Waters Corporation Reports Third Quarter 2009 Results

October 27, 2009 7:00 AM EDT

MILFORD, Mass.--(BUSINESS WIRE)-- Waters Corporation (NYSE/WAT) reported today third quarter 2009 sales of $374 million, a decrease of 3% over sales of $386 million in the third quarter of 2008. These quarterly sales include an adverse foreign currency translation impact of approximately 1%. On a GAAP basis, earnings per diluted share (E.P.S.) for the third quarter were $0.79, compared to $0.71 for the third quarter in 2008. On a non-GAAP basis, E.P.S. were up 3% to $0.81 in the third quarter of 2009 from $ 0.79 in the third quarter of 2008. A reconciliation of GAAP to non-GAAP E.P.S. is attached.

Through the first nine months of 2009, sales for the Company were $1,070 million, a decrease of 8% in comparison to sales of $1,157 million in the first nine months of 2008. Foreign currency translation contributed negatively to sales growth during the first nine months of 2009 and reduced sales by 4%. E.P.S. for the first nine months of 2009 were $2.26 compared to $2.21 for the comparable period in 2008. On a non-GAAP basis and including adjustments on the attached reconciliation, E.P.S grew 4% in the first nine months of 2009 to $2.33 from $2.24 in 2008.

Commenting on the quarter, Douglas Berthiaume, Chairman, President and Chief Executive Officer said, "Business trends in the third quarter suggest a stabilization of demand by our major end markets. Customer interest in our new products is encouraging and indicates that research-related spending may benefit our future results. Additionally, our focus on expense and balance sheet management is reflected in the third quarter's financial results, including excellent cash flow generation in the quarter."

As communicated in a prior press release, Waters Corporation will webcast its third quarter 2009 financial results conference call this morning, October 27, 2009 at 8:30 a.m. eastern time. To listen to the call, connect to www.waters.com, choose "Investor" and click on the Live Webcast. A replay of the call will be available through November 3, 2009, similarly by webcast and also by phone at 203-369-1708.

About Waters Corporation:

Waters Corporation creates business advantage 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 $1.58 billion in 2008 and 5,000 employees, 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, including statements regarding expected financial results, future growth and customer demand that involve a number of risks and uncertainties. For this purpose, any statements that are not statements of historical fact may be deemed forward-looking statements. Without limiting the foregoing, the words, "believes", "anticipates", "plans", "expects", "intends", "appears", "estimates", "projects", and similar expressions 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, the impact on demand among the Company's various market sectors from current economic difficulties and possible recession; the impact of changes in accounting principles and practices or tax rates; shifts in taxable income in jurisdictions with different effective tax rates; the ability to access capital in volatile market conditions; the ability to successfully integrate acquired businesses; fluctuations in capital expenditures by the Company's customers, in particular large pharmaceutical companies; regulatory and/or administrative obstacles to the timely completion of purchase order documentation; introduction of competing products by other companies and loss of market share; pressures on prices from competitors and/or customers; regulatory obstacles to new product introductions; lack of acceptance of new products; other changes in the demands of the Company's healthcare and pharmaceutical company customers; changes in distribution of the Company's 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 section entitled "Risk Factors" of the Company's annual report on Form 10-K for the year ended December 31, 2008 and quarterly report on Form 10-Q for the period ended July 4, 2009 as filed with the Securities and Exchange Commission, which "Risk Factors" discussion is 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

Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)

                  (Unaudited)                     (Unaudited)

                  Three Months Ended              Nine Months Ended

                  October 3, 2009  September 27,  October 3, 2009  September 27,
                                   2008                            2008

Net sales         $ 373,963        $ 386,310      $ 1,069,852      $ 1,156,793

Cost of sales       153,143          158,520        424,751          489,203
(1) (5)

Gross profit        220,820          227,790        645,101          667,590

Selling and
administrative      102,675          107,463        311,417          325,235
expenses (1) (2)
(3)

Research and
development         19,310           19,946         57,364           61,960
expenses

Purchased
intangibles         2,723            2,349          8,022            6,973
amortization

Operating income    96,112           98,032         268,298          273,422

Interest            (2,079  )        (4,542  )      (6,355    )      (13,641   )
expense, net

Income from
operations          94,033           93,490         261,943          259,781
before income
taxes

Provision for
income taxes (4)    18,097           21,987         42,753           36,655
(5)

Net income        $ 75,936         $ 71,503       $ 219,190        $ 223,126

Net income per
basic common      $ 0.80           $ 0.72         $ 2.28           $ 2.24
share

Weighted-average
number of basic     95,235           98,891         96,215           99,611
common shares

Net income per
diluted common    $ 0.79           $ 0.71         $ 2.26           $ 2.21
share

Weighted-average
number of
diluted common      96,513           100,566        97,027           101,150
shares and
equivalents

(1) Included in selling and administrative expenses for the nine months ended
October 3, 2009 are restructuring and other incremental costs of $1.0 million
related to cost reduction plans. Included in cost of sales for the three and
nine months ended September 27, 2008 are restructuring and other incremental
costs of $1.2 million related to cost reduction plans.

(2) Included in selling and administrative expenses for the nine months ended
October 3, 2009 are lease termination costs and other incremental related costs
of $5.9 million.

(3) Included in selling and administrative expenses for the nine months ended
October 3, 2009 are acquisition and other related costs of $1.3 million related
to recent acquisitions.

(4) Included in the provision for income taxes for the three and nine months
ended September 27, 2008 is a one-time charge of $5.1 million related to
restructuring certain legal entities. During the nine months ended October 3,
2009, $4.6 million of this charge was reversed as a result of changes in income
tax regulations promulgated by the U.S. Treasury in February 2009.

(5) During the second quarter of 2008, the Company identified errors originating
in periods prior to the quarter ended June 28, 2008. The errors primarily relate
to (i) an overstatement of the Company's income tax expense of $16.3 million as
a result of errors in recording its income tax provision in prior periods and
(ii) an understatement of amortization expense of $8.7 million for certain
capitalized software. The Company incorrectly calculated its provision for
income taxes by tax-effecting a deferred tax liability utilizing a U.S. tax rate
of 35% instead of an Irish tax rate of 10%. In addition, the Company incorrectly
accounted for Irish-based capitalized software and the related amortization
expense as a U.S. Dollar-denominated asset instead of Euro-denominated asset
resulting in an understatement of amortization expense and cumulative
translation adjustment. The correction of these errors is included in cost of
sales and in the provision for income taxes for the nine months ended September
27, 2008.

Waters Corporation and Subsidiaries

Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)

                (Unaudited)                (Unaudited)

                Three Months Ended         Nine Months Ended

                October 3,  September 27,  October 3, 2009  September 27, 2008
                2009        2008

Reconciliation
of net income
per diluted
share, in
accordance
with

generally
accepted
accounting
principles,
with adjusted
results:

Net income per  $ 0.79      $ 0.71         $ 2.26           $ 2.21
diluted share

Adjustment for
purchased
intangibles       1,960       1,639          5,787            4,917
amortization,
net of tax

Net income per
diluted share     0.02        0.02           0.06             0.05
effect

Adjustment for
restructuring,    -           761            643              761
net of tax

Net income per
diluted share     -           0.01           0.01             0.01
effect

Adjustment for
lease
termination       -           -              3,723            -
costs, net of
tax

Net income per
diluted share     -           -              0.04             -
effect

Adjustment for
acquisition       -           -              1,078            -
related costs,
net of tax

Net income per
diluted share     -           -              0.01             -
effect

Adjustment for
tax impact of
restructuring     -           5,083          (4,555 )         5,083
certain legal
entities

Net income per
diluted share     -           0.05           (0.05  )         0.05
effect

Adjustment for
out-of-period
errors as         -           -              -                (7,612 )
described
above, net of
tax

Net income per
diluted share     -           -              -                (0.08  )
effect

Adjusted net
income per      $ 0.81      $ 0.79         $ 2.33           $ 2.24
diluted share

The adjusted net income per diluted share presented above is used by the
management of the Company to measure operating performance with prior periods
and is not in accordance with generally accepted accounting principles (GAAP).
The above reconciliation identifies items management has excluded as
non-operational transactions. Management has excluded the purchased
intangibles amortization, the restructuring charge, the lease termination
costs, the acquisition related costs, the tax impact of restructuring certain
legal entities and the adjustment for out-of-period errors and the related tax
effects from its non-GAAP adjusted amounts since management believes that
these items are not directly related to ongoing operations, thereby providing
investors with information that helps to compare ongoing operating
performance.

Waters Corporation and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands and unaudited)

                                       October 3, 2009  December 31, 2008

Cash, cash equivalents and short-term  578,148          428,522
investments

Accounts receivable                    289,650          291,763

Inventories                            197,088          173,051

Other current assets                   56,961           62,966

Total current assets                   1,121,847        956,302

Property, plant and equipment, net     209,172          171,588

Other assets                           554,542          495,008

Total assets                           1,885,561        1,622,898

Notes payable and debt                 144,650          36,120

Accounts payable and accrued expenses  287,564          253,386

Total current liabilities              432,214          289,506

Long-term debt                         500,000          500,000

Other long-term liabilities            172,689          172,387

Total liabilities                      1,104,903        961,893

Total equity                           780,658          661,005

Total liabilities and equity           1,885,561        1,622,898

    Source: Waters Corporation

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