Exhibit (13) Management's Discussion and Analysis General On November 11, 1993, the Company's Board of Directors approved a plan to divest operations of the Company's Instrumentation Divisions, which serve primarily chromatography and bioscience markets. These divisions, which represented separate product lines with separate customers, are accounted for as discontinued operations. The Company expects to realize a net gain in 1994 upon disposition of these divisions. The consolidated statement of income in 1993 includes the results of discontinued operations through November 11, 1993. The loss from discontinued operations during this period includes the impact of a $13.0 million restructuring charge recorded in the first quarter of 1993. The following discussion on results of operations applies to continuing operations. Results of Operations Consolidated net sales increased 4 percent in 1993 to $445 million. Sales growth rates, measured both in local currencies and in U.S. dollars, are summarized in the table below. Sales growth rates Sales growth rates measured in local currencies measured in U.S. dollars 1993 1992 1991 1993 1992 1991 Americas 6% (1%) 5% 6% (1%) 5% Europe 4% 9% 5% (7%) 12% 4% Asia/Pacific 10% (6%) 17% 18% (2%) 25% Consolidated 6% 1% 8% 4% 3% 9% Sales growth in the Americas in 1993 was 6 percent following a decline of 1 percent in 1992, as sales to microelectronics and biotechnology customers grew faster in 1993 than in 1992. Sales of the Company's laboratory water products were also strong in 1993. In Europe, sales growth slowed to 4 percent following a strong 1992. Sales growth was impeded by increased competition and a recessionary environment, particularly in the laboratory and laboratory water markets. Also, sales of large process systems were lower in 1993 than in 1992. Sales in Japan grew 2 percent in 1993 following a decline of 11 percent in 1992, as sales growth was adversely impacted by a weak Japanese economy, particularly in the microelectronics market. Sales growth in the balance of Asia continued to be strong in 1993 led by strong sales to the microelectronics customers in Korea. Foreign currency exchange rates had a 2 percent net unfavorable impact on sales growth in 1993, compared to a 2 percent net favorable impact in 1992 and a 1 percent net favorable impact in 1991. Though a weaker dollar will benefit, and a stronger dollar will affect adversely, future operations, the Company is unable to predict future currency movements and to quantify their effect on income. The Company sells a wide range of products in many worldwide industrial markets. Price changes and inflation have not significantly affected the comparability of sales during the past three years. Gross Margins were 56.5 percent in 1993, 54.2 percent in 1992, and 53.1 percent in 1991. Excluding the charges for EPA settlements and the accrual of costs associated with increasing the efficiency of our manufacturing operations in 1992, margins in 1992 were 56.3 percent. The slight improvement in margins in 1993 was primarily due to continued cost reduction activities in the Company's manufacturing operations. Selling, General and Administrative (S,G&A) expenses, excluding the effects of foreign exchange grew 6 percent in 1993, 10 percent in 1992 and 11 percent in 1991. The Company continued its focus on cost control in 1993 in light of lower sales growth rates, as headcount levels were flat in 1993 compared to 1992. Research and Development Expenses (R&D) increased by 6 percent in 1993, following a marginal increase in 1992 and an increase of 10 percent in 1991. The Company continued to fund all major programs in 1993. The Loss on Sale of Business reflects the loss taken on the sale of the Company's environmental testing business Resource Analysts Inc. (RAI) in 1992. The business was sold because it no longer fit with the Company's long-term strategic goals. Net Interest Expense in 1993 was slightly higher than in 1992 and 1991, primarily due to higher net borrowings during the first half of 1993 and slightly lower capitalized interest on facilities projects. Overall, effective interest rates in 1993 were slightly lower than in 1992 and 1991. The Provision for Income Taxes was 22.5 percent of pre-tax income in 1993, as compared to 22.5 percent in 1992 and 28.9 percent in 1991. The Company continues to benefit from low tax rates in Puerto Rico and tax incentives attributable to its U.S. export operations. Page 33 Extraordinary Loss on Early Extinguishment of Debt reflects the after tax cost recorded by the Company in the fourth quarter to pre-pay it's $100 million note, which bore interest at 9.2 percent and was callable in 1995. In March 1994, the Company issued a new $100 million note bearing interest at 6.78 percent. Earnings Per Share for the past three years include a number of charges resulting from either specific transactions or adoption of new accounting pronouncements. Earnings per share from continuing operations adjusted for these events are summarized as follows: 1993 1992 1991 Earnings from continuing operations after accounting changes and charges $1.62 $1.07 $1.27 Adoption of new Accounting Pronouncements: SFAS #106 Charges - cumulative impact - .19 - SFAS #109 Charges - - .11 Charges .13 .34 - Earnings from continuing operations before accounting changes and charges $1.75 $1.60 $1.38 The charge in 1993 resulted from the early extinguishment of the Company's long-term debt. The charges in 1992 resulted from providing for the settlement of all known environmental disputes with the Environmental Protection Agency (EPA), the sale of the Company's environmental testing business (RAI), and an additional charge taken to cover costs of increasing the efficiencies of our manufacturing operations. Legal Proceedings The potential settlement amount of all environmental claims against all participants at hazardous waste ("Superfund") sites in which the Company has been named a potential responsible party by the EPA is significant. It is unlikely, however, that the Company's share of these costs will have a material impact on the financial condition of the Company. The Company is only one of many potentially responsible parties named at each site. Additionally, in certain instances the Company believes that its insurance will cover a portion of the costs incurred. In 1992, the EPA unexpectedly proposed settlements for several of these sites. Based on these proposed settlements and all other information available to management, the Company recorded a provision of $5.8 million against cost of sales in 1992, which, in management's best estimate, will be sufficient to satisfy all known claims by the EPA. No individual settlement to date has had a material impact on the Company's financial condition. Capital Resources and Liquidity In 1993, the Company generated $34 million of cash from continuing operations, compared to using $14 million in 1992 and $6 million in 1991. Cash provided by operations continues to be the Company's primary source of funding working capital requirements and capital expenditures. In 1993, cash flow from continuing operations, net of working capital requirements, was $73 million compared to $47 million in 1992. The improved cash flow from continuing operations in 1993 was primarily driven by a $15 million decrease in spending on inventory in 1993. Capital expenditures by continuing operations were significantly lower in 1993 than in 1992 and 1991 as the Company spent less on facility expansions. The Company expects capital expenditures in 1994 to be comparable with 1993. At December 31, 1993 the Company had no significant commitments for capital expenditures. The Company has $41 million of cash and short-term investments on hand at the end of 1993, which along with the Company's strong financial position, provides a high degree of flexibility in financing future requirements. In addition, the Company prepaid it's $100 million note callable in 1995 and secured a new $100 million note due in 2004. Dividends The quarterly dividend was increased in the second quarter of 1993 from $0.13 to $0.14 per share. Dividends paid in 1993 were $15.1 million. Page 34 Consolidated Statements of Income Millipore Corporation Year ended December 31 (In thousands except per share data) 1993 1992 1991 Net sales $ 445,366 $ 427,188 $415,075 Cost of sales 193,575 195,462 194,557 Gross profit 251,791 231,726 220,518 Selling, general and administrative expenses 145,647 142,701 129,593 Research and development expenses 34,952 32,953 32,633 Operating income 71,192 56,072 58,292 Loss on sale of business - (2,415) - Interest income 4,069 6,888 6,182 Interest expense (12,038) (14,692) (13,984) Income from continuing operations before income taxes 63,223 45,853 50,490 Provision for income taxes 14,225 10,317 14,570 Income from continuing operations before extraordinary item and cumulative effect of change in accounting principle 48,998 35,536 35,920 Earnings (loss) from discontinued operations (10,851) 2,715 18,645 Income before extraordinary item and cumulative effect of change in accounting principle 38,147 38,251 54,565 Extraordinary item - loss on early extinguishment of debt 3,544 - - Cumulative effect of change in accounting for postretirement benefits other than pensions - 5,068 - Net income $ 34,603 $ 33,183 $ 54,565 Income per share Income from continuing operations$ 1.75 $ 1.26 $ 1.27 Net income per common share $ 1.24 $ 1.17 $ 1.93 Weighted average common shares outstanding 27,951 28,242 28,294 The accompanying notes are an integral part of the consolidated financial statements. Page 35 Consolidated Balance Sheets Millipore Corporation December 31 (In thousands) 1993 1992 Assets Current assets: Cash $2,140 $1,915 Short-term investments 38,502 68,536 Accounts receivable (less allowance for doubtful accounts of $3,063 in 1993 and $1,752 in 1992) 99,655 94,627 Inventories 65,187 72,279 Other current assets 12,790 13,915 Net current assets of discontinued operations 138,687 147,480 Total current assets 356,961 398,752 Property, plant and equipment, net 194,895 195,070 Intangible assets (less accumulated amortization of $1,169 in 1993 and $911 in 1992) 2,769 1,670 Other assets 48,332 45,957 Net long-term assets of discontinued operations 99,647 106,194 Total assets $702,604 $747,643 Liabilities and Shareholders' Equity Current liabilities: Notes payable and current portion of long-term debt $51,420 $112,064 Accounts payable and accrued expenses 57,505 51,465 Dividends payable 3,921 3,633 Accrued retirement plan contributions 2,547 2,706 Accrued and deferred income taxes payable 4,894 5,431 Total current liabilities 120,287 175,299 Long-term debt 102,047 103,240 Other liabilities 19,116 16,269 Commitments and contingent liabilities - - Shareholders' equity: Common stock, par value $1.00 per share, 80,000 shares authorized. 28,344 shares issued as of December 31, 1993 and 1992 28,344 28,344 Additional paid-in-capital 16,803 16,524 Retained earnings 434,988 416,563 Translation adjustments (7,624) 4,028 472,511 465,459 Less: Treasury stock at cost, 341 and 370 shares as of December 31, 1993 and 1992, respectively 11,357 12,624 Total shareholders' equity 461,154 452,835 Total liabilities and shareholders' equity $702,604 $747,643 The accompanying notes are an integral part of the consolidated financial statements. Page 36 Consolidated Statements of Shareholders' Equity Millipore Corporation Year ended December 31, 1991, 1992 and 1993 (In thousands) Additional Total Common Stock Paid-in Retained Translation Treasury Stock Shareholders' Shares Par Value Capital Earnings Adjustments Shares Cost Equity Balance at January 1, 1991 28,344 $28,344 $14,219 $360,954 $24,984 (107) $(1,493) $427,008 Net income 54,565 54,565 Cash dividends declared, $0.47 per share (13,098) (13,098) Treasury stock acquired (391) (15,938) (15,938) Stock options exercised (3,517) 384 13,444 9,927 Employees' stock purchase plan proceeds (330) 45 1,621 1,291 Incentive plan awards 69 69 2,366 2,435 U.S. tax benefit from stock plan activity 1,524 1,524 Translation adjustments (3,218) (3,218) Balance at December 31, 1991 28,344 $28,344 $15,743 $398,643 $21,766 0 $0 $464,496 Net income 33,183 33,183 Cash dividends declared, $0.51 per share (14,376) (14,376) Treasury stock acquired (484) (16,777) (16,777) Stock options exercised (889) 111 4,033 3,144 Employees' stock purchase plan proceeds 2 3 120 122 U.S. tax benefit from stock plan activity 781 781 Translation adjustments (17,738) (17,738) Balance at December 31, 1992 28,344 $28,344 $16,524 $416,563 $4,028 (370) $(12,624)$452,835 Net income 34,603 34,603 Cash dividends declared, $0.55 per share (15,396) (15,396) Treasury stock acquired (112) (3,427) (3,427) Stock options exercised (899) 104 3,468 2,569 Employees' stock purchase plan proceeds (32) 10 353 321 Incentive plan awards 161 22 721 882 Stock Awards (12) 5 152 140 U.S. tax benefit from stock plan activity 279 279 Translation adjustments (11,652) (11,652) Balance at December 31, 1993 28,344 $28,344 $16,803 $434,988 $(7,624) (341) $(11,357)$461,154 The accompanying notes are an integral part of the consolidated financial statements. Page 37 Consolidated Statements of Cash Flows Millipore Corportion Year ended December 31 (In thousands) 1993 1992 1991 Cash Flows From Operating Activities: Net income $34,603 $33,183 $54,565 Adjustments to reconcile net income to net cash provided by continuing operations Net loss (income) from discontinued operations 10,851 (2,715) (18,645) Depreciation and amortization 23,775 23,507 20,905 Deferred income tax provision (1,745) 225 10,731 Extraordinary item-loss on extinguishment of debt 3,544 - - Change in operating assets and liabilities: (Increase) decrease in accounts receivable (5,440) 8,348 (10,939) Decrease (increase) in inventories 6,398 (8,269) 2,250 Decrease (increase) in other current assets 763 1,276 (2,251) (Increase) in other assets (1,981) (16,003) (5,181) Increase (decrease) in accounts payable and accrued expenses 3,740 (2,475) (5,608) (Decrease) increase in accrued retirement plan contributions (104) 600 (12) (Decrease) increase in accrued income taxes payable (1,002) (2,111) 3,474 Increase - Other 53 11,898 585 Net cash provided by continuing operations 73,455 47,464 49,874 Net cash provided by discontinued operations 8,708 4,691 9,842 Net cash provided by operating activities 82,163 52,155 59,716 Cash Flows From Investing Activities: Additions to property, plant and equipment, net (24,469) (33,906) (40,660) Net investing activities of discontinued operations (9,357) (11,018) (7,668) Net cash used for investing activities (33,826) (44,924) (48,328) Cash Flows From Financing Activities: Treasury stock acquired (3,427) (16,777) (15,938) Issuance of treasury stock under stock plans 3,912 3,266 13,653 (Decrease) increase in short-term debt (59,887) 20,137 26,548 (Decrease) in long-term debt (1,222) (2,988) (1,320) Dividends paid (15,108) (14,093) (12,814) Net cash (used for) provided by financing activities (75,732) (10,455) 10,129 Effect of foreign exchange rates on cash and short-term investments (2,414) (2,765) (442) Net (decrease) increase in cash and short-term investments (29,809) (5,989) 21,075 Cash and short-term investments on January 1 70,451 76,440 55,365 Cash and short-term investments on December 31 $ 40,642 $ 70,451 $ 76,440 The accompanying notes are an integral part of the consolidated financial statements. Page 38 Notes to Consolidated Financial Statements (In thousands except per share data) Note A - Summary of Significant Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly owned. All material intercompany balances and transactions have been eliminated. Translation of Foreign Currencies For most of the Company's foreign subsidiaries, assets and liabilities are translated at exchange rates prevailing on the balance sheet date, revenues and expenses are translated at average exchange rates prevailing during the period, and elements of shareholders' equity are translated at historical rates. Any resulting translation gains and losses are reported separately in shareholders' equity. For the Company's subsidiary in Brazil, where inflation is very high, the translation is the same except that inventories, cost of sales, property, plant and equipment, and depreciation are translated at historical rates. Resulting translation gains and losses for this subsidiary are included in income. Net losses from foreign currency transactions and translations of $867 in 1993, $1,767 in 1992, and $715 in 1991 were included in selling, general and administrative expenses. Short-term Investments Short-term investments consist primarily of government securities and certificates of deposit and are carried at cost plus accrued interest, which approximates market value. Inventories The Company values all of its inventories at the lower of cost or market, principally on a last-in, first-out (LIFO) basis. The remaining inventories are valued on a first-in, first-out (FIFO) basis. Property, Plant and Equipment Property, plant and equipment is recorded at cost. Expenditures for maintenance and repairs are charged to expense while the costs of significant improvements are capitalized. Depreciation on assets acquired before January 1, 1989 generally is provided using accelerated methods over the estimated useful lives of the assets. Assets acquired after January 1, 1989 primarily are depreciated using straight-line methods. Upon retirement or sale, the cost of assets disposed and the related accumulated depreciation are eliminated and related gains or losses reflected in income. Intangible Assets Intangible assets consist primarily of licenses. Intangible assets are amortized on a straight-line basis over appropriate periods not exceeding 10 years. Income Taxes In 1992, the Company adopted the provisions of SFAS #109 "Accounting for Income Taxes." As discussed more fully in Note H, deferred income taxes under SFAS #109 are determined on the liability method. The Company provides deferred income taxes on the unremitted earnings of foreign and Puerto Rican subsidiaries which are expected to be repatriated. Treasury Stock Treasury stock is recorded at its cost on the date acquired and is relieved at its weighted average cost upon reissuance. The excess of the cost over proceeds of treasury stock reissued is charged to retained earnings. Net Income Per Common Share Net income per common share is calculated by dividing the net income for the period by the weighted average number of common shares outstanding for the period. Postretirement Benefits Other Than Pensions In 1992, the Company adopted the provisions of SFAS #106 "Employers' Accounting for Postretirement Benefits Other than Pensions." This new standard, discussed more fully in Note L requires that the expected cost of retiree health benefits be expensed during the years employees render service rather than the Company's prior practice of recognizing these costs on a cash basis. Reclassifications Certain reclassifications have been made to prior years' financial statements to conform with the 1993 presentation. Page 39 Note B - Discontinued Operations On November 11, 1993, the Company's Board of Directors approved a plan to divest operations of the Company's Instrumentation Divisions, which serve primarily chromatography and bioscience markets. The operating results of these businesses, which have been classified as discontinued operations in the accompanying consolidated financial statements, are summarized as follows: 1993 1992 1991 through 11/11/93 Net sales $279,303 $349,813 $346,314 Pre-tax income (loss) $(14,001) $5,632 $26,226 Provision (credit) for income taxes (3,150) 1,267 7,581 Cumulative effect of change in accounting for post- retirement benefits - 1,650 - Net income (loss) $ (10,851) $ 2,715 $ 18,645 Earnings (loss) per share $ (0.38) $ 0.10 $ 0.66 The operating results for 1993 are for the period ended November 11, 1993, the date the divestiture plan was approved. In the first quarter of 1993, the Company recorded a restructuring charge of $13.0 million to cover costs associated with reorganizing and restructuring the Company's chromatography division into more market-focused customer-oriented business units. The restructuring charge covered the cost of severance and other personnel related items resulting from the reorganization. The operating results from November 11, 1993 to the date of divestiture will be deferred until the divestiture is completed. The Company expects to realize a net gain in 1994 upon the sale of these businesses. Net current and long-term assets of discontinued operations consist primarily of accounts receivable, inventory, property, plant and equipment, intangibles, and accounts payable, and have been classified separately in the accompanying consolidated balance sheets. Note C - Inventories Inventories at December 31 consisted of the following: 1993 1992 Raw materials $ 18,782 $ 17,778 Work in process 7,852 9,004 Finished goods 38,553 45,497 $ 65,187 $ 72,279 The value of inventories determined using the LIFO cost method was $47,097 or 72 percent of the total at December 31, 1993 and $50,793 or 70 percent of the total at December 31, 1992. If these inventories had been valued using the FIFO cost method, they would have been $48,847 at December 31, 1993 and $53,244 at December 31, 1992. Note D - Property, Plant and Equipment Property, plant and equipment at December 31 consisted of the following: 1993 1992 Land $ 6,966 $ 6,939 Leasehold improvements 16,108 11,669 Buildings and improvements 108,054 104,041 Production and other equipment 206,207 183,179 Construction in progress 20,631 35,352 357,966 341,180 Less: accumulated depreciation and amortization 163,071 146,110 $ 194,895 $ 195,070 Page 40 Note E - Notes Payable and Current Portion of Long-term Debt Short-term borrowings and related lines of credit at December 31 are summarized as follows: 1993 1992 Notes payable and current portion of long-term debt: Notes payable $ 50,802 $111,489 Current portion of long-term debt 618 575 $ 51,420 $112,064 Unused lines of credit $240,755 $192,347 Average amount outstanding at month-end during the year $94,465 $132,696 Maximum month-end amount outstanding during the year $129,332 $182,439 Weighted average interest rate during the year 4.3% 5.1% Weighted average interest rate at year-end 4.5% 4.7% Notes payable generally consist of renewable, uncollateralized borrowings under lines of credit that are denominated in various currencies and bear interest at prevailing rates. Note F - Long-term Debt Long-term debt at December 31 consisted of the following: 1993 1992 Notes payable with interest rates of 9.2% due in 1998 $100,000 $100,000 Other notes payable with average interest of 5.9% in 1993 and 7.0% in 1992, due through 2005 2,665 3,815 102,665 103,815 Less: Current portion (618) (575) Long-term debt $102,047 $103,240 In the fourth quarter of 1993, the Company entered into an agreement to retire the $100,000 notes payable before their call date of March 30, 1995. Accordingly, the Company recorded an extraordinary charge of $5,906 ($3,544 net of income taxes or $0.13 per share) in December, 1993 to reflect the cost of extinguishing the notes. In March, 1994, the Company issued $100,000 of 6.78% notes due in 2004. Interest is payable semi-annually on these notes beginning in September 1994. Long-term debt, including current portion and after consideration of the events discussed above, matures as follows: Year ended December 31, 1994 $ 618 Year ended December 31, 1995 562 Year ended December 31, 1996 454 Year ended December 31, 1997 247 Year ended December 31, 1998 249 Years subsequent to December 31, 1998 100,535 Certain notes contain covenants relating to maintenance of current asset levels, cash dividends and limitations on long-term debt. The Company is in compliance with all such covenants. The Company capitalized interest costs associated with the construction of certain assets of $1,301 in 1993, $1,561 in 1992, and $1,645 in 1991. Interest paid on debt during 1993, 1992, and 1991 amounted to $13,356, $16,637, and $15,263, respectively. The Company had partially hedged its foreign currency net asset exposure by entering into a currency swap which was to mature in 1995. Under the terms of the original swap, the Company exchanged $100,000 of dollar debt service obligations for foreign obligations of 9,936,000 yen and 33,193 DM. The Company's foreign currency obligations had an effective weighted average interest rate of 6.02 percent in 1993. The effects of foreign currency exchange rate fluctuations resulting from these swap agreements are included in translation adjustments and in transaction gains/losses. Unrealized losses on these swap agreements of $8,020 at December 31, 1993 and $92 at December 31, 1992 are included in other assets in the consolidated balance sheets. In January, 1994, the Company closed out the yen denominated swap and simultaneously exchanged $80,000 of dollar debt service obligation for a yen denominated obligation of 8,760,000 yen, which bears interest at a rate of 4.49 percent. The swap matures in 2004. Page 41 Note G - Foreign Exchange In the fourth quarter of 1992, the Company entered into forward exchange contracts to reduce the impact of foreign currency fluctuations on certain transactions in 1993. A gain of $2.3 million was realized on these contracts and was recorded in cost of sales in 1993. In the fourth quarter of 1993, the Company has again entered into forward exchange contracts to reduce the impact of foreign currency fluctuations on certain transactions. The gains or losses on these contracts will be included in income when the operating revenues and expenses related to the underlying transactions are recognized. Contracts open at December 31, 1993, aggregating $85,000, have an unrealized gain of $1,000. All open contracts have maturities which do not exceed fifteen months. Note H - Income Taxes The Company has provided for income taxes on both continuing and discontinued operations according to the provisions of SFAS #109 "Accounting for Income Taxes" which the Company adopted in 1992. Data related to the provisions for income taxes are summarized as follows: 1993 1992 1991 Domestic and foreign income before income taxes: Domestic $16,690 $27,077 $51,530 Foreign 32,532 24,408 25,186 49,222 51,485 76,716 Less: (income) loss from discontinued operations 14,001 (5,632) (26,226) Income from continuing operations before income taxes $63,223 $45,853 $50,490 Domestic and foreign provisions for income taxes: Domestic $(2,781) $ 2,842 $ 8,589 Foreign 13,356 8,242 13,063 State 500 500 499 11,075 11,584 22,151 Less: portion applied to discontinued operations 3,150 (1,267) (7,581) $14,225 $10,317 $14,570 Current and deferred components of the provision for income taxes: Current $12,820 $11,359 $11,420 Deferred (1,745) 225 10,731 $11,075 $11,584 $22,151 Components of the deferred income tax provisions: Intercompany and inventory-related transactions $(2,241) $2,542 $545 Unremitted foreign earnings - - (802) Depreciation (1,232) (111) 530 Costs related to business dispositions- - 438 Restructuring charge - 576 8,813 Provision for postretirement benefits other than pensions (419) (555) - Other 2,147 (2,227) 1,207 $(1,745) $ 225 $10,731 Summary of the differences between the Company's consolidated effective tax rate and the United States statutory federal income tax rate: U.S. statutory income tax rate 35.0% 34.0% 34.0% Puerto Rico tax rate benefits (11.9) (9.8) (8.0) Excess foreign over U.S. tax rate 5.6 - 6.4 State income tax, net of federal income tax benefit .7 .6 .4 Foreign Sales Corporation income not taxed (4.6) (4.1) (2.8) U.S. tax credits - - (1.8) Other (2.3) 1.8 .7 Effective tax rate applicable to operations 22.5% 22.5% 28.9% Page 42 Net deferred tax assets result from temporary differences in the recognition of revenues and expenses for financial statement and income tax purposes. Components of the net deferred tax assets are as follows: 1993 1992 Intercompany and inventory $18,698 $16,457 related transactions Postretirement benefits other than pensions 4,435 4,016 Tax credits (including foreign tax credits on unremitted earnings) 21,800 17,640 U.S. net operating loss carryforwards 14,001 12,000 Other, net 1,248 (4,183) 60,182 45,930 Valuation allowance (19,390) (15,526) Net deferred tax asset $ 40,792 $ 30,404 Net deferred tax assets are classified in other assets in the balance sheet. The valuation allowance is provided primarily against foreign tax credits which can be utilized against future taxable income in the United States after the utilization of other carryforwards and expire no later than 1996. The reduction in tax expense attributable to tax exemptions on the Company's operations in Puerto Rico was $5,843 in 1993, $5,035 in 1992, and $6,275 in 1991 or $.21, $.18, and $.22 per share, respectively. Tax exemptions relating to these operations are effective through 2004. Income taxes paid during 1993, 1992, and 1991 were $15,185, $18,634 ,and $10,753 respectively. Note I - Legal Proceedings The Company has been notified in a number of instances that the United States Environmental Protection Agency (EPA) has determined that a release or a substantial threat of a release of hazardous substances (Release) as defined in Section 101 of the Comprehensive Environmental Response Compensation and Liability Act of 1980 as amended by the Superfund Amendments and Reauthorization Act of 1986 (the so-called "Superfund" law) has occurred at certain sites to which chemical wastes generated by the manufacturing operations of the Company have been sent. These notifications typically also allege that the Company may be a responsible party under the law with respect to any remedial action needed to control or prevent any such Release. Under the law the EPA may undertake remedial action and responsible parties may be liable, without regard to fault or negligence, for all costs incurred. In several of these instances the EPA has issued a proposal for remedial action it considers necessary to protect the environment. In each instance the Company was only one of a large number of corporations and entities which received such notification, and anticipates that any ultimate liability for remedial costs will be shared by others. In 1992, the EPA unexpectedly proposed settlements for several of these sites. Based on those proposed settlements and all other information available to management, the Company recorded a provision of $5,800 against cost of sales which, in management's best estimate will be sufficient to satisfy all know claims by the EPA. The Company has paid a total of $13,900 to date to satisfy environmental claims. The aggregate of further potential liabilities is not expected to have a material adverse effect on the Company's financial condition. Eastern Enterprises has filed a lawsuit against the Company alleging misrepresentations made in connection with its 1989 purchase of the Company's Process Water Division. The Company believes it has meritorious defenses against all claims. Although the Company is unable to predict with certainty the outcome of this matter, its ultimate disposition is not expected to have a material adverse effect on the Company's financial condition. Note J - Leases Lease agreements cover sales offices, warehouse space, computers and automobiles. These leases have expiration dates through 2026. Certain land and building leases contain renewal options for periods ranging from five to ten years and purchase options at fair market value. Rental expense was $10,878 in 1993, $8,880 in 1992, and $7,706 in 1991. At December 31, 1993 future minimum rents payable under noncancelable leases with initial terms exceeding one year were as follows: 1994 $10,615 1995 9,056 1996 6,851 1997 6,146 1998 5,142 1999 - 2026 48,617 Page 43 Note K - Stock Plans Stock Option Plan Under the Company's Combined Stock Option Plan, stock options to purchase Millipore common stock may be granted to employees. The plan provides that the option price per share may not be less than the fair market value of the stock at the time the option is granted and that options must expire not later than 10 years from the date of grant. Plan data are summarized as follows: 1993 1992 1991 Option shares: Outstanding at beginning of period 2,431 2,207 2,136 Issued during period 516 510 527 Exercised during period (100) (111) (384) Canceled during period (127) (175) (72) Outstanding at end of period 2,720 2,431 2,207 Exercisable at end of period 1,536 1,254 1,073 Shares available for granting of options at end of period 879 270 604 Average price of outstanding options at end of period $33.34 $32.70 $32.14 Average price of exercised options during the period $24.51 $28.22 $25.95 Shares available include 1,000 shares authorized by the Board of Directors in December, 1993 subject to shareholder approval at the Annual Meeting in April, 1994. Non-Employee Director Stock Option Plan In 1990, a stock option plan for Non-Employee Directors was approved by the Company's shareholders. Under this plan, stock options to purchase up to 100 shares of Millipore common stock may be granted to non-employee directors of the Company. The plan provides that the option price per share may not be less then the fair market value of the stock at the time the option is granted. At December 31, 1993, 59 options have been issued and 54 are outstanding. Employees' Stock Purchase Plan Under the Company's Employees' Stock Purchase Plan, all employees of the Company and its subsidiaries who have 90 days continuous service prior to the beginning of the plan year, May 1, may purchase shares of Millipore common stock by payroll deduction. The purchase price per share during the plan year is the lesser of the fair market value of the common stock at the time of purchase or on May 1. In 1993, 1992, and 1991 shares issued under the plan were 10, 3, and 45, respectively. As of December 31, 1993, 117 shares of Millipore common stock were available for sale to employees under the plan. Incentive Plan for Senior Management Under this plan, Millipore common stock is awarded to key members of senior management at no cost to them. The stock cannot be sold, assigned, transferred or pledged during a restriction period which is normally four years. Shares are subject to forfeiture should employment terminate during the restriction period. The stock issued under the plan is recorded at its fair market value on the award date; the related deferred compensation is amortized to selling, general and administrative expenses over the restriction period. At the end of 1993, 1992, and 1991, 133, 114, and 160 shares, respectively, were outstanding under the plan. Plan expense was $833 in 1993, $924 in 1992, and $1,159 in 1991. As of December 31, 1993, 78 shares of Millipore common stock were available for future awards under this plan. Note L - Employee Retirement Plans Participation and Savings Plan The Millipore Corporation Employees' Participation and Savings Plan (Participation and Savings Plan), maintained for the benefit of all full-time U.S. employees, combines both a defined contribution plan (Participation Plan) and an employee savings plan (Savings Plan). Contributions to the Participation Plan are allocated among the U.S. employees of the Company who have completed at least two years of continuous service on the basis of the compensation they received during the year for which the contribution is made. The Savings Plan allows employees with one year of continuous service to make certain tax-deferred voluntary contributions which the company matches with a 25 percent contribution (50 percent contribution for employees with 10 years of service). Total expense under the Participation and Savings Plan was $8,679 in 1993, $8,520 in 1992, and $8,143 in 1991. Retirement Plan The Company's Retirement Plan for Employees of Millipore Corporation (Retirement Plan) is a defined benefit plan for all U.S. employees which provides benefits to the extent that assets of the Participation Plan, Page 44 described above, do not provide guaranteed retirement income levels. Guaranteed retirement income levels are determined based on years of service and salary level as integrated with Social Security benefits. Employees are eligible under the Retirement Plan after one year of continuous service and are vested after 5 years of service. For accounting purposes, the Company uses the projected unit credit method of actuarial valuation. The actuarial method for funding purposes is the entry age normal method. The Company contributes annually to the Retirement Plan, subject to Internal Revenue Service and ERISA funding limitations. No contributions were required for 1993 and 1992. The following table summarizes the funded status of the plan and amounts reflected in the Company's consolidated balance sheets at December 31. The projected benefit obligation was calculated using discount and investment return rates of 7.5 percent in 1993 and 8 percent in 1992, and a salary progression rate of 6 percent in both years. Plan assets are invested primarily in common stock, mutual funds and money market funds. 1993 1992 Actuarial present value of benefit obligations: Accumulated benefit obligation, including vested benefits of $2,804 on December 31, 1993 and $1,813 on December 31, 1992 $ 2,983 $ 1,919 Projected benefit obligation for service rendered to date $(5,003) $(3,434) Plan assets at fair value 5,663 5,225 Plan assets in excess of projected benefit obligation 660 1,791 Unrecognized net actuarial loss 3,069 1,653 Unrecognized prior service cost 413 448 Unrecognized net asset being amortized over 16.7 years (747) (831) Prepaid pension cost included in financial statements $ 3,395 $ 3,061 Net pension income includes the following components Service cost $ 393 $ 323 Interest cost (358) (260) Return on plan assets 430 393 Amortization and deferral (131) (46) Net pension income $ 334 $ 410 Postretirement Benefits Other Than Pensions The Company sponsors several unfunded defined benefit postretirement plans covering all U.S. employees. The plans provide medical and life insurance benefits and are, depending on the plan, either contributory or non-contribu- tory. As discussed in Note A, the Company adopted the provisions of SFAS #106 "Employers' Accounting for Postretirement Benefits Other Than Pensions" effect- ive January 1, 1992. In adopting this standard, the Company recorded in the first quarter of 1992, a one-time, non-cash charge against earnings from con- tinuing operations of $7,678 before taxes and $5,068 after taxes, or $.19 per share. Net periodic postretirement benefit cost included the following components: 1993 1992 Service cost-benefits attributed to service during the year $ 754 $ 834 Interest cost on accumulated postretirement benefit obligation 787 800 Net amortization and deferral (15) - Net periodic postretirement benefit cost $ 1,526 $ 1,634 Summary information on the Company's plans as of December 31 is as follows: 1993 1992 Accumulated postretirement benefit obligation: Retirees and dependents $ (3,520) $ (3,702) Fully eligible active plan participants (478) (368) Other active plan participants (8,171) (7,743) Accrued postretirement benefit cost (12,169) (11,813) Unrecognized gain from past experience different from that assumed and from changes in assumptions (361) - Accrued postretirement benefit obligation $(12,530) $(11,813) Page 45 The discount rate used in determining the accumulated postretirement benefit obligation was 7.5 percent as of December 31, 1993 and 8 percent as of December 31, 1992. The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation was 12 percent in 1993, declining gradually to 6 percent through the year 2003 and remaining level thereafter. If the health care cost trend rate assumptions were increased by 1 percent, the accumulated postretirement benefit obligation as of December 31, 1993 would be increased by $2,336 while the aggregate of the service and interest cost components of net periodic postretirement benefit cost for 1993 would be increased by $343. Note M - Business Segment Information Industry Segments The Company operates in one industry segment. Using primarily membrane technology, the Company develops, manufactures and markets products used for analysis and purification. Geographical Segments The Company operates in the geographical segments indicated in the table below. Sales are reflected in the segment from which the sales are made. The Americas segment includes North and South America. The European region includes Western and Central Europe, Russia, the Middle East and Africa. The Asia/Pacific region includes Japan, Korea, Taiwan, Hong Kong, China, South- east Asia and Australia. Transfer sales between geographical areas are generally made at a discount from list price. Operating profits for each geographical segment exclude general corporate expenses. Identifiable assets consist of those assets utilized within each respective geographic segment and exclude cash and short-term investments, which are classified as corporate assets. Americas Europe Pacific Eliminations Total 1993 Sales: Unaffiliated customers $168,800 $145,485 $128,840 $443,125 Unaffiliated export: Pacific customers 977 977 European customers 1,264 1,264 Total unaffiliated 171,041 145,485 128,840 445,366 Transfer between areas 85,438 24,513 6,162 (116,113) - Total sales $256,479 $169,998 $135,002 $(116,113) $445,366 Operating profits $ 23,180 $ 36,902 $ 27,731 $ 87,813 General corporate expenses (16,621) Interest expense, net (7,969) Income from continuing operations before income taxes $ 63,223 Identifiable assets $280,941 $138,326 $127,302 $(122,941) $423,628 Corporate assets 40,642 Net current assets of discontinued operations 138,687 Net long term assets of discontinued operations 99,647 Total assets $702,604 1992 Sales: Unaffiliated customers $159,458 $154,200 $108,923 $422,581 Unaffiliated export: Pacific customers 908 908 European customers 3,699 3,699 Total unaffiliated 164,065 154,200 108,923 427,188 Transfer between areas 80,944 23,391 7,360 (111,695) - Total sales $245,009 $177,591 $116,283 $(111,695) $427,188 Operating profits $ 23,715 $ 40,962 $ 7,186 $ 71,863 General corporate expenses (15,791) Interest expense, net (7,804) Page 46 Loss on sale of business(2,415) (2,415) Income from continuing operations before income taxes $ 45,853 Identifiable assets $268,819 $178,224 $102,035 $(125,560) $423,518 Corporate assets 70,451 Net current assets of discontinued operations 147,480 Net long term assets of discontinued operations 106,194 Total assets $747,643 1991 Sales: Unaffiliated customers $162,182 $135,140 $110,115 $407,437 Unaffiliated export: Pacific customers 1,943 1,943 European customers 5,695 5,695 Total unaffiliated 169,820 135,140 110,115 415,075 Transfer between areas 76,293 18,901 5,787 (100,981) - Total sales $246,113 $154,041 $115,902 $(100,981) $415,075 Operating profits $ 49,101 $ 16,619 $ 9,820 $ 75,540 General corporate expenses (17,248) Interest expense, net (7,802) Income from continuing operations before income taxes $ 50,490 Identifiable assets $253,071 $214,509 $ 97,975 $(136,293) $429,262 Corporate assets 76,440 Net current assets of discontinued operations 140,364 Net long term assets of discontinued operations 99,593 Total assets $745,659 Report of Independent Accountants To the Shareholders and Directors of Millipore Corporation: We have audited the accompanying consolidated balance sheets of Millipore Corporation as of December 31, 1993 and 1992, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1993. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Millipore Corporation at December 31, 1993 and 1992, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1993 in conformity with generally accepted accounting principles. As discussed in Notes A, H and L to the consolidated financial statements, the Company changed its method of accounting for postretirement benefits other than pensions and its accounting for income taxes in 1992. Boston, Massachusetts Coopers & Lybrand January 24, 1994, except as to the information presented in Note F, for which the date is March 3, 1994 Page 47 Eleven-year Summary of Operations Millipore Corporation (In thousands except per share) 1993 1992 1991 1990 1989 1988 Net sales $445,366 $427,188 $415,075 $380,983 $365,825 $347,267 Cost of sales 193,575 195,462 194,557 170,049 165,979 161,613 Gross profit 251,791 231,726 220,518 210,934 199,846 185,654 Selling, general and administrative expenses 145,647 142,701 129,593 117,214 115,951 116,636 Research and devel- opment expenses 34,952 32,953 32,633 29,538 28,756 22,336 Restructuring charge - - - 17,103 - - Operating income 71,192 56,072 58,292 47,079 55,139 46,682 Other income/loss, net - (2,415) - - 3,149 - Interest income 4,069 6,888 6,182 6,723 3,914 3,450 Interest expense (12,038) (14,692) (13,984) (10,418) (8,543) (6,543) Income from continuing operations before income taxes 63,223 45,853 50,490 43,384 53,659 43,589 Provision for income taxes excluding non- recurring tax benefit 14,225 10,317 14,570 13,629 11,619 10,955 Nonrecurring benefit - - - - - - Income from continuing operations 48,998 35,536 35,920 29,755 42,040 32,634 Earnings (loss) from discontinued operations (10,851) 2,715 18,645 (6,678) 10,462 22,751 Income before extraordinary item and cumulative effect of change in accounting principle 38,147 38,251 54,565 23,077 52,502 55,385 Extraordinary item-loss on early extinguishment of debt 3,544 - - - - - Cumulative effect of change in accounting for postretirement benefits - 5,068 - - - - Net income $34,603 $33,183 $54,565 $23,077 $52,502 $55,385 Net income per common share: Income from continuing operations $1.75 $1.26 $1.27 $1.05 $1.48 $1.15 Net income per common share 1.24 1.17 1.93 0.82 1.85 1.96 Cash dividends declared per share 0.55 0.51 0.47 0.43 0.39 0.35 Average common shares and equivalents 27,951 28,242 28,294 28,307 28,323 28,329 Financial Data Working Capital $236,674 $223,453 $250,064 $227,219 $251,486 $251,825 Total assets 702,604 747,643 745,659 688,651 615,038 547,997 Long-term obligations 102,047 103,240 106,306 107,517 106,147 105,946 Shareholders' equity $461,154 $452,835 $464,496 $427,008 $403,827 $362,800 The Company adopted SFAS #109 "Accounting for Income Taxes" during 1992 and restated tax provisions in 1991, 1990 and 1986. 1984 earnings per share include a $.15 per share non-recurring tax benefit from the reversal of all deferred taxes provided on DISC income prior to 1984. Page 48 Eleven-year Summary of Operations (continued) (In thousands except per share) 1987 1986 1985 1984 1983 Net sales $298,728 $251,212 $202,411 $193,190 $171,730 Cost of sales 138,587 117,997 99,427 97,048 85,631 Gross profit 160,141 133,215 102,984 96,142 86,099 Selling, general and administrative expenses 98,730 87,058 66,409 62,777 57,579 Research and development expenses 19,742 16,756 15,132 15,407 14,033 Restructuring charge - - - - - Operating income 41,669 29,401 21,443 17,958 14,487 Other income/loss, net - - - - - Interest income 2,234 3,066 3,403 4,145 3,129 Interest expense (3,432) (3,762) (3,300) (3,136) (3,355) Income from continuing operations before income taxes 40,471 28,705 21,546 18,967 14,261 Provision for income taxes excluding nonrecurring tax benefit 10,040 10,538 5,357 5,121 3,824 Nonrecurring benefit - - - (4,002) - Income from continuing operations 30,431 18,167 16,189 17,848 10,437 Earnings (loss) from discontinued operations 17,993 14,797 15,541 12,645 10,227 Income before extraordinary item and cumulative effect of change in accounting principle 48,424 32,964 31,730 30,493 20,664 Extraordinary item-loss on early extinguishment of debt - - - - - Cumulative effect of change in accounting for postretirement benefits - - - - - Net income $48,424 $32,964 $31,730 $30,493 $20,664 Net income per common share: Income from continuing operations $1.07 $0.65 $0.59 $0.65 $0.38 Net income per common share 1.71 1.18 1.15 1.11 0.76 Cash dividends declared per share0.31 0.27 0.24 0.22 0.20 Average common shares and equivalents 28,344 27,931 27,632 27,552 27,270 Financial Data Working Capital $168,594 $165,421 $146,334 $121,075 $107,102 Total assets 452,387 369,414 326,903 283,517 259,700 Long-term obligations 6,378 12,094 13,446 10,630 10,545 Shareholders' equity $327,604 $283,547 $244,607 $214,289 $192,886 Page 49 Quarterly Results (Unaudited) The Company's unaudited quarterly results are summarized below. (In thousands, except per share data) First Second Third Fourth quarter quarter quarter quarter Year 1993 Net sales $105,189 $114,613 $111,854 $113,710 $445,366 Cost of sales 45,140 49,271 49,587 49,577 193,575 Gross profit 60,049 65,342 62,267 64,133 251,791 Selling, general and administrative expenses 36,555 36,946 36,424 35,722 145,647 Research and development expenses 8,587 9,010 8,652 8,703 34,952 Operating income 14,907 19,386 17,191 19,708 71,192 Interest (expense), net (2,217) (2,083) (1,968) (1,701) (7,969) Income from continuing operations before income taxes 12,690 17,303 15,223 18,007 63,223 Provision for income taxes 2,855 3,893 3,425 4,052 14,225 Income from continuing operations 9,835 13,410 11,798 13,955 48,998 Loss from discontinued operations (9,083) (579) (1,189) - (10,851) Extraordinary item - loss on early extinguishment of debt - - - 3,544 3,544 Net income $ 752 $ 12,831 $ 10,609 $ 10,411 $ 34,603 Per share information Income from continuing operations $0.35 $0.48 $0.42 $0.50 $1.75 Net income $0.03 $0.46 $0.38 $0.37 $1.24 Weighted average common shares outstanding 27,983 27,946 27,921 27,954 27,951 1992 Net sales $110,290 $108,300 $104,600 $103,998 $427,188 Cost of sales 49,268 52,829 45,534 47,831 195,462 Gross profit 61,022 55,471 59,066 56,167 231,726 Selling, general and administrative expenses 34,837 35,868 35,608 36,388 142,701 Research and development expenses 8,373 8,246 8,241 8,093 32,953 Operating income 17,812 11,357 15,217 11,686 56,072 Loss on sale of business - (2,415) - - (2,415) Interest (expense), net (1,720) (1,785) (2,026) (2,273) (7,804) Income from continuing operations before income taxes 16,092 7,157 13,191 9,413 45,853 Provision for income taxes 3,620 1,610 2,969 2,118 10,317 Income from continuing operations 12,472 5,547 10,222 7,295 35,536 Earnings (loss) from discontinued operations 1,149 (705) 2,735 (464) 2,715 Income before cum. effect of change in accounting principle 13,621 4,842 12,957 6,831 38,251 Cum. effect of change in accounting for postretirement benefits other than pensions 5,068 - - - 5,068 Net income $ 8,553 $ 4,842 $ 12,957 $ 6,831 $33,183 Per share information Income from continuing operations $0.44 $0.20 $0.36 $0.26 $1.26 Net income $0.30 $0.17 $0.46 $0.24 $1.17 Weighted average common shares outstanding 28,360 28,292 28,207 28,108 28,242 Page 50 Investor Information Registrar and Transfer Agent The First National Bank of Boston Shareholders Services Division P.O. Box 644 Boston, Massachusetts 02102-0644 Annual Meeting The Annual Meeting of Shareholders of Millipore Corporation will be held at our Bedford Massachusetts Facility (80 Ashby Road) on Thursday, April 21, 1994 at 11 a.m. Dividend Reinvestment An automatic dividend reinvestment program is available to shareholders. A descriptive brochure and authorization card are available on request. Reports In addition to our Annual Report, each shareholder will receive copies of our three Quarterly Reports. Form 10-K is filed annually with the Securities and Exchange Commission and is now available on request from the Company. All inquiries should be directed to: John S. Glass Director of Investor Relations Millipore Corporation 80 Ashby Road Bedford, Massachusetts 01730 (617) 275-9200 Common Stock Millipore's Common Stock is traded on the New York Stock Exchange. Our symbol is MIL. Stock price information is shown below. Millipore Stock Prices Stock price data from the New York Stock Exchange is based on high and low sales prices. There were approximately 3,985 shareholders of record as of December 31, 1993. Range of Stock Prices Dividends Declared Per Share 1993 1992 1993 1992 High Low High Low First Quarter $35.50 $25.88 $42.00 $34.25 $0.13 $0.12 Second Quarter 32.38 26.50 39.50 33.00 0.14 0.13 Third Quarter 34.25 29.75 34.25 27.13 0.14 0.13 Fourth Quarter 40.25 32.75 38.00 30.00 0.14 0.13 Page 51