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 June 30, 1996 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from to COMMISSION FILE NUMBER 0-1052 Millipore Corporation (Exact name of registrant as specified in its charter) Massachusetts (State or other jurisdiction of incorporation or organization) 04-2170233 (I.R.S. Employer Identification No.) 80 Ashby Road Bedford, Massachusetts 01730 (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 The Company had 43,284,444 shares of common stock outstanding as of July 27, 1996. MILLIPORE CORPORATION INDEX TO FORM 10-Q Page No. Part I. Financial Information Item 1. Condensed Financial Statements Consolidated Balance Sheets -- June 30, 1996 and December 31, 1995 2 Consolidated Statements of Income -- Three and Six Months Ended June 30, 1996 and 1995 3 Consolidated Statements of Cash Flows -- Six Months Ended June 30, 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 Item 4. Submission of Matters to a Vote of Security Holders 8 Item 6. Exhibits and Reports on Form 8-K 8 Signatures 9 MILLIPORE CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands) June 30, December 31, 1996 1995 ASSETS (Unaudited) Current assets Cash $ 1,830 $ 2,696 Short-term investments 22,009 21,062 Accounts receivable, net 158,637 147,759 Inventories 85,870 80,386 Other current assets 10,081 6,800 Receivables arising from sale of - 3,056 businesses Total Current Assets 278,427 261,759 Property, plant and equipment, net 187,233 191,250 Intangible assets 8,647 7,219 Deferred income taxes 53,179 53,179 Other assets 25,896 17,538 Total Assets $ 553,382 $530,945 LIABILITIES AND SHAREHOLDERS'EQUITY Current liabilities Notes payable and current portion of long-term debt $ 118,650 $ 80,768 Accounts payable 33,389 33,436 Accrued expenses 26,941 32,366 Accrued divestiture costs 5,803 6,543 Dividends payable 3,921 3,537 Accrued retirement plan 3,483 4,846 contributions Accrued and deferred income 8,889 9,926 taxes payable Total Current Liabilities 201,076 171,422 Long-term debt 100,015 105,272 Other liabilities 23,523 22,776 Accrued divestiture costs 2,000 5,000 Shareholders' equity Common stock 56,988 56,988 Additional paid-in capital - - Retained earnings 563,272 523,633 Translation adjustments (5,201) 375 615,059 580,996 Less: Treasury stock, at cost, 13,417 shares in 1996 and 12,727 (388,291) (354,521) in 1995 Total shareholders' equity 226,768 26,475 Total Liabilities and Shareholders'$ 553,382 $ 530,945 Equity 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 Six Months Ended June 30, June 30, 1996 1995 1996 1995 Net sales $161,928 $150,508 $318,404 $291,935 Cost of sales 65,412 60,779 127,358 119,288 Gross profit 96,516 89,729 191,046 172,647 Selling, general & 52,059 49,610 102,199 95,405 administrative expenses Research & development 9,741 9,155 19,150 17,668 expenses Operating income 34,716 30,964 69,697 59,574 Interest income 661 337 1,374 723 Interest expense (2,945) (2,851) (5,655) (5,169) Income before income taxes 32,432 28,450 65,416 55,128 Provision for income taxes 7,622 6,401 15,373 12,404 Net Income $ 24,810 $ 22,049 $ 50,043 $42,724 Net Income per common $ 0.57 $ 0.49 $ 1.14 $ 0.94 share Cash Dividends declared $ 0.09 $ 0.08 $ 0.17 $ 0.155 per common share Weighted average common 43,642 44,998 43,901 45,479 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) Six Months Ended June 30, 1996 1995 Cash Flows From Operating Activities: Net income $50,043 $ 42,724 Adjustments to reconcile net income to net cash provided: Depreciation and amortization 14,770 13,068 Deferred income tax provision - 543 Change in operating assets and liabilities: (Increase) in accounts receivable (16,274) (3,724) (Increase) in inventories (8,328) (6,940) (Increase) in other current assets (2,096) (3,554) (Increase) in other assets (3,831) (6,964) (Decrease) in accounts payable and (2,008) (4,870) accrued expenses (Decrease) in accrued retirement (1,288) (1,534) plan contributions Increase in accrued income taxes 294 3,001 Other 1,712 (2,482) Net cash provided by operating 32,994 29,268 activities Cash Flows From Investing Activities: Additions to property, plant and (14,006) (14,125) equipment Investment in businesses (3,990) - Investment in intangible assets (1,465) - Net cash spent by discontinued (5,591) (4,220) operations Net cash used in investing activities (25,052) (18,345) Cash Flows From Financing Activities: Treasury stock acquired (45,229) (51,485) Issuance of treasury stock under stock 7,571 6,898 plans Cash paid to close out foreign - (3,546) currency swap Net change in short-term debt 37,719 35,074 Repayment of long-term debt (32) (56) Dividends paid (7,115) (6,967) Net cash used in financing activities (7,086) (20,082) Effect of foreign exchange rates on cash and short-term investments (775) 1,561 Net increase in cash and short-term 81 (7,598) investments Cash and short-term investments on 23,758 30,236 January 1 Cash and short-term investments on June 30 $ 23,839 $ 22,638 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 prior years' financial statements to conform with the 1996 presentation. 2.On June 8, 1995, the Company's Board of Directors authorized a twofor-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. At the Company's Annual Meeting on April 18, 1996, shareholders voted to adopt an amendment to the Company's restated Articles of Incorporation, increasing the number of authorized Common Shares from 80,000 to 120,000. 3. Inventories consist of the following: June 30, December 31, 1996 1995 Raw $21,706 $21,357 materials Work in 10,911 9,621 process Finished 53,253 49,408 goods $85,870 $80,386 4. Accumulated depreciation on property, plant and equipment was $188,906 at June 30, 1996, and $182,690 at December 31, 1995. 5. During the first quarter of 1996, the Company invested approximately $3 million to acquire shares of common stock of a privately-held company, IBC Advanced Technologies, Inc. During the second quarter of 1996, the Company invested approximately $1 million to acquire shares of common stock of Celsis International plc, a company based in England that specializes in technology used in the detection and measurement of microbial contamination. These investments are included in Other Assets and are carried at cost, which approximates market value. Also during the second quarter of 1996, the Company invested an additional $1.5M to acquire certain technology license rights from Celsis, and this amount was recorded in Intangible Assets. 6. 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 on 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 for the second quarter of 1996 were $162 million, an increase of 8% over sales for the same period last year. Sales growth measured in local currency terms was 17% in the second quarter of 1996, but fluctuations in foreign currency exchange rates, primarily the strengthening of the U.S. dollar against the Japanese Yen, decreased reported sales growth by 9 percentage points. If foreign exchange rates remain at July 31, 1996 levels, the effect of foreign currency is expected to reduce reported third quarter sales growth by approximately 7 percentage points and full year 1996 sales growth by approximately 6 percentage points. 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 Three Six Three Six months months months months ended ended ended ended 6/30/96 6/30/96 6/30/96 6/30/96 Americas 16% 14% 14% 13% Europe 8% 7% 5% 6% Asia/Pacific 26% 24% 4% 8% 17% 16% 8% 9% Consolidated Microelectron 22% 24% 9% 15% ics Mfg. Biopharmaceut 31% 23% 22% 17% ical Mfg. Analytical 5% 5% (3%) 0% Laboratory 17% 16% 8% 9% Consolidated The 31% sales growth in the biopharmaceutical market was significantly higher than in the growth achieved in this market in the first quarter of 1996. Contributing to this increased growth rate was the shipment of a number of large protein purification systems for biotechnology-derived drugs. Gross margin in the second quarter of 1996 was equal to 59.6 percent of sales, the same percentage as recorded in the second quarter of 1995. Gross margin percentage decreased compared to the 60.4 percent recorded in the first quarter of 1996, and that decrease is primarily due to the higher mix of lower-margin capital equipment sales to biopharmaceutical manufacturing customers discussed above. Although quarterly results may fluctuate, the Company expects that gross margin percentages for the full year 1996 will approximate those of the first half of 1996. Selling, general and administrative expenses in the second quarter of 1996 increased approximately 5% over expenses for the second quarter of 1995. The Company expects that spending for the full year 1996 will continue to increase over 1995 at a rate consistent with or slightly lower than sales growth. -6- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Research and development expenses in the second quarter of 1996 increased approximately 6% over expenses for the second 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 second quarter of 1996 was approximately equal to net interest expense for the second quarter of 1995. Net interest expense is expected to decrease slightly in the third quarter as compared to the second quarter of 1996 as cash generated from operations is used to reduce short- term borrowings. 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. 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 second quarter of 1996, a gain of $546k was realized on the Company's forward exchange contracts and was recorded in cost of sales, compared to a loss of $804k in the second quarter of 1995. The Company does not engage in any speculative trading activity. Cash generated from operations increased to approximately $33 million for the first six months of 1996 from approximately $29 million in the first six months of 1995. The increased cash flow was primarily the result of increased net income for the period, less a slight increase in net working capital. The increase in accounts receivable during the first half of 1996 is primarily the result of increased sales in the Asia/Pacific region where collection cycles are typically longer than in the U.S. or Europe. During the first six months of 1996, cash from operations was primarily used to invest in property, plant and equipment and to pay dividends. Property, plant and equipment expenditures through the first six months of 1996 were approximately the same as for the first six months of 1995, but are expected to increase in the second half of 1996. At January 1, 1996, the Company had spent approximately $42 million on share repurchases under a $50 million 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 first six months of 1996, the Company spent approximately $38 million, net of proceeds from stock option exercises, to repurchase shares of its common stock. Repurchases during 1996 have been funded primarily by an increase in short-term borrowings of approximately $38 million. Repayment of these additional borrowings and further share repurchases in 1996 are expected to be funded by cash generated from operations. -7- PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders a. The Annual Meeting of Stockholders of Millipore Corporation was held on April 18, 1996. c. The following four matters were voted upon at the Annual Meeting: (1) the election of three Class III Directors for a three-year term and one Class I Director for a one-year term; (2) the adoption of the Amendment to Millipore's Restated Articles of Organization to increase Millipore's authorized capital from 80,000,000 to 120,000,000 shares of Common Stock, $1.00 Par Value; (3) the adoption of the Millipore 1995 Combined Stock Option Plan; and (4) the adoption of an amendment to the Millipore Corporation Long Term Restricted Stock (Incentive) Plan. The following votes were tabulated with respect to each matter. Number of Shares Broker Matter Voted Upon Votes"For" Withheld Abstent NonVotes Election of Directors: Charles Baker 35,809,920 214,457 Maureen Hendricks 35,804,882 219,495 Thomas Pyle 35,812,162 212,215 C. William Zadel 35,605,051 419,326 (Class I) Amendment to Millipore's Restated 34,068,220 1,829,762 126,394 1 Articles of Incorporation Adoption of the Millipore 1995 34,655,023 1,246,596 122,755 2 Combined Stock Option Plan Amendment to the Long Term Restricted Stock 34,397,736 1,486,698 139,941 2 (Incentive) Plan 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 June 30, 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 July 30, 1996 /s/ Michael P. Carroll Date Michael P. Carroll Vice President, Chief Financial Officer and Treasurer