Form 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1996 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from to For Quarter Ended Commission File Number March 31, 1996 0-1052 Millipore Corporation (Exact name of registrant as specified in its charter) Massachusetts (State or other jurisdiction of incorporation or organization) 80 Ashby Road Bedford, Massachusetts (Address of principal executive offices) 04-2170233 (I.R.S. Employer Identification No.) 01730 (Zip Code) Registrant's telephone number, include area code (617) 275-9200 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of March 31, 1996: 43,556,051 MILLIPORE CORPORATION INDEX Page No. Part I. Financial Information: Item 1. Condensed Financial Statements Consolidated Balance Sheets -- March 31, 1996 and December 31, 1995 2 Consolidated Statements of Income -- Three Months ended March 31, 1996 and 1995 3 Consolidated Statements of Cash Flows -- Three Months Ended March 31, 1996 and 1995 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) March 31, December 31, 1996 1995 (Unaudited) ASSETS Current assets Cash $ 3,561 $ 2,696 Short-term investments 21,473 21,062 Accounts receivable, net 150,518 147,759 Inventories Raw materials 23,628 21,357 Work in process 12,009 9,621 Finished goods 51,288 49,408 86,925 80,386 Other current assets 9,776 6,800 Receivables arising from sale of - 3,056 businesses Total Current Assets 272,253 261,759 Property, plant and equipment, net of accumulated depreciation of $186,039 in 1996 and $182,690 in 1995 188,836 191,250 Intangible assets 6,995 7,219 Deferred income taxes 53,179 53,179 Other assets 19,328 17,538 Total Assets $ 540,591 $ 530,945 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Notes payable and current portion oflong-term debt $ 114,136 $ 80,768 Accounts payable 37,643 33,436 Accrued expenses 26,272 32,366 Accrued divestiture costs 6,191 6,543 Dividends payable 3,513 3,537 Accrued retirement plan 2,391 4,846 contributions Accrued and deferred income taxes 11,569 9,926 payable Total Current Liabilities 201,715 171,422 Long-term debt 102,215 105,272 Other liabilities 22,900 22,776 Accrued divestiture costs 3,000 5,000 Shareholders' equity Common stock 56,988 56,988 Additional paid-in capital - - Retained earnings 543,293 523,633 Translation adjustments (3,362) 375 596,919 580,996 Less: Treasury stock, at cost,13,433 shares in 1996 and 12,727 in 1995 (386,158) (354,521) Total Shareholders' Equity 210,761 226,475 Total Liabilities and Shareholders' Equity $ 540,591 $ 530,945 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 March 31, 1996 1995 Net Sales $ 156,476 $ 141,427 Cost of sales 61,946 58,509 Gross profit 94,530 82,918 Selling, general & 50,140 45,795 administrative expenses Research & development 9,409 8,513 expenses Operating income 34,981 28,610 Interest income 713 386 Interest expense (2,710) (2,318) Income before income taxes 32,984 26,678 Provision for income taxes 7,751 6,003 Net Income $ 25,233 $ 20,675 Per share information: Net income per common share $ 0.57 $ 0.45 Cash dividends declared per $ 0.08 $0.075 common share Weighted average common 44,163 45,960 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) Three Months Ended March 31, 1996 1995 Cash Flows From Operating Activities: Net Income $ 25,233 $ 20,675 Adjustments to reconcile net income to net cash provided: Depreciation and amortization 7,661 6,508 Deferred income tax provision - 543 Change in operating assets and liabilities: (Increase) in accounts receivable (5,784) (2,816) (Increase) in inventories (8,207) (1,854) (Increase) in other current assets (1,719) (1,958) (Increase) in other assets (220) (2,690) Increase in accounts payable and accrued 887 216 expenses (Decrease) in accrued retirement plan (2,419) (2,868) contributions Increase (Decrease) in accrued income 2,626 (5,251) taxes Other 765 2,021 Net cash provided by operating activities 18,823 12,526 Cash Flows From Investing Activities: Additions to property, plant, and equipment (7,282) (8,171) Investment in businesses (2,990) - Net cash used by discontinued operations (2,560) (7,946) Net cash used by investing activities (12,832) (16,117) Cash Flows From Financing Activities: Treasury stock acquired (37,278) (36,397) Issuance of treasury stock under stock 3,607 4,432 plans Cash paid to close out foreign currency - (3,546) swap Net change in short-term debt 33,144 37,908 Repayment of long-term debt (32) (43) Dividends paid (3,559) (3,500) Net cash used by financing activities (4,118) (1,146) Effect of foreign exchange rates on cash (597) 596 flows Net increase in cash and short-term 1,276 (4,141) investments Cash and short-term investments on January 1 23,758 30,236 Cash and short-term investments on March 31 $ 25,034 $ 26,095 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, 1995. The accompanying unaudited consolidated condensed financial statements are not necessarily indicative of future trends or the Company's operations for the entire year. Certain reclassifications have been made to the prior year's financial statements to conform with the 1996 presentation. 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. Accordingly, weighted average share and per share amounts from 1995 have been restated to reflect the stock split. 3.The Company invested approximately $3 million to acquire shares of common stock of a privately-held company, IBC Advanced Technologies, Inc. This investment is included in Other Assets and is carried at cost, which approximates market value. 4.The Company and Waters Corporation are engaged in an arbitration proceeding and related litigation, both of which commenced in the second quarter of 1995, with respect to the amount of assets required to be transferred by the Company's Retirement Plan in connection with the Company's divestiture of its former Chromatography Division. The Company believes that it has meritorious arguments and should prevail. The ultimate disposition of this matter is not expected to have a material adverse effect on the Company's financial condition. -5- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following Discussion and Analysis includes certain forwardlooking statements which are subject to a number of risks and uncertainties as described in Management's Discussion and Analysis in the Company's Annual Report of Form 10-K for the year ended December 31, 1995. Such forward- looking statements are based on current expectations and actual results may differ materially. Consolidated net sales of $156 million in the first quarter of 1996 represented 11% growth over sales for the same period last year. Sales growth was achieved in all of the Company's markets and geographies, with the largest percentage increases coming from sales to customers in the microelectronics market and the Asia/Pacific region. The following table summarizes sales growth by geography and market: Sales growth rates Sales growth rates measured in local measured in U.S. currencies dollars Americas 13% 13% Europe 6% 6% Asia/Pacific 22% 13% Consolidated 14% 11% Microelectronics 27% 21% Mfg. Biopharmaceutical 15% 11% Mfg. Analytical Laboratory 6% 3% Consolidated 14% 11% Foreign currency rate fluctuations, primarily the strengthening of the U.S. dollar against the Japanese Yen, decreased reported sales growth by 3 percentage points in the first quarter of 1996. Towards the end of first quarter of 1996, the dollar further strengthened against the Japanese Yen and various European currencies. If foreign exchange rates remain at April 1, 1996 levels, the effect of foreign currency is expected to reduce reported second quarter sales growth by approximately 8 percentage points and full year 1996 sales growth by approximately 5 percentage points. Gross margins increased in the first quarter of 1996 to 60.4 percent of sales as compared to 58.6 percent for the first quarter of 1995 and 59.0 percent for the full year 1995. The improvement in gross margins is primarily due to increased production volume in the Company's biopharmaceutical and microelectronics manufacturing operations, as well as a favorable sales mix of higher-margin consumable products. Although quarterly results may fluctuate, the Company expects to maintain approximately the same gross margin percentage for the full year 1996 as for the first quarter of 1996. Selling, general and administrative expenses in the first quarter of 1996 increased 9.5 percent over the first quarter of 1995. The Company expects that spending for the full year 1996 will increase over 1995 at a rate consistent with or slightly lower than sales growth. Research and development expenses in the first quarter of 1996 increased 10.5 percent over the first quarter of 1995, representing an increased level of investment in new product development for the microelectronics market in addition to the continued funding of all major programs. Net interest expense in the first quarter of 1996 was approximately equal to net interest expense for the first quarter of 1995. Net interest expense is expected to increase slightly in the second quarter as compared to the first quarter of 1996 due to the increased level of short-term borrowings used to finance share repurchases in the first quarter. The Company's 23.5 percent effective income tax rate for the first quarter is the same as the anticipated effective rate for the full year, compared to 22.5 percent for the full year in 1995. -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 and option 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 first quarter of 1996, a gain of $414K was realized on the Company's forward exchange contracts and was recorded in cost of sales, compared to a loss of $470K in the first quarter of 1995. The Company does not engage in any speculative trading activity. Cash flow from operations increased to $18.8 million in the first quarter of 1996 compared to $12.5 million in the first quarter of 1995, primarily as a result of increased net income. During the first quarter of 1996, cash from operations was primarily used to invest in property, plant and equipment and to pay dividends. Property, plant and equipment expenditures in the first quarter of 1996 were lower than for the same period in 1995 due to the timing of certain projects, but are expected to increase in subsequent quarters during 1996. At January 1, 1996, the Company had approximately $8 million of repurchases remaining under an open market share repurchase program begun in 1995. Early in the first quarter of 1996, the Company announced plans to spend an additional $50 million on open market share repurchases. During the quarter, the Company spent approximately $34 million, net of proceeds from stock option exercises, to repurchase shares of its common stock. The first quarter repurchases were primarily funded by an increase in shortterm borrowings of approximately $33 million. Repayment of these additional borrowings and further share repurchases in 1996 are expected to be funded by cash generated from operations. The Company spent approximately $2.6 million in the first quarter to satisfy obligations related to discontinued operations. The Company expects that cash expenditures related to its discontinued operations will decline slightly in subsequent quarters during 1996. -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 8K filed for the quarter ended March 31, 1996. -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 April 24, 1996 /s/ Michael P. Carroll Date Michael P. Carroll Vice President, Chief Financial Officer and Treasurer -9-