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 served primarily the chromatography and bioscience markets. Those divisions, which represented separate product lines with separate customers, have been accounted for as discontinued operations. The Company sold those divisions in the third quarter of 1994 and realized a net loss upon their disposition. The consolidated statement of income in 1993 included the results of discontinued operations through November 11, 1993. The following discussion on results of operations applies to continuing operations. Results of Operations Consolidated Net Sales increased 20 percent in 1995 to $594 million. Sales growth rates by geography and market, measured in local currencies and U.S. dollars, are summarized in the table below: Sales growth Sales growth rates rates measured in measured in local currencies U.S. dollars 1995 1994 1993 1995 1994 1993 Americas 15% 8% 6% 13% 8% 6% Europe 10% 6% 4% 20% 7% (7%) Asia/Pacific 18% 16% 10% 27% 21% 18% Consolidated 15% 10% 6% 20% 12% 4% Microelectronics Mfg 43% 33% 10% 50% 39% 16% BioPharmaceutical Mfg 9% 4% 11% 14% 6% 8% Analytical Laboratory 3% 4% 3% 8% 6% 0% Consolidated 15% 10% 6% 20% 12% 4% Sales to the microelectronics manufacturing market grew at higher rates than the Company's other markets in every geography in 1995 and 1994. Sales to microelectronics manufacturing customers in 1995 accounted for 29 percent of consolidated sales. The Company's growth rates in this market in 1995 and 1994 were similar to growth rates achieved by the semiconductor industry in general and reflect the significant worldwide expansion of the microelectronics manufacturing industry over the past few years. Sales to the biopharmaceutical manufacturing market grew faster in 1995 compared to 1994, with stronger sales to pharmaceutical customers in Europe and beverage manufacturing customers in Japan. Sales to the biopharmaceutical market in the Americas continued to grow more slowly in 1995 than in the other geographies, reflecting continued cautious spending by pharmaceutical customers. Sales to biopharmaceutical customers in 1995 accounted for 29 percent of consolidated sales. Sales to the analytical laboratory market continued to grow at lower rates than the Company's other markets in 1995. Within this market, sales of the Company's laboratory water products grew across all geographies, with the strongest growth in the Americas and Europe. Sales to analytical laboratory customers in 1995 accounted for 42 percent of consolidated sales. The effect of foreign exchange rates on sales, specifically the strengthening of the Japanese yen and french franc against the U.S. dollar, increased reported sales growth by 5 percent in 1995, compared to a 2 percent increase in 1994 and a 2 percent decrease in 1993. Approximately 66 percent, 64 percent and 62 percent of the Company's revenues in 1995, 1994 and 1993 respectively, were generated in foreign currencies. The significant volume of business transacted in foreign currencies exposes the Company to risks associated with currency rate fluctuations which impact the Company's revenue and net income. To partially mitigate this risk, the Company has entered into foreign currency transactions, primarily forward 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. Though a weaker dollar will benefit, and a strong dollar will adversely affect future reported sales growth, the Company is unable to predict future currency fluctuations and to quantify their effect on net income. Price changes and inflation have not significantly affected the comparability of sales during the past three years. Gross Margins were 59.0 percent in 1995, 57.2 percent in 1994, and 56.5 percent in 1993. The improvement in gross margins in 1995 compared to 1994 and 1994 compared to 1993 resulted from significantly increased production volume in the Company's microelectronics manufacturing plants as well as continued cost reduction activities in all of the Company's manufacturing operations. Selling, General and Administrative (S, G & A) Expenses, excluding the effects of foreign exchange, grew 17 percent in 1995, 8 percent in 1994 and 6 percent in 1993. The Company continued to invest in sales and marketing programs, particularly within the microelectronics manufacturing and analytical laboratory markets, to support future sales growth. G & A expenses grew at a significantly lower rate than selling expenses in 1995. Research and Development Expenses increased by 6 percent in 1995 compared to 1994, principally due to investments in the development of new and enhanced products in the microelectronics manufacturing markets. The percentage increase in R & D spending in 1995 was lower than the percentage increase in S, G & A as the Company directed substantial resources into sales and marketing initiatives designed to further enhance sales growth. The Company continued to fund all major programs in 1995. Other Expense in 1994 reflects a non-recurring charge of $10.8 million to settle litigation which arose from the Company's sale of its Process Water Division in 1989. The litigation was settled in the fourth quarter of 1994. Net Interest Expense in 1995 was significantly higher than in 1994 primarily due to the fact that net interest expense in 1994 benefited from the substantial net proceeds received from the divested businesses. In addition, the Company increased short- term borrowings by $25 million in 1995 to partially fund the Company's stock repurchase program. Short-term interest rates in 1995 were slightly higher than in 1994. The Provision for Income Taxes was 22.5 percent of pre-tax income in 1995, the same effective rate as in 1994 and 1993. The Company continues to benefit from low tax rates in Puerto Rico and Ireland and tax incentives attributable to its U.S. export operations. The Net Loss on Disposal of Discontinued Operations reflects the after-tax loss of disposing of the Company's Instrumentation Divisions, the sale of which was concluded in the third quarter of 1994. Extraordinary Loss on Early Extinguishment of Debt reflects the after-tax cost recorded by the Company in 1993 to pre-pay its $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 in 1994 and 1993 include certain non-recurring charges. Earnings per share from continuing operations adjusted for these charges are summarized as follows: 1995 1994 1993 Earnings from continuing operations after $1.90 $1.09 $0.81 charges Charges - 0.15 0.07 Earnings from continuing operations before $1.90 $1.24 $0.88 charges The charge in 1994 resulted from the settlement of litigation relating to the Company's sale of the Process Water Division in 1989. The charge in 1993 resulted from the early extinguishment of the Company's long-term debt. Legal Proceedings Significant amounts have been paid in prior years in connection with environmental claims against all participants at hazardous waste ("Superfund") sites in which the Company was named a potentially responsible party by the Environmental Protection Agency. Prior to 1995, the Company had paid $14 million to settle claims at such sites. Due to the fact that Superfund sites at which the Company was named a potentially responsible party are in the late stages of remedy and a significant portion of the remedy cost has already been funded, the Company believes that its probable future financial obligation at December 31, 1995 will not materially impact its future operating results and liquidity. Amounts paid by the Company in 1995 with respect to the Superfund obligations were insignificant. Capital Resources and Liquidity In 1995, the Company generated $99 million of cash from operating activities, compared to $89 million in 1994 and $74 million in 1993. Net cash provided by operating activities continues to be the Company's primary source of funding capital expenditures and dividends. The increase in net cash from operating activities in 1995 compared to 1994 was primarily due to increased net income and improved working capital management, as both accounts receivable and inventories grew at significantly lower rates than sales. In addition, net cash flow from operating activities in 1994 benefited from a $14 million income tax refund. Capital expenditures were higher in 1995 compared to 1994, primarily due to increased tooling requirements in the Company's manufacturing facilities and continued investment in information technology systems. The Company expects capital expenditures and depreciation expense in 1996 to be higher than capital spending and depreciation expense in 1995. At December 31, 1995, the Company had no significant commitments for capital expenditures. In 1995, the Company paid $3.5 million to close out the Company's German deutsche mark swap. In 1994, the Company paid a total of $15.4 million in 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 1995 and 1994, the Company used the $258 million of net proceeds from the sale of its Waters Chromatography and Bioscience divisions, along with cash generated from its continuing business, to purchases shares of its outstanding common stock. The Company spent $293 million, net of stock option exercise amounts, to repurchase 6.1 million shares of its common stock in 1994, primarily pursuant to a Dutch Auction Self Tender completed in the third quarter and an ongoing open market share repurchase program. The Company originally allocated $100.0 million for the open market share repurchase program and spent $78 million in the fourth quarter of 1994. In early 1995, the Company announced plans to spend an additional $50 million on open market share repurchases. The Company spent $64 million on open market repurchases in 1995. The net cash outflow of $7 million to settle discontinued operations activities in 1995 was in line with the Company's expectations. Spending of $27 million to settle costs associated with the divestitures was offset by proceeds of $20 million related to the divestitures. Included in the proceeds was a $10 million income tax refund applicable to discontinued operations which caused the Company's other assets to decrease in 1995 as compared to 1994. The Company believes that the net cash it will spend with respect to the divestitures in 1996 will approximate the $7 million spent in 1995. The Company has $23.8 million of cash and short-term investments on hand at the end of 1995, which along with the Company's strong financial position, provides a high degree of flexibility in financing future requirements. Dividends The quarterly dividend was increased in the second quarter of 1995 from $0.075 to $0.08 per share. Dividends paid in 1995 were $14.1 million. Business Outlook and Uncertainties The following statements are based on current expectations. These statements are forward looking and actual results may differ materially. Sales - As previously noted, 1995 sales to the microelectronics manufacturing market accounted for 29 percent of 1995 consolidated sales and represented the fastest growing market in which the Company participates. Sales growth into this market in the past has been volatile, due to general cyclicality historically exhibited by this market. This industry's predictions for sales growth in 1996 are 15 to 20 percent lower than the growth experienced in 1995 by the Company. As this market has become a more significant component of the Company's consolidated sales, the effects of future industry volatility could significantly impact the Company's consolidated sales growth. A large percentage of the Company's sales are transacted in foreign currencies. Late in 1995, the U.S. dollar began to strengthen against the Japanese yen and French franc. If foreign exchange rates remain at March 1, 1996 levels, the effect of foreign exchange will reduce first quarter 1996 and full-year 1996 reported sales growth by 4 percent compared to 1995. Any change in foreign exchange rates will be reflected in the results of operations. Gross Margins - The Company expects gross margin percentages to improve slightly in 1996 compared to 1995 due to increased volume in the Company's manufacturing plants in support of expected sales growth. Lower than expected sales growth will negatively impact the Company's ability to improve gross margins. The Company anticipates no significant changes in pricing products. Operating Expenses - Operating expenses in total in 1996 are expected to increase at a rate consistent or slightly lower than sales growth. However, the Company expects the rate of growth in S, G & A expenses to be lower in 1996 compared to 1995. Conversely, the Company expects the rate of growth in R & D expenses to be higher in 1996 compared to 1995. Interest Expense - The Company expects net interest expense in 1996 will approximate net interest expense in 1995, assuming no significant change in prevailing interest rates and no additional borrowings. The Company anticipates that 1996 borrowings will fluctuate on a quarterly basis but anticipates no significant increase in borrowings on a full-year basis. Provision for Income Taxes - The effective tax rate in 1996 is projected to be 23.5 percent, up from 22.5 percent in 1995. The tax rate estimate is based on current tax law and is subject to change. Capital Spending - The Company expects to spend more on fixed asset additions in 1996 compared to 1995. The Company does not believe it needs to significantly expand or add manufacturing capacity in 1996 to handle its anticipated 1996 sales growth. However, the Company will invest in tooling within its manufacturing plants as required. The Company will continue to evaluate the adequacy of its worldwide sales and administration offices in response to sales growth and may invest in additional facilities as required. The Company also expects that 1996 depreciation expense will be higher than 1995 depreciation expense. Working Capital Management - Consistent with 1995, the Company expects to continue to leverage its assets as accounts receivable, inventories, and net property, plant and equipment are expected to grow at a rate lower than sales growth. In addition, the Company anticipates that its current tax strategies will result in a decrease in deferred income tax assets in 1996, although the exact decrease is not known at this time. Stock Repurchases -In early 1996, the Company announced plans to spend an additional $50 million on open market share repurchases. The funds required for additional share repurchases are expected to be generated by the Company's ongoing operations. All the above forward-looking statements involve a number of risks and uncertainties, the principal one as set forth is the continued strong momentum worldwide of the microelectronics manufacturing market. This, of course, is equally true of the worldwide economy in general. Other specific factors that could cause actual results to differ materially are: changes in foreign exchange rates; increased regulatory concerns on the part of the biopharmaceutical industry; further consolidation of drug manufacturers; competitive factors such as new membrane technology, and/or a new method of chip manufacture which relies less heavily on purified chemicals and gases; availability of component products on a timely basis; inventory risks due to shift in market demand; change in product mix; and the risk factors listed from time to time in the Company's SEC reports including but not limited to the Company's Prospectus dated May 3, 1995 contained in its S-4 Filing #33-58117. Consolidated Statements of Income Millipore Corporation Year ended December 31 (In thousands except per share data) 1995 1994 1993 Net sales $594,466 $497,252 $445,366 Cost of sales 243,849 212,675 193,575 Gross profit 350,617 284,577 251,791 Selling, general and 195,026 159,591 145,647 administrative expenses Research and development expenses 36,515 34,327 34,952 Operating income 119,076 90,659 71,192 Other expense - (10,800) - Interest income 1,682 4,091 4,069 Interest expense (10,623) (7,035) (12,038) Income from continuing operations before income taxes 110,135 76,915 63,223 Provision for income taxes 24,781 17,306 14,225 Income from continuing operations before extraordinary item 85,354 59,609 48,998 Loss from discontinued operations - - (10,851) Net loss on disposal of - (3,400) - discontinued operations Income before extraordinary item 85,354 56,209 38,147 Extraordinary item - loss on early extinguishment of debt - - (3,544) Net income $85,354 $56,209 $34,603 Income per share Income from continuing operations $1.90 $1.09 $0.88 Net income per common share $1.90 $1.03 $0.62 Weighted average common 44,985 54,726 55,902 shares outstanding The accompanying notes are an integral part of the consolidated financial statements. Consolidated Balance Sheets Millipore Corporation December 31 (In thousands) 1995 1994 Assets Current assets: Cash $2,696 $2,898 Short-term investments 21,062 27,338 Accounts receivable (less allowance for doubtful accounts of $2,054 in 1995 and $4,968 in 1994) 147,759 136,944 Inventories 80,386 71,209 Other current assets 5,260 5,351 Receivables arising from sale of 4,596 15,064 businesses Total current assets 261,759 258,804 Property, plant and equipment, net 191,250 187,525 Intangible assets (less accumulated amortization of $2,506 in 1995 and $1,597 7,219 5,177 in 1994) Deferred income taxes 53,179 58,123 Other assets 17,538 27,351 Total assets $530,945 $536,980 Liabilities and Shareholders' Equity Current liabilities: Notes payable $ 80,768 $ 56,116 Accounts payable 33,436 30,510 Accrued expenses 32,366 33,523 Accrued divestiture costs 6,543 16,470 Dividends payable 3,537 3,500 Accrued retirement plan contributions 6,588 5,987 Accrued and deferred income taxes 9,926 12,049 payable Total current liabilities 173,164 158,155 Long-term debt 105,272 109,327 Other liabilities 21,034 19,221 Accrued divestiture costs 5,000 29,000 Commitments and contingent liabilities - - Shareholders' equity: Common stock, par value $1.00 per share, 80,000 shares authorized; 56,988 and 28,494 shares issued as of December 31, 56,988 28,494 1995 and 1994, respectively Additional paid-in capital - 23,603 Retained earnings 523,633 458,579 Translation adjustments 375 5,147 580,996 515,823 Less: Treasury stock at cost, 12,727 and 5,361 shares as of December 31, 1995 and 1994, respectively (354,521) (294,546) Total shareholders' equity 226,475 221,277 Total liabilities and shareholders' equity $530,945 536,980 The accompanying notes are an integral part of the consolidated financial statements. Consolidated Statements of Shareholders' Equity Millipore Corporation Year ended December 31, 1993, 1994 and 1995 (In thousands except per share data) Additional Total Common Stock Paid-in Retained Translation Treasury Stock Shareholders' Shares Par Value Capital Earnings Adjustments Shares Cost Equity Balance January 1, 1993 28,344 $28,344 $16,524 $416,563 $4,028 (370) $(12,624) $452,835 Net income 34,603 34,603 Cash dividends declared, (15,396) (15,396) $0.275 per share Treasury stock acquired (112) (3,427) (3,427) Stock options exercised (899) 104 3,468 2,569 Employees' stock purchase (32) 10 353 321 plan proceeds Incentive plan awards 161 22 721 882 Stock awards (12) 5 152 140 U.S. tax benefit from 279 279 stock plan activity Translation adjustments (11,652) (11,652) Balance at December 31, 28,344 $28,344 $16,803 $434,988 $(7,624) (341) $(11,357) $461,154 1993 Net income 56,209 56,209 Cash dividends declared, (15,381) (15,381) $0.295 per share Treasury stock acquired (400) (6,148) (334,702) (335,102) Stock options exercised 101 101 4,848 (15,479) 1,072 48,898 38,368 Employees' stock purchase 49 49 2,352 (1,712) 47 2,120 2,809 plan proceeds Incentive plan awards (54) 8 431 377 Stock awards 8 1 64 72 Translation adjustments 12,771 12,771 Balance at December 31, 28,494 $28,494 $23,603 $458,579 $5,147 (5,361) $(294,546) $221,277 1994 Net income 85,354 85,354 Effect of two-for-one 28,494 28,494 (23,603) (4,891) (5,361) - stock split Cash dividends declared, (14,071) (14,071) $0.315 per share Treasury stock acquired (2,962) (90,113) (90,113) Stock options exercised (1,553) 895 28,366 26,813 Employees' stock purchase (4) 33 905 901 plan proceeds Savings and Participation 86 14 456 542 Plan proceeds Incentive plan awards 124 13 354 478 Stock awards 9 2 57 66 Translation adjustments (4,772) (4,772) Balance at December 31, 56,988 $56,988 $0 $523,633 $375 (12,727) $(354,521) $226,475 1995 The accompanying notes are an integral part of the consolidated financial statements. Consolidated Statements of Cash Flows Millipore Corporation Year ended December 31 (In thousands) 1995 1994 1993 Cash Flows from Operating Activities: Net income $85,354 $56,209 $34,603 Adjustments to reconcile net income to net cash provided by operating activities Net loss from discontinued operations - - 10,851 Net loss on disposal of - 3,400 - discontinued operations Depreciation and amortization 27,478 27,604 23,775 Deferred income tax provision 1,372 (2,227) (1,745) Extraordinary item-loss - - 3,544 on extinguishment of debt Change in operating assets and liabilities: (Increase) in accounts (10,548) (14,672) (5,440) receivable (Increase) decrease in (7,218) (1,894) 6,398 inventories Decrease in other current assets 409 1,427 763 (Increase) in other assets (8,209) (695) (1,181) Increase in accounts payable and accrued expense 5,931 2,876 3,740 Increase (decrease) in accrued retirement plan contributions 543 (269) (104) Increase (decrease) in accrued 6,475 6,123 (1,002) income taxes Income tax refund received - 14,035 - Other (2,438) (3,334) 53 Net cash provided by 99,149 88,583 74,255 operating activities Cash Flows from Investing Activities: Net proceeds from sales of businesses - 257,899 - Additions to property, plant and (30,010) (21,009) (24,469) equipment, net Additions to intangible assets (2,135) (2,718) (800) Net cash used by discontinued businesses (6,967) - (649) Net cash provided by (used in) (39,112) 234,172 (25,918) investing activities Cash Flows from Financing Activities: Treasury stock acquired (90,113) (334,702) (3,427) Issuance of treasury stock under 16,937 33,876 3,912 stock plans Cash paid to extinguish long-term debt - (5,088) - Common stock issued - 7,350 - Cash paid to close out foreign (3,546) (10,287) - currency swap Net change in short-term debt 25,795 (9,539) (59,887) Net change in long-term debt - (1,820) (1,222) Dividends paid (14,117) (15,802) (15,108) Net cash used for financing activities (65,044) (336,012) (75,732) Effect of foreign exchange rates on cash and short-term investments (1,471) 2,851 (2,414) Net decrease in cash and short-term (6,478) (10,406) (29,809) investments Cash and short-term investments on 30,236 40,642 70,451 January 1 Cash and short-term investments on $23,758 $30,236 $40,642 December 31 The accompanying notes are an integral part of the consolidated financial statements. Notes to Consolidated Financial Statements (In thousands except share and 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 all of the Company's foreign subsidiaries except Brazil, 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. The aggregate transaction gains and losses included in the consolidated statements of income are not material. 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. Short-term Investments Short-term investments consisting primarily of certificates of deposit, are classified as available for sale and are carried at cost plus accrued interest, which approximates market value. All short-term investments have original maturities of three months or less and are considered cash equivalents for purposes of the consolidated statements of cash flows. Inventories The Company values all of its inventories manufactured in the United States at the lower of cost or market, principally on a last-in, first-out (LIFO) basis. Inventories manufactured outside of the United States 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. 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 Intangible Assets Intangible assets consist primarily of goodwill and licenses and are recorded at cost. Intangible assets are amortized on a straight line basis over periods ranging from 7 to 20 years. Income Taxes Deferred tax assets and liabilities reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial statement purposes and the amounts used for income tax purposes. With respect to the unremitted earnings of the Company's foreign and Puerto Rican subsidiaries, deferred taxes are only provided on amounts expected to be repatriated. Stock Options Stock options are accounted for in accordance with APB 25, "Accounting for Stock Issued to Employees." Accordingly, no compensation cost has been recorded in connection with stock option grants under the Company's fixed stock option plans. During 1995, the Financial Accounting Standards Board issued SFAS 123, "Accounting for Stock-Based Compensation." SFAS 123 defines a fair-value method of accounting for employee stock option or similar equity instruments and encourages companies to adopt that method of accounting beginning in 1996. However, SFAS 123 also allows companies to continue to use the intrinsic value method of accounting prescribed by APB Opinion 25. The Company expects to continue to account for stock options in accordance with APB 25, but beginning in 1996 will also make pro-forma disclosures of net income and earnings per share as if the fair-value-based method of accounting defined in SFAS 123 had been applied. 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 cost over the proceeds of reissued treasury stock 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. Revenue Recognition Sales of products and services are recorded at the time of product shipment or performance of services. Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications Certain reclassifications have been made to prior years' financial statements to conform with the 1995 presentation. Note B - Stock Split 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 28,494,000 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, all weighted average share and per share amounts, as well as stock plan data, have been restated to reflect the stock split. For purposes of presentation in the Consolidated Statements of Shareholders' Equity, the stock split has been accounted for as if it occurred on January 1, 1995. Note C - 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 served primarily chromatography and bioscience markets. Accordingly, the operating results of these businesses through November 11, 1993 were reclassified as discontinued operations in the accompanying consolidated financial statements. The operating results of these businesses after November 11, 1993 were deferred until the divestitures were completed. The results of the discontinued operations included in the accompanying statements of income are summarized as follows: January 1, 1993 through November 11, 1993 Net sales $279,303 Pre-tax loss $(14,001) Credit for income taxes (3,150) Net loss $(10,851) Loss per share $ (0.19) In 1993, the Company recorded a restructuring charge of $13,000 to cover costs associated with reorganizing and restructuring the Company's chromatography division into more market-focused customer-oriented business units. On August 18, 1994, the Company sold its Waters Chromatography Division to Waters Holdings, Inc. for $330,000 in cash and $10,000 in stock. On August 23, 1994, the Company sold certain assets of its non-membrane bioscience business to PerSeptive Biosystems, Inc. for $10,000 in cash and four thousand shares of preferred stock redeemable in four equal annual installments of $10,000 each. The stock proceeds received from each sale have been recorded at their estimated fair value at the date of receipt. Both sales were recorded in the third quarter of 1994 and resulted in a combined pre-tax loss of $5,667 ($3,400 or $0.06 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. In August, 1995, the Company received 912,000 shares of PerSeptive Biosystems' common stock in connection with PerSeptive's preferred stock redemption requirement. These shares have been recorded at historical cost. Any realized gain on the sale of these shares will be recognized when the shares are sold. 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 costs. During 1995, the Company charged $14,000 of employee costs, $4,700 of facilities costs, $6,200 of contract support services and $9,000 of other costs against divestiture accruals. The Company periodically assesses the adequacy of the divestiture accruals, and the remaining accrual balances at December 31, 1995 are expected to be sufficient to satisfy the Company's future obligations with respect to discontinued operations. 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. In accordance with each respective sales agreement, the Company retained and is collecting certain customer accounts receivable balances generated from sales of Instrumentation Division products prior to and subsequent to the completion of the divestitures. These amounts have been classified in Receivables arising from sales of businesses in the accompanying consolidated balance sheets. Note D - Inventories Inventories at December 31 consisted of the following: 1995 1994 Raw materials $ 21,357 $ 19,895 Work in process 9,621 8,992 Finished goods 49,408 42,322 $ 80,386 $ 71,209 The value of inventories determined using the LIFO cost method was $43,101 or 54 percent of the total at December 31, 1995 and $45,473 or 64 percent of the total at December 31, 1994. If these inventories had been valued using the FIFO cost method, they would have been $45,608 at December 31, 1995 and $46,776 at December 31, 1994. Note E - Property, Plant and Equipment Property, plant and equipment at December 31 consisted of the following: 1995 1994 Land $ 7,419 $ 7,445 Leasehold improvements 9,214 9,054 Buildings and improvements 117,932 113,359 Production and other equipment 217,443 206,261 Construction in progress 21,932 16,442 373,940 352,561 Less: accumulated depreciation and 182,690 165,036 amortization $191,250 $ 187,525 Note F - Notes Payable Short-term borrowings and related lines of credit at December 31 are summarized as follows: 1995 1994 Notes payable $ 80,768 $ 56,116 Unused lines of credit $ 251,749 $ 174,409 Average amount outstanding at $ 91,338 $ 46,340 month-end during the year Maximum amount outstanding at $116,721 $ 74,672 month-end during the year Weighted average interest rate 6.2% 4.2% during the year Weighted average interest rate at 6.1% 5.5% year-end 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 G - Long-term Debt Long-term debt at December 31 consisted of the following: 1995 1994 Notes payable due in 2004 $100,000 $100,000 Unrealized loss on revaluation of 5,272 9,327 yen-denominated debt Long-term debt $105,272 $109,327 In the fourth quarter of 1993, the Company entered into an agreement to retire its 9.2 percent $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 $0.07 per share) in December, 1993 to reflect the cost of extinguishing the notes. In March, 1994, the Company issued $100,000 of 6.78 percent notes due in 2004. Interest is payable semi-annually on these notes in March and September. The 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 acquisition of certain assets of $929 in 1995, $890 in 1994, and $1,301 in 1993. Interest paid on short-term and long-term debt during 1995, 1994, and 1993 amounted to $11,481, $8,946, and $13,356, respectively. As of December 31, 1993, 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. In January, 1994, the Company closed out the yen denominated 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. This swap matures in 2004. In March, 1995, the Company paid $3,546 in cash to close out the DM swap. This cash payment represented the cumulative effect of the foreign currency rate fluctuations over the life of the swap. The Company's foreign currency obligations had effective weighted average interest rates of 5.39 and 5.18 percent in 1995 and 1994, respectively. The effects of foreign currency exchange rate fluctuations resulting from these swap agreements are included in translation adjustments and in transaction gains/losses. Note H - Foreign Exchange The Company has entered into forward exchange contracts to reduce the impact of foreign currency fluctuations on certain transactions. Gains or losses on these contracts are recorded when the operating revenues and expenses related to the underlying transactions are recognized. Realized losses of $2,287 in 1995, $960 in 1994 and a gain of $2,300 in 1993 are included in cost of sales. Contracts open at December 31, 1995, aggregating $30,000, have an unrealized gain of $2,678. All open contracts have maturities which do not exceed fifteen months. Note I - Income Taxes Income taxes on both continuing and discontinued operations have been provided in accordance with the provisions of SFAS #109. The Company's provisions for income taxes are summarized as follows: 1995 1994 1993 Domestic and foreign income before income taxes: Domestic $51,933 $23,042 $16,690 Foreign 58,202 48,206 32,532 110,135 71,248 49,222 Less: Loss from - - 14,001 discontinued operations Loss on disposal - 5,667 - of discontinued operations Income from continuing $110,135 $76,915 $63,223 operations before income taxes Domestic and foreign provisions for income taxes: Domestic $9,039 $(1,894) $(2,781) Foreign 14,642 16,433 13,356 State 1,100 500 500 24,781 15,039 11,075 Less: portion applied to - 2,267 3,150 discontinued operations $24,781 $17,306 $14,225 Current and deferred provisions for income taxes: Current $23,409 $28,800 $12,820 Deferred 1,372 (13,761) (1,745) $24,781 $15,039 $11,075 A summary of the differences between the Company's consolidated effective tax rate and the United States statutory federal income tax rate is as follows: 1995 1994 1993 U.S. statutory income tax rate 35.0% 35.0% 35.0% Puerto Rico tax rate benefits (4.8) (6.0) (11.9) Ireland tax rate benefits (5.2) (4.0) (1.1) Excess foreign over U.S. tax rate - - 5.6 (including unremitted earnings) State income tax, net of federal .7 .5 .7 income tax benefit Foreign Sales Corporation income not (2.0) (3.0) (4.6) taxed Tax credits (1.2) - - Other - - (1.2) Effective tax rate applicable to 22.5% 22.5% 22.5% operations Tax exemptions relating to Puerto Rico and Ireland operations are effective through 2004 and 2010, respectively. Income taxes paid (net of refunds) during 1995, 1994, and 1993 were $9,999, $25,296, and $15,185, respectively. The Company has not recorded deferred income taxes applicable to undistributed earnings of foreign subsidiaries that are indefinitely reinvested in foreign operations. These earnings amounted to approximately $48,000 at December 31, 1995. If earnings of such foreign subsidiaries were not indefinitely reinvested, a deferred tax liability of approximately $12,000 would have been required. At December 31, 1995, the Company has foreign tax credit carryforwards of approximately $13,000 that expire in the years 1996 through 1999. General business credit carryforwards of approximately $6,500 expire in the years 2002 through 2011. In addition, the Company has alternative minimum tax credit carryforwards of approximately $7,800 which can be carried forward indefinitely. Significant components of the Company's net deferred tax assets are as follows: 1995 1994 Intercompany and inventory related $13,943 $6,861 transactions Postretirement benefits other than 3,421 3,271 pensions Tax credits (including foreign tax credits on unremitted earnings) 43,370 33,056 Divestiture related costs 7,435 30,850 Other, net 1,645 3,475 69,814 77,513 Valuation allowance (16,635) (19,390) Net deferred tax asset $ 53,179 $ 58,123 The valuation allowance is provided primarily against foreign tax credit carryforwards and foreign tax credits on unremitted earnings which can be utilized against future taxable income in the United States. The change in the valuation allowance for the year results from the writedown of certain deferred tax assets for which the valuation allowance had been previously established. These attributes are no longer available to the Company due to a change in business form of one of its foreign entities. Although realization is not assured, management believes it is more likely than not that the remainder of the deferred tax asset, net of the valuation allowance, will be realized. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income are reduced. During 1995 the Internal Revenue Service ("IRS") completed its examination of the Company's federal income tax returns pertaining to its U.S. and Puerto Rican operations for the years 1991-1992 with no major adjustments. Note J - Legal Proceedings The settlement to date of all environmental claims against all participants at hazardous waste ("Superfund") sites in which the Company was named a potentially responsible party by the Environmental Protection Agency has been significant. Prior to 1995, the Company had paid $14,000 to settle claims at sites in which the Company was named a potentially responsible party. Due to the fact that Superfund sites at which the Company was named a potentially responsible party are in the late stages of remedy and a significant portion of the remedy cost has already been funded, the Company believes that its probable future financial obligation at December 31, 1995 will not materially affect its future operating results and liquidity. Amounts paid by the Company in 1995 with respect to the Superfund obligations were insignificant. In the fourth quarter of 1994, the Company settled a lawsuit filed by Eastern Enterprises in connection with Eastern's purchase of the Company's Process Water Division in 1989. Total settlement costs of $10,800, including a $9,000 payment to Eastern Enterprises and $1,800 of related costs incurred by the Company, are included in Other expense in the accompanying consolidated statements of income. The Company and Waters Holdings, Inc. are engaged in a dispute with respect to the amount of assets required to be transferred from the Company's Retirement Plan in connection with the divestitures. 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. Note K - Leases Lease agreements cover sales offices, warehouse space, computers and automobiles. These leases have expiration dates through 2006. 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 $7,828 in 1995, $8,545 in 1994, $10,878 in 1993. At December 31, 1995 future minimum rents payable under noncancelable leases with initial terms exceeding one year were as follows: 1996 $7,064 1997 5,805 1998 3,878 1999 2,491 2000 2,272 2001 - 2006 10,733 Note L - 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: 1995 1994 1993 Option shares: Outstanding at beginning of period 3,518,000 5,440,000 4,862,000 Issued during period 373,000 534,000 1,032,000 Exercised during period (885,000)(2,334,000) (200,000) Canceled during period (66,000) (122,000) (254,000) Outstanding at end of period 2,940,000 3,518,000 5,440,000 Exercisable at end of period 1,747,000 2,088,000 3,072,000 Shares available for granting of 1,039,000 1,344,000 1,758,000 options at end of period Average price of outstanding options $20.82 $17.96 $16.67 at end of period Average price of exercised options $16.70 $16.30 $12.26 during the period In 1995, as part of the Company's broad-based open market stock repurchase program, the Company repurchased, at market prices, 759,000 shares of common stock which had been issued to current employees and former employees of the divested businesses under the Company's stock option plan. The difference between the market price of the shares repurchased and the stock option exercise price was recognized as compensation expense and is included in the Company's 1995 consolidated statement of income or charged against accrued divestiture reserves. 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, each eligible director receives options to purchase 4,000 shares of Millipore common stock on the date of his or her first election, and thereafter automatically receives additional options to purchase 2,000 shares at the first board of directors meeting following the Annual Meeting of Shareholders. 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. At December 31, 1995, 122,000 options have been issued and 115,000 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 1995, 1994, and 1993 shares issued under the Plan were 33,000, 192,000, and 20,000, respectively. As of December 31, 1995, 367,0000 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 1995, 1994, and 1993, 109,000, 154,000, and 266,000 shares, respectively, were outstanding under the plan. Plan expense was $450 in 1995, $790 in 1994 and $833 in 1993. As of December 31, 1995, 128,000 shares of Millipore common stock were available for future awards under this plan. Note M - 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 $4,512 in 1995, $6,089 in 1994, $8,679 in 1993. Prior years' Plan expense includes amounts related to employees of the divested businesses through the date of the divestitures. 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, 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 1995 and 1994. 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 a discount rate of 7.0 percent in 1995 and 8.5 percent in 1994, and a salary progression rate of 5.0 percent in 1995, and 6.0 percent in 1994. The pension income was determined based on an expected long-term rate of return on assets of 8.0 percent in both years. Plan assets are invested primarily in mutual funds and money market funds. The Company recognized a curtailment loss of $91 in the third quarter of 1994 as a result of its divestitures. This amount was included as part of the net loss on disposal of discontinued operations. Plan data as of December 31, 1995 and 1994 includes assets and obligations pertaining to employees of the Company's former Waters Division, as the assets subject to these former employees have not yet been transferred to Waters Holdings, Inc. 1995 1994 Actuarial present value of benefit obligations: Accumulated benefit obligation, including vested benefits of $6,460 on December 31, $ 6,693 $ 2,911 1995 and $2,761 on December 31, 1994 Projected benefit obligation $ (7,595) $ (4,076) for service rendered to date Plan assets at fair value 7,391 5,436 Plan assets (less than) in excess of projected benefit obligation (204) 1,360 Unrecognized net actuarial loss 4,283 2,772 Unrecognized prior service cost 121 132 Unrecognized net asset being (579) (663) amortized over 16.7 years Prepaid pension cost included $ 3,621 $ 3,601 in financial statements Net pension income includes the following components Service cost $ 179 $ 376 Interest cost (471) (361) Return on plan assets 942 36 Amortization and deferral (630) 246 Net pension income $ 20 $ 297 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-contributory. The Company recognized $4,007 as a termination settlement in third quarter of 1994 as a result of its divestitures. The settlement was included as part of the net loss on disposal of discontinued operations. Net periodic postretirement benefit cost included the following components: 1995 1994 Service cost benefits attributed $ 357 $ 610 to service during the year Interest cost on accumulated postretirement benefit obligation 548 662 Net amortization and deferral (93) (62) Net periodic postretirement $ 812 $ 1,210 benefit cost Summary information on the Company's plans as of December 31 is as follows: 1995 1994 Accumulated postretirement benefit obligation: Retirees and dependents $(3,272) $ (3,100) Fully eligible active plan participants (550) (444) Other active plan participants (5,056) (3,089) Accrued postretirement benefit (8,878) (6,633) obligation Unrecognized gain from past experience different from that assumed and from (897) (2,713) changes in assumptions Accrued postretirement benefit cost $(9,775) $(9,346) The discount rate used in determining the accumulated postretirement benefit obligation was 7.0 percent as of December 31,1995 and 8.5 percent as of December 31, 1994. The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation was 7.8 percent in 1995, declining gradually to 5.5 percent over 8 years, 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, 1995 would be increased by $1,475 while the aggregate of the service and interest cost components of net periodic postretirement benefit cost for 1995 would be increased by $174. Note N - 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, Southeast Asia and Australia. Transfers between geographic areas are generally made at a discount from local in-market 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 and receivables arising from sale of businesses, which are classified as corporate assets. Americas Europe Asia/Pacific Eliminations Total 1995 Sales: Unaffiliated customers $202,717 $185,402 $204,895 $593,014 Unaffiliated export: Pacific customers 553 553 European customers 899 899 Total unaffiliated 204,169 185,402 204,895 594,466 unaffiliated Transfer between areas 95,267 46,602 14,267 (156,136) - Total sales $299,436 $232,004 $219,162 $(156,136) $594,466 Operating profits $ 76,853 $ 33,072 $ 20,973 $130,898 General corporate expenses (11,822) Interest expense, net (8,941) Income from continuing operations before income taxes $110,135 Identifiable assets $409,750 $219,681 $174,468 $(301,308) $502,591 Corporate assets 28,354 Total assets $530,945 1994 Sales: Unaffiliated customers $180,569 $154,196 $160,781 $495,546 Unaffiliated export: Pacific customers 806 806 European customers 900 900 Total unaffiliated 182,275 154,196 160,781 497,252 Transfer between areas 77,877 25,767 6,246 (109,890) - Total sales $260,152 $179,963 $167,027 $(109,890) $497,252 Operating profits $ 54,301 $ 23,908 $ 24,879 $103,088 General corporate expenses (12,429) Other expense (10,800) Interest expense, net (2,944) Income from continuing operations before income taxes $ 76,915 Identifiable assets $341,057 $187,132 $144,890 $(181,285) $491,794 Corporate assets 45,186 Total assets $536,980 Americas Europe Asia/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 $292,770 $138,326 $141,442 $(122,941) $449,597 Corporate assets 40,642 Net current assets of 138,687 discontinued operations Net long term assets of discontinued operations 99,647 Total assets $728,573 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, 1995 and 1994, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1995. 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, 1995 and 1994, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. Boston, Massachusetts Coopers & Lybrand L.L.P. January 23, 1996 Eleven-year Summary of Operations Millipore Corporation (In thousands except per share) 1995 1994 1993 1992 1991 Net sales $594,466 $497,252 $445,366 $427,188 $415,075 Cost of sales 243,849 212,675 193,575 195,462 194,557 Gross profit 350,617 284,577 251,791 231,726 220,518 Selling, general and 195,026 159,591 145,647 142,701 129,593 administrative expenses Research and development 36,515 34,327 34,952 32,953 32,633 expenses Restructuring charge - - - - - Operating income 119,076 90,659 71,192 56,072 58,292 Other income (expense), net - (10,800) - (2,415) - Interest income 1,682 4,091 4,069 6,888 6,182 Interest expense (10,623) (7,035) (12,038) (14,692) (13,984) Income from continuing operations before income taxes 110,135 76,915 63,223 45,853 50,490 Provision for income taxes 24,781 17,306 14,225 10,317 14,570 Income from continuing operations before extraordinary 85,354 59,609 48,998 35,536 35,920 item Earnings (loss) from - - (10,851) 2,715 18,645 discontinued operations Loss on disposal of - (3,400) - - - discontinued operations Income before extraordinary item and cumulative effect of change in accounting principle 85,354 56,209 38,147 38,251 54,565 Extraordinary item-loss on - - (3,544) - - early extinguishment of debt Cumulative effect of change in accounting for postretirement - - - (5,068) - benefits Net income $85,354 $56,209 $34,603 $33,183 $54,565 Net income per common share: Income from continuing operations$1.90 $1.09 $0.88 $0.63 0.64 Net income per common share $ 1.90 $1.03 $0.62 $0.59 $0.97 Cash dividends declared per share$0.315 $0.295 $0.275 $0.255 $0.235 Average common shares and 44,985 54,726 55,902 56,484 56,588 equivalents Financial Data Working Capital $88,595 $100,649 $232,865 $220,378 $247,399 Total assets 530,945 536,980 728,573 764,950 766,582 Long-term debt 105,272 109,327 110,067 103,332 107,759 Shareholders' equity $226,475 $221,277 $461,154 $452,835 $464,496 The Company adopted SFAS # 109 "Accounting for Income Taxes" during 1992 and restated tax provisions in 1991 and 1990 and 1986. Eleven-year Summary of Operations (continued) Millipore Corporation (In thousands except per 1990 1989 1988 1987 1986 1985 share) Net sales $380,983 $365,825 $347,267 $298,728 $251,212 $202,411 Cost of sales 170,049 165,979 161,613 138,587 117,997 99,427 Gross profit 210,934 199,846 185,654 160,141 133,215 102,984 Selling, general and 117,214 115,951 116,636 98,730 87,058 66,409 administrative expenses Research and development 29,538 28,756 22,336 19,742 16,756 15,132 expenses Restructuring charge 17,103 - - - - - Operating income 47,079 55,139 46,682 41,669 29,401 21,443 Other income (expense), net - 3,149 - - - - Interest income 6,723 3,914 3,450 2,234 3,066 3,403 Interest expense (10,418) (8,543) (6,543) (3,432) (3,762) (3,300) Income from continuing operations before income 43,384 53,659 43,589 40,471 28,705 21,546 taxes Provision for income taxes13,629 11,619 10,955 10,040 10,538 5,357 Income from continuing operations before 29,755 42,040 32,634 30,431 18,167 16,189 extraordinary item Earnings (loss) from (6,678) 10,462 22,751 17,993 14,797 15,541 discontinued operations Loss on disposal of - - - - - - discontinued operations Income before extraordinary item and cumulative effect of 23,077 52,502 55,385 48,424 32,964 31,730 change in accounting principle Extraordinary item-loss on early extinguishment of debt - - - - - - Cumulative effect of change in accounting for postretirement benefits - - - - - - Net income $23,077 $52,502 $55,385 $48,424 $32,964 $31,730 Net income per common share: Income from continuing operations $0.53 $0.74 $0.58 $0.54 $0.33 $0.30 Net income per common $0.41 $0.93 $0.98 $0.86 $0.59 $0.58 share Cash dividends declared $0.215 $0.195 $0.175 $0.155 $0.135 $0.120 per share Average common shares and 56,614 56,646 56,658 56,688 55,862 55,264 equivalents Financial Data Working Capital $225,039 $249,777 $251,825 $168,594 $165,421 $146,334 Total assets 700,415 605,388 545,523 452,387 369,414 326,903 Long-term debt 102,961 94,788 103,472 6,378 12,094 13,446 Shareholders' equity $427,008 $403,827 $362,800 $327,604 $283,547 $244,607 Quarterly Results (Unaudited) The Company's unaudited quarterly results are summarized below. First Second Third Fourth (In thousands, except per share quarter quarter quarter quarter Year data) 1995 Net sales $141,427 $150,508 $147,547 $154,984 $594,466 Cost of sales 58,509 60,779 61,293 63,268 243,849 Gross profit 82,918 89,729 86,254 91,716 350,617 Selling, general and 45,795 49,610 48,842 50,779 195,026 administrative expenses Research and development 8,513 9,155 9,352 9,495 36,515 expenses Operating income 28,610 30,964 28,060 31,442 119,076 Interest income 386 337 427 532 1,682 Interest expense (2,318) (2,851) (2,616) (2,838) (10,623) Income before income taxes 26,678 28,450 25,871 29,136 110,135 Provision for income taxes 6,003 6,401 5,821 6,556 24,781 Net income $20,675 $22,049 $20,050 $22,580 $85,354 Per share information Net income $ 0.45 $ 0.49 $ 0.45 $ 0.51 $ 1.90 Weighted average common shares 45,960 44,998 44,642 44,348 44,985 outstanding 1994 Net sales $118,959 $124,690 $123,551 $130,052 $497,252 Cost of sales 51,265 52,910 53,114 55,386 212,675 Gross profit 67,694 71,780 70,437 74,666 284,577 Selling, general and 38,109 39,456 40,181 41,845 159,591 administrative expenses Research and development 8,558 8,446 8,367 8,956 34,327 expenses Operating income 21,027 23,878 21,889 23,865 90,659 Other expense - - - (10,800) (10,800) Interest income 565 713 1,976 837 4,091 Interest expense (1,858) (1,917) (1,714) (1,546) (7,035) Income from continuing operations before income taxes 19,734 22,674 22,151 12,356 76,915 Provision for income taxes 4,440 5,102 4,984 2,780 17,306 Income from continuing 15,294 17,572 17,167 9,576 59,609 operations Loss from discontinued - - (3,400) - (3,400) operations Net income $15,294 $17,572 $13,767 $9,576 $56,209 Per share information Income from continuing operations $0.27 $0.31 $0.31 $0.20 $1.09 Net income $0.27 $0.31 $0.25 $0.20 $1.03 Weighted average common shares 56,246 56,776 56,310 47,680 54,726 outstanding 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 18, 1996 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 Quarterly results are available through facsimile, voice mail, and the Internet, or on request from the Company. Form 10-K is filed annually with the Securities and Exchange Commission and is available on the Internet and on request from the Company. To receive the latest quarterly results through facsimile, call (800) 758-5804 (PIN# 101371); through voice mail call (800) 605- 5249; through the Internet go to URL http://www.millipore.com. The 10-K is also available through that voice mail number and that Internet address. For other investor information, contact: Geoffrey E. Helliwell Director of Treasury Operations Millipore Corporation 80 Ashby Road Bedford, Massachusetts 01730-2271 (617) 533-2032 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 3,421 shareholders of record as of December 31, 1995. Dividends Declared Range of Stock Prices Per Share 1995 1994 1995 1994 High Low High Low First Quarter $28.69 $22.88 $24.44 $19.25 $0.075 $0.070 Second Quarter 34.56 27.00 26.94 21.38 0.080 0.075 Third Quarter 39.13 31.75 28.50 25.00 0.080 0.075 Fourth Quarter 41.50 34.13 27.57 23.32 0.080 0.075