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Waters Reports Fourth Quarter 2014 Financial Results

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Waters Corporation (NYSE/WAT) reported fourth quarter 2014 sales of $584 million, an increase of 3% in comparison to sales of $565 million in the fourth quarter of 2013. In the quarter, the effect of foreign currency translation reduced sales by 5%. On a GAAP basis, earnings per diluted share (EPS) for the fourth quarter were $1.80 compared to $1.65 for the fourth quarter of 2013. On a non-GAAP basis, including the adjustments in the attached reconciliation, EPS grew 17% to $1.99 from $1.70 in the fourth quarter of 2013. A description and reconciliation of GAAP to non-GAAP EPS is attached and can be found on the Company’s website at http://www.waters.com under the caption “Investors”.

For the full year, sales for the Company were $1.99 billion, an increase of 4% in comparison to sales of $1.90 billion in 2013, with foreign currency translation reducing sales growth by about 2%. On a GAAP basis, EPS for 2014 were $5.07 compared to $5.20 in 2013. On a non-GAAP basis, including adjustments in the attached reconciliation, EPS grew 9% to $5.48 from $5.04 in 2013.

Commenting on the Company’s recent performance, Douglas A. Berthiaume, Chairman, President and Chief Executive Officer said, “Strong organic sales growth in the fourth quarter was driven by broad-based pharmaceutical demand and solid recurring revenue growth.”

As communicated in a prior press release, Waters Corporation will webcast its fourth quarter 2014 financial results conference call this afternoon, January 26, 2015 at 5:00 p.m.eastern time. To listen to the call, connect to www.waters.com, choose “Investor Relations” and click on the “Live Webcast”. A replay will be available through February 3, 2015 at midnight eastern time, similarly by webcast and also by phone at 203-369-1809.

About Waters Corporation

For over 50 years, Waters Corporation (NYSE/WAT) has created business advantages for laboratory-dependent organizations by delivering practical and sustainable innovation to enable significant advancements in such areas as healthcare delivery, environmental management, food safety and water quality worldwide.

Pioneering a connected portfolio of separations science, laboratory information management, mass spectrometry and thermal analysis, Waters technology breakthroughs and laboratory solutions provide an enduring platform for customer success.

With revenue of $1.99 billion in 2014, Waters is driving scientific discovery and operational excellence for customers worldwide.

CAUTIONARY STATEMENT

This release may contain “forward-looking” statements regarding future results and events. For this purpose, any statements that are not statements of historical fact may be deemed forward-looking statements. Without limiting the foregoing, the words, “feels”, “believes”, “anticipates”, “plans”, “expects”, “intends”, “suggests”, “appears”, “estimates”, “projects”, and similar expressions, whether in the negative or affirmative, are intended to identify forward-looking statements. The Company’s actual future results may differ significantly from the results discussed in the forward-looking statements within this release for a variety of reasons, including and without limitation, uncertainties relating to organizational/leadership transition plans; the impact on demand among the Company’s various market sectors from economic, sovereign and political uncertainties; fluctuations in expenditures by the Company’s customers, in particular large pharmaceutical companies; introduction of competing products by other companies and loss of market share; pressures on prices from competitors and/or customers; regulatory, economic and competitive obstacles to new product introductions; other changes in demand from the effect of mergers and acquisitions by the Company’s customers; increased regulatory burdens as the Company’s business evolves, especially with respect to the U.S. Food and Drug Administration and U.S. Environmental Protection Agency, among others; shifts in taxable income in jurisdictions with different effective tax rates; the outcome of tax examinations or changes in respective country legislation affecting the Company’s effective tax rate; the ability to access capital, maintain liquidity and service our debt in volatile market conditions, particularly in the U.S., as a large portion of the Company’s cash is held and operating cash flows are generated outside the U.S.; environmental and logistical obstacles affecting the distribution of products; risks associated with lawsuits and other legal actions, particularly involving claims for infringement of patents and other intellectual property rights; and foreign exchange rate fluctuations potentially affecting translation of the Company’s future non-U.S. operating results. Such factors and others are discussed more fully in the sections entitled “Forward-Looking Statements” and “Risk Factors” of the Company’s annual report on Form 10-K for the year ended December 31, 2013 and Form 10-Q for the period ended September 27, 2014 as filed with the Securities and Exchange Commission, which “Forward-Looking Statements” and “Risk Factors” discussions are incorporated by reference in this release. The forward-looking statements included in this release represent the Company’s estimates or views as of the date of this release report and should not be relied upon as representing the Company’s estimates or views as of any date subsequent to the date of this release.

Waters Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands and unaudited)
December 31, 2014 December 31, 2013
Cash, cash equivalents and investments 2,055,388 1,803,670
Accounts receivable 433,616 430,985
Inventories 246,430 242,800
Other current assets 109,279 78,800
Total current assets 2,844,713 2,556,255
Property, plant and equipment, net 321,583 324,932
Other assets 712,507 701,442
Total assets 3,878,803 3,582,629
Notes payable and debt 225,243 133,346
Accounts payable and accrued expenses 357,285 354,186
Total current liabilities 582,528 487,532
Long-term debt 1,240,000 1,190,000
Other long-term liabilities 161,609 141,924
Total liabilities 1,984,137 1,819,456
Total equity 1,894,666 1,763,173
Total liabilities and equity 3,878,803 3,582,629
Waters Corporation and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
(Unaudited) (Unaudited)
Three Months Ended Twelve Months Ended
December 31, 2014 December 31, 2013 December 31, 2014 December 31, 2013
Net sales $ 583,870 $ 565,448 $ 1,989,344 $ 1,904,218
Cost of sales 233,119 228,991 824,913 783,456
Gross profit 350,751 336,457 1,164,431 1,120,762
Selling and administrative expenses 131,916 130,680 512,707 492,965
Research and development expenses 28,724 26,975 107,726 100,536
Acquired in-process research and development 15,456 15,456
Purchased intangibles amortization 2,616 2,625 10,634 9,918
Operating income 172,039 176,177 517,908 517,343
Other expense (1,575 )
Interest expense, net (7,566 ) (6,852 ) (27,168 ) (25,663 )
Income from operations before income taxes 164,473 169,325 490,740 490,105
Provision for income tax expense 13,181 27,743 59,120 40,102
Net income $ 151,292 $ 141,582 $ 431,620 $ 450,003
Net income per basic common share $ 1.82 $ 1.67 $ 5.12 $ 5.27
Weighted-average number of basic common shares 83,217 85,006 84,358 85,426
Net income per diluted common share $ 1.80 $ 1.65 $ 5.07 $ 5.20
Weighted-average number of diluted common shares and equivalents 84,015 86,017 85,151 86,546

Waters Corporation and Subsidiaries
Quarterly Reconciliation of GAAP to Adjusted Non-GAAP Financials
(in thousands, except per share data)

The 2014 and 2013 adjusted amounts presented below are used by the management of the Company to measure operating performance against prior periods and forecasts and are not in accordance with generally accepted accounting principles (GAAP). These Non-GAAP amounts should be considered supplemental to, and not a substitute for, financial performance in accordance with GAAP. The Company believes that the use of Non-GAAP measures, such as Adjusted Non-GAAP Earnings Per Share (EPS) and Adjusted Non-GAAP Operating Income, help management and investors gain a better understanding of our core operating results, and is consistent with how management measures performance for purposes of executive compensation and forecasts the Company’s performance. The reconciliation identifies items management has excluded as non-operational items. Management has excluded the following items:

  • Purchased Intangibles Amortization was excluded to allow for comparisons of operating results that are consistent over periods of time.
  • Acquired In-Process Research and Development was excluded as the Company believes that the costs to license certain intellectual property are infrequent and are not indicative of normal operating costs. In 2014, the Company entered into licensing arrangements for mass spectrometry technologies, primarily related to new medically-focused applications.
  • Restructuring Costs, Asset Impairments, Acquisition-Related Costs and Other One-Time Costs were excluded as the Company believes that costs to consolidate operations, reduce overhead and complete acquisitions are infrequent or unusual and are not indicative of normal operating costs.
  • Infrequent Income Tax Items were excluded as these costs and benefits are typically the result of audit examination settlements, updates in management’s assessment of ongoing examinations or other unusual tax items and are not indicative of the Company’s normal or future income tax expense.
(Unaudited)
Three Months Ended Twelve Months Ended
December 31, 2014 December 31, 2013 December 31, 2014 December 31, 2013
GAAP Selling and Administrative Expenses (including Purchased Intangibles Amortization) $ (134,532 ) $ (133,305 ) $ (523,341 ) $ (502,883 )
Purchased Intangibles Amortization 2,616 2,625 10,634 9,964
Restructuring Costs, Asset Impairments, Acquisitions & Other One-Time Costs 3,140 2,713 17,697 9,499
Adjusted Non-GAAP Selling & Administrative Expenses (including Purchased Intangibles Amortization) $ (128,776 ) $ (127,967 ) $ (495,010 ) $ (483,420 )
GAAP Research & Development Expenses (including Acquired In-Process Research and Development) $ (44,180 ) $ (26,975 ) $ (123,182 ) $ (100,536 )
Acquired In-Process Research and Development 15,456 15,456
Adjusted Non-GAAP Research & Development Expenses (including Acquired In-Process Research and Development) $ (28,724 ) $ (26,975 ) $ (107,726 ) $ (100,536 )
GAAP Operating Income $ 172,039 $ 176,177 $ 517,908 $ 517,343
Purchased Intangibles Amortization 2,616 2,625 10,634 9,964
Restructuring Costs, Asset Impairments, Acquisitions & Other One-Time Costs 3,140 2,713 17,697 9,499
Acquired In-Process Research and Development 15,456 15,456
Adjusted Non-GAAP Operating Income $ 193,251 $ 181,515 $ 561,695 $ 536,806
GAAP Provision for Income Tax Expense $ (13,181 ) $ (27,743 ) $ (59,120 ) $ (40,102 )
Purchased Intangibles Amortization (718 ) (738 ) (3,024 ) (2,849 )
Restructuring Costs, Asset Impairments, Acquisitions & Other One-Time Costs (925 ) (893 ) (4,979 ) (3,186 )
Acquired In-Process Research and Development (3,323 ) (3,323 )
Infrequent Income Tax Items (357 ) 915 2,383 (27,467 )
Adjusted Non-GAAP Provision for Income Tax Expense $ (18,504 ) $ (28,459 ) $ (68,063 ) $ (73,604 )
GAAP Net Income $ 151,292 $ 141,582 $ 431,620 $ 450,003
Purchased Intangibles Amortization 1,898 1,887 7,610 7,115
Restructuring Costs, Asset Impairments, Acquisitions & Other One-Time Costs 2,215 1,820 12,718 6,313
Acquired In-Process Research and Development 12,133 12,133
Infrequent Income Tax Items (357 ) 915 2,383 (27,467 )
Adjusted Non-GAAP Net Income $ 167,181 $ 146,204 $ 466,464 $ 435,964

GAAP EPS

$

1.80

$

1.65

$

5.07

$

5.20

Purchased Intangibles Amortization

0.02

0.02

0.09

0.08

Restructuring Costs, Asset Impairments, Acquisitions & Other One-Time Costs

0.03

0.02

0.15

0.07

Acquired In-Process Research and Development

0.14

0.14

Infrequent Income Tax Items

0.01

0.03

(0.32

)

Adjusted Non-GAAP EPS

$

1.99

$

1.70

$

5.48

$

5.04

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