UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 28, 2013
or
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
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
(Registrants telephone number, including area code)
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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). x Yes ¨ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer | x | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ (Do not check if smaller reporting company) | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x
Indicate the number of shares outstanding of the registrants common stock as of October 25, 2013: 85,130,359
WATERS CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
INDEX
Page | ||||||
PART I |
FINANCIAL INFORMATION |
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Item 1. |
Financial Statements |
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Consolidated Balance Sheets (unaudited) as of September 28, 2013 and December 31, 2012 |
1 | |||||
2 | ||||||
3 | ||||||
4 | ||||||
5 | ||||||
Condensed Notes to Consolidated Financial Statements (unaudited) |
6 | |||||
Item 2. |
Managements Discussion and Analysis of Financial Condition and Results of Operations |
19 | ||||
Item 3. |
27 | |||||
Item 4. |
28 | |||||
PART II |
||||||
Item 1. |
28 | |||||
Item 1A. |
28 | |||||
Item 2. |
28 | |||||
Item 6. |
29 | |||||
30 |
WATERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(unaudited)
September 28, 2013 | December 31, 2012 | |||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 431,001 | $ | 481,035 | ||||
Investments |
1,268,106 | 1,057,990 | ||||||
Accounts receivable, less allowances for doubtful accounts and sales returns of $6,567 and $8,240 at September 28, 2013 and December 31, 2012, respectively |
373,844 | 404,556 | ||||||
Inventories |
256,980 | 229,565 | ||||||
Other current assets |
99,151 | 84,580 | ||||||
|
|
|
|
|||||
Total current assets |
2,429,082 | 2,257,726 | ||||||
Property, plant and equipment, net |
313,667 | 273,279 | ||||||
Intangible assets, net |
230,774 | 220,145 | ||||||
Goodwill |
340,393 | 316,834 | ||||||
Other assets |
111,403 | 100,166 | ||||||
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|
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Total assets |
$ | 3,425,319 | $ | 3,168,150 | ||||
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LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Current liabilities: |
||||||||
Notes payable and debt |
$ | 133,761 | $ | 132,781 | ||||
Accounts payable |
62,754 | 54,724 | ||||||
Accrued employee compensation |
30,225 | 31,910 | ||||||
Deferred revenue and customer advances |
134,537 | 121,470 | ||||||
Accrued income taxes |
39,716 | 60,888 | ||||||
Accrued warranty |
11,964 | 12,353 | ||||||
Other current liabilities |
79,947 | 90,116 | ||||||
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|
|
|
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Total current liabilities |
492,904 | 504,242 | ||||||
Long-term liabilities: |
||||||||
Long-term debt |
1,160,000 | 1,045,000 | ||||||
Long-term portion of retirement benefits |
102,151 | 101,225 | ||||||
Long-term income tax liability |
19,049 | 24,772 | ||||||
Other long-term liabilities |
32,581 | 25,554 | ||||||
|
|
|
|
|||||
Total long-term liabilities |
1,313,781 | 1,196,551 | ||||||
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|
|
|
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Total liabilities |
1,806,685 | 1,700,793 | ||||||
Commitments and contingencies (Notes 6, 7, 8 and 11) |
||||||||
Stockholders equity: |
||||||||
Preferred stock, par value $0.01 per share, 5,000 shares authorized, none issued at September 28, 2013 and December 31, 2012 |
| | ||||||
Common stock, par value $0.01 per share, 400,000 shares authorized, 154,603 and 153,696 shares issued, 84,931 and 86,390 shares outstanding at September 28, 2013 and December 31, 2012, respectively |
1,546 | 1,537 | ||||||
Additional paid-in capital |
1,223,328 | 1,155,504 | ||||||
Retained earnings |
3,821,311 | 3,512,890 | ||||||
Treasury stock, at cost, 69,672 and 67,306 shares at September 28, 2013 and December 31, 2012, respectively |
(3,402,377 | ) | (3,176,179 | ) | ||||
Accumulated other comprehensive loss |
(25,174 | ) | (26,395 | ) | ||||
|
|
|
|
|||||
Total stockholders equity |
1,618,634 | 1,467,357 | ||||||
|
|
|
|
|||||
Total liabilities and stockholders equity |
$ | 3,425,319 | $ | 3,168,150 | ||||
|
|
|
|
The accompanying notes are an integral part of the interim consolidated financial statements.
1
WATERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(unaudited)
Three Months Ended | ||||||||
September 28, 2013 | September 29, 2012 | |||||||
Product sales |
$ | 312,943 | $ | 310,823 | ||||
Service sales |
144,374 | 139,129 | ||||||
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|
|
|
|||||
Total net sales |
457,317 | 449,952 | ||||||
Cost of product sales |
128,374 | 122,861 | ||||||
Cost of service sales |
63,194 | 59,841 | ||||||
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|
|
|
|||||
Total cost of sales |
191,568 | 182,702 | ||||||
|
|
|
|
|||||
Gross profit |
265,749 | 267,250 | ||||||
Selling and administrative expenses |
120,563 | 115,322 | ||||||
Research and development expenses |
23,599 | 23,756 | ||||||
Purchased intangibles amortization |
2,518 | 6,427 | ||||||
|
|
|
|
|||||
Operating income |
119,069 | 121,745 | ||||||
Interest expense |
(7,358 | ) | (7,107 | ) | ||||
Interest income |
946 | 1,184 | ||||||
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|
|
|
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Income from operations before income taxes |
112,657 | 115,822 | ||||||
Provision for income taxes |
14,609 | 16,713 | ||||||
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|
|
|
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Net income |
$ | 98,048 | $ | 99,109 | ||||
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|
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Net income per basic common share |
$ | 1.15 | $ | 1.13 | ||||
Weighted-average number of basic common shares |
85,185 | 87,411 | ||||||
Net income per diluted common share |
$ | 1.14 | $ | 1.12 | ||||
Weighted-average number of diluted common shares and equivalents |
86,364 | 88,451 |
The accompanying notes are an integral part of the interim consolidated financial statements.
2
WATERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(unaudited)
Nine Months Ended | ||||||||
September 28, 2013 | September 29, 2012 | |||||||
Product sales |
$ | 911,868 | $ | 911,185 | ||||
Service sales |
426,902 | 410,690 | ||||||
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|
|
|
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Total net sales |
1,338,770 | 1,321,875 | ||||||
Cost of product sales |
365,830 | 352,894 | ||||||
Cost of service sales |
188,635 | 176,357 | ||||||
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|
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|
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Total cost of sales |
554,465 | 529,251 | ||||||
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|
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Gross profit |
784,305 | 792,624 | ||||||
Selling and administrative expenses |
362,285 | 355,123 | ||||||
Research and development expenses |
73,561 | 71,046 | ||||||
Purchased intangibles amortization |
7,293 | 11,370 | ||||||
Litigation provisions |
| 3,000 | ||||||
|
|
|
|
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Operating income |
341,166 | 352,085 | ||||||
Other expense (Note 2) |
(1,575 | ) | | |||||
Interest expense |
(22,123 | ) | (20,476 | ) | ||||
Interest income |
3,312 | 2,984 | ||||||
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|
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Income from operations before income taxes |
320,780 | 334,593 | ||||||
Provision for income taxes |
12,359 | 49,094 | ||||||
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|
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Net income |
$ | 308,421 | $ | 285,499 | ||||
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|
|
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Net income per basic common share |
$ | 3.60 | $ | 3.24 | ||||
Weighted-average number of basic common shares |
85,565 | 88,234 | ||||||
Net income per diluted common share |
$ | 3.56 | $ | 3.19 | ||||
Weighted-average number of diluted common shares and equivalents |
86,719 | 89,367 |
The accompanying notes are an integral part of the interim consolidated financial statements.
3
WATERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
(unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 28, 2013 |
September 29, 2012 |
September 28, 2013 |
September 29, 2012 |
|||||||||||||
Net income |
$ | 98,048 | $ | 99,109 | $ | 308,421 | $ | 285,499 | ||||||||
Other comprehensive income: |
||||||||||||||||
Foreign currency translation |
27,349 | 23,936 | (2,129 | ) | 9,811 | |||||||||||
Unrealized gains (losses) on investments before reclassifications |
532 | (5 | ) | 677 | (42 | ) | ||||||||||
Amounts reclassified to other expense |
| | 1,576 | | ||||||||||||
Amounts reclassified to selling and administrative expenses |
| | | (968 | ) | |||||||||||
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Unrealized gains (losses) on investments before income taxes |
532 | (5 | ) | 2,253 | (1,010 | ) | ||||||||||
Income tax (expense) benefit |
(85 | ) | 1 | (620 | ) | 351 | ||||||||||
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Unrealized gains (losses) on investments, net of tax |
447 | (4 | ) | 1,633 | (659 | ) | ||||||||||
Retirement liability adjustment before reclassifications |
| (67 | ) | | (5,312 | ) | ||||||||||
Amounts reclassified to selling and administrative expenses |
991 | 321 | 2,726 | 963 | ||||||||||||
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Retirement liability adjustment before income taxes |
991 | 254 | 2,726 | (4,349 | ) | |||||||||||
Income tax (expense) benefit |
(367 | ) | (89 | ) | (1,009 | ) | 1,760 | |||||||||
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Retirement liability adjustment, net of tax |
624 | 165 | 1,717 | (2,589 | ) | |||||||||||
Other comprehensive income |
28,420 | 24,097 | 1,221 | 6,563 | ||||||||||||
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Comprehensive income |
$ | 126,468 | $ | 123,206 | $ | 309,642 | $ | 292,062 | ||||||||
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The accompanying notes are an integral part of the interim consolidated financial statements.
4
WATERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(unaudited)
Nine Months Ended | ||||||||
September 28, 2013 | September 29, 2012 | |||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | 308,421 | $ | 285,499 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Provisions for doubtful accounts on accounts receivable |
1,646 | 1,838 | ||||||
Provisions on inventory |
3,346 | 8,334 | ||||||
Stock-based compensation |
23,985 | 21,687 | ||||||
Deferred income taxes |
(11,181 | ) | (9,382 | ) | ||||
Depreciation |
27,807 | 27,101 | ||||||
Amortization of intangibles |
30,448 | 24,124 | ||||||
Change in operating assets and liabilities, net of acquisitions: |
||||||||
Decrease in accounts receivable |
22,585 | 5,506 | ||||||
Increase in inventories |
(30,782 | ) | (36,558 | ) | ||||
Increase in other current assets |
(6,171 | ) | (2,959 | ) | ||||
Increase in other assets |
(9,638 | ) | (811 | ) | ||||
Decrease in accounts payable and other current liabilities |
(24,686 | ) | (18,971 | ) | ||||
Increase in deferred revenue and customer advances |
14,266 | 16,217 | ||||||
Decrease in other liabilities |
(8,461 | ) | (3,998 | ) | ||||
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|
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Net cash provided by operating activities |
341,585 | 317,627 | ||||||
Cash flows from investing activities: |
||||||||
Additions to property, plant, equipment and software capitalization |
(92,816 | ) | (73,048 | ) | ||||
Business acquisitions, net of cash acquired |
(26,434 | ) | (31,016 | ) | ||||
Purchase of investments |
(2,270,826 | ) | (1,384,717 | ) | ||||
Maturity of investments |
2,060,710 | 1,189,930 | ||||||
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Net cash used in investing activities |
(329,366 | ) | (298,851 | ) | ||||
Cash flows from financing activities: |
||||||||
Proceeds from debt issuances |
1,002,023 | 188,074 | ||||||
Payments on debt |
(886,043 | ) | (31,935 | ) | ||||
Payments of debt issuance costs |
(2,039 | ) | (497 | ) | ||||
Proceeds from stock plans |
35,470 | 21,284 | ||||||
Purchase of treasury shares |
(226,198 | ) | (235,282 | ) | ||||
Excess tax benefit related to stock option plans |
8,864 | 4,061 | ||||||
Proceeds from debt swaps and other derivative contracts |
5,866 | 899 | ||||||
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Net cash used in financing activities |
(62,057 | ) | (53,396 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents |
(196 | ) | 6,923 | |||||
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Decrease in cash and cash equivalents |
(50,034 | ) | (27,697 | ) | ||||
Cash and cash equivalents at beginning of period |
481,035 | 383,990 | ||||||
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Cash and cash equivalents at end of period |
$ | 431,001 | $ | 356,293 | ||||
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The accompanying notes are an integral part of the interim consolidated financial statements.
5
WATERS CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1 | Basis of Presentation and Summary of Significant Accounting Policies |
Waters Corporation (Waters® or the Company) is an analytical instrument manufacturer that primarily designs, manufactures, sells and services, through its Waters Division, high performance liquid chromatography (HPLC), ultra performance liquid chromatography (UPLC® and together with HPLC, referred to as LC) and mass spectrometry (MS) technology systems and support products, including chromatography columns, other consumable products and comprehensive post-warranty service plans. These systems are complementary products that are frequently employed together (LC-MS) and sold as integrated instrument systems using a common software platform and are used along with other analytical instruments. LC is a standard technique and 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. MS instruments are used in drug discovery and development, including clinical trial testing, the analysis of proteins in disease processes (known as proteomics), nutritional safety analysis and environmental testing. LC-MS instruments combine a liquid phase sample introduction and separation system with mass spectrometric compound identification and quantification. Through its TA Division (TA®), the Company primarily designs, manufactures, sells and services thermal analysis, rheometry and calorimetry instruments, which are used in predicting the suitability of fine chemicals, polymers and viscous liquids for various industrial, consumer goods and healthcare products, as well as for life science research. The Company is also a developer and supplier of software-based products that interface with the Companys instruments and are typically purchased by customers as part of the instrument system.
The Companys interim fiscal quarter typically ends on the thirteenth Saturday of each quarter. Since the Companys fiscal year end is December 31, the first and fourth fiscal quarters may not consist of thirteen complete weeks. The Companys third fiscal quarters for 2013 and 2012 ended on September 28, 2013 and September 29, 2012, respectively.
The accompanying unaudited interim consolidated financial statements have been prepared in accordance with the instructions to the Quarterly Report on Form 10-Q and do not include all of the information and note disclosures required by generally accepted accounting principles (GAAP) in the United States of America. The consolidated financial statements include the accounts of the Company and its subsidiaries, most of which are wholly owned. All material inter-company balances and transactions have been eliminated.
The preparation of consolidated financial statements in conformity with GAAP requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities at the dates of the financial statements. Actual amounts may differ from these estimates under different assumptions or conditions.
It is managements opinion that the accompanying interim consolidated financial statements reflect all adjustments (which are normal and recurring) that are necessary for a fair statement of the results for the interim periods. The interim consolidated financial statements should be read in conjunction with the consolidated financial statements included in the Companys Annual Report on Form 10-K for the year ended December 31, 2012, as filed with the U.S. Securities and Exchange Commission on February 26, 2013.
Fair Value Measurements
In accordance with the accounting standards for fair value measurements and disclosures, certain of the Companys assets and liabilities are measured at fair value on a recurring basis as of September 28, 2013 and December 31, 2012. Fair values determined by Level 1 inputs utilize observable data, such as quoted prices in active markets. Fair values determined by Level 2 inputs utilize data points other than quoted prices in active markets that are observable either directly or indirectly. Fair values determined by Level 3 inputs utilize unobservable data points for which there is little or no market data, which require the reporting entity to develop its own assumptions.
6
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
The following table represents the Companys assets and liabilities measured at fair value on a recurring basis at September 28, 2013 (in thousands):
Total at September 28, 2013 |
Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
|||||||||||||
Assets: |
||||||||||||||||
Cash equivalents |
$ | 109,227 | $ | | $ | 109,227 | $ | | ||||||||
Investments |
1,268,106 | | 1,268,106 | | ||||||||||||
Waters 401(k) Restoration Plan assets |
28,896 | | 28,896 | | ||||||||||||
Foreign currency exchange contract agreements |
285 | | 285 | | ||||||||||||
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Total |
$ | 1,406,514 | $ | | $ | 1,406,514 | $ | | ||||||||
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Liabilities: |
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Foreign currency exchange contract agreements |
$ | 14 | $ | | $ | 14 | $ | | ||||||||
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Total |
$ | 14 | $ | | $ | 14 | $ | | ||||||||
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The following table represents the Companys assets and liabilities measured at fair value on a recurring basis at December 31, 2012 (in thousands):
Total at December 31, 2012 |
Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
|||||||||||||
Assets: |
||||||||||||||||
Cash equivalents |
$ | 146,232 | $ | | $ | 146,232 | $ | | ||||||||
Investments |
1,057,990 | | 1,057,990 | | ||||||||||||
Waters 401(k) Restoration Plan assets |
24,827 | | 24,827 | | ||||||||||||
Foreign currency exchange contract agreements |
1,173 | | 1,173 | | ||||||||||||
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Total |
$ | 1,230,222 | $ | | $ | 1,230,222 | $ | | ||||||||
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Liabilities: |
||||||||||||||||
Foreign currency exchange contract agreements |
$ | 693 | $ | | $ | 693 | $ | | ||||||||
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Total |
$ | 693 | $ | | $ | 693 | $ | | ||||||||
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The fair values of the Companys cash equivalents, investments, 401(k) restoration plan assets and foreign currency exchange contracts are determined through market and observable sources and have been classified as Level 2. These assets and liabilities have been initially valued at the transaction price and subsequently valued, typically utilizing third-party pricing services. The pricing services use many inputs to determine value, including reportable trades, benchmark yields, credit spreads, broker/dealer quotes, current spot rates and other industry and economic events. The Company validates the prices provided by third-party pricing services by reviewing their pricing methods and obtaining market values from other pricing sources. After completing these validation procedures, the Company did not adjust or override any fair value measurements provided by third-party pricing services as of September 28, 2013 and December 31, 2012.
7
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
Fair Value of Other Financial Instruments
The Companys cash, accounts receivable, accounts payable and variable interest rate debt are recorded at cost, which approximates fair value. The carrying value of the Companys fixed interest rate debt was $400 million at both September 28, 2013 and December 31, 2012. The fair value of the Companys fixed interest rate debt was estimated to be $403 million and $413 million at September 28, 2013 and December 31, 2012, respectively, using Level 2 inputs.
Derivative Transactions
The Company operates on a global basis and is exposed to the risk that its earnings, cash flows and stockholders equity could be adversely impacted by fluctuations in currency exchange rates.
The Company records its derivative transactions in accordance with the accounting standards for derivative instruments and hedging activities, which establish the accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. All derivatives, whether designated in hedging relationships or not, are required to be recorded on the consolidated balance sheets at fair value as either assets or liabilities. If the derivative is designated as a fair-value hedge, the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized in earnings. If the derivative is designated as a cash flow hedge, the effective portions of changes in the fair value of the derivative are recorded in other comprehensive income and are recognized in earnings when the hedged item affects earnings; ineffective portions of changes in fair value are recognized in earnings. In addition, disclosures required for derivative instruments and hedging activities include the Companys objectives for using derivative instruments, the level of derivative activity the Company engages in, as well as how derivative instruments and related hedged items affect the Companys financial position and performance.
The Company currently uses derivative instruments to manage exposures to foreign currency risks. The Companys objectives for holding derivatives are to minimize foreign currency risk using the most effective methods to eliminate or reduce the impact of foreign currency exposures. The Company documents all relationships between hedging instruments and hedged items and links all derivatives designated as fair-value, cash flow or net investment hedges to specific assets and liabilities on the consolidated balance sheets or to specific forecasted transactions. In addition, the Company considers the impact of its counterparties credit risk on the fair value of the contracts as well as the ability of each party to execute under the contracts. The Company also assesses and documents, both at the hedges inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows associated with the hedged items.
The Company enters into forward foreign exchange contracts, principally to hedge the impact of currency fluctuations on certain inter-company balances and short-term assets and liabilities. Principal hedged currencies include the Euro, Japanese yen, British pound and Singapore dollar. The periods of these forward contracts typically range from one to three months and have varying notional amounts, which are intended to be consistent with changes in the underlying exposures. Gains and losses on these forward contracts are recorded in cost of sales in the consolidated statements of operations. At September 28, 2013 and December 31, 2012, the Company held forward foreign exchange contracts with notional amounts totaling $99 million and $134 million, respectively.
The Companys foreign currency exchange contracts included in the consolidated balance sheets are classified as follows (in thousands):
September 28, 2013 | December 31, 2012 | |||||||
Other current assets |
$ | 285 | $ | 1,173 | ||||
Other current liabilities |
$ | 14 | $ | 693 |
8
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
The following is a summary of the activity in the statements of operations related to the forward foreign exchange contracts (in thousands):
Three Months Ended | Nine Months Ended | |||||||||||||||
September 28, 2013 |
September 29, 2012 |
September 28, 2013 |
September 29, 2012 |
|||||||||||||
Realized gains on closed contracts |
$ | 1,837 | $ | 424 | $ | 5,866 | $ | 899 | ||||||||
Unrealized gains (losses) on open contracts |
489 | 593 | (208 | ) | 851 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Cumulative net pre-tax gains |
$ | 2,326 | $ | 1,017 | $ | 5,658 | $ | 1,750 | ||||||||
|
|
|
|
|
|
|
|
Stockholders Equity
In May 2012, the Companys Board of Directors authorized the Company to repurchase up to $750 million of its outstanding common stock over a two-year period. During the nine months ended September 28, 2013 and September 29, 2012, the Company repurchased 2.3 million and 2.8 million shares of the Companys outstanding common stock at a cost of $220 million and $229 million, respectively, under the May 2012 authorization and other previously announced programs. As of September 28, 2013, the Company had purchased an aggregate of 3.6 million shares at a cost of $327 million under the May 2012 program, leaving $423 million authorized for future repurchases. In addition, the Company repurchased $6 million of common stock during both the nine months ended September 28, 2013 and September 29, 2012 related to the vesting of restricted stock units.
Product Warranty Costs
The Company accrues estimated product warranty costs at the time of sale, which are included in cost of sales in the consolidated statements of operations. While the Company engages in extensive product quality programs and processes, including actively monitoring and evaluating the quality of its component suppliers, the Companys warranty obligation is affected by product failure rates, material usage and service delivery costs incurred in correcting a product failure. The amount of the accrued warranty liability is based on historical information, such as past experience, product failure rates, number of units repaired and estimated costs of material and labor. The liability is reviewed for reasonableness at least quarterly.
The following is a summary of the activity of the Companys accrued warranty liability for the nine months ended September 28, 2013 and September 29, 2012 (in thousands):
Balance at Beginning of Period |
Accruals for Warranties |
Settlements Made |
Balance at End of Period |
|||||||||||||
Accrued warranty liability: |
||||||||||||||||
September 28, 2013 |
$ | 12,353 | $ | 5,384 | $ | (5,773 | ) | $ | 11,964 | |||||||
September 29, 2012 |
$ | 13,258 | $ | 5,780 | $ | (6,153 | ) | $ | 12,885 |
Subsequent Events
The Company did not have any material subsequent events.
2 | Cash, Cash Equivalents and Investments |
The Company maintains cash balances in various bank operating accounts in excess of federally insured limits, and in foreign subsidiary accounts in currencies other than U.S. dollars. The Companys cash equivalents represent highly liquid financial instruments with original maturities of 90 days or less, financial instruments with longer maturities are classified as investments. As of September 28, 2013 and December 31, 2012, $1,670 million out of $1,699 million and $1,489 million out of $1,539 million, respectively, of the Companys total cash, cash equivalents and investments were held by foreign subsidiaries and may be subject to material tax effects on distribution to U.S. legal entities. In the nine months ended September 28, 2013, the Company recorded a $1.6 million charge for an other-than-temporary impairment to an investment.
9
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
The Companys marketable securities within cash equivalents and investments included in the consolidated balance sheets are detailed as follows (in thousands):
September 28, 2013 | ||||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gain | Loss | Value | |||||||||||||
U.S. Treasury securities |
$ | 542,285 | $ | 108 | $ | (1 | ) | $ | 542,392 | |||||||
Foreign government securities |
218,890 | | | 218,890 | ||||||||||||
Corporate debt securities |
476,091 | 86 | (185 | ) | 475,992 | |||||||||||
Time deposits |
78,059 | | | 78,059 | ||||||||||||
Equity securities |
77 | 70 | | 147 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 1,315,402 | $ | 264 | $ | (186 | ) | $ | 1,315,480 | |||||||
|
|
|
|
|
|
|
|
|||||||||
Amounts included in: |
||||||||||||||||
Cash equivalents |
$ | 47,374 | $ | | $ | | $ | 47,374 | ||||||||
Investments |
1,268,028 | 264 | (186 | ) | 1,268,106 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 1,315,402 | $ | 264 | $ | (186 | ) | $ | 1,315,480 | |||||||
|
|
|
|
|
|
|
|
The estimated fair value of marketable debt securities by maturity date is as follows (in thousands):
September 28, 2013 | ||||
Due in one year or less |
$ | 1,046,264 | ||
Due after one year through two years |
191,010 | |||
|
|
|||
Total |
$ | 1,237,274 | ||
|
|
3 | Inventories |
Inventories are classified as follows (in thousands):
September 28, 2013 | December 31, 2012 | |||||||
Raw materials |
$ | 81,378 | $ | 73,280 | ||||
Work in progress |
20,798 | 16,133 | ||||||
Finished goods |
154,804 | 140,152 | ||||||
|
|
|
|
|||||
Total inventories |
$ | 256,980 | $ | 229,565 | ||||
|
|
|
|
4 | Acquisitions |
The Company accounts for business acquisitions under the accounting standards for business combinations and the results of each acquisition have been included in the Companys consolidated results from the respective acquisition dates.
In August 2013, the Company acquired all of the outstanding stock of Nonlinear Dynamics Ltd. (Nonlinear Dynamics), a developer of proteomics and metabolomics software, for approximately $23 million in cash. The purchase price of the acquisition was allocated to tangible and intangible assets and assumed liabilities based on their estimated fair values. The Company has allocated $3 million of the purchase price to intangible assets comprised of software, customer relationships and trade name. The Company is amortizing the software and customer relationships over 5 years. The remaining purchase price of $20 million has been accounted for as goodwill. The goodwill is not deductible for tax purposes.
In July 2013, the Company acquired all of the outstanding stock of Scarabaeus Mess-und Prodktionstechnik GmbH (Scarabaeus), a manufacturer of rheometers for the rubber and elastomer markets, for approximately $4 million in cash. The purchase price of the acquisition was allocated to tangible and intangible assets and assumed liabilities based on their estimated fair values. The Company has allocated $2 million of the purchase price to intangible assets comprised of completed technology, software and customer relationships. The Company is amortizing acquired technology over 10 years and the software and customer relationships over 7 years. The remaining purchase price of $3 million has been accounted for as goodwill. The goodwill is not deductible for tax purposes.
10
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
The principal factor that resulted in recognition of goodwill in these acquisitions is that the purchase price was based, in part, on cash flow projections assuming the integration of any acquired technology, distribution channels and products with our products, which is of considerably greater value than utilizing each of the acquired companies technology, customer access or products on a stand-alone basis. The goodwill also includes value assigned to assembled workforce, which cannot be recognized as an intangible asset. Specifically, the goodwill acquired with Nonlinear Dynamics consists of the value assigned to the workforce and the future incremental sales synergies anticipated when Nonlinear Dynamics develops the future next-generation software that will be a key component of the Companys future high-end MS instruments. This new software has not yet been developed and development will begin post-acquisition.
In each acquisition, the sellers provided the Company with customary representations, warranties and indemnification, which would be settled in the future if and when a breach of the contractual representation or warranty condition occurs. The impact of these acquisitions, either individually or in the aggregate, on the Companys net income since the acquisition date for the nine months ended September 28, 2013 was not significant.
The following table presents the fair values, as determined by the Company, of 100% of the assets and liabilities owned and recorded in connection with the acquisition of Nonlinear Dynamics and Scarabaeus (in thousands):
Accounts receivable and other current assets |
$ | 1,066 | ||
Property, plant and equipment |
126 | |||
Intangible assets |
4,984 | |||
Goodwill |
22,789 | |||
|
|
|||
Total assets acquired |
28,965 | |||
Accrued expenses and other current liabilities |
1,011 | |||
Deferred tax liability |
1,227 | |||
|
|
|||
Cash consideration paid |
$ | 26,727 | ||
|
|
5 | Goodwill and Other Intangibles |
The carrying amount of goodwill was $340 million and $317 million at September 28, 2013 and December 31, 2012, respectively. The Companys acquisitions increased goodwill by $23 million (Note 4).
The Companys intangible assets included in the consolidated balance sheets are detailed as follows (in thousands):
September 28, 2013 | December 31, 2012 | |||||||||||||||||||||||
Gross Carrying Amount |
Accumulated Amortization |
Weighted- Average Amortization Period |
Gross Carrying Amount |
Accumulated Amortization |
Weighted- Average Amortization Period |
|||||||||||||||||||
Purchased intangibles |
$ | 160,736 | $ | 102,231 | 10 years | $ | 154,749 | $ | 94,498 | 11 years | ||||||||||||||
Capitalized software |
325,299 | 178,524 | 7 years | 293,589 | 155,394 | 5 years | ||||||||||||||||||
Licenses |
7,108 | 6,539 | 6 years | 7,112 | 6,361 | 6 years | ||||||||||||||||||
Patents and other intangibles |
47,690 | 22,765 | 8 years | 40,290 | 19,342 | 8 years | ||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Total |
$ | 540,833 | $ | 310,059 | 8 years | $ | 495,740 | $ | 275,595 | 7 years | ||||||||||||||
|
|
|
|
|
|
|
|
During the nine months ended September 28, 2013, the Company acquired $5 million of purchased intangibles as a result of the acquisitions of Nonlinear Dynamics and Scarabaeus (Note 4). During the nine months ended September 28, 2013, the effect of foreign currency translation increased the gross carrying value of intangible assets and accumulated amortization for intangible assets by $7 million and $4 million, respectively. Amortization expense for intangible assets was $10 million for both the three months ended September 28, 2013 and September 29, 2012,
11
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
respectively. Amortization expense for intangible assets was $30 million and $24 million for the nine months ended September 28, 2013 and September 29, 2012, respectively. Included in amortization expense for both the three and nine months ended September 29, 2012 is $4 million of amortization expense related to the discontinuance of a product trade name intangible asset. Amortization expense for intangible assets is estimated to be between $42 million and $47 million per year for each of the next five years. The increase in amortization expense in 2013 and for the next five years is due to amortization associated with capitalized software costs related to the launch of new software product platforms in the first quarter of 2013. The net carrying value of the new software platform was approximately $109 million as of September 28, 2013 and will be amortized over ten years.
6 | Debt |
In June 2013, the Company entered into a new credit agreement (the 2013 Credit Agreement) that provides for a $1.1 billion revolving facility and a $300 million term loan facility. The revolving facility and term loan facility both mature on June 25, 2018 and require no scheduled prepayments before that date. The Company used $860 million of the proceeds from the 2013 Credit Agreement to repay the outstanding amounts under the Companys existing multi-borrower credit agreement dated July 2011 (the 2011 Credit Agreement). Waters terminated the 2011 Credit Agreement early without penalty.
The interest rates applicable to the 2013 Credit Agreement are, at the Companys option, equal to either the alternate base rate calculated daily (which is a rate per annum equal to the greatest of (a) the prime rate in effect on such day, (b) the federal funds effective rate in effect on such day plus 1/2% per annum, or (c) the adjusted LIBO rate on such day (or if such day is not a business day, the immediately preceding business day) for a deposit in U.S. dollars with a maturity of one month plus 1% per annum) or the applicable 1, 2, 3 or 6 month adjusted LIBO rate, in each case, plus an interest rate margin based upon the Companys leverage ratio, which can range between 0 to 12.5 basis points for alternate base rate loans and between 75 basis points and 112.5 basis points for adjusted LIBO rate loans. The facility fee on the 2013 Credit Agreement ranges between 12.5 basis points and 25 basis points. The 2013 Credit Agreement requires that the Company comply with an interest coverage ratio test of not less than 3.50:1 as of the end of any fiscal quarter for any period of four consecutive fiscal quarters and a leverage ratio test of not more than 3.50:1 as of the end of any fiscal quarter. In addition, the 2013 Credit Agreement includes negative covenants, affirmative covenants, representations and warranties and events of default that are customary for investment grade credit facilities.
At September 28, 2013, $125 million of the outstanding portions of the revolving facilities have been classified as short-term liabilities in the consolidated balance sheet due to the fact that the Company expects to utilize this portion of the revolving line of credit to fund its working capital needs within the next twelve months and can repay and re-borrow from the facility without penalty. The remaining $460 million of the outstanding portions of the revolving facilities have been classified as long-term liabilities in the consolidated balance sheet, as no repayments are required prior to the maturity date in 2018 and this portion is not expected to be repaid within the next twelve months.
As of both September 28, 2013 and December 31, 2012, the Company had a total of $400 million of outstanding senior unsecured notes. Interest on the senior unsecured notes is payable semi-annually each year. The Company may prepay all or some of the senior unsecured notes at any time in an amount not less than 10% of the aggregate principal amount outstanding, plus the applicable make-whole amount. In the event of a change in control (as defined in the note purchase agreement) of the Company, the Company may be required to prepay the senior unsecured notes at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest. These notes require that the Company comply with an interest coverage ratio test of not less than 3.50:1 for any period of four consecutive fiscal quarters and a leverage ratio test of not more than 3.50:1 as of the end of any fiscal quarter. In addition, these notes include customary negative covenants, affirmative covenants, representations and warranties and events of default.
As of September 28, 2013, the Company was in compliance with all debt covenants.
12
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
The Company had the following outstanding debt at September 28, 2013 and December 31, 2012 (in thousands):
September 28, 2013 | December 31, 2012 | |||||||
Foreign subsidiary lines of credit |
$ | 8,761 | $ | 7,781 | ||||
Credit agreements |
125,000 | 125,000 | ||||||
|
|
|
|
|||||
Total notes payable and debt |
133,761 | 132,781 | ||||||
|
|
|
|
|||||
Senior unsecured notes - Series A - 3.75%, due February 2015 |
100,000 | 100,000 | ||||||
Senior unsecured notes - Series B - 5.00%, due February 2020 |
100,000 | 100,000 | ||||||
Senior unsecured notes - Series C - 2.50%, due March 2016 |
50,000 | 50,000 | ||||||
Senior unsecured notes - Series D - 3.22%, due March 2018 |
100,000 | 100,000 | ||||||
Senior unsecured notes - Series E - 3.97%, due March 2021 |
50,000 | 50,000 | ||||||
Credit agreements |
760,000 | 645,000 | ||||||
|
|
|
|
|||||
Total long-term debt |
1,160,000 | 1,045,000 | ||||||
|
|
|
|
|||||
|
|
|
|
|||||
Total debt |
$ | 1,293,761 | $ | 1,177,781 | ||||
|
|
|
|
As of September 28, 2013 and December 31, 2012, the Company had a total amount available to borrow of $513 million and $428 million, respectively, after outstanding letters of credit, under the existing credit agreements. The weighted-average interest rates applicable to the senior unsecured notes and credit agreement borrowings collectively were 1.96% and 2.11% at September 28, 2013 and December 31, 2012, respectively.
The Company and its foreign subsidiaries also had available short-term lines of credit totaling $88 million and $107 million at September 28, 2013 and December 31, 2012, respectively, for the purpose of short-term borrowing and issuance of commercial guarantees. At September 28, 2013 and December 31, 2012, the weighted-average interest rates applicable to these short-term borrowings were 2.16% and 2.00%, respectively.
7 | Income Taxes |
The Company accounts for its uncertain tax return reporting positions in accordance with the accounting standards for income taxes, which require financial statement reporting of the expected future tax consequences of uncertain tax reporting positions on the presumption that all concerned tax authorities possess full knowledge of those reporting positions, as well as all of the pertinent facts and circumstances, but prohibit any discounting of unrecognized tax benefits associated with those reporting positions for the time value of money.
The following is a summary of the activity in the Companys unrecognized tax benefits for the nine months ended September 28, 2013 and September 29, 2012 (in thousands):
September 28, 2013 | September 29, 2012 | |||||||
Balance at the beginning of the period |
$ | 64,390 | $ | 73,199 | ||||
Changes resulting from completion of tax examinations |
(35,279 | ) | | |||||
Other changes in uncertain tax benefits |
(2,662 | ) | (1,941 | ) | ||||
|
|
|
|
|||||
Balance at the end of the period |
$ | 26,449 | $ | 71,258 | ||||
|
|
|
|
The Companys uncertain tax reporting positions are taken with respect to income tax return reporting periods beginning after December 31, 1999, which are the periods that generally remain open to income tax audit examination by income tax authorities. The Company continuously monitors the lapsing of statutes of limitations on potential tax assessments for related changes in the measurement of unrecognized tax benefits, related net interest and penalties, and deferred tax assets and liabilities.
During the nine months ended September 28, 2013, the Company concluded tax audit disputes with tax authorities in the U.S. and Japan that were related to matters for which the Company had previously recorded uncertain tax benefits of approximately $35 million. The resolution of these tax audit disputes also entailed net global assessments against the Company of approximately $4 million. Accordingly, the Company recorded a $35 million reduction in the measurement of its unrecognized tax benefits and a $4 million increase in its current tax liabilities in the nine
13
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
months ended September 28, 2013, which reduced the provision for income taxes and increased net income for the nine months ended September 28, 2013 by $31 million. As of September 28, 2013, the Company expects to record additional reductions in the measurement of its unrecognized tax benefits and related net interest and penalties of approximately $6 million within the next twelve months due to the lapsing of statutes of limitations on potential tax assessments. These amounts have been classified as accrued income taxes in the consolidated balance sheet. The Company does not expect to record any other material reductions in the measurement of its unrecognized tax benefits within the next twelve months.
The Companys effective tax rate was 13.0% and 14.4% for the three months ended September 28, 2013 and September 29, 2012, respectively. The Companys effective tax rate was 3.9% and 14.7% for the nine months ended September 28, 2013 and September 29, 2012, respectively. The income tax provision for the nine months ended September 28, 2013 included the aforementioned $31 million net tax benefit related to completed tax audit examinations. In addition, the research and development tax credit (R&D Tax Credit) was retroactively extended in January 2013 for the 2012 and 2013 tax years. The entire $3 million benefit related to the 2012 tax year was recorded in the first quarter of 2013, and the 2013 benefit is included in the annual effective tax rate. The net income tax benefits related to the completed tax audit examinations and the 2012 R&D Tax Credit decreased the Companys effective tax rate by 10.6 percentage points in the nine months ended September 28, 2013. The remaining differences between the quarter and year-to-date effective tax rates for 2013 and 2012 were primarily attributable to differences in the proportionate amounts of pre-tax income recognized in jurisdictions with different effective tax rates.
8 | Litigation |
The Company is involved in various litigation matters arising in the ordinary course of business. The Company believes the outcome of these matters will not have a material impact on the Companys financial position. In June 2012, a $3 million payment was made to settle a complaint that was filed against the Company alleging patent infringement.
9 | Stock-Based Compensation |
The Company maintains various shareholder-approved, stock-based compensation plans which allow for the issuance of incentive or non-qualified stock options, stock appreciation rights, restricted stock or other types of awards (e.g. restricted stock units).
The Company accounts for stock-based compensation costs in accordance with the accounting standards for stock-based compensation, which require that all share-based payments to employees be recognized in the statements of operations based on their fair values. The Company recognizes the expense using the straight-line attribution method. The stock-based compensation expense recognized in the consolidated statements of operations is based on awards that ultimately are expected to vest; therefore, the amount of expense has been reduced for estimated forfeitures. The stock-based compensation accounting standards require forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based on historical experience. If actual results differ significantly from these estimates, stock-based compensation expense and the Companys results of operations could be materially impacted. In addition, if the Company employs different assumptions in the application of these standards, the compensation expense that the Company records in the future periods may differ significantly from what the Company has recorded in the current period.
The consolidated statements of operations for the three and nine months ended September 28, 2013 and September 29, 2012 include the following stock-based compensation expense related to stock option awards, restricted stock, restricted stock unit awards and the employee stock purchase plan (in thousands):
Three Months Ended | Nine Months Ended | |||||||||||||||
September 28, 2013 |
September 29, 2012 |
September 28, 2013 |
September 29, 2012 |
|||||||||||||
Cost of sales |
$ | 630 | $ | 716 | $ | 1,955 | $ | 2,010 | ||||||||
Selling and administrative expenses |
7,110 | 5,461 | 19,081 | 16,924 | ||||||||||||
Research and development expenses |
938 | 1,129 | 2,949 | 2,753 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total stock-based compensation |
$ | 8,678 | $ | 7,306 | $ | 23,985 | $ | 21,687 | ||||||||
|
|
|
|
|
|
|
|
14
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
As of both September 28, 2013 and December 31, 2012, the Company had capitalized stock-based compensation costs of less than $1 million in inventory in the consolidated balance sheets. As of both September 28, 2013 and December 31, 2012, the Company had capitalized stock-based compensation costs of $2 million in capitalized software in the consolidated balance sheets.
Stock Options
In determining the fair value of the stock options, the Company makes a variety of assumptions and estimates, including volatility measures, expected yields and expected stock option lives. The fair value of each option grant was estimated on the date of grant using the Black-Scholes option pricing model. The Company uses implied volatility on its publicly-traded options as the basis for its estimate of expected volatility. The Company believes that implied volatility is the most appropriate indicator of expected volatility because it is generally reflective of historical volatility and expectations of how future volatility will differ from historical volatility. The expected life assumption for grants is based on historical experience for the population of non-qualified stock optionees. The risk-free interest rate is the yield currently available on U.S. Treasury zero-coupon issues with a remaining term approximating the expected term used as the input to the Black-Scholes model. The relevant data used to determine the value of the stock options granted during the nine months ended September 28, 2013 and September 29, 2012 are as follows:
Options Issued and Significant Assumptions Used to Estimate Option Fair |
September 28, 2013 | September 29, 2012 | ||||||
Options issued in thousands |
80 | 32 | ||||||
Risk-free interest rate |
1.0 | % | 1.0 | % | ||||
Expected life in years |
3 | 6 | ||||||
Expected volatility |
0.259 | 0.380 | ||||||
Expected dividends |
| |
Weighted-Average Exercise Price and Fair Value of Options on the Date of |
September 28, 2013 | September 29, 2012 | ||||||
Exercise price |
$ | 95.72 | $ | 75.94 | ||||
Fair value |
$ | 26.22 | $ | 28.68 |
The following table summarizes stock option activity for the plans for the nine months ended September 28, 2013 (in thousands, except per share data):
Number of Shares | Price per Share | Weighted-Average Exercise Price |
||||||||||
Outstanding at December 31, 2012 |
4,809 | $ | 23.19 to $ 87.06 | $ | 63.34 | |||||||
Granted |
80 | $ | 88.71 to $ 103.47 | $ | 95.72 | |||||||
Exercised |
(652 | ) | $ | 23.19 to $ 79.15 | $ | 48.99 | ||||||
Canceled |
(37 | ) | $ | 36.25 to $ 79.15 | $ | 72.42 | ||||||
|
|
|||||||||||
Outstanding at September 28, 2013 |
4,200 | $ | 32.12 to $ 103.47 | $ | 66.10 | |||||||
|
|
Restricted Stock
During the nine months ended September 28, 2013, the Company granted twelve thousand shares of restricted stock. The fair value of these awards on the grant date was $88.71 per share.
15
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
Restricted Stock Units
The following table summarizes the unvested restricted stock unit award activity for the nine months ended September 28, 2013 (in thousands, except for per share amounts):
Shares | Weighted-Average Price |
|||||||
Unvested at December 31, 2012 |
574 | $ | 67.28 | |||||
Granted |
162 | $ | 91.71 | |||||
Vested |
(207 | ) | $ | 60.64 | ||||
Forfeited |
(25 | ) | $ | 71.91 | ||||
|
|
|||||||
Unvested at September 28, 2013 |
504 | $ | 77.63 | |||||
|
|
Restricted stock units are generally granted annually in February and vest in equal annual installments over a five-year period.
10 | Earnings Per Share |
Basic and diluted earnings per share (EPS) calculations are detailed as follows (in thousands, except per share data):
Three Months Ended September 28, 2013 | ||||||||||||
Net Income (Numerator) |
Weighted- Average Shares (Denominator) |
Per Share Amount |
||||||||||
Net income per basic common share |
$ | 98,048 | 85,185 | $ | 1.15 | |||||||
Effect of dilutive stock option, restricted stock and restricted stock unit securities |
1,179 | |||||||||||
|
|
|
|
|
|
|||||||
Net income per diluted common share |
$ | 98,048 | 86,364 | $ | 1.14 | |||||||
|
|
|
|
|
|
|||||||
Three Months Ended September 29, 2012 | ||||||||||||
Net Income (Numerator) |
Weighted- Average Shares (Denominator) |
Per Share Amount |
||||||||||
Net income per basic common share |
$ | 99,109 | 87,411 | $ | 1.13 | |||||||
Effect of dilutive stock option, restricted stock and restricted stock unit securities |
1,040 | |||||||||||
|
|
|
|
|
|
|||||||
Net income per diluted common share |
$ | 99,109 | 88,451 | $ | 1.12 | |||||||
|
|
|
|
|
|
|||||||
Nine Months Ended September 28, 2013 | ||||||||||||
Net Income (Numerator) |
Weighted- Average Shares (Denominator) |
Per Share Amount |
||||||||||
Net income per basic common share |
$ | 308,421 | 85,565 | $ | 3.60 | |||||||
Effect of dilutive stock option, restricted stock and restricted stock unit securities |
1,154 | |||||||||||
|
|
|
|
|
|
|||||||
Net income per diluted common share |
$ | 308,421 | 86,719 | $ | 3.56 | |||||||
|
|
|
|
|
|
16
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
Nine Months Ended September 29, 2012 | ||||||||||||
Net Income (Numerator) |
Weighted- Average Shares (Denominator) |
Per Share Amount |
||||||||||
Net income per basic common share |
$ | 285,499 | 88,234 | $ | 3.24 | |||||||
Effect of dilutive stock option, restricted stock and restricted stock unit securities |
1,133 | |||||||||||
|
|
|
|
|
|
|||||||
Net income per diluted common share |
$ | 285,499 | 89,367 | $ | 3.19 | |||||||
|
|
|
|
|
|
For the three and nine months ended September 28, 2013, the Company had 0.7 million and 0.8 million stock options that were antidilutive, respectively, due to having higher exercise prices than the Companys average stock price during the period. For both the three and nine months ended September 29, 2012, the Company had 1.3 million stock options that were antidilutive. These securities were not included in the computation of diluted EPS. The effect of dilutive securities was calculated using the treasury stock method.
11 | Retirement Plans |
The Company sponsors various retirement plans. The summary of the components of net periodic pension costs for the plans for the three and nine months ended September 28, 2013 and September 29, 2012 is as follows (in thousands):
Three Months Ended | ||||||||||||||||||||||||
September 28, 2013 | September 29, 2012 | |||||||||||||||||||||||
U.S. Pension Plans |
U.S. Retiree Healthcare Plan |
Non-U.S. Pension Plans |
U.S. Pension Plans |
U.S. Retiree Healthcare Plan |
Non-U.S. Pension Plans |
|||||||||||||||||||
Service cost |
$ | | $ | 238 | $ | 1,152 | $ | 3 | $ | 182 | $ | 948 | ||||||||||||
Interest cost |
1,290 | 85 | 499 | 1,452 | 90 | 499 | ||||||||||||||||||
Expected return on plan assets |
(1,951 | ) | (88 | ) | (228 | ) | (1,905 | ) | (66 | ) | (209 | ) | ||||||||||||
Net amortization: |
||||||||||||||||||||||||
Prior service credit |
| (13 | ) | (62 | ) | | (13 | ) | (69 | ) | ||||||||||||||
Net actuarial loss |
812 | | 131 | 752 | | 93 | ||||||||||||||||||
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|
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|
|
|
|||||||||||||
Net periodic pension cost |
$ | 151 | $ | 222 | $ | 1,492 | $ | 302 | $ | 193 | $ | 1,262 | ||||||||||||
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|
|
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|
Nine Months Ended | ||||||||||||||||||||||||
September 28, 2013 | September 29, 2012 | |||||||||||||||||||||||
U.S. Pension Plans |
U.S. Retiree Healthcare Plan |
Non-U.S. Pension Plans |
U.S. Pension Plans |
U.S. Retiree Healthcare Plan |
Non-U.S. Pension Plans |
|||||||||||||||||||
Service cost |
$ | | $ | 714 | $ | 3,456 | $ | 7 | $ | 545 | $ | 2,842 | ||||||||||||
Interest cost |
4,128 | 255 | 1,497 | 4,355 | 271 | 1,497 | ||||||||||||||||||
Expected return on plan assets |
(6,027 | ) | (264 | ) | (684 | ) | (5,714 | ) | (197 | ) | (627 | ) | ||||||||||||
Net amortization: |
||||||||||||||||||||||||
Prior service credit |
| (39 | ) | (186 | ) | | (40 | ) | (206 | ) | ||||||||||||||
Net actuarial loss |
2,574 | | 393 | 2,256 | | 278 | ||||||||||||||||||
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|
|||||||||||||
Net periodic pension cost |
$ | 675 | $ | 666 | $ | 4,476 | $ | 904 | $ | 579 | $ | 3,784 | ||||||||||||
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|
During the nine months ended September 28, 2013, the Company contributed $4 million to the Companys U.S. pension plans. During fiscal year 2013, the Company expects to contribute a total of approximately $8 million to $10 million to the Companys defined benefit plans.
17
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
12 | Business Segment Information |
The Companys business activities, for which discrete financial information is available, are regularly reviewed and evaluated by chief operating decision makers. As a result of this evaluation, the Company determined that it has two operating segments: Waters Division and TA Division.
Waters Division is primarily in the business of designing, manufacturing, distributing and servicing LC and MS instruments, columns and other chemistry consumables that can be integrated and used along with other analytical instruments. TA Division is primarily in the business of designing, manufacturing, distributing and servicing thermal analysis, rheometry and calorimetry instruments. The Companys two divisions are its operating segments and each has similar economic characteristics; product processes; products and services; types and classes of customers; methods of distribution and regulatory environments. Because of these similarities, the two operating segments have been aggregated into one reporting segment for financial statement purposes. Please refer to the consolidated financial statements for financial information regarding the one reportable segment of the Company.
Net sales for the Companys products and services are as follows for the three and nine months ended September 28, 2013 and September 29, 2012 (in thousands):
Three Months Ended | Nine Months Ended | |||||||||||||||
September 28, 2013 |
September 29, 2012 |
September 28, 2013 |
September 29, 2012 |
|||||||||||||
Product net sales: |
||||||||||||||||
Waters instrument systems |
$ | 196,989 | $ | 202,513 | $ | 576,981 | $ | 583,081 | ||||||||
Chemistry |
75,413 | 73,126 | 223,000 | 220,026 | ||||||||||||
TA instrument systems |
40,541 | 35,184 | 111,887 | 108,078 | ||||||||||||
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|
|||||||||
Total product sales |
312,943 | 310,823 | 911,868 | 911,185 | ||||||||||||
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|
|||||||||
Service net sales: |
||||||||||||||||
Waters service |
130,308 | 126,434 | 386,332 | 372,708 | ||||||||||||
TA service |
14,066 | 12,695 | 40,570 | 37,982 | ||||||||||||
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|
|||||||||
Total service sales |
144,374 | 139,129 | 426,902 | 410,690 | ||||||||||||
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|
|
|
|
|||||||||
Total net sales |
$ | 457,317 | $ | 449,952 | $ | 1,338,770 | $ | 1,321,875 | ||||||||
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|
|
13 | Recent Accounting Standard Changes and Developments |
Recently Adopted Accounting Standards
In July 2012, amended accounting guidance was issued for indefinite-lived intangible assets other than goodwill in order to simplify how companies test indefinite-lived intangible assets for impairment. The adoption of this standard in 2013 did not have a material effect on the Companys financial position, results of operations or cash flows.
In February 2013, accounting guidance was issued to improve the reporting of reclassifications out of accumulated other comprehensive income. The adoption of this standard in 2013 did not have a material effect on the Companys financial position, results of operations or cash flows.
Recently Issued Accounting Standards
In July 2013, amended accounting guidance was issued regarding the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss or a tax credit carryforward exists. This guidance is effective prospectively for annual and interim reporting periods beginning after December 15, 2013. The adoption of this standard is not expected to have a material effect on the Companys financial position, results of operations or cash flows.
18
Item 2: | Managements Discussion and Analysis of Financial Condition and Results of Operations |
Business and Financial Overview
The Company has two operating segments: the Waters Division and the TA Division (TA®). The Waters Divisions products and services primarily consist of high performance liquid chromatography (HPLC), ultra performance liquid chromatography (UPLC® and together with HPLC, referred to as LC), mass spectrometry (MS) and chemistry consumable products and related services. TA products and services primarily consist of thermal analysis, rheometry and calorimetry instrument systems and service sales. The Companys products are used by pharmaceutical, life science, biochemical, industrial, nutritional safety, environmental, academic and governmental customers. These customers use the Companys products to detect, identify, monitor and measure the chemical, physical and biological composition of materials and to predict the suitability of fine chemicals, polymers and viscous liquids in consumer goods and healthcare products.
The Companys operating results for the three and nine months ended September 28, 2013 and September 29, 2012 are as follows (in thousands):
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
September 28, 2013 |
September 29, 2012 |
% change | September 28, 2013 |
September 29, 2012 |
% change | |||||||||||||||||||
Product sales |
$ | 312,943 | $ | 310,823 | 1 | % | $ | 911,868 | $ | 911,185 | | |||||||||||||
Service sales |
144,374 | 139,129 | 4 | % | 426,902 | 410,690 | 4 | % | ||||||||||||||||
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|
|
|
|
|
|
|
|
|
|||||||||||||
Total net sales |
457,317 | 449,952 | 2 | % | 1,338,770 | 1,321,875 | 1 | % | ||||||||||||||||
Total cost of sales |
191,568 | 182,702 | 5 | % | 554,465 | 529,251 | 5 | % | ||||||||||||||||
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|
|
|||||||||||||
Gross profit |
265,749 | 267,250 | (1 | %) | 784,305 | 792,624 | (1 | %) | ||||||||||||||||
Gross profit as a % of sales |
58.1 | % | 59.4 | % | 58.6 | % | 60.0 | % | ||||||||||||||||
Selling and administrative expenses |
120,563 | 115,322 | 5 | % | 362,285 | 355,123 | 2 | % | ||||||||||||||||
Research and development expenses |
23,599 | 23,756 | (1 | %) | 73,561 | 71,046 | 4 | % | ||||||||||||||||
Purchased intangibles amortization |
2,518 | 6,427 | (61 | %) | 7,293 | 11,370 | (36 | %) | ||||||||||||||||
Litigation provisions |
| | | 3,000 | (100 | %) | ||||||||||||||||||
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|
|
|
|||||||||||||
Operating income |
119,069 | 121,745 | (2 | %) | 341,166 | 352,085 | (3 | %) | ||||||||||||||||
Operating income as a % of sales |
26.0 | % | 27.1 | % | 25.5 | % | 26.6 | % | ||||||||||||||||
Other expense, net |
| | (1,575 | ) | | |||||||||||||||||||
Interest expense, net |
(6,412 | ) | (5,923 | ) | 8 | % | (18,811 | ) | (17,492 | ) | 8 | % | ||||||||||||
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|
|||||||||||||
Income from operations before income taxes |
112,657 | 115,822 | (3 | %) | 320,780 | 334,593 | (4 | %) | ||||||||||||||||
Provision for income taxes |
14,609 | 16,713 | (13 | %) | 12,359 | 49,094 | (75 | %) | ||||||||||||||||
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|
|||||||||||||
Net income |
$ | 98,048 | $ | 99,109 | (1 | %) | $ | 308,421 | $ | 285,499 | 8 | % | ||||||||||||
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|
|||||||||||||
Net income per diluted common share |
$ | 1.14 | $ | 1.12 | 2 | % | $ | 3.56 | $ | 3.19 | 12 | % |
Sales for the third quarter increased 2%, with the effect of foreign currency translation negatively impacting the quarters sales by 2% across all products and services, principally due to the weakness of the Japanese yen. Foreign currency translation negatively impacted Japans sales by 21%. In the quarter, service sales increased 4% and chemistry sales increased 3%. These increases were offset by flat instrument system sales, resulting from weaker capital spending at larger pharmaceutical customers, which was offset by stronger demand from industrial, governmental and academic customers.
Year-to-date, sales increased 1%, with the effect of foreign currency translation negatively impacting sales by 2% across all products and services, principally due to the weakness of the Japanese yen. Foreign currency translation negatively impacted Japans sales by 17%. Year-to-date, service sales increased 4% and chemistry sales increased 1%, while sales of instrument systems were flat.
19
Sales to pharmaceutical customers decreased 2% for the quarter and were flat year-to-date. Combined sales to industrial chemical, nutritional safety and environmental customers increased 7% and 2% for the quarter and year-to-date, respectively. Combined global sales to governmental and academic customers increased 6% and 5% for the quarter and year-to-date, respectively.
The decline in gross profit as a percentage of sales for the quarter and year-to-date was a result of the effects of unfavorable foreign currency translation, amortization expense from the recently launched UNIFI® software product and a change in product sales mix. Selling and administrative expenses increased 5% and 2% for the quarter and year-to-date, respectively, with modest increases in headcount from the prior year, merit compensation and fringe benefit costs being offset by a favorable effect of foreign currency translation.
Net income per diluted share in the quarter benefited from fewer shares outstanding due to additional share repurchases; however, this benefit was offset by a decline in gross profit and increase in selling and administrative expenses. Net income per diluted share increased year-to-date as a result of a $0.39 increase from the income tax benefits discussed below in Provision for Income Taxes under Results of Operations and by fewer shares outstanding due to additional share repurchases. These increases were primarily offset by a decline in gross profit and increase in selling and administrative expenses. Foreign currency translation decreased net income per diluted share by approximately $0.09 for the quarter and approximately $0.23 year-to-date, and is expected to continue to negatively impact net income per diluted share significantly for the full year 2013 as compared to 2012 based on current exchange rates.
Year-to-date, net cash provided by operating activities was $342 million and $318 million in 2013 and 2012, respectively. The $24 million increase was primarily a result of the increase in net income, as well as the timing of payments to vendors and the collection of receivables from customers.
Within cash flows used in investing activities, capital expenditures related to property, plant, equipment and software capitalization were $93 million and $73 million year-to-date for 2013 and 2012, respectively. The capital expenditures for 2013 and 2012 include $36 million and $23 million, respectively, of construction costs associated with multi-year projects, primarily in the United Kingdom to consolidate certain existing primary MS research, manufacturing and distribution locations.
In July 2013, the Company acquired all of the outstanding stock of Scarabaeus Mess-und Prodktionstechnik GmbH, a manufacturer of rheometers for the rubber and elastomer markets, for approximately $4 million in cash. In August 2013, the Company acquired all of the outstanding stock of Nonlinear Dynamics Ltd., a developer of proteomics and metabolomics software, for approximately $23 million in cash.
Within cash flows used in financing activities, the Company received $35 million and $21 million of proceeds from stock plans year-to-date for 2013 and 2012, respectively. In May 2012, the Companys Board of Directors authorized the Company to repurchase up to $750 million of its outstanding common stock over a two-year period. The Company repurchased $220 million and $229 million of the Companys outstanding common stock year-to-date in 2013 and 2012, respectively, under the May 2012 authorization and other previously announced stock repurchase programs.
In June 2013, the Company entered into a new credit agreement (the 2013 Credit Agreement) that provides for a $1.1 billion revolving facility and a $300 million term loan facility. The revolving facility and term loan facility both mature on June 25, 2018 and require no scheduled prepayments before that date. The Company used the proceeds from the 2013 Credit Agreement to repay the outstanding amounts under the Companys existing multi-borrower credit agreement dated July 2011, which was terminated early without penalty.
20
Results of Operations
Sales by Geography
Geographic sales information is presented below for the three and nine months ended September 28, 2013 and September 29, 2012 (in thousands):
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
September 28, 2013 |
September 29, 2012 |
% change |
September 28, 2013 |
September 29, 2012 |
% change |
|||||||||||||||||||
Net Sales: |
||||||||||||||||||||||||
United States |
$ | 139,603 | $ | 132,298 | 6 | % | $ | 398,737 | $ | 387,102 | 3 | % | ||||||||||||
Europe |
130,326 | 126,881 | 3 | % | 387,940 | 377,202 | 3 | % | ||||||||||||||||
Asia: |
||||||||||||||||||||||||
China |
59,136 | 55,479 | 7 | % | 170,078 | 153,103 | 11 | % | ||||||||||||||||
Japan |
42,467 | 50,760 | (16 | %) | 126,905 | 156,082 | (19 | %) | ||||||||||||||||
Asia Other |
53,188 | 51,930 | 2 | % | 153,254 | 158,539 | (3 | %) | ||||||||||||||||
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|
|
|
|||||||||||||
Total Asia |
154,791 | 158,169 | (2 | %) | 450,237 | 467,724 | (4 | %) | ||||||||||||||||
Other |
32,597 | 32,604 | | 101,856 | 89,847 | 13 | % | |||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total net sales |
$ | 457,317 | $ | 449,952 | 2 | % | $ | 1,338,770 | $ | 1,321,875 | 1 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The increase in sales in the U.S. for the quarter and year-to-date can be attributed to increased sales to pharmaceutical, industrial chemical, nutritional safety and environmental customers. The increase in Europes sales for both the quarter and year-to-date was primarily due to increased demand from governmental and academic customers. Chinas sales growth for the quarter and year-to-date was broad-based across all product and customer classes. Japans sales declined across all product and customer classes for both the quarter and year-to-date, primarily as a result of a 21% and a 17% drop in foreign currency exchange rates, respectively. The change in sales in both the quarter and year-to-date in the rest of Asia was impacted by lower sales to governmental and academic customers, as well as flat sales growth in India. Sales in the rest of the world for both the quarter and year-to-date grew primarily from higher demand from pharmaceutical, industrial chemical, nutritional safety and environmental customers, which was offset by lower sales from governmental and academic customers.
Waters Division Net Sales
Net sales for the Waters Divisions products and services are as follows for the three and nine months ended September 28, 2013 and September 29, 2012 (in thousands):
Three Months Ended | ||||||||||||||||||||
September 28, 2013 |
% of Total |
September 29, 2012 |
% of Total |
% change | ||||||||||||||||
Waters instrument systems |
$ | 196,989 | 49 | % | $ | 202,513 | 50 | % | (3 | %) | ||||||||||
Chemistry |
75,413 | 19 | % | 73,126 | 18 | % | 3 | % | ||||||||||||
|
|
|
|
|
|
|||||||||||||||
Total Waters Division product sales |
272,402 | 275,639 | (1 | %) | ||||||||||||||||
Waters service |
130,308 | 32 | % | 126,434 | 32 | % | 3 | % | ||||||||||||
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|
|
|
|
|
|
|
|
|
|||||||||||
Total Waters Division net sales |
$ | 402,710 | 100 | % | $ | 402,073 | 100 | % | | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Nine Months Ended | ||||||||||||||||||||
September 28, 2013 |
% of Total |
September 29, 2012 |
% of Total |
% change | ||||||||||||||||
Waters instrument systems |
$ | 576,981 | 49 | % | $ | 583,081 | 50 | % | (1 | %) | ||||||||||
Chemistry |
223,000 | 19 | % | 220,026 | 19 | % | 1 | % | ||||||||||||
|
|
|
|
|
|
|||||||||||||||
Total Waters Division product sales |
799,981 | 803,107 | | |||||||||||||||||
Waters service |
386,332 | 32 | % | 372,708 | 31 | % | 4 | % | ||||||||||||
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|
|
|
|
|
|
|
|
|||||||||||
Total Waters Division net sales |
$ | 1,186,313 | 100 | % | $ | 1,175,815 | 100 | % | 1 | % | ||||||||||
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|
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21
Waters instrument system sales (LC and MS) decreased in the quarter and year-to-date, primarily due to weaker capital spending by our pharmaceutical customers. The increase in sales of chemistry consumables and services for both the quarter and year-to-date primarily resulted from a combination of a higher utilization rate of installed instrument systems and a higher base of installed instruments in some regions. The effect of foreign currency translation impacted the Waters Division across all product lines, resulting in a decrease in total sales of 2% for both the quarter and year-to-date.
Waters Division sales increased 3% in the U.S. for both the quarter and year-to-date. Europe sales increased 1% and 2% for the quarter and year-to-date, respectively. Total Asia sales decreased 2% and 3% for the quarter and year-to-date, respectively. Waters Division sales in China for the quarter and year-to-date increased 7% and 12%, respectively, and decreased 15% and 18%, respectively, in Japan, primarily due to the negative effect of foreign currency translation. Sales in the rest of the world decreased 1% for the quarter but increased 9% year-to-date on higher sales to pharmaceutical customers.
TA Division Net Sales
Net sales for the TA Divisions products and services are as follows for the three and nine months ended September 28, 2013 and September 29, 2012 (in thousands):
Three Months Ended | ||||||||||||||||||||
September 28, 2013 |
% of Total |
September 29, 2012 |
% of Total |
% change | ||||||||||||||||
TA instrument systems |
$ | 40,541 | 74 | % | $ | 35,184 | 73 | % | 15 | % | ||||||||||
TA service |
14,066 | 26 | % | 12,695 | 27 | % | 11 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total TA Division net sales |
$ | 54,607 | 100 | % | $ | 47,879 | 100 | % | 14 | % | ||||||||||
|
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|
|
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|
|
Nine Months Ended | ||||||||||||||||||||
September 28, 2013 |
% of Total |
September 29, 2012 |
% of Total |
% change | ||||||||||||||||
TA instrument systems |
$ | 111,887 | 73 | % | $ | 108,078 | 74 | % | 4 | % | ||||||||||
TA service |
40,570 | 27 | % | 37,982 | 26 | % | 7 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total TA Division net sales |
$ | 152,457 | 100 | % | $ | 146,060 | 100 | % | 4 | % | ||||||||||
|
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|
|
|
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|
|
TA instrument system sales increased 15% in the quarter as a result of strong demand for thermal and rheology products. TA service sales increased due to sales of service plans and billings to a higher installed base of customers. TAs sales increased for both the quarter and year-to-date across all geographic regions, with the exception of Japan, which was negatively impacted by the effect of foreign currency translation. The effect of foreign currency translation decreased TAs total sales by 1% for the quarter.
Gross Profit
Gross profit decreased 1% for both the quarter and year-to-date. Gross profit as a percentage of sales decreased for both the quarter and year-to-date, primarily due to the effects of foreign currency translation, amortization expense from the recently launched UNIFI software and changes in instrument systems product mix.
Gross profit as a percentage of sales is affected by many factors, including, but not limited to, foreign currency translation, product mix, price and product costs of instrument systems and associated software platforms. The cost and amortization of capitalized software development costs for the Companys recently introduced UNIFI product may continue to affect the Companys product mix and associated gross profit. The Company also expects that the impact of foreign currency translation will negatively affect gross profit for the remainder of 2013, based on current exchange rates.
Selling and Administrative Expenses
Selling and administrative expenses increased 5% and 2% for the quarter and year-to-date, respectively. The quarter and year-to-date results were impacted by favorable foreign currency translation, primarily from the weakness of the Japanese yen, which was offset by headcount additions from the prior year, higher merit compensation and fringe benefit costs. As a percentage of net sales, selling and administrative expenses were 26.4% and 27.1% for the 2013 quarter and year-to-date, respectively, and 25.6% and 26.9% for the 2012 quarter and year-to-date, respectively.
22
Research and Development Expenses
Research and development expenses decreased 1% and increased 4% for the quarter and year-to-date, respectively, primarily due to additional headcount and timing of development costs incurred on new products to be launched late in 2013.
Purchased Intangibles Amortization
In the third quarter of 2012, the Company recorded a one-time $4 million charge to purchased intangibles amortization related to the discontinuance of a product trade name intangible asset.
Litigation Provisions
The Company made a $3 million litigation payment in the second quarter of 2012 to settle a complaint that was filed against the Company alleging patent infringement.
Other Expense, Net
The Company recorded a $1.6 million charge in the second quarter of 2013 for an other-than-temporary impairment to an investment.
Provision for Income Taxes
The four principal jurisdictions in which the Company manufactures its products are the U.S., Ireland, the United Kingdom and Singapore, where the marginal effective tax rates are approximately 37.5%, 12.5%, 23.25% and 0%, respectively. The Company has a contractual tax rate in Singapore of 0% through March 2016, based upon achievement of contractual milestones that the Company expects to continue to meet. The current statutory tax rate in Singapore is 17%. The Companys effective tax rate is influenced by many significant factors, including, but not limited to, the wide range of income tax rates in jurisdictions in which the Company operates; sales volumes and profit levels in each tax jurisdiction; changes in tax laws, tax rates and policies; the outcome of various ongoing tax audit examinations; and the impact of foreign currency transactions and translation. As a result of variability in these factors, the Companys effective tax rates in the future may not be similar to the effective tax rates for the current or prior year.
The Companys effective tax rate for the quarter was 13.0% and 14.4% for 2013 and 2012, respectively. The Companys effective tax rate year-to-date was 3.9% and 14.7% for 2013 and 2012, respectively. The year-to-date income tax provision for 2013 included a net $31 million tax benefit related to the completion of tax audit examinations. In addition, the research and development tax credit (R&D Tax Credit) was retroactively extended in January 2013 for the 2012 and 2013 tax years. The entire $3 million benefit related to the 2012 tax year was recorded in the first quarter of 2013, and the 2013 benefit is included in the annual effective tax rate. The net income tax benefits related to the completed tax audit examinations and the 2012 R&D Tax Credit decreased the Companys effective tax rate by 10.6 percentage points year-to-date in 2013. The remaining differences between the quarter and year-to-date effective tax rates for 2013 and 2012 were primarily attributable to differences in the proportionate amounts of pre-tax income recognized in jurisdictions with different effective tax rates.
23
Liquidity and Capital Resources
Condensed Consolidated Statements of Cash Flows (in thousands):
Nine Months Ended | ||||||||
September 28, 2013 | September 29, 2012 | |||||||
Net income |
$ | 308,421 | $ | 285,499 | ||||
Depreciation and amortization |
58,255 | 51,225 | ||||||
Stock-based compensation |
23,985 | 21,687 | ||||||
Deferred income taxes |
(11,181 | ) | (9,382 | ) | ||||
Change in accounts receivable |
22,585 | 5,506 | ||||||
Change in inventories |
(30,782 | ) | (36,558 | ) | ||||
Change in accounts payable and other current liabilities |
(24,686 | ) | (18,971 | ) | ||||
Change in deferred revenue and customer advances |
14,266 | 16,217 | ||||||
Other changes |
(19,278 | ) | 2,404 | |||||
|
|
|
|
|||||
Net cash provided by operating activities |
341,585 | 317,627 | ||||||
Net cash used in investing activities |
(329,366 | ) | (298,851 | ) | ||||
Net cash used in financing activities |
(62,057 | ) | (53,396 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents |
(196 | ) | 6,923 | |||||
|
|
|
|
|||||
Decrease in cash and cash equivalents |
$ | (50,034 | ) | $ | (27,697 | ) | ||
|
|
|
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Cash Flow from Operating Activities
Net cash provided by operating activities was $342 million and $318 million in the nine months ended September 28, 2013 and September 29, 2012, respectively. The changes within net cash provided by operating activities in 2013 as compared to 2012 include the following significant changes in the sources and uses of net cash provided by operating activities, aside from the increase in net income:
| The change in accounts receivable in 2013 compared to 2012 was primarily attributable to timing of shipments and payments made by customers. Days-sales-outstanding (DSO) increased to 74 days at September 28, 2013 from 73 days at September 29, 2012. |
| The 2013 and 2012 change in accounts payable and other current liabilities was a result of timing of payments to vendors. In addition, 2013 includes a decrease in accrued income taxes resulting from estimated U.S. tax payments and the reduction of income tax reserves as the Company resolved certain ongoing tax examinations. |
| Net cash provided from deferred revenue and customer advances in both 2013 and 2012 was a result of the higher installed base of customers renewing annual service contracts. |
| Other changes were attributable to variation in the timing of various provisions, expenditures, prepaid income taxes and accruals in other current assets, other assets and other liabilities. |
Cash Used in Investing Activities
Year-to-date, net cash used in investing activities totaled $329 million and $299 million in 2013 and 2012, respectively. Additions to fixed assets and capitalized software were $93 million and $73 million year-to-date in 2013 and 2012, respectively. The capital expenditures for 2013 and 2012 include $36 million and $23 million, respectively, of construction costs associated with multi-year projects, primarily in the United Kingdom to consolidate certain existing primary MS research, manufacturing and distribution locations. During 2013 and 2012, the Company purchased $2,271 million and $1,385 million of investments year-to-date, while $2,061 million and $1,190 million of investments matured, respectively. Business acquisitions, net of cash acquired, were $26 million and $31 million year-to-date in 2013 and 2012, respectively.
Cash Used in Financing Activities
In June 2013, the Company entered into the 2013 Credit Agreement that provides for a $1.1 billion revolving facility and a $300 million term loan facility. The revolving facility and term loan facility both mature on June 25, 2018 and require no scheduled prepayments before that date. The Company used $860 million of the proceeds from the 2013 Credit Agreement to repay the outstanding amounts under the Companys existing multi-borrower credit agreement dated July 2011, which was terminated early without penalty.
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The interest rates applicable to the 2013 Credit Agreement are, at the Companys option, equal to either the alternate base rate calculated daily (which is a rate per annum equal to the greatest of (a) the prime rate in effect on such day, (b) the federal funds effective rate in effect on such day plus 1/2% per annum, or (c) the adjusted LIBO rate on such day (or if such day is not a business day, the immediately preceding business day) for a deposit in U.S. dollars with a maturity of one month plus 1% per annum) or the applicable 1, 2, 3 or 6 month adjusted LIBO rate, in each case, plus an interest rate margin based upon the Companys leverage ratio, which can range between 0 to 12.5 basis points for alternate base rate loans and between 75 basis points and 112.5 basis points for adjusted LIBO rate loans. The facility fee on the 2013 Credit Agreement ranges between 12.5 basis points and 25 basis points. The 2013 Credit Agreement requires that the Company comply with an interest coverage ratio test of not less than 3.50:1 as of the end of any fiscal quarter for any period of four consecutive fiscal quarters and a leverage ratio test of not more than 3.50:1 as of the end of any fiscal quarter. In addition, the 2013 Credit Agreement includes negative covenants, affirmative covenants, representations and warranties and events of default that are customary for investment grade credit facilities.
Year-to-date, the Companys total debt borrowings increased by $116 million and $156 million in 2013 and 2012, respectively. As of September 28, 2013, the Company had a total of $1,294 million in outstanding debt, which consisted of $400 million in outstanding notes, $300 million borrowed under the term loan facility under the 2013 Credit Agreement, $585 million borrowed under revolving credit facilities under the 2013 Credit Agreement and $9 million borrowed under various other short-term lines of credit. At September 28, 2013, $125 million of the outstanding portions of the revolving facilities have been classified as short-term liabilities in the consolidated balance sheet due to the fact that the Company expects to utilize this portion of the revolving line of credit to fund its working capital needs. It is the Companys intention to pay the short-term portions of the outstanding revolving line of credit balance during the twelve months following the respective period end date. The remaining $460 million of the outstanding portions of the revolving facilities have been classified as long-term liabilities in the consolidated balance sheet, as no repayments are required prior to the maturity date in 2018 and this portion is not expected to be repaid within the next twelve months. As of September 28, 2013, the Company had a total amount available to borrow under the 2013 Credit Agreement of $513 million after outstanding letters of credit.
In May 2012, the Companys Board of Directors authorized the Company to repurchase up to $750 million of its outstanding common stock over a two-year period. During the first nine months of 2013 and 2012, the Company repurchased a total of 2.3 million and 2.8 million shares at a cost of $220 million and $229 million, respectively, under the May 2012 authorization and other previously announced programs. As of September 28, 2013, the Company had a total of $423 million authorized for future repurchases under the May 2012 program. In addition, the Company repurchased $6 million of common stock during both 2013 and 2012 related to the vesting of restricted stock units.
The Company received $35 million and $21 million of proceeds from the exercise of stock options and the purchase of shares pursuant to the Companys employee stock purchase plan in 2013 and 2012, respectively.
The Company had cash, cash equivalents and investments of $1,699 million as of September 28, 2013. The majority of the Companys cash, cash equivalents and investments are generated from foreign operations, with approximately $1,670 million held by foreign subsidiaries at September 28, 2013. Due to the fact that most of the Companys cash, cash equivalents and investments are held outside of the U.S., the Company must manage and maintain sufficient levels of cash flow in the U.S. to fund operations and capital expenditures, service debt and interest, finance potential U.S. acquisitions and continue to repurchase shares under the authorized stock repurchase program in the U.S. These U.S. cash requirements are managed by the Companys cash flow from U.S. operations and the use of the Companys revolving credit facilities.
Management believes, as of the date of this report, that its financial position, particularly in the U.S., along with expected future cash flows from earnings based on historical trends and the ability to raise funds from external sources and the borrowing capacity from existing, committed credit facilities, will be sufficient to service debt and fund working capital and capital spending requirements, authorized share repurchase amounts, potential acquisitions and any adverse final determination of ongoing litigation and tax audit examinations. In addition, there have been no recent significant changes to the Companys financial position, nor are there any anticipated changes, to warrant a material adjustment related to indefinitely reinvested foreign earnings.
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Contractual Obligations and Commercial Commitments
A summary of the Companys contractual obligations and commercial commitments is included in the Companys Annual Report on Form 10-K for the year ended December 31, 2012, as filed with the U.S. Securities and Exchange Commission (SEC) on February 26, 2013. The Company reviewed its contractual obligations and commercial commitments as of September 28, 2013 and determined that there were no material changes from the information set forth in the Annual Report on Form 10-K.
From time to time, the Company and its subsidiaries are involved in various litigation matters arising in the ordinary course of business. The Company believes that it has meritorious arguments in its current litigation matters and that any outcome, either individually or in the aggregate, will not be material to the Companys financial position or results of operations.
During the nine months ended September 28, 2013, the Company contributed $4 million to the Companys U.S. pension plans. During fiscal year 2013, the Company expects to contribute a total of approximately $8 million to $10 million to the Companys defined benefit plans.
The Company is in the process of consolidating its facilities in the United Kingdom into one new facility, which is expected to cost up to $20 million to finish construction. The Company believes it can fund the construction of this facility with cash flow from operations and its borrowing capacity from committed credit facilities.
The Company has not paid any dividends and has no plans, at this time, to pay any dividends in the future.
Critical Accounting Policies and Estimates
In the Companys Annual Report on Form 10-K for the year ended December 31, 2012, as filed with the SEC on February 26, 2013, the Companys most critical accounting policies and estimates upon which its financial status depends were identified as those relating to revenue recognition, loss provisions on accounts receivable and inventory, valuation of long-lived assets, intangible assets and goodwill, warranty, income taxes, pension and other postretirement benefit obligations, litigation and stock-based compensation. The Company reviewed its policies and determined that those policies remain the Companys most critical accounting policies for the nine months ended September 28, 2013. The Company did not make any changes in those policies during the nine months ended September 28, 2013.
New Accounting Pronouncements
Please refer to Note 13, Recent Accounting Standards Changes and Developments, in the Condensed Notes to Consolidated Financial Statements.
Special Note Regarding Forward-Looking Statements
Certain of the statements in this Quarterly Report on Form 10-Q, including the information incorporated by reference herein, may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), with respect to future results and events, including statements regarding, among other items, anticipated trends or growth in the Companys business, including, but not limited to, development of products by acquired businesses; the growth rate of sales and research and development expenses; the impact of new product launches and the associated costs, such as the amortization expense related to UNIFI; geographic sales mix of business; anticipated expenses, including interest expense, capitalized software costs and effective tax rates; the impact of foreign currency translation on financial results; the impact and outcome of the Companys various ongoing tax audit examinations; future changes in unrecognized tax benefits and related net interest and penalties; the impact of unexpected shifts in income between tax jurisdictions; the achievement of contractual milestones to preserve foreign tax rates; the impact and outcome of litigation matters; the impact of the loss of intellectual property protection; the impact of new accounting standards and pronouncements; the adequacy of the Companys supply chain and manufacturing capabilities and facilities; the impact of regulatory compliance; the Companys expected cash flow, borrowing capacity, debt repayment and refinancing; the Companys ability to fund working capital, capital expenditures (including facility expansion and consolidation projects, particularly in the U.K.), service debt, repay outstanding lines of credit, make authorized share repurchases, fund potential acquisitions and pay any adverse litigation or tax audit liabilities, particularly in the U.S.; future impairment charges; the Companys contributions to defined benefit plans; the Companys expectations regarding changes to its financial position; compliance with applicable environmental laws; and the impact of recent acquisitions on sales and earnings.
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Many of these statements appear, in particular, under the heading Managements Discussion and Analysis of Financial Condition and Results of Operations in Part I, Item 2 of this Quarterly Report on Form 10-Q. Statements that are not statements of historical fact may be deemed forward-looking statements. You can identify these forward-looking statements by the use of the words feels, believes, anticipates, plans, expects, may, will, would, intends, suggests, appears, estimates, projects, should and similar expressions, whether in the negative or affirmative. These statements are subject to various risks and uncertainties, many of which are outside the control of the Company, including, and without limitation:
| The risks inherent in succession planning, as the Companys chief executive officer has announced his intention to retire by the end of August 2015. |
| Current global economic, sovereign and political conditions and uncertainties; changes in timing and demand by the Companys customers and various market sectors, particularly if they should reduce capital expenditures or are unable to obtain funding, as in the cases of governmental, academic and research institutions; the effect of mergers and acquisitions on customer demand; and the Companys ability to sustain and enhance service. |
| Negative industry trends; introduction of competing products by other companies and loss of market share; pressures on prices from customers or resulting from competition; regulatory, economic and competitive obstacles to new product introductions; lack of acceptance of new products; expansion of our business in developing markets; spending by certain end-markets and ability to obtain alternative sources for components and modules. |
| Foreign exchange rate fluctuations that could adversely affect translation of the Companys future sales, financial operating results and the condition of its non-U.S. operations, especially when a currency weakens against the U.S. dollar. |
| Increased regulatory burdens as the Companys business evolves, especially with respect to the Food and Drug Administration and Environmental Protection Agency, among others, as well as regulatory, environmental and logistical obstacles affecting the distribution of the Companys products, completion of purchase order documentation by our customers and ability of customers to obtain letters of credit or other financing alternatives. |
| Risks associated with lawsuits, particularly involving claims for infringement of patents and other intellectual property rights. |
| The impact and costs incurred from changes in accounting principles and practices or tax rates; shifts in taxable income in jurisdictions with different effective tax rates; and the outcome of and costs associated with ongoing and future tax audit examinations or changes in respective country legislation affecting the Companys effective rates. |
Certain of these and other factors are discussed under the heading Risk Factors under Part I, Item 1A of the Companys Annual Report on Form 10-K for the year ended December 31, 2012, as filed with the SEC on February 26, 2013. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements, whether because of these factors or for other reasons. All forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are expressly qualified in their entirety by the cautionary statements included in this report. The Company does not assume any obligation to update any forward-looking statements.
Item 3: | Quantitative and Qualitative Disclosures About Market Risk |
There have been no material changes in the Companys market risk during the nine months ended September 28, 2013. For information regarding the Companys market risk, refer to Item 7A of Part II of the Companys Annual Report on Form 10-K for the year ended December 31, 2012, as filed with the SEC on February 26, 2013.
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Item 4: | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
The Companys chief executive officer and chief financial officer (principal executive and principal financial officer), with the participation of management, evaluated the effectiveness of the Companys disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, the Companys chief executive officer and chief financial officer concluded that the Companys disclosure controls and procedures were effective as of September 28, 2013 (1) to ensure that information required to be disclosed by the Company, including its consolidated subsidiaries, in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Companys management, including its chief executive officer and chief financial officer, to allow timely decisions regarding the required disclosure and (2) to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms.
Changes in Internal Controls Over Financial Reporting
No change was identified in the Companys internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 28, 2013 that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.
Part II: | Other Information |
Item 1: | Legal Proceedings |
There have been no material changes in the Companys legal proceedings during the nine months ended September 28, 2013 as described in Item 3 of Part I of the Companys Annual Report on Form 10-K for the year ended December 31, 2012, as filed with the SEC on February 26, 2013.
Item 1A: | Risk Factors |
Information regarding risk factors of the Company is set forth under the heading Risk Factors under Part I, Item 1A in the Companys Annual Report on Form 10-K for the year ended December 31, 2012, as filed with the SEC on February 26, 2013. The Company reviewed its risk factors as of September 28, 2013 and determined that there were no material changes from the ones set forth in the Form 10-K. Note, however, the discussion under the subheading Special Note Regarding Forward-Looking Statements in Part I, Item 2 of this quarterly report on Form 10-Q. These risks are not the only ones facing the Company. Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial also may materially adversely affect the Companys business, financial condition and operating results.
Item 2: | Unregistered Sales of Equity Securities and Use of Proceeds |
Purchases of Equity Securities by the Issuer
The following table provides information about purchases by the Company during the three months ended September 28, 2013 of equity securities registered by the Company under the Exchange Act (in thousands, except per share data):
Period |
Total Number of Shares Purchased |
Average Price Paid per Share |
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) |
Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs |
||||||||||||
June 30 to July 27, 2013 |
| $ | | | $ | 478,242 | ||||||||||
July 28 to August 24, 2013 |
| $ | | | $ | 478,242 | ||||||||||
August 25 to September 28, 2013 |
541 | $ | 101.88 | 541 | $ | 423,163 | ||||||||||
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Total |
541 | $ | 101.88 | 541 | $ | 423,163 | ||||||||||
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(1) | The Company purchased 0.5 million shares of its outstanding common stock in the quarter ended September 28, 2013 in open market transactions pursuant to a repurchase program that was announced in May 2012 (the 2012 Program). The 2012 Program authorized the repurchase of up to $750 million of common stock in open market transactions over a two-year period. |
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Item 6: | Exhibits |
Exhibit |
Description of Document | |
3.1 | Amended and Restated Bylaws of Waters Corporation, dated as of October 16, 2013. | |
31.1 | Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2 | Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1 ** | Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2 ** | Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101 | The following materials from Waters Corporations Quarterly Report on Form 10-Q for the quarter ended September 28, 2013, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets (unaudited), (ii) the Consolidated Statements of Operations (unaudited), (iii) the Consolidated Statements of Comprehensive Income (unaudited), (iv) the Consolidated Statements of Cash Flows (unaudited), and (v) Condensed Notes to Consolidated Financial Statements (unaudited). |
** | This exhibit shall not be deemed filed for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in any filing, except to the extent the Company specifically incorporates it by reference. |
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Pursuant to the requirements 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.
WATERS CORPORATION |
/s/ JOHN ORNELL |
John Ornell |
Vice President, Finance and Administration and Chief Financial Officer |
Date: November 1, 2013
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Exhibit 3.1
Waters Corporation Restated Bylaws
Effective: October 16, 2013
Amended and Restated Bylaws
Of
Waters Corporation
ARTICLE I
Stockholders
SECTION 1. Annual Meeting. The annual meeting of the stockholders of the Corporation shall be held on such date, at such time and at such place within or without the State of Delaware as may be designated by the Board of Directors, for the purpose of electing Directors and for the transaction of such other business as may be properly brought before the meeting.
SECTION 2. Special Meetings. Except as otherwise provided in the Certificate of Incorporation, a special meeting of the stockholders of the Corporation may be called at any time by the Board of Directors, the Chairman of the Board or the President and shall be called by the Chairman of the Board, the President or the Secretary at the request in writing of stockholders holding together at least fifty percent (50%) of the number of shares of stock outstanding and entitled to vote at such meeting. Any special meeting of the stockholders shall be held on such date, at such time and at such place within or without the State of Delaware as the Board of Directors of the officer calling the meeting may designate. At a special meeting of the stockholders, no business shall be transacted and no corporate action shall be taken other than that stated in the notice of the meeting unless all of the stockholders are present in person or by proxy, in which case any and all business may be transacted at the meeting even though the meeting is held without notice.
SECTION 3. Notice of Meetings. Except as otherwise provided in these Bylaws or by law, a written notice of each meeting of the stockholders shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder of the Corporation entitled to vote at such meeting at his address as it appears on the records of the Corporation. The notice shall state the place, date and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called.
SECTION 4. Quorum. At any meeting of the stockholders, the holders of a majority in number of the total outstanding shares of stock of the Corporation entitled to vote at such meeting, present in person or represented by proxy, shall constitute a quorum of the stockholders for all purposes, unless the representation of a larger number of shares shall be required by law, by the Certificate of Incorporation or by these Bylaws, in which case the representation of the number of shares so required shall constitute a quorum; provided that at any meeting of the stockholders at which the holders of any class of stock of the Corporation shall be entitled to vote separately as a class, the holders of a majority in number of the total outstanding shares of such class, present in person or represented by proxy, shall constitute a quorum for the purposes of such class vote unless the representation of a larger number of shares of such class shall be required by law, by the Certificate of Incorporation or by these Bylaws.
SECTION 5. Adjourned Meetings. Whether or not a quorum shall be present in person or represented at any meeting of the stockholders, the holders of a majority in number of the shares of stock of the Corporation present in person or represented by proxy and entitled to vote at such meeting may adjourn from time to time; provided, however, that if the holders of any class of stock of the Corporation are entitled to vote separately as a class upon any matter at such meeting, any adjournment of the meeting in respect of action by such class upon such matter shall be determined by the holders of a majority of the shares of such class present in person or represented by proxy and entitled to vote at such meeting. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the stockholders, or the holders of any class of stock entitled to vote separately as a class, as the case may be, may transact any business which might have been transacted by them at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the adjourned meeting.
SECTION 6. Organization. The Chairman of the Board or, in his absence, the President shall call all meetings of the stockholders to order, and shall act as Chairman of such meetings. In the absence of the Chairman of the Board and the President, the holders of a majority in number of the shares of stock of the Corporation present in person or represented by proxy and entitled to vote at such meeting shall elect a Chairman.
The Secretary of the Corporation shall act as Secretary of all meetings of the stockholders; but in the absence of the Secretary, the Chairman may appoint any person to act as Secretary of the meeting. It shall be the duty of the Secretary to prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of stockholders entitled to vote at such meeting, arranged in alphabetical order and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting or, if not so specified, at the place where the meeting is to be held, for the ten (10) days next preceding the meeting, to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, and shall be produced and kept at the time and place of the meeting during the whole time thereof and subject to the inspection of any stockholder who may be present.
SECTION 7. Voting. Except as otherwise provided in the Certificate of Incorporation or by these Bylaws, each stockholder shall be entitled to one vote for each share of the capital stock of the Corporation registered in the name of such stockholder upon the books of the Corporation. Each stockholder entitled to vote at a meeting of stockholders or to
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express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for him by proxy, but no such proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period. When directed by the presiding officer or upon the demand of any stockholder, the vote upon any matter before a meeting of stockholders shall be by ballot. Except as otherwise provided by law or by the Certificate of Incorporation, Directors shall be elected as specified in Article II, Section 1(B) of these Bylaws and, whenever any corporate action, other than the election of Directors is to be taken, it shall be authorized by a majority of the votes cast at a meeting of stockholders by the stockholders entitled to vote thereon.
Shares of the capital stock of the Corporation belonging to the Corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation is held, directly or indirectly, by the Corporation, shall neither be entitled to vote nor be counted for quorum purposes.
SECTION 8. Inspectors. When required by law or directed by the presiding officer or upon the demand of any stockholder entitled to vote, but not otherwise, the polls shall be opened and closed, the proxies and ballots shall be received and taken in charge, and all questions touching the qualification of voters, the validity of proxies and the acceptance or rejection of votes shall be decided at any meeting of the stockholders by two (2) or more Inspectors who may be appointed by the Board of Directors before the meeting, or if not so appointed, shall be appointed by the presiding officer at the meeting. If any person so appointed fails to appear or act, the vacancy may be filled by appointment in like manner.
SECTION 9. Consent of Stockholders in Lieu of Meeting. Unless otherwise provided in the Certificate of Incorporation, any action required to be taken or which may be taken at any annual or special meeting of the stockholders of the Corporation, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of any such corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing.
SECTION 10. Advance Notice Provisions for Election of Directors. Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors of the Corporation. Nominations of persons for election to the Board of Directors may be made at any annual meeting of stockholders, or at any special meeting of stockholders called for the purpose of electing directors, (a) by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (b) by any stockholder of the Corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 10 and on the record date for the determination of stockholders entitled to vote at such meeting and (ii) who complies with the notice procedures set forth in this Section 10.
In addition to any other applicable requirements, for a nomination to be made by a stockholder such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation.
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To be timely, a stockholders notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation (a) in the case of an annual meeting, not less than sixty (60) days nor more than ninety (90) days prior to the date of the annual meeting; provided, however, that in the event that less than seventy (70) days notice or prior public disclosure of the date of the annual meeting is given or made to stockholders, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure of the date of the annual meeting was made, whichever first occurs; and (b) in the case of a special meeting of stockholders called for the purpose of electing directors, not later than the close of business on the tenth (10th) day following the day on which notice of the date of the special meeting was mailed or public disclosure of the date of the special meeting was made, whichever first occurs.
To be in proper written form, a stockholders notice to the Secretary must set forth (a) as to each person whom the stockholder proposed to nominate for election as a director (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by the person and (iv) any other information relating to the person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Securities Exchange Act of 1934, as amended (the Exchange Act), and the rules and regulations promulgated thereunder; and (b) as to the stockholder giving the notice (i) the name and record address of such stockholder, (ii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder, (iii) a description of all arrangements or understandings between such stockholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such stockholder, (iv) a representation that such stockholder intends to appear in person or by proxy at the meeting to nominate the persons named in its notice and (v) any other information relating to such stockholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder. Such notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as a director if elected.
No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth in the Section 10. If the Chairman of the meeting determines that a nomination was not made in accordance with the foregoing procedures, the Chairman shall declare to the meeting that the nomination was defective and such defective nomination shall be disregarded.
SECTION 11. Advance Notice Provisions for Business to be Transacted at Annual Meeting. No business may be transacted at an annual meeting of stockholders, other than business that is either (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors (or any duly authorized committee thereof), (b) otherwise properly brought before the annual meeting by or at the direction of the Board of
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Directors (or any duly authorized committee thereof) or (c) otherwise properly brought before the annual meeting by any stockholder of the Corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 11 and on the record date for the determination or stockholders entitled to vote at such annual meeting and (ii) who complies with the notice procedures set forth in this Section 11.
In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation.
To be timely, a stockholders notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation not less than sixty (60) days nor more than ninety (90) days prior to the date of the annual meeting; provided, however, that in the event that less than seventy (70) days notice or prior public disclosure of the date of the annual meeting is given or made to stockholders, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure of the date of the annual meeting was made, whichever first occurs.
To be in proper written form, a stockholders notice to the Secretary must set forth as to each matter such stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of such stockholder, (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder, (iv) a description of all arrangements or understandings between such stockholder and any other person or persons (including their names) in connection with the proposal of such business by such stockholder and any material interest of such stockholder in such business and (v) a representation that such stockholder intends to appear in person or by proxy at the annual meeting to bring such business before the meeting.
No business shall be conducted at the annual meeting of stockholders except business brought before the annual meeting in accordance with the procedures set forth in this Section 11, provided, however that, once business had been properly brought before the annual meeting in accordance with such procedures, nothing in this Section 11 shall be deemed to preclude discussion by any stockholder of any such business. If the Chairman of an annual meeting determines that business was not properly brought before the annual meeting in accordance with the foregoing procedures, the Chairman shall declare to the meeting that the business was not properly brought before the meeting and such business shall not be transacted.
SECTION 12. Order of Business. The order of business at all meetings of the stockholders shall be as determined by the Chairman of the meeting.
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ARTICLE II
Board of Directors
SECTION 1.
(a) Number and Term of Office. The business and affairs of the Corporation shall be managed by or under the direction of not less than five (5) nor more than eleven (11) Directors, the exact number of which shall be fixed from time to time by the affirmative vote of a majority of the Board of Directors, who need not be stockholders of the Corporation.
The Directors shall, except as hereinafter otherwise provide for filling vacancies, be elected at the annual meeting of stockholders, and shall hold office until their respective successors are elected and qualified or until their earlier resignation or removal. The number of Directors may be altered from time to time by amendment of these Bylaws.
(b) Procedure for Stockholder Election of Directors; Required Vote. At any meeting of the stockholders for the election of directors at which a quorum is present, each director shall be elected by the affirmative vote of a majority of the votes cast with respect to the director, provided that if the number of nominees exceeds the number of directors to be elected, directors shall be elected by the affirmative vote of a plurality of the votes cast. For purposes of this Section 1(b), votes cast shall include votes for, against or to withhold authority for a director. An abstention or broker non-vote shall not count as a vote cast with respect to a director. If an incumbent director fails to be reelected by a majority vote when such a vote is required and offers to resign, and if that resignation is not accepted by the Board of Directors, such director shall continue to serve until the next annual meeting and until his or her successor is duly elected, or his or her earlier resignation or removal. If a directors resignation is accepted by the Board of Directors or if a nominee for director is not elected and the nominee is not an incumbent director, then the Board of Directors, in its sole discretion, may fill any resulting vacancy pursuant to the provisions of Article II, Section 2 of these Bylaws or may decrease the size of the Board of Directors pursuant to the provisions of Article II, Section 1(a) of these Bylaws.
SECTION 2. Removal, Vacancies and Additional Directors. The stockholders may, at any special meeting the notice of which shall state that it is called for that purpose, remove, with or without cause, any Director and fill the vacancy; provided that whenever any Director shall have been elected by the holders of any class of stock of the Corporation voting separately as a class under the provisions of the Certificate of Incorporation, such Director may be removed and the vacancy filled only by the holders of that class of stock voting separately as a class. Vacancies caused by any such removal and not filled by the stockholders at the meeting at which such removal shall have been made, or any vacancy caused by the death or resignation of any Director or for any other reason, and any newly created directorship resulting from any increase in the authorized number of Directors, may be filled by the affirmative vote of a majority of the Directors then in office, although less than a quorum, and any Director so elected to fill any such vacancy or newly created directorship shall hold office until his successor is elected and qualified or until his earlier resignation or removal.
When one or more Directors shall resign effective at a future date, a majority of the Directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each Director so chosen shall hold office as herein provided in connection with the filling of other vacancies.
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SECTION 3. Place of Meeting. The Board of Directors may hold its meetings in such place or places in the State of Delaware or outside the State of Delaware as the Board from time to time shall determine.
SECTION 4. Regular Meetings. Regular meetings of the Board of Directors shall be held at such times and places as the Board from time to time by resolution shall determine. No notice shall be required for any regular meeting of the Board of Directors; but a copy of every resolution fixing or changing the time or place of regular meetings shall be mailed to every Director at least five (5) days before the first meeting held in pursuance thereof.
SECTION 5. Special Meetings. Special meetings of the Board of Directors shall be held whenever called by direction of the Chairman of the Board, the President or by any two of the Directors then in office.
Notice of the day, hour and place of holding of each special meeting shall be given by mailing the same at least two (2) days before the meeting or by causing the same to be delivered personally or transmitted by telegraph facsimile, telex or sent by certified, registered or overnight mail at least one day before the meeting to each Director. Unless otherwise indicated in the notice thereof, any and all business other than an amendment of these Bylaws may be transacted at any special meeting, and an amendment of these Bylaws may be acted upon if the notice of the meeting shall have stated that the amendment of these Bylaws is one of the purposes of the meeting. At any meeting at which every Director shall be present, even though without any notice, any business may be transacted, including the amendment of these Bylaws.
SECTION 6. Quorum. Subject to the provisions of Section 2 of this Article II, a majority of the members of the Board of Directors in office (but in no case less than one-third of the total number of Directors nor less than two Directors) shall constitute a quorum for the transaction of business and the vote of the majority of the Directors present at any meeting of the Board of Directors at which a quorum is present shall be the act of the Board of Directors. If at any meeting of the Board there is less than a quorum present, a majority of those present may adjourn the meeting from time to time.
SECTION 7. Organization. The Chairman of the Board or, in his absence, the President shall preside at all meetings of the Board of Directors. In the absence of the Chairman of the Board and the President, a Chairman shall be elected from the Directors present. The Secretary of the Corporation shall act as Secretary of all meetings of the Directors; but in the absence of the Secretary, the Chairman may appoint any person to act as Secretary of the meeting.
SECTION 8. Committees. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the Directors of the Corporation. The Board may designate one of more Directors as alternate members of any committee, who may replace any absent or
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disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided by resolution passed by a majority of the whole Board, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and the affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the Certificate of Incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporations property and assets, recommending to the stockholders a dissolution of the Corporation or the revocation of a dissolution, or amending these Bylaws; and unless such resolution, these Bylaws, or the Certificate of Incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock.
SECTION 9. Conference Telephone Meetings. Unless otherwise restricted by the Certificate of Incorporation or by these Bylaws, the members of the Board of Directors or any committee designated by the Board, may participate in a meeting of the Board or such committee, as the case may be, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation shall constitute presence in person at such meeting.
SECTION 10. Consent of Directors or Committee in Lieu of Meeting. Unless otherwise restricted by the Certificate of Incorporation or by these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing and the writing or writings are filed with the minutes of proceedings of the Board or committee, as the case may be.
ARTICLE III
Officers
SECTION 1. Officers. The officers of the Corporation shall be a Chairman of the Board, a President, one or more Vice Presidents, a Secretary and a Treasurer, and such additional officers, if any, as shall be elected by the Board of Directors pursuant to the provisions of Section 7 of this Article III. The Chairman of the Board, the President, one or more Vice Presidents, the Secretary and the Treasurer shall be elected by the Board of Directors at its first meeting after each annual meeting of the stockholders. The failure to hold such election shall not of itself terminate the term of office of any officer. All officers shall hold office at the pleasure of the Board of Directors. Any officer may resign at any time upon written notice to the Corporation. Officers may, but need not, be Directors. Any number of offices may be held by the same person.
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All officers, agents and employees shall be subject to removal, with or without cause, at any time by the Board of Directors. The removal of an officer without cause shall be without prejudice to his contract rights, if any. The election or appointment of an officer shall not of itself create contract rights. All agents and employees other than officers elected by the Board of Directors shall also be subject to removal, with or without cause, at any time by the officers appointing them.
Any vacancy caused by the death of any officer, his resignation, his removal, or otherwise, may be filled by the Board of Directors, and any officer so elected shall hold office at the pleasure of the Board of Directors.
In addition to the powers and duties of the officers of the Corporation as set forth in these Bylaws, the officers shall have such authority and shall perform such duties as from time to time may be determined by the Board of Directors.
SECTION 2. Powers and duties of the Chairman of the Board. The Chairman of the Board shall preside at all meetings of the stockholders and at all meetings of the Board of Directors and shall have such other powers and perform such other duties as may from time to time be assigned to him by these Bylaws or by the Board of Directors.
SECTION 3. Powers and Duties of the President. The President shall be the chief executive officer of the Corporation and, subject to the control of the Board of Directors, shall have general charge and control of all its operations and shall perform all duties incident to the office of President. In the absence of the Chairman of the Board, he shall preside at all meetings of the stockholders and at all meetings of the Board of Directors and shall have such other powers and perform such other duties as may from time to time be assigned to him by these Bylaws or by the Board of Directors.
SECTION 4. Powers and Duties of the Vice President. Each Vice President shall perform all duties incident to the office of Vice President and shall have such other powers and perform such other duties as may from time to time be assigned to him by these Bylaws or by the Board of Directors or the President.
SECTION 5. Powers and Duties of the Secretary. The Secretary shall keep the minutes of all meetings of the Board of Directors and the minutes of all meetings of the stockholders in books provided for that purpose; he shall attend to the giving or serving of all notices of the Corporation; he shall have custody of the corporate seal of the Corporation and shall affix the same to such documents and other papers as the Board of Directors or the President shall authorize and direct; he shall have charge of the stock certificate books, transfer books and stock ledgers and such other books and papers as the Board of Directors or the President shall direct, all of which shall at all reasonable times be open to the examination of any Director, upon application, at the office of the Corporation during business hours; and he shall perform all duties incident to the office of Secretary and shall also have such other powers and shall perform such other duties as may from time to time be assigned to him by these Bylaws or by the Board of Directors or the President.
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SECTION 6. Powers and Duties of the Treasurer. The Treasurer shall have custody of, and when proper shall pay out, disburse or otherwise dispose of, all funds and securities of the Corporation which may have come into his hands; he may endorse on behalf of the Corporation for collection checks, notes and other obligations and shall deposit the same to the credit of the Corporation in such bank or banks or depositary or depositories as the Board of Directors may designate; he shall sign all receipts and vouchers for payments made to the Corporation; he shall enter or cause to be entered regularly in the books of the Corporation kept for the purpose full and accurate accounts of all moneys received or paid or otherwise disposed of by him and whenever required by the Board of Directors or the President shall render statements of such accounts; he shall, at all reasonable times, exhibit his books and accounts to any Director of the Corporation upon application at the office of the Corporation during business hours; and he shall perform all duties incident to the office of Treasurer and shall also have such other powers and shall perform such other duties as may from time to time be assigned to him by these Bylaws or by the Board of Directors or the President.
SECTION 7. Additional Officers. The Board of Directors may from time to time elect such other officers (who may but need not be Directors), including a Controller, Assistant Treasurers, Assistant Secretaries and Assistant Controllers, as the Board may deem advisable and such officers shall have such authority and shall perform such duties as may from time to time be assigned to them by the Board of Directors or the President.
The Board of Directors may from time to time by resolution delegate to any Assistant Treasurer or Assistant Treasurers any of the powers or duties herein assigned to the Treasurer; and may similarly delegate to any Assistant Secretary or Assistant Secretaries any of the powers or duties herein assigned to the Secretary.
SECTION 8. Giving of Bond by Officers. All officers of the Corporation, if required to do so by the Board of Directors, shall furnish bonds to the Corporation for the faithful performance of their duties, in such penalties and with such conditions and security as the Board shall require.
SECTION 9. Voting Upon Stocks. Unless otherwise ordered by the Board of Directors, the Chairman of the Board, the President, or any Vice President shall have full power and authority on behalf of the Corporation to attend and to act and to vote, or in the name of the Corporation to execute proxies to vote, at any meetings of stockholders of any corporation in which the Corporation may hold stock, and at any such meetings shall possess and may exercise, in person or by proxy, any and all rights, powers and privileges incident to the ownership of such stock. The Board of Directors may from time to time, by resolution, confer like powers upon any other person or persons.
SECTION 10. Compensation of Officers. The officers of the Corporation shall be entitled to receive such compensation for their services as shall from time to time be determined by the Board of Directors.
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ARTICLE IV
Stock Seal Fiscal Year
SECTION 1. Certificates For Shares of Stock. The certificates for shares of stock of the Corporation shall be in such form, not inconsistent with the Certificate of Incorporation, as shall be approved by the Board of Directors. All certificates shall be signed by the Chairman of the Board, the President or a Vice President and by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer, and shall not be valid unless so signed.
In case any officer or officers who shall have signed any such certificate or certificates shall cease to be such officer or officers of the Corporation, whether because of death, resignation or otherwise, before such certificates shall have been delivered by the Corporation, such certificate or certificates may nevertheless be issued and delivered as though the person or persons who signed such certificate or certificates had not ceased to be such officer or officers of the Corporation.
All certificates for shares of stock shall be consecutively numbered as the same are issued. The name of the person owning the shares represented thereby with the number of such shares and the date of issue thereof shall be entered on the books of the Corporation.
Except as hereinafter provided, all certificates surrendered to the Corporation for transfer shall be canceled, and no new certificates shall be issued until former certificates for the same number of shares have been surrendered and canceled.
SECTION 2. Lost, Stolen or Destroyed Certificates. Whenever a person owning a certificate for shares of stock of the Corporation alleges that it has been lost, stolen or destroyed, he shall file in the office of the Corporation an affidavit setting forth, to the best of his knowledge and belief, the time, place and circumstances of the loss, theft or destruction, and, if required by the Board of Directors, a bond of indemnity or other indemnification sufficient in the opinion of the Board of Directors to indemnify the Corporation and its agents against any claim that may be made against it or them on account of the alleged loss, theft or destruction of any such certificate or the issuance of a new certificate in replacement thereof. Thereupon the Corporation may cause to be issued to such person a new certificate in replacement for the certificate alleged to have been lost, stolen or destroyed. Upon the stub of every new certificate so issued shall be noted the fact of such issue and the number, date and the name of the registered owner of the lost, stolen or destroyed certificate in lieu of which the new certificate is issued.
SECTION 3. Transfer of Shares. Shares of stock of the Corporation shall be transferred on the books of the Corporation by the holder thereof, in person or by his attorney duly authorized in writing, upon surrender and cancellation of certificates for the number of shares of stock to be transferred, except as provided in the preceding section; provided, however, that the Corporation shall be entitled to recognize and enforce any lawful restriction on transfer.
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SECTION 4. Regulations. The Board of Directors shall have power and authority to make such rules and regulations as it may deem expedient concerning the issue, transfer and registration of certificates for shares of stock of the Corporation.
SECTION 5. Record Date. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, as the case may be, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action.
If no record date is fixed, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; the record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is necessary, shall be the day on which the first written consent is expressed; and the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.
SECTION 6. Dividends. Subject to the provisions of the Certificate of Incorporation, the Board of Directors shall have power to declare and pay dividends upon shares of stock of the Corporation, but only out of funds available for the payment of dividends as provided by law.
Subject to the provisions of the Certificate of Incorporation, any dividends declared upon the stock of the Corporation shall be payable on such date or dates as the Board of Directors shall determine. If the date fixed for the payment of any dividend shall in any year fall upon a legal holiday, then the dividend payable on such date shall be paid on the next day not a legal holiday.
SECTION 7. Corporate Seal. The Board of Directors shall provide a suitable seal, containing the name of the Corporation, which seal shall be kept in the custody of the Secretary. A duplicate of the seal may be kept and be used by any officer of the Corporation designated by the Board of Directors, the Chairman of the Board or the President.
SECTION 8. Fiscal Year. The fiscal year of the Corporation shall be such fiscal year as the Board of Directors from time to time by resolution shall determine.
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ARTICLE V
Miscellaneous Provisions
SECTION 1. Checks, Notes, Etc. All checks, drafts, bills of exchange, acceptances, notes or other obligation or orders for the payment of money shall be signed and, if so required by the Board of Directors, countersigned by such officers of the Corporation and/or other persons as the Board of Directors from time to time shall designate.
Checks, drafts, bills of exchange, acceptances, notes, obligations and orders for the payment of money made payable to the Corporation may be endorsed for deposit to the credit of the Corporation with a duly authorized depositary by the Treasurer, or otherwise as the Board of Directors may from time to time, by resolution, determine.
SECTION 2. Loans. No loans and no renewals of any loans shall be contracted on behalf of the Corporation except as authorized by the Board of Directors. When authorized so to do, any officer or agent of the Corporation may effect loans and advances for the Corporation from any bank, trust company or other institution or from any firm, corporation or individual, and for such loans and advances may make, execute and deliver promissory notes, bonds or other evidences of indebtedness of the Corporation. When authorized so to do, any officer or agent of the Corporation may pledge, hypothecate or transfer, as security for the payment of any and all loans, advances, indebtedness and liabilities of the Corporation, any and all stocks, securities and other personal property at any time held by the Corporation, and to that end may endorse, assign and deliver the same. Such authority may be general or confined to specific instances.
SECTION 3. Waivers of Notice. Whenever any notice whatever is required to be given by law, by the Certificate of Incorporation or by these Bylaws to any person or persons, a waiver thereof in writing, signed by the person or persons entitled to the notice, whether before or after the time stated therein, shall be deemed equivalent thereto.
SECTION 4. Offices Outside of Delaware. Except as otherwise required by the laws of the State of Delaware, the Corporation may have an office or offices and keep its books, documents and papers outside of the State of Delaware at such place or places as from time to time may be determined by the Board of Directors, the Chairman of the Board or the President.
SECTION 5. Inconsistent Provisions. In the event that any provision of these Bylaws is or becomes inconsistent with any provision of the Certificate of Incorporation, the General Corporation Law of the State of Delaware or any other applicable law, the provisions of these Bylaws shall not be given any effect to the extent of such inconsistency but shall otherwise be given full force and effect.
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ARTICLE VI
Amendments
These Bylaws and any amendment thereof may be altered, amended or repealed, or new Bylaws may be adopted, by the Board of Directors at any regular or special meeting by the affirmative vote of a majority of all of the members of the Board, provided in the case of any special meeting at which all of the members of the Board are not present, that the notice of such meeting shall have stated that the amendment of these Bylaws was one of the purposes of the meeting; but these Bylaws and any amendment thereof, including the Bylaws adopted by the Board of Directors, may be altered, amended or repealed and other Bylaws may be adopted by the holders of a majority of the total outstanding stock of the Corporation entitled to vote at any annual meeting or at any special meeting, provided, in the case of any special meeting, that notice of such proposed alteration, amendment, repeal or adoption is included in the notice of the meeting.
ARTICLE VII
Indemnification of Officers and Directors
SECTION 1. General. To the fullest extent permitted by the Delaware General Corporation Law as the same exists or may hereafter be amended, a Director of the Corporation shall not be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as Director.
ARTICLE VIII
Offices
SECTION 1. Registered Office. The registered office of the Corporation within the State of Delaware shall be in the City of Wilmington, County of New Castle.
SECTION 2. Other Offices. The Corporation may also have an office or offices other than said registered office at such place or places, either within or without the State of Delaware, as the Board of Directors shall from time to time determine or the business of the Corporation may require.
ARTICLE IX
Exclusive Jurisdiction for Certain Actions
SECTION 1. Forum for Adjudication of Disputes. Unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall, to the fullest extent permitted by law, be the sole and exclusive forum for (a) any derivative action or proceeding brought on behalf of the Corporation, (b) any action asserting a claim of breach of fiduciary duty owed by, or other wrongdoing by, any director, officer, employee or agent of the Corporation to the Corporation or the Corporations stockholders, creditors or other constituents, (c) any action
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asserting a claim arising pursuant to any provision of the General Corporation Law of the State of Delaware or the Certificate of Incorporation or these Bylaws of the Corporation, (d) any action to interpret, apply, enforce or determine the validity of the Certificate of Incorporation or these Bylaws of the Corporation or (e) any action asserting a claim governed by the internal affairs doctrine, in each case subject to said Court of Chancery of the State of Delaware having personal jurisdiction over the indispensable parties named as defendants therein; provided that if and only if the Court of Chancery of the State of Delaware dismisses any such action for lack of subject matter jurisdiction, such action may be brought in another state or federal court sitting in the State of Delaware. To the fullest extent permitted by applicable law, any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of the Corporation shall be deemed to have notice of and consented to the provisions of this Article IX of these Bylaws. If any provision or provisions of this Article IX shall be held to be invalid, illegal or unenforceable as applied to any person or entity or circumstance for any reason whatsoever, then, to the fullest extent permitted by law, the validity, legality and enforceability of such provisions in any other circumstance and of the remaining provisions of this Article IX (including, without limitation, each portion of any sentence of this Article IX containing any such provision held to be invalid, illegal or unenforceable that is not itself held to be invalid, illegal or unenforceable) and the application of such provision to other persons or entities and circumstances shall not in any way be affected or impaired thereby.
Adopted on December 6, 1991
Amended and Restated on August 16, 1994
Amended and Restated effective November 21, 1995
Amended and Restated effective December 13, 2006
Amended and Restated effective May 11, 2010
Amended and Restated effective October 16, 2013
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Exhibit 31.1
CHIEF EXECUTIVE OFFICER CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Douglas A. Berthiaume, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of Waters Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions): |
a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: November 1, 2013 | /s/ Douglas A. Berthiaume | |
Douglas A. Berthiaume | ||
Chief Executive Officer |
Exhibit 31.2
CHIEF FINANCIAL OFFICER CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, John Ornell, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of Waters Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions): |
a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: November 1, 2013 | /s/ John Ornell | |
John Ornell | ||
Chief Financial Officer |
Exhibit 32.1
CHIEF EXECUTIVE OFFICER CERTIFICATION PURSUANT TO 18 U.S.C.
SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
The certification set forth below is hereby made solely for the purpose of satisfying the requirements of Section 906 of the Sarbanes-Oxley Act of 2002 and may not be relied upon or used for any other purposes.
In connection with the Quarterly Report of Waters Corporation (the Company) on Form 10-Q for the period ended September 28, 2013, as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Douglas A. Berthiaume, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
A signed original of this written statement required by Section 906 or other document authenticating, acknowledging or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Date: November 1, 2013
By: | /s/ Douglas A. Berthiaume | |
Douglas A. Berthiaume | ||
Chief Executive Officer |
Exhibit 32.2
CHIEF FINANCIAL OFFICER CERTIFICATION PURSUANT TO 18 U.S.C.
SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
The certification set forth below is hereby made solely for the purpose of satisfying the requirements of Section 906 of the Sarbanes-Oxley Act of 2002 and may not be relied upon or used for any other purposes.
In connection with the Quarterly Report of Waters Corporation (the Company) on Form 10-Q for the period ended September 28, 2013, as filed with the Securities and Exchange Commission on the date hereof (the Report), I, John Ornell, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
A signed original of this written statement required by Section 906 or other document authenticating, acknowledging or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Date: November 1, 2013
By: | /s/ John Ornell | |
John Ornell | ||
Chief Financial Officer |
Retirement Plans
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9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 28, 2013
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Retirement Plans [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Retirement Plans | 11 Retirement Plans
The Company sponsors various retirement plans. The summary of the components of net periodic pension costs for the plans for the three and nine months ended September 28, 2013 and September 29, 2012 is as follows (in thousands):
During the nine months ended September 28, 2013, the Company contributed $4 million to the Company's U.S. pension plans. During fiscal year 2013, the Company expects to contribute a total of approximately $8 million to $10 million to the Company's defined benefit plans. |
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