Form 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1994 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from to For Quarter Ended Commission File Number March 31, 1994 0-1052 Millipore Corporation (Exact name of registrant as specified in its charter) Massachusetts (State or other jurisdiction of incorporation or organization) 80 Ashby Road Bedford, Massachusetts (Address of principal executive offices) 04-2170233 (I.R.S. Employer Identification No.) 01730 (Zip Code) Registrant's telephone number, include area code (617) 275-9200 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 Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of March 31, 1994: 28,315,416 MILLIPORE CORPORATION INDEX Page No. Part I. Financial Information: Item 1. Condensed Financial Statements Consolidated Balance Sheets -- March 31, 1994 and December 31, 1993 2 Consolidated Statements of Income -- Three Months Ended March 31, 1994 and 1993 3 Consolidated Statements of Cash Flows -- Three Months Ended March 31, 1994 and 1993 4 Notes to Consolidated Condensed Financial Statements 5-6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Part II. Other Information 8 Signatures 9 Exhibit Index 10 MILLIPORE CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands except share data) March 31, December 31, 1994 1993 ASSETS (Unaudited) Current assets Cash $ 1,146 $ 2,140 Short-term investments 22,598 38,502 Accounts receivable, net 112,490 99,655 Inventories Raw materials 21,611 18,782 Work in process 8,863 7,852 Finished goods 42,297 38,553 72,771 65,187 Other current assets 16,064 12,790 Net current assets of discontinued operations 139,063 138,687 Total current assets 364,132 356,961 Property, plant and equipment, net of accumulated depreciation of $171,739 in 1994 and $163,071 in 1993 196,578 194,895 Intangible assets 2,646 2,769 Other assets 56,809 52,141 Net long-term assets of discontinued operations 98,670 99,647 Total assets $718,835 $706,413 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Notes payable and current portion of long-term debt $ 41,711 $51,420 Accounts payable and accrued expenses 53,597 57,505 Dividends payable 3,922 3,921 Accrued retirement plan contributions 2,284 6,356 Accrued and deferred income taxes payable 6,523 4,894 Total current liabilities 108,037 124,096 Long-term debt 102,920 102,047 Other liabilities 20,334 19,116 Shareholders' equity Common stock 28,344 28,344 Additional paid-in capital 16,803 16,803 Retained earnings 445,298 434,988 Translation adjustments (1,910) (7,624) 488,535 472,511 Less:Treasury stock, at cost, 28,937 shares in 1994 and 341,273 in 1993 (991) (11,357) Total shareholders' equity 487,544 461,154 Total liabilities and shareholders' equity $718,835 $706,413 The accompanying notes are an integral part of the consolidated condensed financial statements. MILLIPORE CORPORATION CONSOLIDATED STATEMENTS OF INCOME (In thousands except per share data) (Unaudited) Three Months Ended March 31, 1994 1993 Net sales $118,959 $105,189 Cost of sales 51,265 45,140 Gross profit 67,694 60,049 Selling, general & administrative expenses 38,109 36,555 Research & development expenses 8,558 8,587 Operating income 21,027 14,907 Interest expense, net 1,293 2,217 Income from continuing operations before income taxes 19,734 12,690 Provision for income taxes 4,440 2,855 Income from continuing operations 15,294 9,835 Loss from discontinued operations - (9,083) Net income $ 15,294 $ 752 Net income per common share From continuing operations $ 0.54 $ 0.35 Net income $ 0.54 $ 0.03 Cash dividends declared per common share $ 0.14 $ 0.13 Weighted average common shares 28,123 27,983 The accompanying notes are an integral part of the consolidated condensed financial statements. MILLIPORE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Three Months Ended March 31, 1994 1993 Cash Flows From Operating Activities: Net income $ 15,294 $ 752 Adjustments to reconcile net income to net cash provided: Net loss from discontinued operations - 9,083 Depreciation and amortization 6,047 6,465 Deferred income tax provision (500) 1,000 Change in operating assets and liabilities: (Increase) in accounts receivable (7,988) (1,198) (Increase) decrease in inventories (5,205) 2,743 (Increase) in other current assets (3,087) (2,065) Decrease in other assets 2,255 2,020 Increase (decrease) in accounts payable and accrued expenses 91 (2,521) (Decrease) in accrued retirement plan contributions (4,122) (2,530) Increase in accrued income taxes 1,173 299 Other (2,693) (3,318) Net cash provided by continuing operations 1,265 10,730 Net cash provided by discontinued operations 7,573 3,827 Net cash provided by operating activities 8,838 14,557 Cash Flows From Investing Activities: Additions to property, plant, and equipment (4,158) (7,020) Net investing activities of discontinued operations (2,136) (2,282) Net cash used in investing activities (6,294) (9,302) Cash Flows From Financing Activities: Treasury stock acquired (463) - Issuance of treasury stock under stock plans 9,767 313 Cash paid to extinguish long-term debt (5,088) - Cash paid to close out foreign currency swap(10,287) - Net change in short-term debt (12,001) (3,044) Net change in long-term debt 797 (22) Dividends Paid (3,921) (3,636) Net cash used for financing activities (21,196) (6,389) Effect of foreign exchange rates on cash and short-term investments 1,754 (124) Net decrease in cash and short-term investments (16,898) (1,258) Cash and short-term investments on January 1 40,642 70,451 Cash and short-term investments on March 31 $ 23,744 $ 69,193 Interest Paid $ 3,480 $ 5,172 Taxes Paid $ 3,716 $ 2,524 The accompanying notes are an integral part of the consolidated condensed financial statements. MILLIPORE CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (in thousands) 1.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, 1993. The accompanying unaudited consolidated condensed financial statements are not necessarily indicative of future trends or the Company's operations for the entire year. 2.As discussed in Note B to the December 31, 1993 Annual Report, 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 the chromatography and bioscience markets. The operating results of these businesses through November 11, 1993 have been classified as discontinued operations in the Company's financial statements. The operating results of these businesses from November 11, 1993 to the date of the 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. On April 4, 1994, the Company entered into a purchase and sale agreement for the sale of the net assets of its Waters Chromatography Division to Waters Holdings Inc., a corporation owned equally by AEA Investors, Inc. and Bain Capital, Inc. 3.As discussed in Note I to the December 31, 1993 Annual Report, Eastern Enterprises and its subsidiary, Ionpure Technologies Corporation filed a suit against the Company alleging misrepresentations made in conjunction with its 1989 purchase of the Company's Process Water Division. The Company believes that it has adequate and complete defenses to this lawsuit. Although the Company is unable to predict with certainty the outcome of this litigation, its ultimate disposition is not expected to have a material adverse effect on the Company's financial condition. 4.Certain reclassifications have been made to the 1993 financial statements to conform to the 1994 presentation. MILLIPORE CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (in thousands) 5.As discussed in Note F to the December 31, 1993 Annual Report, the Company entered into an agreement in the fourth quarter of 1993 to retire its $100,000 notes payable bearing interest at 9.2 percent before their call date of March 30, 1995. Accordingly, the Company recorded an extraordinary charge of $5,906 ($3,544 net of income taxes) in December , 1993 to reflect the cost of extinguishing the notes. In March, 1994, the Company retired the notes and simultaneously issued $100,000 of 6.78% notes due in 2004. Interest on the new notes is payable semi-annually beginning in September, 1994. At the same time as the issuance of the $100,000 9.2 percent bearing notes described above, the Company partially hedged its Japanese yen net asset exposure by entering into a currency swap by exchanging $80,000 of dollar debt service obligations for 9,936,000 of yen obligations. The yen obligations bore a 5.27 percent interest rate and matured in 1995. The effects of foreign currency exchange rate fluctuations resulting from this swap were reflected each reporting period in translation adjustment and transaction gains/losses. The unrealized loss on this swap of $8,833 at December 31, 1993 was included in other assets in the Company's balance sheet. In January, 1994, the Company closed out its yen denominated currency swap and simultaneously exchanged $80,000 of dollar debt service obligations 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. The Company paid $10,287 in cash to close out the old swap. The cash payment represented the cumulative effect of the foreign currency rate fluctuations over the life of the swap. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Sales for the first quarter of 1994 increased 13 percent compared to sales for the first quarter of 1993, with improved performance in all of the Company's key markets and geographic areas. Sales were particularly strong, up 25 percent, for products and systems used in manufacturing applications. This was fueled by continued growth in two of the Company's major markets, the pharmaceutical/biotechnology and electronics/industrial markets. Sales to the laboratory/research market grew modestly in the first quarter of 1994, highlighted by strong growth in sales of laboratory water systems. All geographic areas showed improvement during the quarter. Although foreign currency fluctuations had no impact on the Company's reported sales growth, they were a major factor in the reported sales growth within specific geographies, positively impacting the Asia/Pacific region while negatively impacting Europe. Sales growth by geography is summarized as follows: Sales growth rates Sales growth rates measured in local currenciesmeasured in U.S. dollars Americas 13% 13% Europe 8% 3% Asia/Pacific 17% 26% 13% 13% Gross margins decreased slightly during the first quarter of 1994 to 56.9 percent as compared to 57.1 percent in the first quarter of 1993 primarily due to manufacturing inefficiencies. The increase in operating expenses in the first quarter of 1994 as compared to the first quarter of 1993 was limited as management continued to analyze the significant business divestiture activities taking place and the resulting required level of infrastructure spending to support the ongoing businesses. Net interest expense in the first quarter decreased 42 percent compared to the first quarter of 1993, primarily due to a lower interest rate on the Company's refinanced long-term $100 million notes payable as well as an overall lower level of short-term borrowings. The Company's effective income tax rate for 1994 is 22.5 percent, consistent with the full year effective rate in 1993. The Company generated $1.3 million of cash from continuing operations in the first quarter of 1994 compared to $10.7 million in the first quarter of 1993. The primary reason for the decline in cash generated from operations was an increase in inventories of approximately $5.2 million in the first quarter of 1994 compared to a decrease in inventories of $2.7 million in the first quarter of 1993. Property, plant and equipment expenditures in the first quarter of 1994 were lower than those for the comparable period in 1993, a first quarter trend consistent with operating spending. During the first quarter of 1994, the Company paid a total of $15.4 million in non-recurring financing related transactions; $5.1 million was used to pre-pay the Company's $100 million notes payable due in 1998, while $10.3 million was used to close out the Company's yen currency swap. These non-recurring payments were partially offset by $9.8 million of cash generated from stock options exercised by employees. Demand for shares of the Company's common stock in the first quarter under employee stock plans was satisfied by issuing shares held in treasury. The Company did not purchase any of its shares in the open market during the first quarter due to restrictions resulting from the divestiture process. The Company plans to purchase shares starting in the second quarter to meet its anticipated demand for stock under its employee stock plans. PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. a. Exhibits - See Exhibit Index on the page immediately preceding exhibits. b. Reports on Form 8-K - There were no reports on Form 8-K filed for the quarter ended March 31, 1994. 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 /s/Michael P. Carroll Date Michael P. Carroll May 16, 1994 Vice President, Chief Financial Officer and Treasurer EXHIBIT INDEX Exhibit Number Document Page 10 Purchase and Sale Agreement