FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 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 43,275,007 shares of common stock outstanding as of October 22, 1996. MILLIPORE CORPORATION INDEX TO FORM 10-Q Page No. Part I. Financial Information Item 1. Condensed Financial Statements Consolidated Balance Sheets -- September 30, 1996 and December 31, 1995 2 Consolidated Statements of Income -- Three and Nine Months Ended September 30, 1996 and 1995 3 Consolidated Statements of Cash Flows -- Nine Months Ended September 30, 1996 and 1995 4 Notes to Consolidated Condensed Financial Statements 5-6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7-8 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K 9 Signatures 10 MILLIPORE CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands) September December 30, 31, 1996 1995 ASSETS (Unaudited) Current assets Cash $ 3,190 $ 2,696 Short-term investments 22,543 21,062 Accounts receivable, net 151,360 147,759 Inventories 90,903 80,386 Other current assets 11,199 6,800 Receivables arising from sale of businesses - 3,056 Total Current Assets 279,195 261,759 Property, plant and equipment, net 188,617 191,250 Intangible assets 8,395 7,219 Deferred income taxes 53,179 53,179 Other assets 30,219 17,538 Total Assets $ 559,605 $ 530,945 LIABILITIES AND SHAREHOLDERS'EQUITY Current liabilities Notes payable and current portion of long-term debt $ 107,089 $ 80,768 Accounts payable 37,897 33,436 Accrued expenses 28,925 32,366 Accrued divestiture costs 3,689 6,543 Dividends payable 3,894 3,537 Accrued retirement plan contributions 4,464 4,846 Accrued and deferred income taxes payable 3,226 9,926 Total Current Liabilities 189,184 171,422 Long-term debt 99,312 105,272 Other liabilities 23,995 22,776 Accrued divestiture costs 2,000 5,000 Shareholders' equity Common stock 56,988 56,988 Additional paid-in capital - - Retained earnings 581,154 523,633 Unrealized gain on securities available for sale 11,072 - Translation adjustments (4,591) 375 644,623 580,996 Less: Treasury stock, at cost, 13,719 shares in 1996 and 12,727 in 1995 (399,509) (354,521) Total shareholders' equity 245,114 226,475 Total Liabilities and Shareholders' Equity $ 559,605 $ 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 Nine Months Ended September 30, September 30, 1996 1995 1996 1995 Net sales $ 148,913 $ 147,547 $ 467,317 $ 439,482 Cost of sales 60,774 61,293 188,132 180,581 Gross profit 88,139 86,254 279,185 258,901 Selling, general & administrative expenses 50,226 48,842 152,425 144,247 Research & development 9,610 9,352 28,760 27,020 expenses Operating income 28,303 28,060 98,000 87,634 Gain on sale of equity 2,858 - 2,858 - securities Interest income 660 427 2,034 1,150 Interest expense (2,995) (2,616) (8,650) (7,785) Income before income taxes 28,826 25,871 94,242 80,999 Provision for income taxes 6,774 5,821 22,147 18,225 Net Income $ 22,052 $ 20,050 $ 72,095 $ 62,774 Net Income per common share $ 0.51 $ 0.45 $ 1.65 $ 1.39 Cash Dividends declared per common share $ 0.09 $ 0.08 $ 0.26 $ 0.235 Weighted average common 43,335 44,642 43,714 45,200 shares The accompanying notes are an integral part of the consolidated condensed financial statements. -3- MILLIPORE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Nine Months Ended September 30, 1996 1995 Cash Flows From Operating Activities: Net income $ 72,095 $ 62,774 Adjustments to reconcile net income to net cash provided: Depreciation and amortization 22,736 19,975 Gain on sale of equity securities (2,858) - Deferred income tax provision - 543 Change in operating assets and liabilities: (Increase) in accounts receivable (9,042) (8,101) (Increase) in inventories (13,377) (6,024) (Increase) in other current assets (3,223) (2,058) (Increase) in other assets (4,582) (7,123) Increase in accounts payable and accrued expenses 4,407 2,247 (Decrease) in accrued retirement plan contributions (310) (490) Increase in accrued income taxes 1,746 1,364 Other 2,993 (4,390) Net cash provided by operating activities 70,585 58,717 Cash Flows From Investing Activities: Additions to property, plant and equipment (22,808) (20,262) Investment in businesses (3,990) - Investment in intangible assets (1,523) - Proceeds from sale of equity securities 2,979 - Net cash spent by discontinued operations (7,735) (6,210) Net cash used in investing activities (33,077) (26,472) Cash Flows From Financing Activities: Treasury stock acquired (57,552) (76,350) Issuance of treasury stock under stock plans 8,454 14,764 Cash paid to close out foreign currency swap - (3,546) Net change in short-term debt 26,147 45,878 Repayment of long-term debt (735) (47) Dividends paid (11,109) (10,553) Net cash used in financing activities (34,795) (29,854) Effect of foreign exchange rates on cash and (738) 693 short-term investments Net increase in cash and short-term $ 1,975 $ 3,084 investments Cash and short-term investments on January 1 $ 23,758 $ 30,236 Cash and short-term investments on September 30 $ 25,733 $ 33,320 The accompanying notes are an integral part of the consolidated condensed financial statements. -4- MILLIPORE CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (In thousands, except share data) 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 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. Accordingly, weighted average share and per share amounts for 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 80,000,000 to 120,000,000. 3. Inventories consist of the following: September December 31, 30, 1996 1995 Raw materials $23,392 $21,357 Work in process 11,459 9,621 Finished goods 56,052 49,408 $90,903 $80,386 4. Accumulated depreciation on property, plant and equipment was $192,891 at September 30, 1996, and $182,690 at December 31, 1995. 5. During the first quarter of 1996, the Company invested approximately $3,000 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 $1,000 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 $1,500 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- MILLIPORE CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (In thousands, except share data) 7. In August, 1994, the Company sold certain assets of its non- membrane bioscience business to PerSeptive Biosystems, Inc. Proceeds from this sale included four thousand shares of PerSeptive's preferred stock, which was redeemable in four equal annual installments of $10,000 each payable in either cash or shares of PerSeptive common stock beginning in August 1995. The preferred stock was recorded at management's estimate of fair market value on the date of receipt. As of September 30, 1996, the Company has received 2,160,000 shares of Perseptive common stock in connection with Perseptive's preferred stock redemption requirement. These common shares are considered available-for-sale securities under the provisions of FAS 115 "Accounting for Certain Investments in Debt and Equity Securities" and are recorded at fair market value and included in Other Assets in the Company's balance sheet at September 30, 1996. The unrealized holding gain on the common stock, net of income tax, is recorded separately in shareholders' equity. Any realized gain on the sale of these securities will be recognized when the shares are sold. -6- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following Discussion and Analysis includes certain forward- looking 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 third quarter of 1996 were $149.0 million, an increase of 1% over sales for the same period last year. Sales growth measured in local currency terms was 7% in the third 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 6 percentage points. If foreign exchange rates remain at October 31, 1996 levels, the effect of foreign currency is expected to reduce reported fourth quarter sales growth by approximately 4 percentage points and full year 1996 sales growth by approximately 5 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 Nine Three Nine months months months months ended ended ended ended 9/30/96 9/30/96 9/30/96 9/30/96 Americas 5% 11% 3% 10% Europe (1)% 4% (4)% 3% Asia/Pacific 16% 21% 2% 6% Consolidated 7% 13% 1% 6% Microelectronics Mfg. 0% 16% (8)% 7% Biopharmaceutical Mfg. 9% 18% 4% 12% Analytical Laboratory 11% 7% 6% 2% Consolidated 7% 13% 1% 6% A slowdown in the semiconductor industry affected the Company's microelectronics manufacturing business in the third quarter, which posted no growth after 13 successive quarters of double-digit sales growth. The 9 percent growth in the biopharmaceutical market in the third quarter was lower than the growth achieved through the first nine months of 1996, primarily due to a lower sales to the European and Japanese markets and timing issues associated with shipments of large protein purification systems. The 11 percent growth in the Analytical Laboratory business was significantly higher than the 5 percent growth posted for the second quarter of 1996, as well as the 6 percent growth recorded in the first quarter. The sales increase was largely driven by new products and market initiatives in applied microbiology, biotech research, and laboratory water. Gross margins in the third quarter of 1996 was equal to 59.2 percent of sales, compared to 58.5 percent in the third quarter of 1995. The gross margin percentage in the third quarter of 1996 is slightly lower than the 59.6 percent recorded in the second quarter of 1996, primarily due to lower production volume in the Company's microelectronics manufacturing plants. The Company expects that gross margin percentages for the fourth quarter of 1996 will be slightly lower than those of the first nine months of 1996. -7- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Selling, general and administrative expenses (S,G & A) in the third quarter of 1996 increased approximately 3 percent over S,G & A expenses for the third quarter of 1995. Included in S,G & A in the third quarter is a non-recurring charge of approximately $2.0 million incurred to move the Company's Japanese subsidiary into a new headquarters and R & D facility. The Company expects that S,G & A spending in the fourth quarter of 1996 will increase slightly over spending in the third quarter. Research and development expenses in the third quarter of 1996 increased approximately 3% over expenses for the third 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. The gain on sale of equity securities of $2.8 million represents the sale of a portion of the Company's stock holdings in a Japanese company. The Company anticipates selling an additional portion of this equity investment in the fourth quarter of 1996 and to realize an approximately similar gain. Net interest expense in the third quarter of 1996 was slightly higher than that of the third quarter of 1995. Net interest expense for the full year is expected to approximate that of 1995. The Company's 23.5 percent effective income tax rate for the third 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 third quarter of 1996, a gain of $400 thousand was realized on the Company's foreign exchange contracts and was recorded in cost of sales, compared to a loss of $1.0 million in the third quarter of 1995. The Company does not engage in speculative trading activity. Cash generated from operations increased to approximately $71.0 million for the first nine months of 1996 from approximately $59.0 million in the first nine months of 1995. The increased cash flow was primarily the result of increased net income for the period. The increase in accounts receivable during the first nine months 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 nine months of 1996, cash from operations was primarily used to invest in property, plant and equipment, pay dividends, and repurchase shares of the Company's common stock. Property, plant and equipment expenditures through the first nine months of 1996 were slightly higher than for the first nine months of 1995, but are expected to be comparable to full year 1995. At January 1, 1996, the Company had spent approximately $42.0 million on share repurchases under a $50.0 million open market share repurchase program begun in 1995. Early in the first quarter of 1996, the Company announced plans to spend an additional $50.0 million on open market share repurchases. During the first nine months of 1996, the Company spent approximately $49.0 million, net of proceeds from stock option exercises, to repurchase shares of its common stock. Repurchases during 1996 have been funded primarily by cash generated from operations and an increase in short-term borrowings of approximately $26.0 million. Repayment of these additional borrowings and any further share repurchases in 1996 are expected to be funded by cash generated from operations. -8- PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. b. Reports on Form 8-K - There were no reports on Form 8- K filed for the quarter ended September 30, 1996. -9- 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 September 30, 1996 /s/ Michael P. Carroll Date Michael P. Carroll Vice President, Chief Financial Officer and Treasurer -10-