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 June 30, 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 46,297,212 shares of common stock outstanding as of July 28, 2000. MILLIPORE CORPORATION INDEX TO FORM 10-Q Page No. Part I. Financial Information Item 1. Condensed Financial Statements Consolidated Balance Sheets - June 30, 2000 and December 31, 1999 2 Consolidated Statements of Income - Three and Six Months Ended June 30, 2000 and 1999 3 Consolidated Statements of Cash Flows - Six Months Ended June 30, 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 6. Exhibits and Reports on Form 8-K 11 Signatures 12 MILLIPORE CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands) June 30, December 2000 31, 1999 ASSETS (Unaudited) Current assets Cash and cash equivalents $47,136 $32,420 Cash held as collateral 14,339 18,640 Accounts receivable, net 214,412 195,751 Inventories 131,659 105,040 Other current assets 17,895 7,096 Total Current Assets 425,441 358,947 Property, plant and equipment, net 214,686 226,477 Deferred income taxes 115,683 109,822 Intangible assets 66,432 70,238 Other assets 26,054 27,249 Total Assets $ 848,296 $ 792,733 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Notes payable $ 102,100 $ 115,645 Accounts payable 61,737 63,053 Accrued expenses 68,279 73,512 Dividends payable 5,079 4,970 Accrued retirement plan Contributions 5,127 7,333 Accrued income taxes payable 19,026 5,270 Total Current Liabilities 261,348 269,783 Long-term debt 308,823 313,107 Other liabilities 35,938 32,992 Shareholders' equity Common stock 56,988 56,988 Additional paid-in capital 18,272 18,272 Retained earnings 534,756 491,429 Unearned compensation (3,433) (4,041) Accumulated other comprehensive Loss (49,318) (42,292) 557,265 520,356 Less: Treasury stock, at cost, 10,813 shares in 2000 and 11,794 in 1999 (315,078) (343,505) Total Shareholders' Equity 242,187 176,851 Total Liabilities and Shareholders' Equity $848,296 $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) Three Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 Net sales $238,948 $187,466 $463,771 $367,869 Cost of sales 108,590 86,080 208,916 170,975 Gross profit 130,358 101,386 254,855 196,894 Selling, general & administrative expenses 70,877 62,883 140,911 124,716 Research & development expenses 15,287 13,362 30,001 25,707 Operating income 44,194 25,141 83,943 46,471 Net gain on sale of securities 4,161 - 4,161 - Interest income 1,067 691 1,533 1,390 Interest expense (7,259) (7,333) (14,293) (15,112) Income before income taxes 42,163 18,499 75,344 32,749 Provision for income taxes 10,273 3,885 17,241 6,878 Net income $31,890 $14,614 $58,103 $25,871 Net income per share: Basic $ 0.70 $0.33 $1.28 $0.58 Diluted $ 0.67 $0.32 $1.24 $0.58 Cash dividends declared per share $ 0.11 $0.11 $0.22 $0.22 Weighted average shares outstanding: Basic 45,849 44,791 45,568 44,431 Diluted 47,314 45,308 46,939 44,889 The accompanying notes are an integral part of the consolidated condensed financial statements. -3- MILLIPORE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Six Months Ended June 30, 2000 1999 Cash Flows From Operating Activities: Net Income $58,103 $25,871 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 22,356 22,094 Gain on sale of securities (4,161) - Deferred tax benefit (5,861) - Changes in operating assets and liabilities, net: (Increase) in accounts receivable (24,104) (20,206) (Increase) decrease in inventories (29,789) 3,682 (Increase) decrease in other current assets and other assets (3,071) 804 (Decrease) increase in accounts payable and accrued expenses (2,982) 1,125 (Decrease) in accrued retirement plan contributions (2,120) (2,092) Increase in accrued income taxes 10,491 4,001 Increase in other 3,185 2,426 Net cash provided by operating activities 22,047 37,705 Cash Flows From Investing Activities: Additions to property, plant and equipment (18,037) (11,586) Proceeds from sale of property 8,808 - Net cash used in investing activities (9,229) (11,586) Cash Flows From Financing Activities: Issuance of treasury stock under stock Plans 23,351 2,518 Net change in short-term debt (13,545) (9,708) Dividends paid (10,005) (15,340) Decrease in cash held as collateral 4,301 - Net cash provided by (used in) financing Activities 4,102 (22,530) Effect of foreign exchange rates on cash and cash equivalents (2,204) (3,122) Net increase in cash and cash equivalents 14,716 467 Cash and cash equivalents on January 1 32,420 36,022 Cash and cash equivalents on June 30 $47,136 $36,489 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 10Q and, accordingly, these footnotes condense or omit certain information and disclosures which substantially duplicate information provided in the Company's latest audited financial statements. These financial statements 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. In the opinion of management, these financial statements reflect all adjustments necessary for a fair presentation of the results for the interim periods presented. 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: June 30, December 2000 31, 1999 Raw materials $ 48.2 $ 38.1 Work in process 28.2 26.1 Finished goods 55.3 40.8 Total $131.7 $105.0 3. Property, Plant and Equipment: Accumulated depreciation on property, plant and equipment was $218.1 at June 30, 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 June 30, 2000, 605 employees, of the planned 620 employees, left the Company. Under the terms of the severance agreements, the Company expects to pay severance and associated benefits through 2000. Certain of the manufacturing consolidations originally planned for 1999 were delayed to the second half of 2000 due to facility preparation and customer requirements. The following is a summary of the restructuring program reserve balances at June 30, 2000: Cash & Balance at Non-Cash Balance December 31, disbursem at June 1999 ents 30, 2000 Employee severance $ 3.5 $ 1.1 $ 2.4 Lease cancellation costs 2.5 0.5 2.0 Other costs 1.6 1.2 0.4 Total $ 7.6 $ 2.8 $ 4.8 -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 the Biopharmaceutical & Research, the Microelectronics segments and for Corporate operations 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 Six Months Ended Ended June 30, June 30, Consolidated Net Sales 2000 1999 2000 1999 Biopharmaceutical & Research $158.8 $144.2 $310.4 $283.1 Microelectronics 84.7 48.2 159.7 90.5 Foreign exchange (4.6) (4.9) (6.3) (5.7) Total net sales $238.9 $187.5 $463.8 $367.9 Three Months Six Months Ended Ended June 30, June 30, Consolidated Operating 2000 1999 2000 1999 Income Biopharmaceutical & Research $ 38.0 $ 31.7 $ 74.2 $ 61.9 Microelectronics 20.9 3.9 37.7 5.2 Corporate (14.8) (8.5) (28.8) (17.7) Foreign exchange 0.1 (2.0) 0.8 (2.9) Total operating income $44.2 $25.1 $83.9 $46.5 6. Basic and Diluted Earnings Per Share: The following table sets forth the computation of basic and diluted earnings per share: Three Months Six Months Ended Ended June 30, June 30, 2000 1999 2000 1999 Net income $31.9 $14.6 $58.1 $25.9 For basic earnings per share: Weighted average shares outstanding 45,849 44,791 45,568 44,431 Effect of dilutive securities-stock options 1,465 517 1,371 458 Diluted weighted average shares outstanding 47,314 45,308 46,939 44,889 Net income per share: Basic $ 0.70 $ 0.33 $ 1.28 $ 0.58 Diluted $ 0.67 $ 0.32 $ 1.24 $ 0.58 -6- MILLIPORE CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Dollars in millions, shares in thousands) 7. Comprehensive Income: The following table presents the components of comprehensive income, net of taxes: Three Months Six Months Ended Ended June 30, June 30, 2000 1999 2000 1999 Unrealized holding gains on marketable securities $ 1.2 $ 0.3 $ 7.0 $ 1.2 Reclassification adjustment for gains realized in net income (4.7) (0.1) (4.7) (0.3) Net unrealized (loss) gain on securities available for sale (3.5) 0.2 2.3 0.9 Foreign currency translation adjustments (1.1) (4.7) (9.3) (17.7) Other comprehensive loss (4.6) (4.5) (7.0) (16.8) Net income 31.9 14.6 58.1 25.9 Total comprehensive income $ 27.3 $ 10.1 $ 51.1 $ 9.1 8. New Accounting Pronouncements: In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" which is effective for the Company January 1, 2001 . 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 fourth 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 second quarter of 2000 were $239 million, an increase of 28% over sales for the same period last year. The Company reported earnings, excluding the net gain on sale of securities, of $0.62 per share for the second quarter of 2000 compared to earnings of $0.32 per share for the second quarter of 1999. Including the net gain on sale of securities, total earnings for the quarter were $0.67 per share. The following table summarizes sales growth by business segment and geography in the second quarter of 2000 as compared to the second quarter of 1999 (U.S. dollars in millions): June 30, Sales Growth 2000 1999 in U.S. Local Dollars Currency Biopharmaceutical & Research $ 153 $ 140 9% 10% Microelectronics 86 47 84% 76% Total $ 239 $ 187 28% 27% Americas $ 102 $ 79 29% 29% Europe 59 58 1% 11% Asia/Pacific 78 50 55% 41% Total $ 239 $ 187 28% 27% In the second quarter of 2000 the Japanese yen strengthened against the U.S. dollar by approximately 12%, while the Euro weakened against the U.S. dollar by approximately 13% compared to the second quarter of 1999. The stronger yen and an increase in volume of yen denominated sales resulted in a slightly favorable currency impact on sales growth despite the weaker Euro. However, if foreign exchange rates remain at July 28, 2000 levels, the expected third quarter and full year 2000 sales growth in dollars, as compared to the prior year, would be approximately 2% lower than local currency growth rates due to the impact of the relatively stronger yen in the second half of 1999. -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 10% in the second quarter of 2000 compared to the second quarter of 1999. Positive sales growth, in local currency, was reported in all geographies with the most significant growth in the Americas. Sales growth was strongest for products used in life science laboratory research and in hardware and consumables used in the biopharmaceutical markets which collectively accounts for approximately 45% of the sales of this business segment. The Company anticipates similar sales growth for this segment during the remainder of 2000. Biopharmaceutical & Research operating income, in local currency, increased 20% in the second quarter of 2000 over the second quarter of 1999 primarily as a result of the increased sales combined with improved operating expense leverage. Microelectronics Segment: Microelectronics sales, in local currency, increased 76% in the second 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 13% from the first to the second quarter of 2000. Recently published industry results and forecasts suggest continued increase in demand for both semiconductors and semiconductor capital equipment. Both trends generally impact the Microelectronics business segment. Accordingly, sales growth to this segment is expected to continue for the remainder of 2000, but at lower quarterly growth rates. Microelectronics operating income, in local currency, increased from $3.9 million or 8% of sales in the second quarter of 1999 to $20.9 million or 25% of sales in the second 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 offset somewhat by new product start-up costs. 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 $8.5 million to $14.8 million in the second 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 and additional spending due to higher sales volumes. For the remainder of the year, Corporate expenses are anticipated to remain consistent with the second quarter of 2000. Consolidated Results Gross profit margins were 54% of sales, in local currencies, in the second quarter of 2000 and 1999. Improvements in gross profit margins in the second quarter in 2000 from increased sales volume were offset by additional new product start up costs and an unfavorable mix on hardware to expendable sales which resulted in no net improvement in margins as compared to the same period last year. Factors influencing the Company's ability to maintain the gross profit margins reported in the second quarter of 2000 for the remainder of the year include the mix of hardware to expendables sales, the level of new product sales and the volume through manufacturing plants. -9- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Selling, general and administrative expenses (SG&A), in local currencies, increased 14% in the second quarter of 2000 as compared to the second quarter of 1999. This increase is primarily attributed to employee costs related to incremental variable compensation earned in the second quarter of 2000 over amounts earned in the same period last year 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 remain consistent with second quarter results. Research and development (R&D) expenses, in local currencies, increased 14% in the second quarter of 2000 as compared to the second quarter of 1999. This increase is due to incremental variable compensation expense, additional R&D program costs and increased headcounts. R&D expenses as a percentage of sales were 6.3% in the second quarter of 2000 and the Company has set target R&D spending levels of 7% for the remainder of the year. Net interest expense decreased in the second quarter of 2000 as compared to the second quarter of 1999 primarily as a result of additional interest income and lower average borrowings offset by a slight increase in average rates. The Company expects net 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. During the second quarter of 2000, the Company sold its holdings in Oxford GlycoSciences Plc, resulting in a gain on sale of securities of $7.5 million which was offset by the write-off of investment holdings in a privately held U.S. company of $3.3 million. In the second quarter of 2000, the Company adjusted its expected full year tax rate from operations from 21%, as reported in the first quarter of 2000, to 22%. This resulted in an effective tax rate of 23% in the second quarter. The increase was due to improved results in countries with higher tax rates. Foreign Exchange A substantial portion of the Company's business is conducted outside of the United States through its foreign subsidiaries and generally in local currencies. Approximately 25% of the Company's sales are derived from Europe where the U.S. dollar continued to strengthen against the Euro during the second 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. The reduction in severance cost was attributable to higher levels of attrition than originally anticipated and impacted employees filling open positions as demand increased due to improved sales volume. As of June 30, 2000, 605 employees, of the planned 620, had left the Company. Under the terms of the severance agreements, the Company expects to pay severance and associated benefits through 2000. Certain of the manufacturing consolidations originally planned for 1999 were delayed to the second half of 2000 due to delays in facility preparation and customer requirements. -10- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Capital Resources and Liquidity Cash generated by operations in the first six months of 2000 was $22.0 million compared to $37.7 million in the first six months of 1999. This decrease in cash flow was primarily the result of increased accounts receivable and inventories offset by improved operating income. The increase in accounts receivable was attributable to increased sales volume. Accounts receivable days sales outstanding increased from 80 days in the second quarter of 1999 to 81 days in the second quarter of 2000. The Company continues to aggressively manage its collection activities. Inventory levels were increased to meet anticipated levels of future sales predominately in the Microelectronics business segment. Operating cash flow generated by the Company during the first six months of 2000 was used to invest in property, plant and equipment and pay down debt and pay dividends. The Company expects to spend approximately $45 million for property, plant and equipment during 2000. During the first six months of 2000, the Company received $8.8 million from the sale of property and $23.4 million from the exercise of employee stock options. In December 1999 the Company's sole supplier of a critical raw material used in the manufacture of one type of membrane incorporated into products sold by the Biopharmaceutical & Research business segment advised the Company that it would discontinue manufacture of that raw material during the second half of 2000. In the second quarter of 2000 the Company established supply arrangements with a successor to the former supplier of this raw material. The Company believes that these arrangements will provide an adequate source of supply for this raw material. 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 6. Exhibits and Reports on Form 8-K a. Exhibits 27 Article 5 Financial Data Schedule - for the six months ended June 30, 2000 b. Report on Form 8-K No reports on Form 8-K have been filed by the Company during the fiscal quarter ended June 30, 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 August 8, 2000 /S/Donald B. Melson Date Donald B. Melson Corporate Controller and Chief Accounting Officer