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 March 31, 2000 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 0-1052 Millipore Corporation (Exact name of registrant as specified in its charter) Massachusetts (State or other jurisdiction of incorporation or organization) 04-2170233 (I.R.S. Employer Identification No.) 80 Ashby Road Bedford, Massachusetts 01730 (Address of principal executive offices) Registrant's telephone number, include area code (781) 533-6000 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 and 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 The Company had 46,069,773 shares of common stock outstanding as of April 28, 2000. MILLIPORE CORPORATION INDEX TO FORM 10-Q Page No. Part I. Financial Information Item 1. Condensed Financial Statements Consolidated Balance Sheets - March 31, 2000 and December 31, 1999 2 Consolidated Statements of Income - Three Months Ended March 31, 2000 and 1999 3 Consolidated Statements of Cash Flows - Three Months Ended March 31, 2000 and 1999 4 Notes to Consolidated Condensed Financial Statements 5-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-11 Item 3. Quantitative and Qualitative Disclosures about Market Risk 11 Part II. Other Information Item 4. Submission of Matters to a Vote of Security Holders 11 Item 6. Exhibits and Reports on Form 8-K 11 Signatures 12 MILLIPORE CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands) March 31, December 2000 31, 1999 ASSETS (Unaudited) Current assets Cash and cash equivalents $ 65,565 $ 32,420 Cash held as collateral 14,784 18,640 Accounts receivable, net 201,425 195,751 Inventories 120,614 105,040 Other current assets 10,152 7,096 Total Current Assets 412,540 358,947 Property, plant and equipment, net 213,565 226,477 Deferred income taxes 109,822 109,822 Intangible assets 68,535 70,238 Other assets 34,064 27,249 Total Assets $ 838,526 $ 792,733 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Notes payable $ 128,000 $ 115,645 Accounts payable 62,802 63,053 Accrued expenses 70,515 73,512 Dividends payable 5,034 4,970 Accrued retirement plan contributions 3,601 7,333 Accrued income taxes payable 10,538 5,270 Total Current Liabilities 280,490 269,783 Long-term debt 312,396 313,107 Other liabilities 34,692 32,992 Shareholders' equity Common stock 56,988 56,988 Additional paid-in capital 18,272 18,272 Retained earnings 511,033 491,429 Unearned compensation (3,599) (4,041) Accumulated other comprehensive loss (44,753) (42,292) 537,941 520,356 Less: Treasury stock, at cost, 11,224 shares in 2000 and 11,794 in 1999 (326,993) (343,505) Total Shareholders' Equity 210,948 176,851 Total Liabilities and Shareholders' Equity $ 838,526 $ 792,733 The accompanying notes are an integral part of the consolidated condensed financial statements. -2- MILLIPORE CORPORATION CONSOLIDATED STATEMENTS OF INCOME (In thousands except per share data) (Unaudited) March 31, 2000 1999 Net sales $ 224,823 $ 180,403 Cost of sales 100,326 84,895 Gross profit 124,497 95,508 Selling, general & administrative expenses 70,034 61,833 Research & development expenses 14,714 12,345 Operating income 39,749 21,330 Interest income 466 699 Interest expense (7,034) (7,779) Income before income taxes 33,181 14,250 Income tax expense 6,968 2,993 Net income $26,213 $ 11,257 Net income per share: Basic $ 0.58 $ 0.26 Diluted $ 0.56 $ 0.25 Cash dividends declared per share $ 0.11 $ 0.11 Weighted average shares outstanding: Basic 45,273 44,078 Diluted 46,452 44,477 The accompanying notes are an integral part of the consolidated condensed financial statements. -3- MILLIPORE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Three Months Ended March 31, 2000 1999 Cash Flows From Operating Activities: Net income $26,213 $11,257 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 11,266 11,279 Changes in operating assets and liabilities, net: Increase in accounts receivable (9,913) (10,288) (Increase) decrease in inventories (18,089) 1,011 Increase in other current assets and other assets (3,001) (160) Decrease in accounts payable and accrued expenses (261) (1,715) Decrease in accrued retirement plan contributions (3,657) (3,410) Increase in accrued income taxes 3,049 2,200 Increase in other 1,843 552 Net cash provided by operating activities 7,450 10,726 Cash Flows From Investing Activities: Additions to property, plant and equipment (7,584) (4,834) Proceeds from sale of property 8,808 - Net cash provided by (used in) investing activities 1,224 (4,834) Cash Flows From Financing Activities: Issuance of treasury stock under stock plans 14,600 439 Net change in short-term debt 12,355 (6,340) Decrease in cash held as collateral 3,856 - Dividends paid (4,982) (4,851) Net cash provided by (used in) financing activities 25,829 (10,752) Effect of foreign exchange rates on cash and cash equivalents (1,358) (2,426) Net change in cash and cash equivalents 33,145 (7,286) Cash and cash equivalents on January 1 32,420 36,022 Cash and cash equivalents on March 31 $65,565 $28,736 The accompanying notes are an integral part of the consolidated condensed financial statements. -4- MILLIPORE CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Dollars in millions, shares in thousands) 1. General: The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with the instructions to Form 10-Q and, accordingly, these footnotes condense or omit certain information and disclosures normally included in financial statements. These financial statements, which in the opinion of management reflect all adjustments necessary for a fair presentation, should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1999. The accompanying unaudited consolidated condensed financial statements are not necessarily indicative of future trends or the Company's operations for the entire year. 2.Inventories: Inventories consisted of the following: March 31, December 2000 31, 1999 Raw materials $ 43.3 $ 38.1 Work in process 29.9 26.1 Finished goods 47.4 40.8 Total $ 120.6 $ 105.0 3. Property, Plant and Equipment: Accumulated depreciation on property, plant and equipment was $210.6 at March 31, 2000 and $206.9 at December 31, 1999. 4.Restructuring Charges: In the third quarter of 1998, the Company initiated a restructuring program resulting in a restructuring charge of $33.6. In the third quarter of 1999, $5.2 of the remaining balance was reversed. The reversal reflected a lower estimate for severance pay and lease cancellation costs required to complete the various restructuring programs. As of March 31, 2000, 600 employees, of the planned 620 employees, left the Company pursuant to this initiative. Certain of the manufacturing consolidations originally planned for 1999 were delayed to 2000 due to facility preparation and customer requirements. Under the terms of the severance agreements, the Company expects to pay severance and associated benefits through 2000. The following is a summary of the restructuring program reserve balances at March 31, 2000: Balance at Cash Balance December 31, disbursements at March 1999 31, 2000 Employee severance $ 3.5 $ 0.7 $ 2.8 Lease cancellation costs 2.5 0.3 2.2 Other costs 1.6 0.4 1.2 Total $ 7.6 $ 1.4 $ 6.2 -5- MILLIPORE CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Dollars in millions, shares in thousands) 5. Business Segment Information: The Company has two reportable business segments: Biopharmaceutical & Research and Microelectronics. The results for Biopharmaceutical & Research, Microelectronics and Corporate are presented below in "local currencies". Local currency results represent the foreign currency balances translated, in all periods presented, at Millipore's budgeted exchange rates for 2000, thus excluding the impact of fluctuations in the actual foreign currency rates. The Company's management uses this presentation for internal evaluation of the financial performance of the Company's business segments because it believes that the local currency results provides a clearer presentation of underlying business trends. The U.S. dollar results represent the foreign currency balances translated at actual exchange rates. Three Months Ended March 31, Consolidated Net Sales 2000 1999 Biopharmaceutical & Research $ 151.6 $ 138.9 Microelectronics 75.1 42.3 Foreign exchange (1.9) (0.8) Total net sales at actual exchange rates $ 224.8 $ 180.4 Three Months Ended March 31, Consolidated Operating Income 2000 1999 Biopharmaceutical & Research $36.1 $30.2 Microelectronics 16.8 1.2 Corporate (14.0) (9.1) Foreign exchange 0.8 (1.0) Total operating income at actual exchange rates $39.7 $21.3 7.Basic and Diluted Earnings Per Share: The following table sets forth the computation of basic and diluted earnings per share: Three Months Ended March 31, 2000 1999 Numerator: Net income $26.2 $11.3 Denominator: For basic earnings per share: Weighted average shares outstanding 45,273 44,078 Effect of dilutive securities 1,179 399 Diluted weighted average shares outstanding 46,452 44,477 Net income per share: Basic $ 0.58 $ 0.26 Diluted $ 0.56 $ 0.25 -6- MILLIPORE CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Dollars in millions, shares in thousands) 8. Comprehensive Income: The following table presents the components of comprehensive income (loss), net of taxes: Three Months Ended March 31, 2000 1999 Unrealized holding gains on marketable securities $5.8 $ 0.9 Reclassification adjustment for gains realized in net income - (0.2) Net unrealized gain on securities available for sale 5.8 0.7 Foreign currency translation adjustments (8.2) (13.0) Other comprehensive loss (2.4) (12.3) Net income 26.2 11.3 Total comprehensive income (loss) $ 23.8 $(1.0) 9. New Accounting Pronouncements: In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" effective January 1, 2001 for the Company. SFAS 133 establishes accounting and reporting standards requiring that every derivative instrument, including certain derivative instruments embedded in other contracts, be recorded in the balance sheet as either an asset or liability measured at its fair value. The statement also requires that changes in the derivative's fair value be recognized in earnings unless specific hedge accounting criteria are met. The Company is currently assessing the impact of this new statement on its consolidated financial position, liquidity and results of operations. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin 101, "Revenue Recognition in Financial Statements" which is effective for the Company beginning with the second quarter of 2000. SAB 101 provides guidance related to revenue recognition based on interpretations and practices followed by the SEC and requires any changes in revenue recognition to be reported as a cumulative change in accounting principles at the time of implementation in accordance with APB Opinion No. 20, "Accounting Changes". The Company is currently in the process of evaluating what impact, if any, SAB 101 will have on the financial position or results of operations of the Company. -7- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward Looking Statements The following discussion and analysis includes certain forward- looking statements which are subject to substantial risks and uncertainties described in Management's Discussion and Analysis in the Company's Annual Report on Form 10-K for the year ended December 31, 1999. Such forward-looking statements are based on management's current expectations and actual results may differ materially from the results expressed in, or implied by, these forward-looking statements. Local Currency Results The following discussion of the Results of Operations includes reference to revenue, margins and expenses in "local currencies". Local currency results represent the foreign currency balances translated, in all periods presented, at Millipore's budgeted exchange rates for 2000, thus excluding the impact of fluctuations in the actual foreign currency rates. The Company's management uses this presentation for internal evaluation of the financial performance of the Company's business segments because it believes that the local currency results provides a clearer presentation of underlying business trends. The U.S. dollar results represent the foreign currency balances translated at actual exchange rates. Results of Operations Consolidated net sales for the first quarter of 2000 were $225 million, an increase of 25% over sales for the same period last year. The Company reported earnings of $0.56 per share for the first quarter of 2000 compared to earnings of $0.25 per share for the first quarter of 1999. The following table summarizes sales growth by business segment and geography in the first quarter of 2000 as compared to the first quarter of 1999 (U.S. dollars in millions): March 31, Sales Growth 2000 1999 in U.S. Local Dollars Currency Biopharmaceutical & Research $ 148 $ 138 7% 9% Microelectronics 77 42 83% 77% Total $ 225 $ 180 25% 25% Americas $ 97 $ 74 29% 29% Europe 60 60 1% 11% Asia/Pacific 68 46 47% 36% Total $225 $180 25% 25% Compared to the first quarter of 1999, the Japanese yen strengthened against the U.S. dollar by approximately 8% during the period, while the Euro weakened against the U.S. dollar by approximately 13%. The positive effect from the stronger yen and an increase in volume of yen denominated sales in Q1 2000 offset the decline in the Euro thus neutralizing the effect to reported sales growth. If foreign exchange rates remain at April 28, 2000 levels, the expected second quarter sales growth in dollars should approximate the growth in local currency and projected full year 2000 reported sales growth rates would be approximately 2% lower than local currency growth rates due to the anticipated growth in the European business. -8- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Business Segment Results Biopharmaceutical & Research Segment: Biopharmaceutical & Research sales, in local currency, increased 9% in the first quarter of 2000 compared to the first quarter of 1999. Sales growth, in local currency, was positive in the Americas and Europe offset by a slight decline in Asia. Sales growth was strongest for products used in life science laboratory research and in hardware and consumables used in the biopharmaceutical markets. This segment anticipates similar sales growth for the remainder of 2000. Biopharmaceutical & Research operating income, in local currency, increased 20% in the first quarter of 2000 over the first quarter of 1999 as a result of the increased sales combined with improved gross profit margins. The improved gross profit margin percentage was attributed to an increased mix of consumable product sales which generally have higher margins and volume through manufacturing plants. Microelectronics Segment: Microelectronics sales, in local currency, increased 77% in the first quarter of 2000 compared to the same period last year. Sales growth was positive in all geographies with the most significant growth in Asia. Sequential quarter sales growth was 19% from the fourth quarter of 1999 to the first quarter of 2000. Recently published industry results and forecasts depict trends of significant increase in demand for both semiconductors and semiconductor capital equipment. Both trends generally impact the Microelectronics business segment. Sales growth in this segment is expected to continue for the remainder of 2000, however, at lower quarterly growth rates. It is anticipated that sequential sales will continue to increase, although the sequential growth rate will be less than the first quarter of 2000. Microelectronics operating income, in local currency, increased from $1.2 million or 2.9% of sales in the first quarter of 1999 to $16.8 million or 22.3% of sales in the first quarter of 2000. The increase is primarily due to the significant sales growth coupled with improved gross profit margins and operating expense leverage. The gross profit margins were positively impacted by both the higher sales volumes and by a greater mix of expendable sales. The ability to maintain this percentage of operating income for the full year will be dependent on a number of variables including the volume through manufacturing plants, the impact of new products on both gross profit margins and spending and sales mix of equipment versus consumables. Corporate Expenses: Corporate expenses, in local currency increased from $9.1 million to $14.0 million in the first quarter of 2000 as compared to the same quarter of the prior year. The increased expenses related primarily to incremental variable compensation expense associated with the improved financial performance of the Company. For the remainder of the year, Corporate expenses are anticipated to be in line with the first quarter of 2000. Consolidated Results Gross profit margins were 55% of sales, in local currencies, in the first quarter of 2000 compared to 53% reported in the first quarter of 1999. The improved margins can be primarily attributed to production efficiencies related to increased sales volume and favorable mix of expendables to hardware. The ability to maintain the gross profit margins reported in the first quarter of 2000 for the remainder of the year will be impacted by the mix of hardware to expendables sales, new product sales and volume through manufacturing plants among other factors. Selling, general and administrative expenses (SG&A), in local currencies, increased 15% in the first quarter of 2000 as compared to the first quarter of 1999. This increase is primarily attributed to employee costs related to incremental variable compensation earned in the first quarter of 2000 over amounts earned in the same period last year, additional headcounts and increased spending due to higher sales volume. As a percentage of net sales, SG&A expenses in local currencies decreased approximately 3 percentage points. The Company expects that for the remainder of the year SG&A as a percentage of net sales will improve as sales increase resulting in a full year SG&A rate lower than the first quarter's rate. -9- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Research and development (R&D) expenses, in local currencies, increased 20% in the first quarter of 2000 as compared to the first quarter of 1999. This increase is due to incremental variable compensation expense and additional research and development programs. R&D expenses as a percentage of sales were 6.5% in the first quarter of 2000 and the Company is targeting R&D spending levels of 7% for the remainder of the year. Net interest expense decreased in the first quarter of 2000 as compared to the first quarter of 1999 primarily attributed to lower average borrowings. The Company expects interest expense for the remainder of 2000 to be lower than 1999 due to lower average borrowings. The Company does not expect that increases in interest rates will have a material effect on interest expense. The effective income tax rate for the first quarter of 2000 was 21.0%, the same as the effective income tax rate from operations for the full year of 1999. The effective tax rate may increase slightly over the remainder of 2000 depending upon the geographic mix of sales. Foreign Exchange A substantial portion of the Company's business is conducted outside of the United States through its foreign subsidiaries. This business is transacted through the Company's network of international subsidiaries generally in the local currency. Approximately 30% of the Company's sales are derived from Europe where the U.S. dollar continued to strengthen against the Euro during the first quarter of 2000. The Company is able to partially mitigate the impact of fluctuations in the Euro by active management of cross border currency flows and material sourcing. Additionally, the Company has significant exposure to changes in the Japanese yen that can not be mitigated through normal financing or operating activities. Accordingly, the net equity exposure is managed through the use of debt swap agreements. Generally, when the U.S. dollar strengthens against currencies in which the Company transacts its business, sales and net income will be adversely impacted. Restructuring Charges In the third quarter of 1998, a restructuring program was initiated to improve the competitive position of the Company by streamlining worldwide operations and reducing the overall cost structure resulting in a restructuring charge of $33.6 million. In the third quarter of 1999, the Company reevaluated the accrual for the restructuring program and reversed $5.2 million of the remaining balance. The reversal reflected a lower estimate for severance pay and lease cancellation costs. Although the planned number of employee positions had been eliminated, the reduction in severance cost was attributed to higher levels of attrition than originally anticipated and impacted employees filling open positions as demand increased due to improved sales volume. Most of the major programs were completed in 1999, including the realignment of European operating units, establishment of the European regional transaction center, streamlining the supply chain management function, consolidating certain manufacturing operations and cancellation of leases. Certain of the manufacturing consolidations originally planned for 1999 were delayed to 2000 due to facility preparation and customer requirements. The restructuring initiatives combined with the consolidation of the Company's Microelectronics plants resulted in the elimination of 620 positions worldwide. Notification to employees was completed during the third quarter of 1998, although some of the affected employees will continue in their existing positions through 2000 with their related salary costs charged to operations as incurred. As of March 31, 2000, 600 employees had left the Company pursuant to this initiative. Under the terms of the severance agreements, the Company expects to pay severance and associated benefits through 2000. -10- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Capital Resources and Liquidity Cash generated by operations in the first three months of 2000 was $7.5 million compared to $10.7 million in the first three months of 1999. The decrease in cash flow from operations for the first three months of 2000 as compared to the same period of the prior year was primarily the result of increased inventories offset by improved operating income. The inventory increase was attributed to anticipated levels of future sales predominately in the Microelectronics business segment. Operating cash flow generated by the Company during the first three months of 2000 was used to invest in property, plant and equipment and pay dividends. The Company expects to spend approximately $45.0 to $50.0 million for property, plant and equipment during 2000. During the first quarter of 2000, the Company received $8.8 million from the sale of property and $14.6 million from the exercise of employee stock options. Additionally short-term debt increased $12.4 million although net short-term debt decreased approximately $17 million. The Company is required to provide cash collateralization on one of its yen denominated debt swap agreements if (and to the extent that) the net value of the Company's position falls below the net value of the counterparty's position. While this will not impact the Company's foreign exchange exposure, it could impact short-term liquidity and compliance with certain debt covenants if there were a serious deterioration in the value of the Company's swap position. The amount of the collateral is dependent, among other things, on the exchange rate of the yen to the U.S. dollar and is restricted as to withdrawal or alternative usage. Item 3. Quantitative and Qualitative Disclosures About Market Risk The mitigating actions enumerated above under "Foreign Exchange" in Management's Discussion and Analysis of Financial Condition and Results of Operations and in Management's Discussion and Analysis of Financial Condition and Results of Operations contained in the Company's Annual Report on Form 10-K have effectively limited the impact of exchange rate fluctuations and credit risk on the Company's results of operations and financial position to a level which is not material. Part II - Other Information Item 4. Submission of Matters to a Vote of Security Holders The annual Meeting of Stockholders of Millipore Corporation was held on April 27, 2000. At the Annual Meeting the only matter voted on was the election of three Class I Directors for a three-year term (expiring in 2003). The following votes were tabulated with respect to the election: Votes "For" Withheld Mark Hoffman 40,457,168 630,876 John F. Reno 40,457,335 630,709 C. William Zadel 40,440,269 647,775 Item 6. Exhibits and Reports on Form 8-K a. Exhibits 10 Letter Agreement, dated January 10, 2000 between the Company and Douglas B. Jacoby 27 Article 5 Financial Data Schedule - for the three months ended March 31, 2000 b. Report on Form 8-K No reports on Form 8-K have been filed by the Company during the fiscal quarter ended March 31, 2000. -11- SIGNATURES 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. Millipore Corporation Registrant May 12, 2000 /s/Kathleen B. Allen Date Kathleen B. Allen Chief Financial Officer Chief Accounting Officer