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| WAT > SEC Filings for WAT > Form 10-Q on 6-Nov-2009 | All Recent SEC Filings |
6-Nov-2009
Quarterly Report
of VTI Corporation ("VTI") added 2% to TA's sales growth in both the 2009
Quarter and 2009 Period compared to the 2008 Quarter and 2008 Period.
Operating income was $96 million and $98 million in the 2009 Quarter and 2008
Quarter, respectively. In the 2009 Period and 2008 Period, operating income was
$268 million and $273 million, respectively. The changes in operating income are
primarily a result of the decline in overall sales volume in 2009 as compared to
2008. These reductions in operating income were offset by lower selling,
administrative and research and development expenses achieved through cost
reductions and the net favorable effect of foreign currency translation.
Furthermore, the 2009 Period included the impact of $6 million of expense in
connection with the TA building lease termination payment, while the 2008 Period
included a $9 million impact of expense related to out-of-period adjustments for
capitalized software amortization.
During the second quarter of 2008, the Company identified errors originating in
periods prior to the three months ended June 28, 2008. The errors primarily
relate to (i) an overstatement of the Company's income tax expense of
$16 million as a result of errors in recording its income tax provision during
the period from 2000 to March 29, 2008 and (ii) an understatement of
amortization expense of $9 million for certain capitalized software. The Company
incorrectly calculated its provision for income taxes by tax-effecting its tax
liability utilizing a U.S. tax rate of 35% instead of an Irish tax rate of 10%.
In addition, the Company incorrectly accounted for Irish-based capitalized
software and the related amortization expense as U.S. Dollar-denominated instead
of Euro-denominated, resulting in an understatement of amortization expense and
cumulative translation adjustment. For the nine months ended September 27, 2008,
the errors reduced the Company's effective tax rate by 5.6 percentage points.
During the 2008 Period, the Company recorded approximately $5 million of tax
provision associated with the reorganization of certain foreign legal entities.
This one-time provision increased the Company's effective tax rate by
5.4 percentage points and 2.0 percentage points in the 2008 Quarter and the 2008
Period, respectively. During the 2009 Period, the Company recorded approximately
$5 million of tax benefit associated with the reversal of the $5 million tax
provision described above. The recognition of this tax benefit was a result of
changes in income tax regulations promulgated by the U.S. Treasury in
February 2009. This $5 million tax benefit decreased the Company's effective tax
rate by 1.7 percentage points in the 2009 Period.
Net income per diluted share was $0.79 and $0.71 in the 2009 Quarter and 2008
Quarter, respectively. Net income per diluted share was $2.26 and $2.21 in the
2009 Period and 2008 Period, respectively. The change in net income per diluted
share in the 2009 Quarter and 2009 Period as compared with the 2008 Quarter and
2008 Period can be attributed to the following factors:
• The $5 million tax provision recorded in the 2008 decreased net income per
diluted share in both the 2008 Quarter and 2008 Period by $0.05. The
$5 million tax benefit recorded in the first quarter of 2009 added $0.05 per
diluted share to the 2009 Period.
• The impact of the 2008 out-of-period adjustments related to capitalized software amortization increased the 2008 Period net income per diluted share by $0.08.
• The $6 million TA lease termination payment decreased the 2009 Period net income per diluted share by $0.04.
• Lower net interest and lower weighted-average shares and equivalents increased net income per diluted share in both the 2009 Quarter and 2009 Period.
• Higher effective tax rates, excluding the items described above, decreased net income per diluted share in both the 2009 Quarter and 2009 Period.
Net cash provided by operating activities was $298 million and $306 million in the 2009 Period and 2008 Period, respectively. The $8 million decrease is primarily a result of a $6 million litigation payment made in the 2009 Period, which was expensed in the fourth quarter of 2008, and a $6 million TA building lease termination payment in the 2009 Period offset by timing of receipts from customers and payments to vendors.
Within cash flows used in investing activities, capital expenditures related to
property, plant, equipment and software capitalization were $80 million in the
2009 Period. Within cash flows provided by investing activities, capital
expenditures related to property, plant, equipment and software capitalization
were $49 million in the 2008 Period. The increase in capital expenditures is
primarily attributed to $27 million spent to acquire land and construct a new TA
facility that was completed in June 2009. In February 2009, the Company acquired
all of the remaining outstanding capital stock of Thar for $36 million in cash.
In July 2008, the Company paid $3 million in cash to acquire the net assets of
VTI Corporation ("VTI").
Within cash flows used in financing activities, the Company received $8 million
and $23 million of proceeds from stock plans in the 2009 Period and 2008 Period,
respectively. The fluctuations in these amounts are primarily attributed to the
change in the Company stock price and the expiration of stock option grants. In
February 2009, the Company's Board of Directors authorized the Company to
repurchase up to $500 million of its outstanding common stock over a two-year
period. The Company repurchased $156 million and $209 million of the Company's
outstanding common stock in the 2009 Period and 2008 Period, respectively, under
the February 2009 authorization and previously announced stock repurchase
programs.
Results of Operations
Net Sales
Product sales were $260 million and $278 million for the 2009 Quarter and the
2008 Quarter, respectively, a decrease of 7%. Product sales were $741 million
and $835 million for the 2009 Period and the 2008 Period, respectively, a
decrease of 11%. The decrease in product sales in both the 2009 Quarter and 2009
Period was primarily due to the overall decline in Waters and TA instrument
system sales due to lower spending by the Company's customers as a result of the
global economic recession and adverse effects from foreign currency translation.
Service sales were $114 million and $109 million in the 2009 Quarter and the
2008 Quarter, respectively, an increase of 5%. Service sales were $329 million
and $321 million in the 2009 Period and the 2008 Period, respectively, an
increase of 2%. The increase in the 2009 Quarter and 2009 Period service sales
was primarily attributable to increased sales of service plans and billings to a
higher installed base of customers and three more selling days, offset by
adverse foreign currency translation.
Waters Division Net Sales
The Waters Division net sales declined 1% and 7% in the 2009 Quarter and 2009
Period, respectively, as compared to the 2008 Quarter and 2008 Period. The
effect of foreign currency translation negatively impacted the Waters Division
across all product lines, resulting in a decline in total sales of 1% in the
2009 Quarter and 4% in the 2009 Period.
Chemistry consumables sales increased 5% in the 2009 Quarter and decreased by 1%
in the 2009 Period. The increase in the 2009 Quarter sales was driven primarily
by higher demand for chemistry consumable products. The 2009 Period sales
decreased due to the negative effect of foreign currency translation, which
adversely impacted the 2009 Period chemistry consumable sales growth by 4%.
Waters Division service sales increased 5% and 2% in the 2009 Quarter and 2009
Period, respectively, due to the increased sales of service plans and billings
to the higher installed base of customers. In addition, recurring sales of
chemistry consumables and service in the 2009 Period benefited from three more
selling days than the 2008 Period. There will be conversely fewer selling days
in the Company's fiscal fourth quarter of 2009. Waters instrument system sales
(LC and MS) declined 7% in the 2009 Quarter and 14% in the 2009 Period. The
decreases in instrument systems sales are primarily attributable to weak
industrial and pharmaceutical customer spending caused by the global recession.
Waters Division sales by product line in the 2009 Quarter were 51% for
instrument systems, 18% for chemistry consumables and 31% for service as
compared to 54% for instrument systems, 17% for chemistry consumables and 29%
for service in the 2008 Quarter. Waters Division sales by product line in the
2009 Period were 50% for instrument systems, 19% for chemistry consumables and
31% for service as compared to 54% for instrument systems, 18% for chemistry
consumables and 28% for service in the 2008 Period.
Geographically, Waters Division sales in the U.S., Europe and the rest of the
world declined 3%, 4% and 12%, in the 2009 Quarter, respectively, while sales in
Asia grew 7%. Waters Division sales in the U.S., Europe and the rest of the
world declined 4%, 13% and 20% in the 2009 Period, respectively, while Asian
sales grew 2%. These declines are primarily due to lower demand from the
Company's industrial and pharmaceutical customers. Sales growth in China in both
the 2009 Quarter and 2009 Period was strong and partially offset the weakness in
other
Asian markets. In Europe, the Company's sales decline in the 2009 Quarter and
2009 Period was primarily driven by weak demand in Eastern Europe. The effects
of foreign currency translation decreased sales in Europe by 7% and 11% in the
2009 Quarter and 2009 Period, respectively. The effects of foreign currency
translation decreased sales in the rest of the world by 1% and 5% in the 2009
Quarter and 2009 Period, respectively. The effects of foreign currency
translation increased sales in Asia by 5% and 2% in the 2009 Quarter and 2009
Period, respectively.
TA Division Net Sales
TA's sales decreased 17% in the 2009 Quarter over the 2008 Quarter and 14% in
the 2009 Period over the 2008 Period primarily as a result of weak instrument
system demand from its industrial customers and an adverse effect from foreign
currency translation. The July 2008 acquisition of VTI Corporation added 2% to
sales growth in both the 2009 Quarter and 2009 Period. Instrument system sales
declined 24% in the 2009 Quarter and represented 72% of sales in the 2009
Quarter as compared to 78% in the 2008 Quarter. Instrument system sales declined
19% in the 2009 Period and represented 73% of sales in the 2009 Period as
compared to 78% in the 2008 Period. TA service sales increased by 6% and 4% in
the 2009 Quarter and 2009 Period, respectively, due to the increased sales of
service plans and billings to the higher installed base of customers.
Geographically, the sales decrease overall for TA was broad-based.
Gross Profit
Gross profit for the 2009 Quarter was $221 million compared to $228 million for
the 2008 Quarter, a decrease of $7 million, or 3%. Gross profit for the 2009
Period was $645 million compared to $668 million for the 2008 Period, a decrease
of $23 million, or 3%. Gross profit as a percentage of sales remained at 59.0%
in the 2009 Quarter and the 2008 Quarter. Gross profit as a percentage of sales
increased to 60.3% in the 2009 Period compared to 57.7% for the 2008 Period. The
decrease in gross profit dollars in the 2009 Quarter and 2009 Period can be
primarily attributed to the lower sales volume being offset by the benefits from
net favorable foreign currency translation and, to a lesser extent, lower
manufacturing costs. The 2008 Period also had a $9 million impact from the
out-of-period adjustments related to capitalized software amortization. During
the 2009 Period, the Company's gross profit as a percentage of sales benefited
from the favorable movements in certain foreign exchange rates between the
currencies where the Company manufactures and services products and the
currencies where the sales were transacted, principally the Euro, Japanese Yen
and British Pound. Gross profit as a percentage of sales was also primarily
impacted by the change in sales mix. The 2009 Quarter and 2009 Period contained
a higher level of higher margin chemistry consumables and service sales than the
2008 Quarter and 2008 Period.
Selling and Administrative Expenses
Selling and administrative expenses for the 2009 Quarter and the 2008 Quarter
were $103 million and $107 million, respectively, a decrease of 4%. Selling and
administrative expenses for the 2009 Period and the 2008 Period were
$311 million and $325 million, respectively, a decrease of 4%. The decreases in
2009 Quarter and 2009 Period selling and administrative expenses are primarily
due to cost reductions, lower incentive compensation and the comparative
favorable impact of foreign currency translation. In the 2009 Period, these
decreases were offset by the impact of the $6 million expense incurred in
connection with the TA lease termination payment. As a percentage of net sales,
selling and administrative expenses were 27.5% for the 2009 Quarter and 29.1%
for the 2009 Period compared to 27.8% for the 2008 Quarter and 28.1% for the
2008 Period.
Research and Development Expenses
Research and development expenses were $19 million and $20 million for the 2009
Quarter and 2008 Quarter, respectively, a decrease of $1 million, or 3%.
Research and development expenses were $57 million and $62 million for the 2009
Period and 2008 Period, respectively, a decrease of $5 million, or 7%. The
decrease in research and development expenses for both the 2009 Quarter and 2009
Period is primarily due to the comparative favorable impact of foreign currency
translation.
Interest Expense
Interest expense was $3 million and $11 million for the 2009 Quarter and 2008
Quarter, respectively. Interest expense was $9 million and $32 million for the
2009 Period and 2008 Period, respectively. The decrease in interest expense for
the 2009 Quarter and 2009 Period is primarily attributable to a significant
decrease in average borrowings as well as lower interest rates during the 2009
Quarter and 2009 Period as compared to the 2008 Quarter and 2008 Period.
Interest Income
Interest income was $1 million and $6 million for the 2009 Quarter and 2008
Quarter, respectively. Interest income was $2 million and $18 million for the
2009 Period and 2008 Period, respectively. The decrease in interest income is
primarily due to significantly lower yields during the 2009 Quarter and 2009
Period as compared to the 2008 Quarter and 2008 Period, as well as significantly
lower cash and short-term investment balances.
Provision for Income Taxes
The Company's effective tax rates for the 2009 Quarter and 2008 Quarter were
19.2% and 23.5%, respectively. The Company's effective tax rates for the 2009
Period and 2008 Period were 16.3% and 14.1%, respectively. Included in the
income tax provision for the 2008 Quarter is approximately $5 million of tax
provision associated with the reorganization of certain foreign legal entities.
This one-time provision increased the Company's effective tax rate by
5.4 percentage points and 2.0 percentage points for the 2008 Quarter and 2008
Period, respectively. Included in the income tax provision for the 2009 Period
is approximately $5 million of tax benefit associated with the reversal of the
$5 million tax provision described above. The recognition of this tax benefit
was a result of changes in income tax regulations promulgated by the U.S.
Treasury in February 2009. This $5 million tax benefit decreased the Company's
effective tax rate by 1.7 percentage points for the 2009 Period. In addition,
the effective tax rate for the 2008 Period included a $16 million benefit
resulting from the out-of-period adjustments related to software capitalization
amortization. The out-of-period adjustments had the effect of reducing the
Company's effective tax rate by 5.6 percentage points in the 2008 Period. After
consideration of these items, the remaining changes in the effective tax rates
for the 2009 Quarter and 2009 Period as compared to the 2008 Quarter and 2008
Period are primarily attributable to changes in income in jurisdictions with
different effective tax rates.
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