1996 Proxy Statement").
10.31 May 1998 Amendment to the Waters Corporation Amended and
Restated 1996 Long-Term Performance Incentive Plan.
14
10.32 November 1998 Amendment to the Waters Corporation
Amended and Restated 1996 Long-Term Performance
Incentive Plan.
10.4 Waters Corporation 1996 Employee Stock Purchase Plan.
Incorporated by reference to Exhibit B of the 1996 Proxy
Statement.
10.5 Waters Corporation 1996 Non-Employee Director Deferred
Compensation Plan. Incorporated by reference to Exhibit
C of the 1996 Proxy Statement.
10.6 Waters Corporation Amended and Restated 1996
Non-Employee Directors Stock Option Plan. Incorporated
by reference to Exhibit D of the 1996 Proxy Statement.
10.7 Agreement and Plan of Merger among Waters Corporation,
TA Merger Sub, Inc. and TA Instruments, Inc. dated as of
March 28, 1996. Incorporated by reference to the
Registrant's Report on Form 8-K dated March 29, 1996.
10.8 Offer to Purchase and Consent Solicitation Statement,
dated March 7, 1996, of Waters Technologies Corporation.
Incorporated by reference to the Registrant's Report on
Form 8-K dated March 11, 1996.
10.9 WCD Investors, Inc. Amended and Restated 1994 Stock
Option Plan, as amended (including Form of Amended and
Restated Stock Option Agreement). (2)
10.10 Waters Corporation Retirement Plan. (2)
10.11 Registration Rights Agreement made as of August 18,
1994, by and among WCD Investors, Inc., AEA Investors,
Inc., certain investment funds controlled by Bain
Capital, Inc. and other stockholders of Waters
Corporation. (2)
10.12 Form of Indemnification Agreement, dated as of August
18, 1994, between WCD Investors, Inc. and its directors
and executive officers. (2)
10.13 Form of Management Subscription Agreement, dated as of
August 18, 1994, between WCD Investors, Inc. and certain
members of management. (2)
13.1 1998 Annual Report to Stockholders.
21.1 Subsidiaries of Waters Corporation. (1)
23.1 Consent of PricewaterhouseCoopers LLP
27.1 Financial Data Schedule.
--------------
(1) Incorporated by reference to the Registrant's Report on Form 10-K
dated March 29, 1996.
(2) Incorporated by reference to the Registrant's Registration Statement
on Form S-1 (File No. 333-3810).
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the three month period ended
December 31, 1998.
(c) See (3) above.
(d) Not Applicable.
15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: March 31, 1999 Waters Corporation
/s/ Philip S. Taymor
----------------------------------------------
Philip S. Taymor
Senior Vice President, Finance
and Administration and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the registrant and in the
capacities indicated on March 31, 1999.
Chairman of the Board of Directors, Chief Executive
/s/Douglas A. Berthiaume Officer, and President (principal executive officer)
- ------------------------
Douglas A. Berthiaume
Senior Vice President, Finance and
Administration, and Chief Financial Officer
(principal financial officer and principal
/s/ Philip S. Taymor accounting officer)
- ------------------------
Philip S. Taymor
/s/ Joshua Bekenstein Director
- ------------------------
Joshua Bekenstein
/s/ Michael J. Berendt Director
- ------------------------
Michael J. Berendt, PhD
/s/ Philip Caldwell Director
- ------------------------
Philip Caldwell
/s/ Edward Conard Director
- ------------------------
Edward Conard
/s/ Laurie H. Glimcher Director
- ------------------------
Dr. Laurie H. Glimcher
/s/ William J. Miller Director
- ------------------------
William J. Miller
/s/ Thomas P. Salice Director
- ------------------------
Thomas P. Salice
16