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 September 30, 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 September 30, 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 September 30, 1994: 24,703,283 MILLIPORE CORPORATION INDEX Page No. Part I. Financial Information: Item 1. Condensed Financial Statements Consolidated Balance Sheets -- September 30, 1994 and December 31, 1993 2 Consolidated Statements of Income -- Three Months and Nine Months Ended September 30, 1994 and 1993 3 Consolidated Statements of Cash Flows -- Nine Months Ended September 30, 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 MILLIPORE CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands except share data) September 30, December 31, 1994 1993 ASSETS (Unaudited) Current assets Cash $ 3,323 $ 2,140 Short-term investments 81,024 38,502 Accounts receivable, trade 139,787 113,795 Inventories Raw materials 20,908 18,782 Work in process 8,750 7,852 Finished goods 46,204 38,553 75,862 65,187 Other current assets 7,474 12,790 Receivables arising from sale of businesses 34,240 - Net current assets of discontinued operations - 138,687 Total current assets 341,710 371,101 Property, plant and equipment, net of accumulated depreciation of $174,490 in 1994 and $163,071 in 1993 198,881 194,895 Intangible assets 5,318 2,769 Other assets 63,278 52,141 Net long-term assets of discontinued operations - 99,647 Total assets $609,187 $720,553 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Notes payable and current portion of long-term debt $ 23,261 $65,560 Accounts payable and accrued expenses 66,271 57,505 Accrued divestiture costs 40,000 - Dividends payable 3,705 3,921 Accrued retirement plan contributions 4,818 6,356 Accrued and deferred income taxes payable 11,532 4,894 Total current liabilities 149,587 138,236 Long-term debt 100,295 102,047 Other liabilities 19,166 19,116 Accrued divestiture costs 29,000 - Shareholders' equity Common stock 28,494 28,344 Additional paid-in capital 23,603 16,803 Retained earnings 467,204 434,988 Translation adjustments 8,778 (7,624) 528,079 472,511 Less:Treasury stock, at cost, 3,791 shares in 1994 and 341 in 1993 (216,940) (11,357) Total shareholders' equity 311,139 461,154 Total liabilities and shareholders' equity $609,187 $720,553 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 Nine Months Ended September 30, September 30, 1994 1993 1994 1993 Net sales $123,551 $ 111,854 $367,200 $331,656 Cost of sales 53,114 49,587 157,289 143,998 Gross profit 70,437 62,267 209,911 187,658 Selling, general & administrative expenses 40,181 36,424 117,746 109,925 Research & development expenses 8,367 8,652 25,371 26,249 Operating income 21,889 17,191 66,794 51,484 Interest income 1,976 1,047 3,254 3,184 Interest expense (1,714) (3,015) (5,489) (9,452) Income from continuing operations before income taxes 22,151 15,223 64,559 45,216 Provision for income taxes 4,984 3,425 14,526 10,173 Income from continuing operations 17,167 11,798 50,033 35,043 Discontinued operations Loss from discontinued operations - (1,189) - (10,851) Net gain on disposal of discontinued operations 5,000 - 5,000 - Net income $22,167 $10,609 $55,033 $24,192 Net income per common share From continuing operations$ 0.61 $ 0.42 $ 1.77 $ 1.25 Net income $ 0.79 $ 0.38 $ 1.95 $ 0.87 Cash dividends declared per common share $ 0.15 $ 0.14 $ 0.44 $ 0.41 Weighted average common shares 28,155 27,921 28,250 27,950 The accompanying notes are an integral part of the consolidated condensed financial statements. MILLIPORE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Nine Months Ended September 30, 1994 1993 Cash Flows From Operating Activities: Net income $ 55,033 $ 24,192 Adjustments to reconcile net income to net cash provided: Net loss from discontinued operations - 10,851 Net gain on disposal of discontinued operations (5,000) - Depreciation and amortization 20,781 17,827 Deferred income tax provision (1,000) 3,000 Change in operating assets and liabilities: (Increase) in accounts receivable (14,495) (9,871) (Increase) decrease in inventories (5,591) 4,151 (Increase) in other current assets (602) (3,407) (Increase) in other assets (11,103) (1,915) Increase in accounts payable and accrued expenses 4,706 2,805 (Decrease) in accrued retirement plan contributions (1,437) (846) Increase in accrued income taxes 5,153 58 Income tax refund received 14,035 - Other (3,262) (2,301) Net cash provided by continuing operations 57,218 44,544 Net cash provided by discontinued operations - 2,053 Net cash provided by operating activities 57,218 46,597 Cash Flows From Investing Activities: Net proceeds from sales of businesses 281,138 - Additions to property, plant and (14,436) (18,696) equipment, net Net cash provided by (used in) investing activities 266,702 (18,696) Cash Flows From Financing Activities: Treasury stock acquired (245,828) (3,034) Issuance of treasury stock under stock plans 28,915 1,426 Cash paid to extinguish long-term debt (5,088) - Common stock issued 7,350 - Cash paid to close out foreign currency swap (10,287) - Net change in short-term debt (44,628) (38,119) Net change in long-term debt (1,752) (229) Dividends Paid (12,097) (11,194) Net cash used for financing activities (283,415) (51,150) Effect of foreign exchange rates on cash and short-term investments 3,200 (1,485) Net increase (decrease) in cash and short-term investments 43,705 (24,734) Cash and short-term investments on January 1 40,642 70,451 Cash and short-term investments on September 30 $ 84,347 $ 45,717 Interest Paid $ 10,255 $ 10,479 Taxes Paid $ 20,952 $ 11,455 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 Director's approved a plan to divest operations of the Company's Instrumentation Divisions, which served primarily chromatography and bioscience markets. Accordingly, the operating results of these businesses through November 11, 1993 were reclassified as discontinued operations in the Company's 1993 financial statements. On August 18, 1994, the Company sold its Waters Chromatography Division to Waters Holdings, Inc. for $330,000 in cash and $10,000 of stock. On August 23, 1994, the Company sold certain assets of its non-membrane bioscience business (Biosearch) to PerSeptive BioSystems, Inc. for $10,000 in cash and 4,000 shares of preferred stock redeemable in four equal annual installments of $10,000. Both sales were recorded in the third quarter of 1994 and resulted in a pre-tax gain of $8,333 ($5,000 or $0.18 per share net of income taxes) which included estimated costs to be incurred in connection with the divestitures as well as pre-tax operating losses of $4,189 generated by the Instrumentation Divisions from November 11, 1993 through the completion of the divestitures. The Company netted approximately $281,000 in cash proceeds in the third quarter of 1994. In accordance with each respective sales agreement, the Company retained and will collect certain customer accounts receivable balances generated from sales of Instrumentation Division products prior to the completion of the divestitures; such balances were applied against the cash proceeds specified in the sales agreements. These amounts, along with the $10,000 installment due in September 1995 from PerSeptive BioSystems, Inc. which has been recorded at its estimated fair market value, have been classified in Receivables Arising from Sales of Businesses in the accompanying consolidated balance sheets. The remaining stock related proceeds have been recorded at their estimated fair market value and are included in Other assets in the accompanying consolidated balance sheets. Accruals associated with the divestitures consist primarily of costs to be incurred in providing future general and administrative support services for the divested businesses as specified in the sales agreements, costs associated with abandoning facilities operated under long-term leases, and employee termination costs. These accruals have been separately classified in both current and long-term liabilities in the consolidated balance sheets based on management's estimates of when such liabilities will be settled. 3.On August 24, 1994, the Company initiated a Dutch Auction Self-Tender to repurchase up to 3,500 shares of common stock. The tender offer expired on September 22, 1994, at which time the Company elected to increase the number of shares to 3,771. All tendered shares were repurchased on September 29, 1994 at $57.25 per share and are classified as Treasury Stock in the accompanying consolidated balances sheets. MILLIPORE CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (in thousands) 4.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. 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 percent 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 notes bearing interest at 9.2 percent 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 accounted for 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. 6.Certain reclassifications have been made to the 1993 financial statements to conform to the 1994 presentation. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Sales for the third quarter of 1994 increased 11 percent compared to sales for the third quarter of 1993. For the first nine months of 1994, sales also increased 11 percent over the same period in 1993. For the quarter, sales were up 15 percent for products and systems used in manufacturing applications, led by sales to microelectronics customers. Sales to the laboratory/research market grew 7 percent in the quarter. By geography, sales growth in the Asia/Pacific region was 20 percent in the third quarter, with continued strong growth in Korea. Sales growth in Europe, aided in large part by a weaker dollar, grew 13 percent, while sales in the Americas region grew 2 percent in the quarter. Foreign currency fluctuations increased reported sales growth by 4 points for the quarter, and 1 point for the first nine months. Sales growth by geography is summarized as follows: Sales growth rates Sales growth rates measured in local currenciesmeasured in U.S. dollars 3 months ended9 months ended3 months ended9 months ended 9/30/94 9/30/94 9/30/94 9/30/94 Americas 2% 7% 2% 7% Europe 5% 6% 13% 6% Asia/Pacific 16% 17% 20% 22% 7% 10% 11% 11% Gross margins increased during the third quarter of 1994 to 57.0 percent as compared to 55.7 percent in the third quarter of 1993. Gross margins for the first nine months of 1994 have improved slightly over the first nine months of 1993. The percentage increase in operating expenses in the third quarter of 1994 was higher than the percentage increase in the first two quarters of 1994 as the Company continues to fund programs designed to fuel future sales growth. The Company generated approximately $1.6 million of non-recurring interest income in the third quarter of 1994 by investing the proceeds received from the sale of its Waters Chromatography Division. Excluding this non-recurring item, net interest expense for the first nine months of 1994 is lower than the comparable period in 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 on operations for 1994 is 22.5 percent, consistent with the full year effective rate in 1993. The Company generated $57.2 million of cash from the operating activities of continuing operations in the first nine months of 1994 compared to $44.5 million during the same period in 1993. In addition to the increase in net income from continuing operations of $15.0 million period over period, the Company received a tax refund of $14.0 million in 1994. These sources of cash were partially offset by an increase in accounts receivable of $14.5 million in the first nine months of 1994 compared to an increase of $9.9 million in 1993. In addition, inventories increased $5.6 million in 1994 compared to a decrease in inventories of $4.2 million in 1993. Property, plant and equipment expenditures in the first nine months of 1994 were lower than those for the comparable period in 1993. During the first nine months 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. In addition, the Company collected $281.0 million of net proceeds from the sale of its Waters Chromatography and BioScience Divisions in the third quarter of 1994. The Company spent approximately $216.0 million from the net proceeds to buy back shares of its common stock in a Dutch Auction Self-Tender. The Company intends to continue to make open market share repurchases and has allocated $100 million for this program. PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. b. Reports on Form 8-K The Company filed a report on Form 8-K which reported the following items: On August 18th, 1994, the Company finalized the sale of the net assets of its Waters Chromatography division to Waters Holdings, Inc. On August 23, 1994, the Company announced that it had completed the sale of its Biosearch division to PerSeptive BioSystems, Inc. On August 24, 1994, the Company announced that it would repurchase up to 3,500,000 shares of common stock through a Dutch auction. The following financial statements were also filed with the Form 8-K: Unaudited Pro Forma Condensed Consolidated Statement of Income of Millipore Corporation for the six months ended June 30, 1994 and the year ended December 31, 1993. Unaudited Pro Forma Condensed Consolidated Balance Sheet of Millipore Corporation as of June 30, 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 November 14, 1994 Date /S/Michael P. Carroll Vice President, Chief Financial Officer and Treasurer