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, 1995 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, 1995 0-1052 Millipore Corporation (Exact name of registrant as specified in its charter) Massachusetts (State or other jurisdiction of 04-2170233 incorporation or organization) (I.R.S. Employer Identification No.) 80 Ashby Road 01730 Bedford, Massachusetts (Zip Code) (Address of principal executive offices) 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, 1995: 44,553,557 MILLIPORE CORPORATION INDEX Page No. Part I. Financial Information: Item 1. Condensed Financial Statements Consolidated Balance Sheets -- September 30, 1995 and December 31, 1994 2 Consolidated Statements of Income -- Three Months and Nine Months Ended September 30, 1995 and 1994 3 Consolidated Statements of Cash Flows -- Nine Months Ended September 30, 1995 and 1994 4 Notes to Consolidated Condensed Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 6-7 Part II. Other Information 8 Signatures 9 MILLIPORE CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands) September 30, December 31, 1995 1994 ASSETS (Unaudited) Current assets Cash $ 1,979 $ 2,898 Short-term investments 31,341 27,338 Accounts receivable, net 146,952 136,944 Inventories Raw materials 25,507 19,895 Work in process 10,941 8,992 Finished goods 42,477 42,322 78,925 71,209 Other current assets 7,763 5,351 Receivables arising from sale of 9,579 15,064 businesses Total current assets 276,539 258,804 Property, plant and equipment, net of accumulated depreciation of $183,098 in 1995 and $165,036 in 1994 189,926 187,525 Intangible assets 4,655 5,177 Deferred income taxes 57,580 58,123 Other assets 19,230 27,351 Total assets $547,930 $536,980 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Notes payable and current portion of long-term debt $101,119 $56,289 Accounts payable 29,084 30,510 Accrued expenses 38,249 33,350 Accrued divestiture costs 7,369 16,470 Dividends payable 3,564 3,500 Accrued retirement plan 5,571 5,987 contributions Accrued and deferred income taxes 10,486 12,049 payable Total current liabilities 195,442 158,155 Long-term debt 107,392 109,558 Other liabilities 20,375 18,990 Accrued divestiture costs 15,000 29,000 Shareholders' equity Common stock 56,988 28,494 Additional paid-in capital - 23,603 Retained earnings 493,471 458,579 Translation adjustments 2,931 5,147 553,390 515,823 Less: Treasury stock, at cost, 12,435 shares in 1995 and 5,361 in 1994 (343,669) (294,546) Total shareholders' equity 209,721 221,277 Total liabilities and shareholders' equity $547,930 $536,980 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 Nine Months Ended September 30, September 30, 1995 1994 1995 1994 Net sales $ 147,547 $ 123,551 $ 439,482 $ 367,200 Cost of sales 61,293 53,114 180,581 157,289 Gross profit 86,254 70,437 258,901 209,911 Selling, general & 48,842 40,181 144,247 117,746 administrative expenses Research & development 9,352 8,367 27,020 25,371 expenses Operating income 28,060 21,889 87,634 66,794 Interest income 427 1,976 1,150 3,254 Interest expense (2,616) (1,714) (7,785) (5,489) Income from continuing operations 25,871 22,151 80,999 64,559 before income taxes Provision for income taxes 5,821 4,984 18,225 14,526 Income from continuing 20,050 17,167 62,774 50,033 operations Loss on sale of discontinued - (3,400) - (3,400) operations Net income $20,050 13,767 62,774 46,633 Per share information From continuing operations$ 0.45 $ 0.30 $1.39 $ 0.89 Net income $ 0.45 $ 0.24 $1.39 $ 0.83 Cash dividends declared per common share $ 0.08 $ 0.075 $0.235 $ 0.22 Weighted average common 44,642 56,310 45,200 56,500 shares The accompanying notes are an integral part of the consolidated condensed financial statements. -3- MILLIPORE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Nine Months Ended September 30, 1995 1994 Cash Flows From Operating Activities: Net income $62,774 $46,633 Adjustments to reconcile net income to net cash provided: Net loss from discontinued operations - 3,400 Depreciation and amortization 19,975 20,781 Deferred income tax provision 543 (1,000) Change in operating assets and liabilities: (Increase) in accounts receivable (8,101) (14,495) (Increase) in inventories (6,024) (5,591) (Increase) in other current assets (2,058) (602) (Increase) decrease in other assets (7,123) (11,103) Increase in accounts payable and accrued 2,247 4,706 expenses (Decrease) in accrued retirement plan (490) (1,437) contributions Increase in accrued income taxes 1,364 5,153 Income tax refund received - 14,035 Other (4,390) (3,262) Net cash provided by operating activities 58,717 57,218 Cash Flows From Investing Activities: Net proceeds from sales of businesses - 281,138 Net cash (used by) discontinued operations (6,210) - Additions to property, plant, and equipment (20,262) (14,436) Net cash provided by (used in) investing (26,472) 266,702 activities Cash Flows From Financing Activities: Treasury stock acquired (76,350) (245,828) Issuance of treasury stock under stock 14,764 28,915 plans Cash paid to extinguish long-term debt - (5,088) Common stock issued - 7,350 Cash paid to close out foreign currency (3,546) (10,287) swap Net change in short-term debt 45,878 (44,628) Repayment of long-term debt (47) (1,752) Dividends Paid (10,553) (12,097) Net cash used for financing activities (29,854) (283,415) Effect of foreign exchange rates on cash 693 3,200 and short-term investments Net increase in cash and short-term 3,084 43,705 investments Cash and short-term investments on January 1 30,236 40,642 Cash and short-term investments on September 30 $33,320 $84,347 Interest Paid $10,019 $10,255 Taxes Paid $22,016 $20,952 The accompanying notes are an integral part of the consolidated condensed financial statements. -4- 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, 1994. The accompanying unaudited consolidated condensed financial statements are not necessarily indicative of future trends or the Company's operations for the entire year. 2.On June 8, 1995, the Company's Board of Directors authorized a two-for-one stock split in the form of a 100% stock dividend, payable on July 21, 1995 to shareholders of record as of June 23, 1995. Par value per share remained at $1.00. The stock split resulted in the issuance of 28,494 additional shares of common stock from authorized but unissued shares. The issuance of additional shares resulted in the transfer of $23,603 from additional paid in capital and $4,891 from retained earnings to common stock, representing the par value of the shares issued. Accordingly, weighted average share and per share amounts have been restated to reflect the stock split. 3.As discussed in footnote F to the December 31, 1994 annual report, the cumulative unrealized loss on the Company's foreign currency Yen and DM swaps of $9,327 at December 31, 1994 was recorded as a reduction in other assets in the Company's December 31, 1994 consolidated balance sheet. The Company's DM swap expired on March 31, 1995. The Company paid $3,546 in cash to close out the swap. The cash payment represented the cumulative effect of the foreign currency rate fluctuations over the life of the swap. The cumulative unrealized loss on the Company's Yen currency swap of $7,199 at September 30, 1995 is recorded in long-term debt in the Company's unaudited June 30, 1995 consolidated balance sheet. Accordingly, the cumulative unrealized loss of $9,327 at December 31, 1994, as discussed above, has been reclassified to long-term debt in the December 31, 1994 consolidated balance sheet to conform to the 1995 presentation. 4.Depreciation on property, plant and equipment 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. The estimated useful lives of the Company's depreciable assets are as follows: Leasehold Improvements Life of the Lease Buildings and Improvements 10-30 Years Production and Other Equipment 3-15 Years 5.The Company and Waters Holdings, Inc. are engaged in an arbitration proceeding with respect the transfer of certain assets relating to the Company's Retirement Plan. The Company believes that it has meritorious arguments and should prevail. The ultimate disposition is not expected to have a material adverse effect on the Company's financial condition. 6.In August, 1995, the Company received 912 shares of PerSeptive Biosystems' common stock in partial redemption of the PerSeptive preferred stock it received in connection with the Company's sale of its non-membrane bioscience business to PerSeptive in 1994. These shares have been recorded at historical cost, which management believes approximates fair value. Any realized gain on the sale of these shares will be recognized when the shares are sold. -5- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Consolidated net sales increased 19 percent in the third quarter of 1995 compared to the third quarter of 1994, led by a 37 percent increase in worldwide sales to customers in the electronics / industrial market. Sales to biotechnology / pharmaceutical customers increased 15 percent in the third quarter of 1995 compared to the third quarter of 1994. The following table summarizes sales growth by geography and market: Sales growth rates Sales growth rates measured in local currencies measured in U.S. dollars Three months Nine months Three months Nine months ended ended ended ended 9/30/95 9/30/95 9/30/95 9/30/95 Americas 20% 15% 18% 13% Europe 15% 9% 22% 19% Asia/Pacific 13% 15% 19% 28% Consolidated 16% 13% 19% 20% Electronics/Industrial 32% 35% 37% 44% Pharmaceutical/Biotechnology 12% 7% 15% 12% University/Government 7% 1% 10% 8% Medical/Health Care (15%) (14%) (13%) (8%) Consolidated 16% 13% 19% 20% Foreign currency rate fluctuations, specifically the strengthening of the Japanese Yen, French Franc, and German Deutsch Mark against the U.S. dollar, increased reported sales growth by 3 percent in the third quarter of 1995 and 7 percent for the first nine months of 1995. Gross margins increased in the third quarter of 1995 to 58.5 percent of sales as compared to 57.0 percent in the third quarter of 1994. The improvement in gross margins is primarily due to significantly increased production volume in the Company's electronics / industrial plants. Selling, general and administrative expenses increased 22 percent in the third quarter of 1995 compared to the third quarter of 1994, reflecting investment in the field sales and marketing areas in order to sustain continued sales growth. Research and development expenses in the third quarter of 1995 increased 12 percent over the third quarter of 1994, as the Company continued to fund all major programs. Net interest expense in the third quarter of 1994 includes approximately $1.6 million of non-recurring interest income generated by investing the proceeds received from the Company's sale of its Waters Chromatography Division. Excluding this non- recurring item, net interest expense in the third quarter and the first nine months of 1995 is higher compared to 1994 primarily due to increased short- term borrowings. The Company's effective income tax rate for the first nine months of 1995 is 22.5 percent, consistent with the full year effective rate in 1994. -6- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) A substantial portion of the Company's business is conducted outside of the United States through its foreign subsidiaries. This exposes the Company to risks associated with foreign currency rate fluctuations which can impact the Company's revenue and net income. To partially mitigate this risk, the Company has entered into foreign currency transactions, primarily forward exchange contracts to sell Yen, on a continuing basis in amounts and timing consistent with the underlying currency exposure so that the gains or losses on these transactions offset gains or losses on the underlying exposure. In the third quarter of 1995, a loss of $1,033K was realized on the Company's forward exchange contracts and was recorded in cost of sales. For the nine months ended September 30, 1995, losses of $2,307 have been realized on the Company's forward exchange contracts and recorded in cost of sales. The Company does not engage in any speculative trading activity. The Company generated $58.7 million of cash from continuing operations in the first nine months of 1995 compared to $57.2 million in the first nine months of 1994. Cash generated from operations and $45.9 million of additional short-term borrowings in the first nine months of 1995 was used to invest in fixed assets, satisfy ongoing obligations relating to the divested businesses, pay dividends, and buy back shares of the Company's stock. Property, plant and equipment expenditures in the first nine months of 1995 were higher than the same period of 1994. The Company expects capital expenditures in the fourth quarter 0f 1995 to be higher than those of the the third quarter. During the first nine months of 1995, the Company spent $76.4 million to re- purchase shares of its common stock. In the first quarter of 1995, the Company announced plans to spend an additional $50 million on open market share repurchases and has spent $30 million in share repurchases to date. The Company expects that further 1995 share repurchases will be funded by cash generated from its operations. The Company spent approximately $2.0 million in the third quarter to satisfy obligations arising from discontinued operations. This amount was in line with the Company's expectations. The Company expects cash expenditures related to its discontinued operations for the fourth quarter of 1995 to be in line with those of the third quarter. -7- PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. b. Reports on Form 8-K - There were no reports on Form 8-K filed for the quarter ended September 30, 1995. -8- 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, 1995 /s/Michael P. Carroll Date Michael P. Carroll Vice President, Chief Financial Officer and Treasurer -9-