-1- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (Fee required) For the fiscal year ended December 31, 1996 or Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (No fee required) For the transition period from ___________ to ______________ Commission File Number 0-1052 MILLIPORE CORPORATION (Exact name of registrant as specified in its charter) Massachusetts 04-2170233 (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 80 Ashby Road, Bedford, MA 01730 (Address of principal executive offices) (Zip Code) (617) 275-9200 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Name of Exchange Title of Class on Which Registered Common Stock, $1.00 Par Value New York Stock Exchange, Inc Securities registered pursuant to Section 12(g) of the Act: None 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 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of Form 10-K or any amendment to this Form 10-K. As of February 21, 1997, the aggregate market value of the registrant's voting stock held by non-affiliates of the registrant was approximately $1,907,834,434 based on the closing price on that date on the New York Stock Exchange. As of February 21, 1997, 43,432,561 shares of the registrant's Common Stock were outstanding. Item 1. Business. The Company Millipore Corporation was incorporated under the laws of Massachusetts on May 3, 1954. Millipore is a leader in the field of membrane separations technology and develops, manufactures and sells products which are used primarily for the analysis, identification and purification of fluids. Millipore's products are based on a variety of membrane and other technologies that effect separations, principally through physical and chemical methods. Millipore is an integrated multinational manufacturer of these products. During 1996 approximately 65% of Millipore's net sales were made to customers outside the United States. Geographic segment information is discussed in Note Q to the Millipore Corporation Consolidated Financial Statements (the "Financial Statements"). Unless the context otherwise requires, the terms "Millipore" or the "Company" mean Millipore Corporation and its subsidiaries (including, except where noted, the Amicon Separation Science Business of W. R. Grace & Co. ("Amicon") and excluding Tylan General, Inc. ("Tylan"), described below). On December 31, 1996, Millipore acquired Amicon for a purchase price of $129,300,000 in cash (including transaction costs). Amicon develops, manufactures and sells molecular separation and purification products for the life science research laboratory and for pharmaceutical/biotechnology manufacturing applications. The technologies employed in its products consist primarily of membrane ultrafiltration and liquid chromatography. Amicon's 1996 revenues were approximately $57,000,000. For further financial information concerning the accounting for the purchase of Amicon see Note C to the Financial Statements. For a discussion of the Tylan General, Inc. acquisition and business see page 6. Products and Technologies For analytical applications, the Company's products are used to gain knowledge about a molecule, compound or micro-organism by detecting, identifying and quantifying the relevant components of a sample. For purification applications, the Company's products are used in manufacturing and research operations to isolate and purify specific components or to remove contaminants. The principal separation technologies utilized by the Company are based on membrane filters, and certain chemistries, resins and enzyme immunoassays and liquid chromatography. Membranes are used to filter either the wanted or the unwanted particulate, bacterial, molecular or viral entities from fluids, or to concentrate and retain such entities (in the fluid) for further processing. Some of the Company's newer membrane materials also use affinity, ion-exchange or electrical charge mechanisms for separation. Both analytical and purification products incorporate membrane and other technologies. The Company's products include disc and cartridge filters and housings of various sizes and configurations, filter-based test kits and precision pumps and other ancillary equipment and supplies. The Company sells more than 3,000 products. Most of the Company's products are listed in its catalogs and are sold as standard items, systems or devices. For special applications, the Company assembles custom products, usually based upon standard modules and components. In certain instances (particularly with respect to process chromatography), the Company also designs and engineers process systems to meet specific needs of the customer. The Company's products also include, in some cases, proprietary software designed to operate and/or integrate certain of its other products or systems (particularly membrane ultrafiltration and chromatography systems). Customers and Markets The Company sells its products primarily to the following markets: to pharmaceutical/biotechnology, microelectronics, chemical and food and beverage companies for use in their manufacturing procedures; and to government, university and private research and testing analytical laboratories. Within each of these markets, the Company focuses its sales efforts upon those segments where customers have specific requirements which can be satisfied by the Company's products. Pharmaceutical/Biotechnology Industry. The Company's products are used by the pharmaceutical/biotechnology industry in sterilization, including virus reduction, and sterility testing of products such as antibiotics, vaccines, vitamins and protein solutions; concentration and fractionation of biological molecules such as vaccines and blood products; cell harvesting; isolation and purification of compounds from complex mixtures and the purification of water for laboratory use. The Company's membrane products also play an important role in the development of new drugs. In addition, Millipore has developed and is developing products for biopharmaceutical applications in order to meet the purification requirements of the biotechnology industry. Microelectronics Industry. The microelectronics industry uses the Company's products to purify (by removing particles and unwanted contaminating molecules), deliver, and monitor the liquids and gases used in the manufacturing processes of semiconductors and other microelectronics components. Sales to the microelectronics market accounted for 28.1 percent of Millipore's 1996 consolidated sales. The microelectronics manufacturing market has experienced historic volatility, and the effect of any such volatility in the future could significantly affect Millipore's sales growth. Chemical Industry. Chemical manufacturers and processors use the Company's products for purification of reagent grade chemicals, for monitoring the atmosphere and waste streams in the industrial workplace and for the purification of water for laboratory use. Food and Beverage Industry. The Company's products are used by the food and beverage industry in quality control and process applications principally to monitor for microbiological contamination; to remove bacteria and yeast from products such as wine and beer, in order to prevent spoilage. Universities and Government Agencies. Universities, governments and private and corporate research and testing laboratories, environmental science laboratories and regulatory agencies purchase a wide range of the Company's products. Typical applications include: purification of proteins; cell culture, and cell structure studies and interactions; concentration of biological molecules; fractionation of complex molecular mixtures; and collection of microorganisms. The Company's water purification products are used extensively by these organizations to prepare high purity water for sensitive assays and the preparation of tissue culture media. Sales and Marketing The Company sells its products within the United States primarily to end users through its own direct sales force and, in the case of analytical products, to a limited extent through an independent distributor. The Company sells its products in foreign markets through the sales forces of its subsidiaries and branches located in more than 30 major industrialized and developing countries as well as through independent distributors in other parts of the world. During 1996, the Company's marketing, sales and service forces (including Tylan) consisted of approximately 379 employees in the United States and 702 employees abroad. The Company's marketing efforts focus on application development for existing products and on new and differentiated products for other existing, newly-identified and proposed customer uses. The Company seeks to educate customers as to the variety of analytical and purification problems which may be addressed by its products and to adapt its products and technologies to separations problems identified by customers. The Company believes that its technical support services are important to its marketing efforts. These services include assisting in defining the customer's needs, evaluating alternative solutions, designing a specific system to perform the desired separation; training users, and assisting customers in compliance with relevant government regulations. Research and Development In its role as a pioneer of membrane separations, Millipore has traditionally placed heavy emphasis on research and development. Research and development activities include the extension and enhancement of existing separations technologies to respond to new applications, the development of new membranes, and the upgrading of membrane based systems to afford the user greater purification capabilities. Research and development efforts also identify new separations applications to which disposable separations devices would be responsive, and develop new configurations into which membrane and ion exchange separations media can be fabricated to efficiently respond to the applications identified. Instruments, hardware, and accessories are also developed to incorporate membranes, modules and devices into total separations systems. Introduction of new applications frequently requires considerable market development prior to the generation of revenues. Millipore performs substantially all of its own research and development and does not provide material amounts of research services for others. Millipore's research and development expenses (excluding Amicon and Tylan) in 1994, 1995 and 1996 with respect to continuing operations were, $34,327,000, $36,515,000 and $38,429,000, respectively. Amicon's research and development expenses in 1994, 1995 and 1996 were $4,144,000, $4,439,000, and $5,180,000, respectively. Tylan's research and development expenses in Fiscal 1994, 1995 and 1996 were $4,189,000, $7,526,000, and $11,807,000, respectively. See Management's Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of this report and also footnotes to Selected Financial Data in Item 6 below for a discussion of research and development write-offs relating to the Amicon and Tylan acquisitions. The Company has traditionally licensed newly developed technology from unaffiliated third parties and/or acquired distribution rights with respect thereto, when it believes it is in its long term interests to do so. In this tradition, in November of 1995 Millipore entered into an agreement with IBC Advanced Technologies to combine their technologies to create a new class of purification products which Millipore intends to take to its customers in its markets. This technology places ligands (organic molecules) on membranes in order to selectively bind with a target molecule in solution, for example a calcium, iron or aluminum ion. Similarly, in May of 1996 Millipore entered into an R&D supply and distribution agreement with Celsis International plc. designed to enhance Millipore's entry into the rapid microbiological market, where there is a need for faster, easier and more accurate ways to detect microbiological contamination. The Celsis technology focuses on the development and supply of rapid diagnostics and monitoring systems to detect and measure microbial contamination. Millipore has been granted a number of patents and licenses and has other patent applications pending both in the United States and abroad. While these patents and licenses are viewed as valuable assets, Millipore's patent position is not of material importance to its operations. Millipore also owns a number of trademarks, the most significant being "Millipore." Competition The Company faces intense competition in all of its markets. The Company believes that its principal competitors include Pall Corporation, Barnstead Thermolyne Corporation and Sartorius GmbH. Certain of the Company's competitors are larger and have greater resources than the Company. However, the Company believes that it offers a broader line of products, making use of a wider range of separations technologies and addressing a broader range of applications than any single competitor. While price is an important factor, the Company competes primarily on the basis of technical expertise, product quality and responsiveness to customer needs, including service and technical support. Environmental Matters The Company is subject to numerous federal, state and foreign laws and regulations that impose strict requirements for the control and abatement of air, water and soil pollutants and the manufacturing, storage, handling and disposal of hazardous substances and waste. These laws and regulations include the federal Comprehensive Environmental Response, Compensation, and Liability Act, the Clean Air Act, the Clean Water Act and the Resource Conservation and Recovery Act. The Company is in substantial compliance with applicable environmental requirements. Because regulatory standards under environmental laws and regulations are becoming increasingly stringent, however, there can be no assurance that future developments will not cause the Company to incur material environmental liabilities or costs. Under the Clean Air Act Amendments of 1990 ("CAA"), the Environmental Protection Agency ("EPA") has been directed, among other things, to develop standards and permit procedures with respect to certain air pollutants. Because many of the implementing regulations have not yet been promulgated, the Company cannot make a final assessment of the impact of the CAA. Based upon its preliminary review of the CAA, however, the Company currently believes that compliance with the CAA will not have a material adverse impact on the operations or financial condition of the Company. Tylan General, Inc. Acquisition Millipore acquired all the shares of Tylan effective as of January 27, 1997. The acquisition of the shares of Tylan was at a price of $16 per share, or approximately $133,000,000. Millipore also assumed Tylan's outstanding debt, net of cash, of approximately $23,600,000. Tylan develops, manufactures, markets and sells a broad range of components used in the handling of process gases for the semiconductor industry. Tylan had 1996 sales of approximately $148,000,000. For further financial information concerning the accounting treatment of the Tylan acquisition, see Note D to the Financial Statements on Page F-15 of this report. Products and Technologies Tylan's mass flow controllers measure mass flow by separating a small portion of the main gas stream and sensing the heat transfer it creates as it flows through a small measuring capillary. This information is used by the product's servo control circuit as it adjusts the position of the product's internal control valve. The result is a highly accurate, reliable and repeatable measurement and control of the process gas flow rate. Tylan's pressure products are used to measure and control pressure in process reactors. Tylan's capacitance diaphragm gauges can be used to measure total pressure in a process chamber and, when used in conjunction with a variable conductance valve and a pressure controller, can be used to control the pressure in process reactors. Gas panels are typically comprised of mass flow controllers, filters, purifiers, shut-off valves, regulators and other associated hardware. Their purpose is to manage the on-tool handling of the gases that are supplied to the system. The process gases in a semiconductor fabrication facility are generally stored in large bulk containers and are distributed throughout the facility in highly pressurized pipes or gas lines. Once delivered to the tool, particles and contaminants must be removed, gas flow rates must be measured and controlled and the resultant mixture of process gases must be routed to the process chamber. These critical functions are performed by the gas panel. Tylan designs and manufactures ultraclean gas panels both for new process tools and for retrofit or replacement on existing tools. In response to the growing demand for ultraclean gas panels, it has recently developed the Intelligent Gas Panel, which allows real-time monitoring of mass flow controller performance. Sales and Marketing Tylan primarily sells its products through a worldwide network of direct sales personnel augmented by strategically located distributors and representatives. Tylan services products from six Company-owned service offices in the United States. Internationally, it provides service through seven Company-owned service offices: Korea, Japan, the United Kingdom, France, Germany (two locations) and Scotland. All of these offices provide calibration of ultraclean mass flow controllers in modern clean room facilities. In addition, service is also provided internationally through agreements with certain key distributors in Taiwan, Singapore, Ireland and Israel. Customers and Markets Tylan's customers are primarily manufacturers of semiconductor wafer processing equipment. It also sells retrofit or replacement parts directly to integrated circuit manufacturers. These manufacturers often specify to their equipment suppliers which vendor's process instrumentation should be supplied with a particular process tool. Research & Development Tylan's research and development efforts are focused on developing products that address the evolving needs of its customers and enhancing its existing products. The markets in which it competes are characterized by evolving industry standards and continuous improvements in products and services. To compete effectively in such markets, Tylan must continually improve its products and develop new products that compare favorably on the basis of price and performance. The markets in which Tylan's customers compete are also characterized by rapidly changing technology and emerging industry standards. Consequently, Tylan must adapt its products to meet such technological changes and support such standards. Competition The market for Tylan's products is highly competitive. Significant competitive factors include cost of ownership, historical relationships, product quality, performance, size of installed base, breadth of product line and customer service and support. Tylan competes with a number of companies in its mass flow controller markets and with other companies, including MKS Instruments, in its pressure products markets. Although Tylan has achieved significant sales of its pressure products to the Japanese market, the Japanese mass flow control market has been difficult for non-Japanese companies to penetrate. In addressing the Japanese mass flow control market, Tylan is at a competitive disadvantage compared to Japanese suppliers, many of which have long-standing collaborative relationships with Japanese integrated circuit manufacturers and their equipment suppliers. Restructuring and Divestitures In August 1994, Millipore completed the divestiture of its Instrumentation Divisions (the Waters Chromatography business and the non-membrane bioscience instrument business). The Company realized a net loss of $3.4 million in 1994 upon the disposition of those divisions, including all costs estimated to be incurred in connection with the divestitures as well as the pre-tax operating losses generated by those divisions from November 11, 1993 through the date of completion of the divestitures. Other Information Since April of 1988, the Company has had in place a shareholder rights plan (the "Rights Plan") pursuant to which it declared a dividend to its shareholders of the right to purchase (a "Right"), for each share of Millipore Common Stock owned, one additional share of Millipore Common Stock at a price of $80 for each share (giving effect to the 1995 two for one stock split). The Rights Plan is designed to protect Millipore's shareholders from attempts by others to acquire Millipore on terms or by using tactics that could deny all shareholders the opportunity to realize the full value of their investment. The Rights will be exercisable only if a person or group of affiliated or associated persons acquires beneficial ownership of 20% or more of the outstanding shares of the Company Common Stock or commences a tender or exchange offer that would result in a person or group owning 20% or more of the outstanding Common Stock. In such event, or in the event that Millipore is subsequently acquired in a merger or other business combination, each Right will entitle its holder to purchase, at the then current exercise price, shares of the common stock of the surviving company having a value equal to twice the exercise price. Millipore's products are made from a wide variety of raw materials which are generally available in quantity from alternate sources of supply; as a result, Millipore is not substantially dependent upon any single supplier. As of December 31, 1996, Millipore (excluding Amicon and Tylan) employed 3,482 persons worldwide, of whom 1,707 were employed in the United States and 1,775 overseas. Amicon employed approximately 400 employees at year end 1996, and Tylan employed approximately 800 employees at year end 1996. Executive Officers of Millipore The following is a list as of March 1, 1997 of the Executive Officers of Millipore. All of the following individuals were elected to serve until the Directors Meeting next following the 1997 Annual Stockholders Meeting. First Elected: To An Present Name Age Office Officer Office C. William Zadel 53 Chairman of the Board 1996 1996 President and Chief Executive Officer of the Corporation Geoffrey Nunes 66 Senior Vice President 1976 1980 of the Corporation Michael P. Carroll 46 Vice President of the Corporation 1992 1992 and Chief Financial Officer Douglas B. Jacoby 50 Vice President 1989 1989 of the Corporation John E. Lary 50 Vice President 1994 1994 of the Corporation Joanna Nikka 45 Vice President 1996 1996 of the Corporation Jeffrey Rudin 45 Vice President 1996 1996 of the Corporation and General Counsel Hideo Takahashi 55 Vice President of 1996 1979 the Corporation and (As President President of Nihon of Nihon Millipore Millipore) Mr. Zadel was elected President, Chief Executive Officer and Chairman on February 20, 1996. Mr. Zadel had been, since 1986, President and Chief Executive Officer of Ciba Corning Diagnostics Corp., a company that develops, manufactures and sells medical diagnostic products. Prior to that he was Senior Vice President of Corning Glass Works' (now Corning Inc.) Americas Operations (1985) and Vice President of business development (1983). Mr. Zadel currently serves on the Boards of Directors of Kulicke and Soffa Industries, Inc., Matritech, Inc. and Zoll Medical Corporation. Mr. Nunes joined Millipore in 1976 as Vice President and General Counsel and was elected a Senior Vice President in 1980. Mr. Nunes has announced that he will be retiring from Millipore at the end of April 1997. Mr. Carroll joined Millipore in 1986 as Vice President/Finance for the Membrane Products Division following a ten-year career in the general practice audit division of Coopers and Lybrand. In 1988, Mr. Carroll assumed the position of Vice President of Information Systems (worldwide) and in December of 1990, he became the Vice President of Finance for the Company's Waters Chromatography Division. Mr. Carroll was elected to Corporate Vice President, Chief Financial Officer and Treasurer in February, 1992. Mr. Carroll has been designated President Millipore Asia Ltd, a position he will assume once his successor as Chief Financial Officer has been appointed and installed. He will remain a Corporate Vice President. Mr. Jacoby joined Millipore in 1975. After serving in various sales and marketing capacities, Mr. Jacoby became Director of Marketing for the Millipore Membrane Products Division in 1983 and in 1985, he assumed the position of General Manager of the Membrane Pharmaceutical Division. In 1987, Mr. Jacoby assumed responsibility for the Company's process membrane business and in 1994 assumed responsibility for the sales, marketing and R&D for all of the Company's worldwide business. Mr. Jacoby was elected a Corporate officer in December, 1989. Mr. Lary was elected a Corporate Vice President in November 1994, and is responsible for the worldwide operations of the Company. From May of 1993 until his election as a Corporate Vice President, Mr. Lary served as Senior Vice President and General Manager of the Americas Operation. For the ten years prior to that time, he served as Senior Vice President of the Membrane Operations Division of Millipore. Ms. Nikka was elected Corporate Vice President for Human Resources in November 1996. Ms. Nikka was Vice President at Fidelity Investments from 1991 to November 1996. Prior to joining Fidelity in 1991, Ms. Nikka was Vice President of Human Resources at Symbolics, Inc. Mr. Rudin was elected Corporate Vice President and General Counsel in December 1996. Prior to joining Millipore, and since 1993 Mr. Rudin was Senior Vice President and General Counsel of Ciba Corning Diagnostics Corporation and was Vice President and General Counsel of that company from 1988 until 1993. Mr. Takahashi joined Millipore in 1979 as President and Chief Executive Officer of its Japanese subsidiary, Nihon Millipore Ltd. Mr. Takahashi was elected as a Vice President of the Company on February 8, 1996. Item 2. Properties. Millipore owns approximately 1.25 million square feet of facilities located in the United States, Europe and Japan. The following table identifies the principal properties owned by Millipore and describes the purpose, floor space and land area of each. Floor Space Land Area Location Facility Sq. Ft. Acres Bedford, Executive Offices, research, 352,000 31 MA pilot production & warehouse Danvers Manufacturing and office 65,000 16 MA Jaffrey, Manufacturing, warehouse 169,000 31 NH and office Cidra, Manufacturing, warehouse 134,000 36 Puerto Rico and office Molsheim, Manufacturing, warehouse 148,000 20 France and office St. Quentin Office and research 50,000 5 France Nancy, Office and research 20,000 6 France Cork, Manufacturing 83,000 20 Ireland Limerick, Manufacturing and warehouse 20,000 <1 Ireland Stonehouse Manufacturing and office 35,000 1 United Kingdom Yonezawa, Manufacturing and warehouse 144,000 7 Japan TOTAL 1,248,000 173 The facilities located in Cidra, Puerto Rico and Yonezawa, Japan are currently underutilized by approximately 25% and 50%, respectively, allowing for future manufacturing and distribution growth. The small facility in Limerick is approximately 70% underutilized. _____________________________________ In addition to the above properties, Millipore has entered into a long term lease for premises abutting its Bedford facility. This lease makes 75,000 square feet of building available to Millipore and contains rights of first refusal and options with respect to the purchase of the premises by Millipore and the sale of the premises to Millipore. During 1988 Millipore entered into a 10-year lease for a building of 130,000 square feet located in Burlington, Massachusetts, approximately 5 miles from its Bedford headquarters. This lease contains a single 5- year extension option. In 1991 the Company entered into a 15-year lease with renewal options for an aggregate of 20 years, as well as a purchase option covering a 134,000 square foot building which is adjacent to the leased property referred to in the first sentence of this paragraph, and which houses the Company's Process System Business, as well as the customer training laboratories for this group. In addition to its foregoing properties, Millipore currently leases various manufacturing, sales, warehouse, and administrative facilities throughout the world. Such leases expire at different times through 2006. The rented space aggregate is approximately 717,000 square feet (including leased facilities acquired in the Amicon transaction) and cost was approximately $9,034,000 in 1996. No single lease, in opinion of Millipore, is material to its operations. Tylan maintains offices and a manufacturing facility for its pressure measurement and control products in a leased 43,700 square foot facility in San Diego, California. The lease on this facility will expire in March 2006. Tylan's primary manufacturing facility for mass flow control products is located in a leased 54,200 square foot facility in Rancho Dominguez, California. The lease on this facility will expire in July 2005. Tylan also leases a 9,700 square foot manufacturing facility for gas panel products in Austin, Texas under a lease that expires in August 1997, and leases a 85,000 square foot manufacturing facility in Plano, Texas under a lease expiring in 2005. Tylan has additional leased sales and service facilities in San Jose, California, Tempe, Arizona and Salem, New Hampshire. Tylan's principal European manufacturing facility is leased by its subsidiary in Swindon, England, The 6,900 square foot facility serves as the European headquarters for manufacturing. Tylan's subsidiaries also lease a 6,100 square foot sales and service facility in Eching, Germany, a 570 square foot sales and service facility in Dresden, Germany, a 4,800 square foot sales and service facility in St. Quentin Fallavier, France and a 1,000 square foot facility in Livingston, Scotland. Tylan General K.K. leases a 9,300 square foot manufacturing, sales and service center in Yokohama, Japan. In addition, Tylan General Korea Ltd. leases a 1,700 square foot sales and service facility and Hanyang General Co., Ltd. leases a 1,700 square foot manufacturing facility, both of which are located in Kyunggi-Do, Korea. Millipore is of the opinion that all the facilities owned or leased by it are well maintained, appropriately insured, in good operating condition and suitable for their present uses. Item 3. Legal Proceedings. Millipore has been, over the last 13 years, notified that the EPA has determined that a release or a substantial threat of a release of hazardous substances (a "Release") as defined in Section 101 of the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986 (SARA), or analogous state law ("CERCLA" or "Superfund") has occurred at twelve sites to which chemical wastes generated by the manufacturing operations of Millipore or one of its divisions may have been sent. These notifications typically also allege that Millipore is a potentially responsible party ("PRP") under CERCLA with respect to any remedial action needed to control or prevent any such Release. Because CERCLA provides for strict, joint and several liability, a government plaintiff could seek to recover all remediation costs at a waste disposal site from any one of the PRPs, including the Company. Generally, where there are a number of financially viable PRPs, liability has been apportioned, or the Company believes, based on its experience with such matters, that liability will be apportioned, based on the type and amount of waste disposed of by each PRP at such disposal site and the number of financially viable PRPs. No assurance can be given, however, that this method of apportionment will be used at any particular site. The Company has paid approximately $14 million to date pursuant to consent decrees with the EPA and relevant state agencies to settle its liability at seven of the Superfund sites at which the Company has been named a PRP. These consent decrees provide the Company with a release from further liability with respect to certain covered matters. However, as is typical with such consent decrees, EPA and the relevant state agencies reserve the right to maintain actions against the settling parties, including the Company, in the event certain actions occur or do not occur. In addition, third party private actions could be brought against the Company for matters not covered in the consent decrees. The Company is currently appealing a decision by a federal district court located in Massachusetts, which held that the Company's insurers were not required to indemnify the Company for costs incurred at five of the Superfund sites at which the Company is named a PRP. If the Company loses on appeal, the Company will not receive reimbursement from its carriers at any of the Superfund sites. The Company believes it has sufficient reserves, which do not assume recovery from its insurance carriers, to satisfy the Company's estimated remaining liabilities at the twelve Superfund sites. The Company believes that, based on the number and size of financially solvent PRPs participating at each Superfund site, the amount and types of wastes disposed of by the Company at these sites, and the likely availability of contribution from other PRP's in the event the Company were held jointly and severally liable at any of the sites, the aggregate of any future remaining potential liabilities should not have a material adverse effect on the Company's financial condition. The Company and Waters Corporation are engaged in an arbitration proceeding and a related litigation in the Superior Court, Middlesex, Massachusetts, 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. In the second quarter of 1996, Waters filed a Complaint in the Federal District Court of Massachusetts alleging that the Company's operation of the Retirement Plan violates ERISA and certain sections of the Internal Revenue Code. The Company believes that it has meritorious arguments and should prevail in these litigations. The ultimate disposition is not expected to have a material adverse effect on the Company's financial condition, although any settlement of this matter may impact the Company's financial statements in a particular period. Item 4. Submission of Matters to a Vote of Security Holders. This item is not applicable. PART II Item 5. Market for Millipore's Common Stock, and Related Stockholder Matters. Millipore Stock Prices Stock price data from the New York Stock Exchange is based on high and low sales prices. There were approximately 3,355 shareholders of record as of December 31, 1996. Dividends Declared Range of Stock Prices Per Share 1996 1995 1996 1995 High Low High Low First Quarter $47.13 $36.00 $28.69 $22.88 $0.080 $0.075 Second Quarter 47.13 35.50 34.56 27.00 0.090 0.080 Third Quarter 43.13 33.88 39.13 31.75 0.090 0.080 Fourth Quarter 43.00 33.63 41.50 34.13 0.090 0.080 Item 6. Selected Financial Data. (In thousands except per share) 1996(a) 1995 1994 1993 1992 Net sales $618,735 $594,466 $497,252 $445,366 $427,188 Cost of sales 249,443 243,849 212,675 193,575 195,462 Gross profit 369,292 350,617 284,577 251,791 231,726 Selling, general and 202,140 195,026 159,591 145,647 142,701 administrative expenses Research and development 38,429 36,515 34,327 34,952 32,953 expenses Purchased research & 68,311 - - - - development expense(b) Operating income 60,412 119,076 90,659 71,192 56,072 Gain on sale of equity 5,329 - - - - securities Other income (expense), net - - (10,800) - (2,415) Interest income 2,780 1,682 4,091 4,069 6,888 Interest expense (11,498) (10,623) (7,035) (12,038) (14,692) Income from continuing operations before income taxes 57,023 110,135 76,915 63,223 45,853 Provision for income taxes 13,401 24,781 17,306 14,225 10,317 Income from continuing operations before extraordinary 43,622 85,354 59,609 48,998 35,536 item Earnings (loss) from - - - (10,851) 2,715 discontinued operations Loss on disposal of - - (3,400) - - discontinued operations(c) Income before extraordinary item and cumulative effect of change in accounting 43,622 85,354 56,209 38,147 38,251 principle Extraordinary item-loss on - - - (3,544) - early extinguishment of debt Cumulative effect of change in accounting for postretirement - - - - (5,068) benefits Net income $43,622 $85,354 $56,209 $34,603 $33,183 Net income per common share: Income from continuing $1.00 $1.90 $1.09 $0.88 $0.63 operations Net income per common 1.00 1.90 1.03 0.62 0.59 share Cash dividends declared per 0.35 0.315 0.295 0.275 0.255 share Average common shares and 43,602 44,985 54,726 55,902 56,484 equivalents Financial Data Working capital $95,512 $90,337 $100,649 $232,865 $220,378 Total assets 682,892 530,945 536,980 728,573 764,950 Long-term debt 224,359 105,272 109,327 110,067 103,332 Shareholders' equity $217,605 $226,475 $221,277 $461,154 $452,835 (a) On December 31, 1996, the Company acquired Amicon for $129.3 million in cash, including transaction costs. This acquisition was accounted for as a purchase. As this transaction was completed on the last business day of 1996, the accompanying 1996 consolidated statement of income excludes all 1996 business activity conducted by Amicon. However, the assets acquired and liabilities assumed are included in the Company's consolidated balance sheet at December 31, 1996. (b) Purchased research and development represents the write-off of in-process research and development arising from the acquisition of Amicon on December 31, 1996. (c) The loss on disposal of discontinued operations in 1994 include pre-tax operating losses generated by the discontinued businesses from November 11, 1993 through the completion of such divestitures. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Forward-Looking Statements The matters discussed herein, as well as in future oral and written statements by management of the Company, that are forward- looking statements are based on current management expectations that involve substantial risks and uncertainties which could cause actual results to differ materially from the results expressed in, or implied by, these forward-looking statements. When used herein or elsewhere, the words "anticipate", "believe", "estimate", "expect", "may", "will", "should" or the negative thereof and similar expressions as they relate to the Company or its management are intended to identify such forward-looking statements. Potential risks and uncertainties that could affect the Company's future operating results include, without limitation, 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 shifts in market demand; change in product mix; conditions in the economy in general and in the microelectronics manufacturing market in particular; the difficulty in integrating acquired companies; potential environmental liabilities; the inability to utilize technology in current or planned products due to overridding rights by third parties, and the risk factors listed from time to time in the Company's filings with the SEC. See also "Business -- Environmental Matters", "Legal Proceedings" and "--Business Outlook and Uncertainties". Recent Developments On December 31, 1996, the Company acquired Amicon for a price of $129.3 million in cash, including transaction costs. This transaction was accounted for as a purchase and resulted in a pre- tax write-off for purchased research and development of $68.3 million in the fourth quarter of 1996. As this transaction was completed on the last business day of 1996, the accompanying 1996 consolidated statement of income excludes all 1996 business activity conducted by Amicon. However, the assets acquired and liabilities assumed are included in the Company's consolidated balance sheet at December 31, 1996. On January 22, 1997, the Company announced the successful completion of its tender offer for all of the outstanding common shares of Tylan for $16.00 per share. Tylan became a wholly owned subsidiary of the Company on January 27, 1997. The purchase price was $133.0 million, plus the assumption of Tylan's outstanding debt, net of cash, totaling $23.6 million. This acquisition will be accounted for as a purchase in the first quarter of 1997. Results of Operations Net Sales Consolidated net sales, measured in U.S. dollars, increased 4 percent in 1996 compared to an increase of 20 percent in 1995. The lower sales growth rate in 1996 compared to 1995 was primarily attributable to the microelectronics manufacturing market entering one of its periodic downturns as well as unfavorable foreign exchange comparisons. 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 199 1995 1994 199 199 199 6 6 5 4 Americas 8% 15% 8% 7% 13% 8% Europe 6% 10% 6% 4% 20% 7% Asia/Pacific 14% 18% 16% 2% 27% 21% Consolidated 10% 15% 10% 4% 20% 12% Microelectroni 8% 43% 33% 0% 50% 39% cs Mfg BioPharmaceuti 14% 9% 4% 10% 14% 6% cal Mfg Analytical 8% 3% 4% 3% 8% 6% Laboratory Consolidated 10% 15% 10% 4% 20% 12% Full year sales in 1996 to microelectronics manufacturing customers measured in local currencies increased 8 percent compared to 1995. A downturn in the microelectronics market began to impact the Company's sales growth around the middle of 1996, as sales to customers in this market grew 24 percent in the first six months of 1996 compared to 1995 and declined 7 percent in the second half of 1996 compared to 1995. The slowdown significantly impacted growth in both the Americas and Japan while sales growth in the remaining Asia/Pacific microelectronics market remained strong. Sales into the microelectronics market comprised 28 percent of total consolidated sales in 1996, versus 29 percent of total sales in 1995. Sales to the BioPharmeceutical manufacturing market grew 14 percent in local currencies during 1996, compared to 9 percent growth in 1995. The higher growth rate in 1996 was due to increased sales of large protein processing systems to biotechnology customers in both the Americas and Europe, and higher sales to beer manufacturing customers in Japan, particularly in the first six months of the year. Sales to BioPharmeceutical customers comprised 31 percent of total sales in 1996 and 29 percent in 1995. Sales to the analytical laboratory market measured in local currencies grew at faster rates in 1996 than in 1995 and 1994. New product introductions and a new distribution strategy in the United States fueled sales growth in this market, particularly in the last six months of 1996. Sales growth was strongest in the Americas and Japan, while sales grew more modestly in Europe due to a difficult economic environment. Sales to analytical laboratory customers comprised 41 percent of total sales in 1996 and 42 percent in 1995. Foreign exchange rates, primarily the U.S. dollar strengthening against the Japanese yen, reduced reported sales growth by 6 percent in 1996, compared to increasing sales by 5 percent in 1995 and 2 percent in 1994. Approximately 29 percent of the Company's sales in 1996 and 1995 were generated in Japan. On average, the U.S. dollar was 15 percent stronger against the Japanese yen in 1996 compared to 1995. The year to year comparisons were particularly unfavorable in the second and third quarters of 1996 as the dollar was at historic post-war lows against the yen during this time frame in 1995. 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 Gross Margins were 59.7 percent in 1996, 59.0 percent in 1995, and 57.2 percent in 1994. The margin improvement in 1996 was due to continued cost containment and increased volume in the Company's manufacturing plants. The significant volume of business transacted in foreign currencies as discussed above exposes the Company to risks associated with currency rate fluctuations which impact the Company's sales and net income. To partially mitigate this risk, the Company has entered into foreign currency transactions, forward and option contracts to sell yen, on a continuing basis in amounts and timing consistent with underlying currency exposure on inventory purchases so that the gains or losses on these transactions offset gains or losses on the underlying exposure. A realized gain of $2.7 million in 1996 and realized losses of $2.3 million in 1995 and $1.0 million in 1994 relating to these contracts were recognized. These gains and losses were reflected in cost of sales each year, partially offsetting the impact of foreign exchange fluctuations. At December 31, 1996, the Company has open forward exchange contracts to sell yen aggregating $13.4 million and open forward option contracts to sell yen aggregating $27.0 million pertaining to this hedging program. These open contracts have an unrealized gain of $1.7 million at December 31, 1996. All open contracts mature within 15 months. Operating Expenses Selling, General and Administrative (S, G & A) Expenses, excluding the effects of foreign exchange, grew 8 percent in 1996, 17 percent in 1995 and 8 percent in 1994. The Company continued to invest in selling and marketing resources to support both new product launches and future sales growth initiatives, particularly in the microelectronics and analytical laboratory markets. Research and Development Expenses increased by 5 percent in 1996 compared to 1995 after increasing 6 percent in 1995 compared to 1994. The increase in spending the past two years is principally due to investments in new products in the microelectronics manufacturing market. Purchased Research and Development Expense of $68.3 million in 1996 represents the write-off of in-process research and development arising from the acquisition of Amicon on December 31, 1996. Other Income/Expense Gain on Sale of Equity Securities reflects the sale of a significant portion of the Company's stock holdings in a Japanese Company. The Company sold these securities in the third and fourth quarters of 1996 to fund a new headquarters and research and development facility in Japan. The cost of moving to this new facility was $2.0 million and was recorded in S,G & A expense. 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. Net Interest Expense in 1996 was comparable with net interest expense in 1995, as the impact of slightly higher net borrowings during 1996 was offset by lower short term interest rates. Net interest expense in 1994 was significantly lower compared to 1995 and 1996 as 1994 benefited from the substantial net proceeds received from the divested business The Provision for Income Taxes was 23.5 percent of pre-tax income in 1996, versus an effective rate in 1995 and 1994 of 22.5 percent. While 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 overall increase in profitability in 1996 slightly diminished the relative benefit derived from these low tax jurisdictions. 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 1994. Earnings Per Share in the past three years include certain non- recurring charges. Earnings per share from continuing operations adjusted for these charges are summarized as follows: 1996 1995 1994 Earnings from continuing $1.00 $1.90 $1.09 operations after charges Charges 1.20 - 0.15 Earnings from continuing operations before charges $2.20 $1.90 $1.24 The charge in 1996 relates to the write-off of purchased in-process research and development arising from the acquisition of Amicon. The charge in 1994 resulted from the settlement of litigation relating to the Company's sale of the Process Water Division in 1989. Legal Proceedings The Company and Waters Corporation are engaged in an arbitration proceeding and related state and federal litigation, which commenced in 1995 and 1996, 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 . In the opinion of the Company, although final settlement of this matter may impact the Company's financial statements in a particular period, it is not expected to have a material adverse effect on the Company's financial condition. Capital Resources and Liquidity In 1996, the Company generated $102.2 million of cash from operating activities, compared to $99.1 million in 1995 and $88.6 million in 1994. Net cash provided by operating activities continued to be the Company's primary source of funding capital expenditures, dividends and open market share repurchases in 1996. The slight increase in cash generated from operating activities in 1996 compared to 1995 was primarily due strong collections of accounts receivable, which helped fund an $11.6 million increase in inventories. Capital spending in 1996 was the same as in 1995. The Company continued to invest in capacity expansions in the Company's manufacturing facilities and in information technology systems. In addition, the Company moved into a new headquarters and research and development facility in Japan. As previously discussed, the cost of this move was funded by a sale of equity securities in Japan. The Company expects capital expenditures and depreciation expense in 1997 to be higher than capital spending and depreciation expense in 1996. At December 31, 1996, the Company had no significant commitments for capital expenditures. During the past three years, the Company has used cash generated from its operations and, in 1995 and 1994, cash generated from the sale of its Waters Chromatography and BioScience divisions, to purchase shares of its outstanding common stock. The Company spent, net of stock option exercise amounts, $46.9 million, $64.0 million and $293.0 million in 1996, 1995, and 1994 respectively to repurchase shares of its outstanding common stock. At December 31, 1996, the Company had $9.0 million remaining to spend on a $50.0 million share repurchase program announced in the first quarter of 1996. Share repurchases were stopped at the end of the third quarter of 1996 to maintain financial flexibility in light of pending acquisitions. The Company does not expect to repurchase additional shares of its outstanding common stock in 1997 as cash generated from operations will be used to pay down borrowings required to finance the acquisitions of Amicon and Tylan. The net cash outflow of $7.9 million in 1996 for operations discontinued in 1994 was in line with the Company's expectations. The Company believes that the net cash it will spend in 1997 with respect to such divestitures will approximate the accrued divestiture liability of $3.6 million recorded on the consolidated balance sheet at December 31, 1996. The amount expected to be spent in 1997 will be lower than the amount spent in 1996 as contractual support services provided to the divested businesses will expire. The Company incurred one-time finance related costs in both 1995 and 1994, which did not repeat in 1996. 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 $100.0 million notes payable due in 1998, while $10.3 million was used to close out the Company's yen currency swap. The Company has $46.9 million of cash and short-term investments on hand at the end of 1996. The amount on hand at December 31, 1996 is higher than that normally held by the Company and consists primarily of balances held by the Company's international subsidiaries which will be used to fund their respective portions of the Amicon and Tylan acquisitions. In addition, the Company has a $450.0 million five-year credit facility (the "credit facility") in place which was drawn on to fund both acquisitions. Borrowings required to fund the acquisition of Amicon were drawn on in December, 1996. Borrowings drawn on in the first quarter of 1997 to fund the acquisition of Tylan would have caused the Company to violate a covenant with respect to the $100.0 million 6.78 percent notes payable due in 2004 which required that the Company prevent total debt from exceeding 60% of total debt plus equity. However, the holder of these notes waived the requirement that the Company comply with this covenant through March 21, 1997. The Company is currently negotiating to change the financial covenant included in this note agreement. If a revised agreement is not reached by March 21, 1997, the Company may redeem the notes using either proceeds from a planned public debt offering for up to $300.0 million or borrowings potentially available upon request by the Company under the Credit Facility. The use of debt to finance the acquisitions of Amicon and Tylan substantially increases the Company's debt-to-equity ratio. However, the Company's financial position remains strong and the Company has flexibility in financing future requirements, although such flexibility is more limited than it had been prior to these acquisitions. Dividends The quarterly dividend was increased in the second quarter of 1996 from $0.08 to $0.09 per share. Dividends paid in 1996 were $14.9 million. Business Outlook and Uncertainties The following statements are based on current expectations. These statements are forward looking and actual results may differ materially. Business Acquisitions - Operations related to the acquisitions of both Amicon and Tylan will be included in the Company's statements of income commencing in the first quarter of 1997. As both acquisitions are accounted for as purchases, all growth rates in the Company's statement of income for 1997 will include the impact of adding these two businesses to the Company's operations. In addition, the Company expects to record in the first quarter of 1997 a non-tax deductible charge in the range of $50.0 million to $100.0 million for purchased research and development arising from the Tylan acquisition. The successful completion of these acquisitions requires the integration of two companies that have previously operated independently. The process of integrating acquired businesses may involve unforeseen difficulties and there can be no assurance that the potential benefits of such integration will be realized to the extent or on the schedule expected by the Company. Moreover, such integration may require a disproportionate amount of the time and attention of the Company's management and the Company's financial and other resources. Any delays or unexpected costs in connection with such integration could have a material adverse effect on the Company's financial condition and results of operations. Sales - As previously noted, sales to the microelectronics market in 1996 represented 28 percent of consolidated 1996 sales. In 1995 and the first six months of 1996, the microelectronics market was the fastest growing market in which the Company participated. However, sales into this market declined 7 percent in the last six months of 1996. Market research data for the microelectronics manufacturing market is forecasting 1997 industry sales growth rate ranging from flat to slightly negative. Sales growth in this market in the past has been volatile, due to general cyclically historically exhibited by this market. The acquisition of Tylan in 1997 increases the Company's presence in the microelectronics manufacturing market. 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. Approximately 65 percent of the Company's sales are transacted outside of the Americas in currencies other than the U.S. dollar. Late in 1996 and early in 1997, the U.S. dollar began to further strengthen against the Japanese yen and French franc. If foreign exchange rates remain at February 1, 1997 levels, the effect of foreign exchange will reduce first quarter 1997 and full-year 1997 reported sales growth by 3 percent and 2 percent, respectively compared to 1996. Any change in foreign exchange rates will be reflected in the results of operations. Gross Margins - The Company expects gross margin percentages in 1997 before the effect of the Amicon and Tylan acquisitions to be comparable with those in 1996, as improved margins resulting from increased volume in the Company's manufacturing plants to support anticipated sales growth is expected to offset slightly lower margins associated with the new U.S. distribution agreement. Lower than expected sales growth will negatively impact the Company's ability to maintain or improve gross margin percentages. Other than the U.S. distribution agreement noted above, the Company anticipates no significant changes in the pricing of it's products. Historical gross margin percentages generated by Amicon approximate those experienced by the Company. However, historical gross margin percentages generated by Tylan have been approximately 18-20 percentage points lower than those experienced by the Company. If anticipated synergies are achieved, the Company expects that the acquisition of Tylan will reduce 1997 consolidated gross margins percentages by 1 to 2 percent compared to 1996. Operating Expenses - The Company expects to continue investing in operating expenses in a manner consistent with previous years. The acquisitions at both Amicon and Tylan will result in incremental operating expenses required to support these additional businesses. Interest Expense - The Company expects net interest expense in 1997 will be significantly higher than in 1996 due to increased borrowings of approximately $282.0 million required to complete the acquisitions of Amicon and Tylan. The Company anticipates that 1997 borrowings will fluctuate on a quarterly basis but anticipates no significant increase in borrowings on a full year basis other than the $282.0 million discussed above. Provision for Income Taxes - Excluding the impact of a non-deductible in process research and development write-off associated with the acquisition of Tylan, the effective tax rate in 1997 is projected to be in the 24 to 26 percent range, up from 23.5 percent in 1996 as the acquisitions of Amicon and Tylan will result in additional income being earned outside of the Company's low tax rate manufacturing sites. The tax rate estimate is based on current tax law and is subject to change. At December 31, 1996, the Company had a net deferred tax asset of $69.1 million. Although realization of the asset is not assured, the Company believes it is more likely than not that this net deferred tax asset will be realized. The amount of the deferred tax considered realizable, however, could be reduced if the near term estimates of future taxable income are reduced, which could result in the Company's 1997 effective tax rate increasing above the expected 24 to 26 percent range. Capital Spending - The Company expects to spend more for fixed asset additions in 1997 than it spent in 1996. The Company does not believe it needs to significantly expand or add manufacturing capacity in 1997 to handle its anticipated 1997 sales growth. The Company, however, expects to launch manufacturing operations in China in 1997 and will invest in leasehold improvements and machinery and equipment to support this new operation. The Company will also continue to invest in tooling within its manufacturing plants and in information technology as required. The Company also expects that 1997 depreciation expense will be higher than 1996 depreciation expense. Item 8. Financial Statements and Supplementary Data. The information called for by this item is attached to the back of this report commencing with Page F-1. Item 9. Disagreements on Accounting and Financial Disclosure. This item is not applicable. PART III Item 10. Directors and Executive Officers of Millipore. The information called for by this item with respect to registrant's directors and compliance with Section 16(a) of the Securities Exchange Act of 1934 as amended is set forth under the caption "Management and Election of Directors--Nominees for Election as Directors" in Millipore's definitive Proxy Statement for Millipore's Annual Meeting of Stockholders to be held on April 17, 1997, and to be filed with the Securities and Exchange Commission on or about March 21, 1997, which information is hereby incorporated herein by reference. Information called for by this item with respect to registrant's executive officers is set forth under "Executive Officers of Millipore" in Item 1 of this report. Item 11. Executive Compensation. The information called for by this item is set forth under the caption "Management and Election of Directors-Executive Compensation" in Millipore's definitive Proxy Statement for Millipore's Annual Meeting of Stockholders to be held on April 17, 1997, and to be filed with the Securities and Exchange Commission on or about March 21, 1997, which information is hereby incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management. The information called for by this item is set forth under the caption "Ownership of Millipore Common Stock" in Millipore's definitive Proxy Statement for Millipore's Annual Meeting of Stockholders to be held April 17, 1997, and to be filed with the Securities and Exchange Commission on or about March 21, 1997, which information is hereby incorporated herein by reference. Item 13. Certain Relationships and Related Transactions. The information called for by this item is set forth under the caption "Management and Election of Directors - Executive Compensation" in Millipore's definitive Proxy Statement for Millipore's Annual Meeting of Stockholders to be held on April 17, 1997, and to be filed with the Securities and Exchange Commission on or about March 21, 1997, which information is hereby incorporated herein by reference. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a) 1. Financial Statements. The following financial statements are filed as part of this report: (See Index on page F-1) Consolidated Statements of Income for the three years ended December 31, 1996, 1995 and 1994. Consolidated Balance Sheets for the years ended December 31, 1996 and 1995 Consolidated Statements of Shareholders' Equity for the three years ended December 31, 1996, 1995 and 1994. Consolidated Statements of Cash Flows for the three years ended December 31, 1996, 1995 and 1994. Notes to Consolidated Financial Statements Report of Independent Accountants 2. Financial Statement Schedules. No financial statement schedules have been included because they are not applicable or not required under Regulation S-X. 3. List of Exhibits. A. The following exhibits are incorporated by reference: Reg. S-K Item 601(b) Referenced Document on Reference Document Incorporated file with the Commission (2) Amicon Worldwide Purchase and Sale Exhibit (2) to Form 8-K Report, Agreement, dated November 18, 1996, dated December 31, 1996, as Amended by Amendment Agreement [Commission File No. 0-1052] dated December 31, 1996, by and among Company and W. R. Grace & Co.-Conn. Agreement and Plan of Merger, dated Exhibit (c)(1) to Schedule 14D- 1, as of December 16, 1996, by and Filed December 20, 1996 among Company and its wholly owned subsidiary MCTG Acquisition Corp. and Tylan General, Inc. Reg. S-K Item 601(b) Referenced Document on Reference Document Incorporated file with the Commission (3) (ii) By Laws, as amended Form 10-K Report for year ended December 31, 1990 [Commission File No. 0-1052] (4) Indenture dated as of May 3, 1995, Registration Statement on Form S-4 relating to the issuance of (No. 33-58117); and an accompanying $100,000,000 principal amount Form T-1) of Company's 6.78% Senior Notes due 2004 (10) Shareholder Rights Agreement Form 8-K Report for April, 1988 dated as of April 15, 1988 [Commission File No. 0-1052] between Millipore and The First National Bank of Boston Long Term Restricted Stock Form 10-K Report for the year (Incentive) Plan for Senior ended December 31, 1984. Management* [Commission File No. 0-1052] 1985 Combined Stock Option Plan* Form 10-K Report for the year ended December 31, 1985 [Commission File No. 0-1052] Supplemental Savings and Form 10-K Report for the year Retirement Plan for Key ended December 31, 1984. Salaried Employees of [Commission File No. 0-1052] Millipore Corporation* Executive Termination Form 10-K Report for the year Agreement* ended December 31, 1984. [Commission File No. 0-1052] Executive "Sale of Business" Form 10-K Report for the year Incentive Termination Agreements (2)* ended December 31, 1993. [Commission File No. 0-1052] 1995 Employee Stock Purchase Plan Form 10-K Report for the year ended December 31, 1994 [Commission File No. 0-1052] 1995 Management Incentive Plan* Form 10-K Report for the year ended December 31, 1994. [Commission File No. 0-1052] * A "management contract or compensatory plan" B. The following Exhibits are filed herewith: (3) (i) Restated Articles of Organization, as amended May 6, 1996 (10) Distribution Agreement, dated as of July 1, 1996, by and among Company and Fisher Scientific Company (all schedules and Exhibits have been omitted; Company agrees to furnish the Commission with a copy of any such schedule or exhibit upon request) (10) Revolving Credit Agreement, dated as of January 22, 1997, among Millipore Corporation and The First National Bank of Boston, ABM AMRO Bank N.V. and certain other lending institutions which are or become parties thereto (11) Computation of Per Share Earnings (21) Subsidiaries of Millipore (23) Consent of Independent Accountants relating to the incorporation of their report on the Consolidated Financial Statements into Company's Securities Act Registration Nos. 2-72124, 2-85698, 2- 91432, 2-97280, 33-37319, 33-37323, 33-11-790, 33-59005 and 33- 10801 on Form S-8 and Securities Act Registration Nos. 2-84252, 33- 9706, 33-22196, 33-47213 on Form S-3, and 33-58117 on Form S-4. (24) Power of Attorney (b) Reports on Form 8-K. Current Report on Form 8-K, dated December 31, 1996, reporting under items 2 and 7 the acquisition of the Amicon Separation Science Business of W.R. Grace & Co. Current Report on Form 8-K, dated January 31, 1997, reporting under items 2 and 7 the acquisition of Tylan General, Inc. (c) Exhibits. The Company hereby files as exhibits to this Annual Report on Form 10-K those exhibits listed in Item 14(a)(3)(B) above, which are attached hereto. (d) Financial Statement Schedules. No financial statement schedules have been included because they are not applicable or not required under Regulation S-X. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 Dated: March 7,1997 By Geoffrey Nunes, Senior Vice President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacity and on the dates indicated. SIGNATURE TITLE DATE C. WILLIAM ZADEL* Chairman, President, March 7, 1997 C. William Zadel Chief Executive Officer, and Director Michael P. Carroll Chief Financial Officer Vice President, and Treasurer CHARLES D. BAKER* Director March 7, 1997 Charles D. Baker SAMUEL C. BUTLER* Director March 7, 1997 Samuel C. Butler ROBERT E. CALDWELL* Director March 7, 1997 Robert E. Caldwell MAUREEN A. HENDRICKS* Director March 7, 1997 Maureen A. Hendricks MARK HOFFMAN* Director March 7, 1997 Mark Hoffman STEVEN MULLER* Director March 7, 1997 Steven Muller THOMAS O. PYLE* Director March 7, 1997 Thomas O. Pyle JOHN F. RENO* Director March 7, 1997 John F. Reno *By Geoffrey Nunes, Attorney-in-Fact Millipore Corporation Index to Consolidated Financial Statements Consolidated Statements of Income for the three years ended December 31, 1996, 1995 and 1994 F-2 Consolidated Balance Sheets for the years ended December 31, 1996 and 1995 F-3 Consolidated Statements of Shareholders' Equity for the three years ended December 31, 1996, 1995 and 1994 F-4 Consolidated Statements of Cash Flows for the three years ended December 31, 1996, 1995 and 1994 F-5 Notes to Consolidated Financial Statements F-6 Report of Independent Accountants F-14 Item 8. Financial Statements and Supplementary Data. Consolidated Statements of Income Millipore Corporation Year ended December 31 (In thousands except per 1996 1995 1994 share data) Net sales $618,735 $594,466 $497,252 Cost of sales 249,443 243,849 212,675 Gross profit 369,292 350,617 284,577 Selling, general and 202,140 195,026 159,591 administrative expenses Research and development 38,429 36,515 34,327 expenses Purchased research & 68,311 - - development expense Operating income 60,412 119,076 90,659 Other expense - - (10,800) Gain on sale of equity 5,329 - - securities Interest income 2,780 1,682 4,091 Interest expense (11,498) (10,623) (7,035) Income from continuing operations before 57,023 110,135 76,915 income taxes Provision for income taxes 13,401 24,781 17,306 Income from continuing 43,622 85,354 59,609 operations Net loss on disposal of - - (3,400) discontinued operations Net Income $ 43,622 $ 85,354 $ 56,209 Income per share Income from continuing $ 1.00 $ 1.90 $ 1.09 operations Net income per common share $ 1.00 $ 1.90 $ 1.03 Weighted average common 43,602 44,985 54,726 shares outstanding The accompanying notes are an integral part of the consolidated financial statements. Consolidated Balance Sheets Millipore Corporation December 31 (In thousands) 1996 1995 Assets Current assets: Cash $4,010 $2,696 Short-term investments 42,860 21,062 Accounts receivable (less allowance for doubtful accounts of $2,490 in 1996 151,653 147,759 and $2,054 in 1995) Inventories 106,410 80,386 Other current assets 6,979 6,800 Receivables arising from sale of - 3,056 businesses Total current assets 311,912 261,759 Property, plant and equipment, net 203,017 191,250 Intangible assets (less accumulated amortization of $3,084 in 1996 and $2,506 58,866 7,219 in 1995) Deferred income taxes 69,086 53,179 Other assets 40,011 17,538 Total assets $682,892 $530,945 Liabilities and Shareholders' Equity Current liabilities: Notes payable $101,546 $ 80,768 Accounts payable 34,404 33,436 Accrued expenses 57,011 32,366 Accrued divestiture costs 3,604 6,543 Dividends payable 3,899 3,537 Accrued retirement plan contributions 4,705 4,846 Accrued income taxes payable 11,231 9,926 Total current liabilities 216,400 171,422 Long-term debt 224,359 105,272 Other liabilities 24,528 22,776 Accrued divestiture costs - 5,000 Commitments and contingent liabilities - - Shareholders' equity: Common stock, par value $1.00 per share, 120,000 shares authorized; 56,988 shares issued as of December 31, 1996 and 1995, 56,988 56,988 respectively Additional paid-in capital 8,800 - Unrealized gain on securities 9,536 - available for sale Retained earnings 548,598 523,633 Translation adjustments (8,280) 375 615,642 580,996 Less: Treasury stock at cost, 13,666 and 12,727 shares as of December 31, 1996 and (398,037) (354,521) 1995, respectively Total shareholders' equity 217,605 226,475 Total liabilities and shareholders' equity $ 682,892 $ 530,945 The accompanying notes are an integral part of the consolidated financial statements. Consolidated Statements of Shareholders' Equity Millipore Corporation Year ended Dec. 31, 1994, 1995 and 1996 (In thousands except per share data) Unrealized Gain on Additional Securities Total Par Paid-in Retained Available Translation Treasury Shareholders Shares Value Capital Earnings for Sale Adjustments Shares Cost Equity Balance at January 1, 1994 28,344 $28,344 $16,803 $434,988 $ - $(7,624) (341) $(11,357) 461,154 Net income 56,209 56,209 Cash dividends declared, $0.295 per share (15,381) (15,361) 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 $56,988 523,633 $- 375 (12,727) $(354,521) $226,475 1995 Net income 43,622 43,622 Cash dividends declared, (15,261) (15,261) $0.35 per share Treasury stock acquired (1,462) (58,362) (58,362) Stock options exercised (4,218) 384 10,880 6,662 Employees' stock purchase 195 72 2,076 2,271 plan proceeds Savings and Participation 209 27 735 944 Plan proceeds Incentive plan awards 408 39 1,120 1,528 Stock awards 10 1 35 45 Unrealized gain on securities 9,536 9,536 available for sale U.S. tax benefit from 8,800 8,800 stock plan activity Translation adjustments (8,655) (8,655) Balance at December 31, 56,988 $56,988 8,800 $548,598 $9,536 $(8,280) $(13,666) $(398,037) $217,605 1996 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) 1996 1995 1994 Cash Flows from Operating Activities: Net income $43,622 $85,354 $56,209 Adjustments to reconcile net income to net cash provided by operating activities Purchased research and 68,311 - - development expense Gain on sale of (5,329) - - securities Net loss on disposal of - - 3,400 discontinued operations Depreciation and 30,587 27,478 27,604 amortization Deferred income tax (8,212) 1,372 (2,227) provision Change in operating assets and liabilities: Decrease (increase) 247 (10,548) (14,672) in accounts receivable (Increase) in inventories (11,612) (7,218) (1,894) Decrease in other 1,661 409 1,427 current assets (Increase) in other (8,747) (8,209) (695) assets (Decrease) increase in accounts payable and accrued expenses (11,087) 5,931 2,876 expenses (Decrease) increase in accrued retirement plan contributions (36) 543 (269) Increase in accrued 1,723 6,475 6,123 income taxes Income tax refund received - - 14,035 Other 1,058 (2,438) (3,334) Net cash provided by 102,186 99,149 88,583 operating activities Cash Flows from Investing Activities: Net proceeds from sales of - - 257,899 businesses Additions to property, plant and (30,427) (30,010) (21,009) equipment, net Additions to intangible assets (1,760) (2,135) (2,718) Investments in businesses (4,010) - - Acquisition of Amicon, net of cash (122,576) - - acquired Net cash used by discontinued (7,939) (6,967) - businesses Proceeds from sale of securities 5,745 - - Net cash provided by (used in) (160,967) (39,112) 234,172 investing activities Cash Flows from Financing Activities: Treasury stock acquired (58,362) (90,113) (334,702) Issuance of treasury stock under 11,450 16,937 33,876 stock plans Cash paid to extinguish long-term - - (5,088) debt Common stock issued - - 7,350 Cash paid to close out foreign - (3,546) (10,287) currency swap Net change in short-term debt 20,045 25,795 (9,539) Borrowings (payments) of long-term 124,397 - (1,820) debt Dividends paid (14,899) (14,117) (15,802) Net cash used for financing 82,631 (65,044) (336,012) activities Effect of foreign exchange rates on cash and short-term investments (738) (1,471) 2,851 Net increase (decrease) in cash and 23,112 (6,478) (10,406) short-term investments Cash and short-term investments on 23,758 30,236 40,642 January 1 Cash and short-term investments on $46,870 $23,758 $30,236 December 31 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. 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 time deposits, 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 the majority 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 acquired patented and unpatented technology, trade names, and licenses and are recorded at cost. Intangible assets are amortized on a straight line basis over periods ranging from 5 to 30 years. The carrying value of intangible assets is periodically reviewed by the Company and, if necessary, impairments of values are recognized. If there is a permanent impairment in the carrying value of tradenames or other intangible assets, the amount of such impairment is computed by comparing the anticipated discounted future operating income of the acquired business or trademark to the carrying value of the assets. In performing this analysis, the Company considers current results and trends, future prospects and other economic factors. Marketable Securities The Company's investments in equity securities are categorized as available-for-sale as defined by Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities". Equity securities are included in Other Assets in the accompanying consolidated balance sheets and are recorded at fair value. Unrealized holding gains and losses are reflected, net of income tax, as a separate component of shareholders' equity. 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 provided only on amounts expected to be repatriated. Stock Options In 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock- Based Compensation," which became effective for the Company in 1996. SFAS 123 defines a fair-value method of accounting for employee stock option or similar equity instruments. However, SFAS 123 also allows companies to continue to use the intrinsic value method of accounting prescribed by APB Opinion 25 "Accounting for Stock Issued to Employees." The Company has elected to continue to account for stock options in accordance with APB 25 and has adopted the disclosure only aspects of SFAS 123. 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. The impact of common stock equivalents, principally outstanding stock options, is immaterial. 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 1996 presentation. Note B - Stock Split and Increase In Authorized Common Shares 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. 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. Note C - Acquisition of Amicon Separation Science Business On December 31, 1996, the Company acquired the net assets of the Amicon Separation Science Business of W.R. Grace & Co. (Amicon) for approximately $129,265 in cash, including transaction costs. Amicon manufactures protein purification tools for the research laboratory and for biotechnology manufacturing. The acquisition is accounted for as a purchase, and accordingly, the purchase price has been preliminarily allocated to the identifiable tangible and intangible assets based on estimated fair market values of those assets. The Company has accrued approximately $27,000 for additional costs associated with the acquisition. These costs include severance payable to Amicon employees, abandonment of duplicate Amicon manufacturing and sales facilities, and termination of certain Amicon contractual obligations. The Company expects that the integration of Amicon's operations into those of the Company will be substantially complete within one year. The ultimate execution of the Company's plans and costs incurred may result in an adjustment to the amounts preliminarily allocated to assets and liabilities and to amounts accrued for additional costs associated with the acquisition. The purchase included at estimated fair value current assets of $30,328, property plant and equipment of $15,474, other assets of $596 and the assumption of liabilities of $9,197. Identifiable intangible assets were valued at $50,753 and included tradenames and patented and unpatented complete technology. These intangible assets will be amortized over their estimated useful lives ranging from five to thirty years. The value of in process research and development for which technical feasibility has not been achieved was $68,311 and was charged to earnings in the fourth quarter of 1996. The purchase was financed through the Company's new revolving credit facility as discussed in Note J. On the basis of a pro forma consolidation of the results of operations as if the acquisition had taken place at the beginning of fiscal 1995 rather than at December 31, 1996, consolidated net sales would have been $651,000 in 1995 and $675,000 in 1996. Consolidated pro forma income before income taxes, net income and earnings per share would not have been materially different from the amounts reported for 1995 and 1996. Pro forma amounts are not necessarily indicative of what the actual consolidated results of operations might have been if the acquisition had been effective at the beginning of fiscal 1995. Note D - Subsequent Event On January 22 1997, the Company successfully completed a cash tender offer for all of the outstanding common shares of Tylan General, Inc. ("Tylan"). Tylan became a wholly-owned subsidiary on January 27, 1997. Tylan, which had annual sales of approximately $148,000 for its latest fiscal year ended October 31, 1996, supplies precision mass flow controllers, pressure and vacuum measurement and control equipment, and ultraclean gas panels to the microelectronics industry. The acquisition was financed through the Company's new revolving credit agreement discussed in Note J and will be accounted for as a purchase. Note E - Discontinued Operations 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. The stock proceeds received from each sale were recorded at their estimated fair value at the date of receipt. Both sales were recorded in 1994 and resulted in a combined pre-tax loss of $5,667 ($3,400 or $0.06 per share net of income taxes). As of December 31, 1996, the Company holds 2,120,249 shares of PerSeptive Biosystems' common stock as a result of PerSeptive's preferred stock redemption requirement. These shares are considered available for sale securities and have been recorded at fair value in Other Assets, net of income tax, in accordance with SFAS No. 115. Remaining 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 1996, the Company charged $1,100 of employee costs, $2,000 of contract support services and $4,839 of facilities and other costs against divestiture accruals. The Company periodically assesses the adequacy of the divestiture accruals, and the remaining accrual balances at December 31, 1996 are expected to be sufficient to satisfy the Company's future obligations with respect to discontinued operations. In accordance with each respective sales agreement, the Company retained certain customer accounts receivable balances generated from sales of Instrumentation Division products prior to and subsequent to the completion of the divestitures. These amounts were classified in Receivables arising from sales of businesses in the accompanying consolidated balance sheets. Note F - Concentration of Credit Risk Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of temporary cash and short-term investments, accounts receivable and hedging instruments. The Company places its temporary cash and short-term investments with high credit qualified financial institutions, and, by policy, limits the amount of credit exposure to any one financial institution. Concentrations of credit risk with respect to accounts receivable is limited due to the large number of customers comprising the Company's customer base, and their dispersion across different markets and geographies. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. The Company is exposed to credit-related losses in the event of nonperformance by counterparties to hedging instruments. The counterparties to these contracts are major financial institutions. The Company continually monitors its positions and the credit ratings of its counterparties and limits the amount of contracts it enters into with any one party. Note G - Inventories Inventories at December 31 consisted of the following: 1996 1995 Raw materials $ 27,502 $ 21,357 Work in process 16,310 9,621 Finished goods 62,598 49,408 $ 106,410 $ 80,386 The value of inventories determined using the LIFO cost method was $41,458 or 39 percent of the total at December 31, 1996 and $43,101 or 54 percent of the total at December 31, 1995. If these inventories had been valued using the FIFO cost method, they would have been $44,395 at December 31, 1996 and $45,608 at December 31, 1995. Note H - Property, Plant and Equipment Property, plant and equipment at December 31 consisted of the following: 1996 1995 Land $ 9,002 $ 7,419 Leasehold improvements 9,587 9,214 Buildings and improvements 123,256 117,932 Production and other equipment 240,612 217,443 Construction in progress 15,957 21,932 398,414 373,940 Less: accumulated depreciation and 195,397 182,690 amortization $203,017 $ 191,250 Note I - Notes Payable Short-term borrowings and related lines of credit at December 31 are summarized as follows: 1996 1995 Notes payable $ 101,546 $ 80,768 Unused lines of credit $ 295,927 $ 266,350 Average amount outstanding at $ 115,461 $ 91,338 month-end during the year Maximum amount outstanding at $ 132,338 $ 116,721 month-end during the year Weighted average interest rate 5.6% 6.2% during the year Weighted average interest rate at 5.7% 6.1% 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. The majority of borrowings outstanding, as well as available under lines of credit which existed at December 31, 1996 were incorporated into the revolving credit facility agreement discussed in Note J in the first quarter of 1997. Note J - Long-term Debt Long-term debt at December 31 consisted of the following: 1996 1995 Amounts outstanding under $ 124,397 $ - revolving credit agreement 6.78 % notes payable due in 2004 100,000 100,000 Unrealized (gain)/loss on revaluation of yen-denominated (3,727) 5,272 debt Other notes payable to banks 3,689 - Long-term debt $ 224,359 $ 105,272 The Company financed the acquisition of Amicon by drawing down funds on a 90 day $250,000 bridge loan which was made available to the Company as temporary financing pending finalization of a long-term revolving credit facility. On January 22, 1997, the Company entered into an unsecured revolving credit agreement ("the agreement") with a group of banks. The agreement allows for borrowings of up to $450,000 and expires on January 22, 2002. Interest is payable on outstanding borrowings at a floating rate defined in the agreement as LIBOR plus a margin (5.7 percent at January 22, 1997). The agreement also calls for a commitment fee at a rate ranging from .10 percent to .65 percent of the available facility. The exact amount of the margin and the commitment fee is dependent on the Company's debt rating. The agreement calls for the Company to maintain certain financial covenants in the areas of operating cash flow and interest coverage. The amount outstanding at December 31, 1996 of $124,397 reflects the adjusted purchase price paid to acquire Amicon. The $100,000 6.78 percent notes payable are due in 2004. Interest on these notes is payable semi-annually in March and September. The notes payable agreement calls for the Company to maintain a debt to total debt and equity ratio which does not exceed a specified threshold. At December 31, 1996, the Company is in compliance with this requirement. However, amounts borrowed by the Company in the first quarter of 1997 under the $450,000 credit facility to fund the acquisition of Tylan would have caused the Company to violate this covenant. However, the holder of these notes has waived the requirement that the Company comply with this covenant through March 21, 1997. The Company is currently negotiating to change the financial covenant included in this note agreement. If a revised agreement is not reached by March 21, 1997, the Company may redeem the notes using either proceeds from a planned public debt offering for up to $300,000 or borrowings potentially available upon request by the Company under the agreement discussed above. As of January 1, 1994, 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 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 4.86 and 5.39 percent in 1996 and 1995, respectively. The effect of foreign currency exchange rate fluctuations resulting from the yen swap agreement open at December 31, 1996 is included in translation adjustments. Other notes payable to banks represents borrowings outstanding at an Amicon subsidiary acquired by the Company on December 31, 1996. The Company expects to repay this balance in full in 1997 by drawing funds from the revolving credit facility discussed above. The Company capitalized interest costs associated with the acquisition of certain assets of $785 in 1996, $929 in 1995, and $890 in 1994. Interest paid on short-term and long-term debt during 1996, 1995, and 1994 amounted to $12,171, $11,481, and $8,946 respectively. Note K - Foreign Exchange A significant volume of the Companies business is transacted in currencies other than the U.S. dollar. This exposes the Company to risks associated with currency rate fluctuations which impact the Company's sales and net income. To partially mitigate this risk, the Company has entered into foreign currency transactions, forward and option contracts to sell yen, on a continuing basis in amounts and timing consistent with underlying currency exposure on inventory purchases so that the gains and losses or these transactions offset gains and losses on the underlying exposure. A realized gain of $2,687 in 1996, and realized losses of $2,287 in 1995, and $960 in 1994 relating to these contracts are included in cost of sales, partially offsetting the impact of foreign currency fluctuations. At December 31, 1996, the Company has open forward exchange contracts to sell yen aggregating $13,422 and open forward option contracts to sell yen aggregating $27,025. These open contracts have an unrealized gain of $1,700 at December 31, 1996. All open contracts mature within 15 months. Note L - 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: 1996 1995 1994 Domestic and foreign income before income taxes: Domestic $ 195 $51,933 $ 23,042 Foreign 56,828 58,202 48,206 57,023 110,135 71,248 Loss on - - 5,667 disposal of discontinued operation Income from $57,023 $110,135 $76,915 continuing operations before income taxes Domestic and foreign provisions for income taxes: Domestic $(2,362) $ 9,039 $(1,894) Foreign 15,427 14,642 16,433 State 336 1,100 500 13,401 24,781 15,039 Less: portion applied to - - 2,267 discontinued operations $13,401 $24,781 $17,306 Current and deferred provisions for income taxes: Current $21,613 $ 23,409 $ 28,800 Deferred (8,212) 1,372 (13,761) $13,401 $ 24,781 $ 15,039 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: 1996 1995 1994 U.S. statutory income tax rate 35.0% 35.0% 35.0% Puerto Rico tax rate benefits (6.4) (4.8) (6.0) Ireland tax rate benefits (11.0) (5.2) (4.0) State income tax, net of federal .4 .7 .5 income tax benefit Foreign Sales Corporation income not (4.0) (2.0) (3.0) taxed Tax credits - (1.2) - Change in valuation allowance 9.5 - - Effective tax rate applicable to 23.5% 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 1996, 1995, and 1994 were $24,228, $9,999, and $25,296, 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 $73,700 at December 31, 1996. If earnings of such foreign subsidiaries were not indefinitely reinvested, a deferred tax liability of approximately $18,425 would have been required. At December 31, 1996, the Company has foreign tax credit carryforwards of approximately $20,500 that expire in the years 1997 through 2001. General business credit carryforwards of approximately $7,300 expire in the years 2001 through 2010. In addition, the Company has alternative minimum tax credit carryforwards of approximately $10,800 which can be carried forward indefinitely. Significant components of the Company's net deferred tax assets are as follows: 1996 1995 Intercompany and inventory related $12,734 $13,943 transactions Postretirement benefits other than 3,500 3,421 pensions Tax credits (including foreign tax credits on unremitted earnings) 55,586 43,370 Divestiture related costs 5,109 7,435 Amortization of intangible assets 23,776 - Depreciation (3,381) (2,704) Other, net (6,103) 4,349 91,221 69,814 Valuation allowance (22,135) (16,635) Net deferred tax asset $69,086 $53,179 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 increase in the valuation allowance in 1996 results from the growth in foreign tax credits. Although realization is not assured, the Company 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 M - 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, 1996 will not materially affect its future operating results and liquidity. Amounts paid by the Company in 1996 and 1995 with respect to the Superfund obligations were insignificant. In 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 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. In the opinion of the Company, although final settlement of this matter may impact the Company's financial statements in a particular period, it is not expected to have a material adverse effect on the Company's financial condition. Note N - 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 $12,547 in 1996, $11,397 in 1995, $12,114 in 1994. At December 31, 1996 future minimum rents payable under noncancelable leases with initial terms exceeding one year were as follows: 1997 $ 12,105 1998 8,669 1999 7,528 2000 5,980 2001 3,712 2002 - 2006 10,071 Note O - Stock Plans Stock Option Plans The Company has two fixed option plans which reserve shares of common stock for issuance to key employees and directors respectively. The Company also has a stock purchase plan which allows employees to purchase shares of the Company's common stock as discussed below. The Company has adopted the disclosure-only provisions of Statement of Financial Accounts Standards No. 123 "Accounting for Stock - Based Compensation." Accordingly, no compensation cost has been recognized for grants made in 1995 and 1996 under the stock option and stock purchase plans. Had compensation cost been determined based on the fair value at the grant date for awards in 1995 and 1996 consistent with the provisions of SFAS 123, the Company's net income and earnings per share would have been unchanged in 1995 and reduced by $1,015 or $.02 per share in 1996. The proforma expense amounts in 1995 and 1996 assume that the fair value assigned to the 1995 and 1996 option grants was amortized over the vesting period of the options, which is four years, while the fair value assigned to grants under the stock purchase plan is recognized in full at the date of grant. The fair value of each option grant is estimated on the date of the grant using the Black - Scholes model with the following weighted average assumptions in 1995 and 1996: expected life of five years; expected volatility of 25% and an expected annual dividend increase of $.04 per year. The risk free interest rate was 6.1 percent in 1996 and 5.5 percent in 1995. This rate approximated that of 5 year U.S. government interest bearing securities. Under the Company's Combined Stock Option Plan, stock options to purchase Millipore common stock may be granted to employees. During 1996, the Company adopted the "1995 Combined Stock Option Plan", which replaced the "1985 Combined Stock Option Plan". The terms of the 1995 Plan are substantially similar to those of the 1985 Plan. In conjunction with the adoption of the 1995 Plan, an additional 1,031,000 shares were authorized for issuance. 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: 1996 1995 1994 Option shares: Outstanding at beginning of 2,940,000 3,518,000 5,440,000 period Issued during period 461,000 373,000 534,000 Exercised during period (369,000) (885,000) (2,334,000) Canceled during period (62,000) (66,000) (122,000) Outstanding at end of period 2,970,000 2,940,000 3,518,000 Exercisable at end of period 1,850,000 1,747,000 2,088,000 Shares available for granting of 1,671,000 1,039,000 1,344,000 options at end of period Price range of outstanding options $14.50 - $13.56 - $9.72 - at end of period $42.00 $37.63 $23.69 Average price of outstanding $24.33 $20.82 $17.96 options at end of period Average price of exercised options $17.41 $16.70 $16.30 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 an option to purchase 4,000 shares of Millipore common stock on the date of his or her first election, and thereafter automatically receives an additional option 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 then the fair market value of the stock at the time the option is granted. At December 31, 1996, 133,000 options have been issued and 118,000 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 1996, 1995, and 1994 shares issued under the Plan were 72,000, 33,000, and 192,000, respectively. As of December 31, 1996, 295,000 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 1996, 1995, and 1994, 119,000, 109,000, and 154,000 shares, respectively, were outstanding under the plan. Plan expense was $559 in 1996, $450 in 1995, and $596 in 1994. As of December 31, 1996, 92,000 shares of Millipore common stock were available for future awards under this plan. Note P - 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 or more years of service). Total expense under the Participation and Savings Plan was $4,866 in 1996, $4,512 in 1995, $6,089 in 1994. Plan expense in 1994 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 1996, 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 7.5 percent in 1996 and 7.0 percent in 1995, and a salary progression rate of 5.0 percent in both years. 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. Plan data as of December 31, 1996 and 1995 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. 1996 1995 Actuarial present value of benefit obligations: Accumulated benefit obligation, including vested benefits of $5,990 on December 31, 1996 and $6,460 on $ 6,195 $ 6,693 December 31, 1995 Projected benefit obligation for $(7,022) $(7,595) service rendered to date Plan assets at fair value 7,657 7,391 Plan assets in excess of (less 635 (204) than) projected benefit obligation Unrecognized net actuarial loss 3,268 4,283 Unrecognized prior service cost 111 121 Unrecognized net asset being (495) (579) amortized over 16.7 years Prepaid pension cost included in $3,51 $ 3,621 financial statements 1996 1995 1994 Net pension (expense)/income includes the following components Service cost $ 29 $ 179 $ 376 Interest cost (499) (471) (361) Return on plan assets 788 942 36 Amortization and deferral (420) (630) 246 Net pension (expense)/income $(102) $ 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 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: 1996 1995 1994 Service cost-benefits attributed $298 $ 357 $ 610 to service during the year Interest cost on accumulated postretirement benefit obligation 453 548 662 Net amortization and deferral (205) (93) (62) Net periodic postretirement $546 $ 812 $1,210 benefit cost Summary information on the Company's plans as of December 31 is as follows: 1996 1995 Accumulated postretirement benefit obligation: Retirees and dependents $(4,029) $(3,272) Fully eligible active plan (176) (550) participants Other active plan participants (2,604) (5,056) Accrued postretirement benefit (6,809) (8,878) obligation Unrecognized gain from past experience different from that assumed and from (3,126) (897) changes in assumptions Accrued postretirement benefit $(9,935 $(9,775) cost The discount rate used in determining the accumulated postretirement benefit obligation was 7.5 percent as of December 31,1996 and 7.0 percent as of December 31, 1995. The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation was 8.0 percent in 1996, declining gradually to 5.0 percent over 4 years, remaining level thereafter. 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% 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, 1996 would be increased by $862 while the aggregate of the service and interest cost components of net periodic postretirement benefit cost for 1996 would be increased by $121. Note Q - 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 1996 Sales: Unaffiliated $215,875 $192,838 $208,229 - $616,942 customers Unaffiliated export: Pacific customers 839 839 European customers 954 954 Total unaffiliated 217,668 192,838 208,229 - 618,735 Transfer between areas 112,474 68,535 10,880 (191,889) - Total sales $330,142 261,373 $219,109 $(191,889) $618,735 Operating profits $75,843 $45,341 $13,994 - $135,178 General corporate expenses (6,455) Purchased research & (68,311) development expenses Gain on sale of equity 5,329 securities Interest expense, net (8,718) Income from continuing operations before income taxes $57,023 Identifiable assets $496,742 $ 212,132 $ 142,882 $(215,734) $636,022 Corporate assets 46,870 Total assets $682,892 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 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 $ 75,663 $ 33,072 $ 20,973 $129,708 General corporate expenses (10,632) 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 Americas Europe Asia/Pacific Eliminations Total 1994 Sales: Unaffiliated $180,569 $154,196 $160,781 $ 495,546 customers Unaffiliated export: Pacific customers 806 806 European customers 900 900 Total 182,275 154,196 160,781 497,252 unaffiliated 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 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, 1996 and 1995, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1996. 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, 1996 and 1995, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. Boston, Massachusetts Coopers & Lybrand L.L.P. January 22, 1997 Quarterly Results (Unaudited) The Company's unaudited quarterly results are summarized below. First Second Third Fourth (In thousands, except per Quarter Quarter Quarter Quarter Year share data) 1996 Net sales $156,476 $161,928 $148,913 $151,418 $618,735 Cost of sales 61,946 65,412 60,774 61,311 249,443 Gross profit 94,530 96,516 88,139 90,107 369,292 Selling, general and 50,140 52,059 50,226 49,715 202,140 administrative expenses Research and development 9,409 9,741 9,610 9,669 38,429 expenses Purchased research & - - - 68,311 68,311 development expense Operating income (loss) 34,981 34,716 28,303 (37,588) 60,412 Gain on sale of equity - - 2,858 2,471 5,329 securities Interest income 713 661 660 746 2,780 Interest expense (2,710) (2,945) (2,995) (2,848) (11,498) Income (loss) 32,984 32,432 28,826 (37,219) 57,023 before income taxes Provision benefit for 7,751 7,622 6,774 (8,746) 13,401 income taxes Net income/(loss) $ 25,233 $ 24,810 $22,052 $(28,473) $43,622 Per share information Net income/(loss) $ 0.57 $ 0.57 $0.51 $ (0.66) $ 1.00 (loss) Weighted average common 44,163 43,642 43,335 43,284 43,602 shares outstanding 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 26,678 28,450 25,871 29,136 110,135 income taxes 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 45,960 44,998 44,642 44,348 44,985 shares outstanding SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K ANNUAL REPORT OF MILLIPORE CORPORATION For the Fiscal Year Ended December 31, 1996 **************** EXHIBITS **************** INDEX TO EXHIBITS Exhibit No. Description Tab No. 2.1 Amicon Worldwide Purchase and Sale, ** Agreement, dated November 18, 1996, dated December 31, 1996, as Amended by Amendment Agreement, dated December 31, 1996, by and amongCompany and W. R. Grace & Co.-Conn. 2.2 Agreement and Plan of Merger, dated ** as of December 16, 1996, by and among Company and its wholly owned subsidiary MCTG Acquisition Corp. and Tylan General, Inc. 3.1 Restated Articles of Organization, 1 as amended May 6, 1996 3.2 By Laws, as amended ** 4.1 Indenture dated as of May 3, 1995, ** relating to the issuance of $100,000,000 principal amount of Company's 6.78% Senior Notes due 2004 10.1 Distribution Agreement, dated as of July 1, 2 1996, by and among Company and Fisher Scientific Company (all schedules and Exhibits have been omitted; Company agrees to furnish the Commission with a copy of any such schedule or exhibit upon request) 10.2 Revolving Credit Agreement, dated as of 3 January 22, 1997, among Millipore Corporation and The First National Bank of Boston, ABM AMRO Bank N.V. and certain other lending institutions which are or become parties thereto 10.3 Shareholder Rights Agreement, dated as of ** April 15, 1988, between Millipore and The First National Bank of Boston 10.4 Long Term Restricted Stock (Incentive) Plan ** for Senior Management ** Incorporated by Reference to a prior filing with the Commission Exhibit No. Description Tab No. 10.5 1985 Combined Stock Option Plan ** 10.6 Supplemental Savings and Retirement Plan ** for Key Salaried Employees of Millipore Corporation 10.7 Executive Termination Agreement ** 10.8 Executive "Sale of Business" Incentive ** Termination Agreements 10.9 1995 Employee Stock Purchase Plan ** 10.10 1995 Management Incentive Plan ** 11 Computation of Per Share Earnings 4 21 Subsidiaries of Millipore 5 23 Consent of Coopers & Lybrand L.L.P. 6 24 Power of Attorney 7 ** Incorporated by Reference to a prior filing with the Commission Millipore Corporation Exhibit 11 Computation of Earnings Per Share (In Thousands Except Per Share Data) Years Ended December 31, Calculation of shares: 1996 1995 1994 Weighted average of shares outstanding during the year 43,602 (b) 44,985 (b) 54,726 (b) Shares outstanding from assumed exercise of stock 2,831 3,129 4,325 option (Treasury Method) (1,494) (1,736) (2,969) (NQ tax benefit) (452) (465) (438) Weighted average shares and common stock equivalents outstanding during the year 44,487 (a) 45,913 (a) 55,644 (a) Additional shares assumed exercised with full - - - dilution Weighted average of shares used in calculation of fully diluted earnings per share 44,487 (a) 45,913 (a) 55,644 (a) Net Income $ 43,622 $ 85,354 $56,209 Earnings per common share as reported in the Consolidated Financial Statements $ 1.00 $ 1.90 $ 1.03 Primary earnings per common $ 0.98 $ 1.86 $ 1.01 (a) share (a) (a) Net fully diluted earnings per common share $ 0.98 $ 1.86 $ 1.01 (a) (a) (a) (a) These calculations are submitted in accordance with Securities Exchange Act of 1934 Release N. 9083 although not required by APB No. 15 because they result in dilutions of less than 3%. (b) Represents weighted average of shares outstanding used in the earnings per share calculations. Common stock equivalents for 1996, 1995, and 1994 were not included in the weighted average share computation as they were less than 3% dilutive Exhibit 21 Subsidiaries Of Millipore Corporation Pursuant to Item 601, Paragraph 21, clause (ii) of Regulation S-K,the following list excludes subsidiaries who conduct no business operations or which have no significant assets. Company Name Jurisdiction of Organization Millipore Asia Ltd. Delaware Millipore Korea Ltd. Korea Millipore Cidra, Inc. Delaware Millipore Intertech, (V.I.), Inc. U.S. Virgin Is. Millipore (Canada) Ltd. Canada Amicon Canada Limited Canada Millipore S.A. de C.V. Mexico Millipore GesmbH Austria Millipore Kft Hungary Millipore S.R.O. Czech Republic Millipore Investment Holdings Ltd. Delaware Millipore International Holding Company B.V. Netherlands Millipore Japan Company L.L.C. Delaware Nihon Millipore Limited Japan Millipore S.A./N.V. Belgium Millipore (U.K.) Ltd. United Kingdom Amicon Limited United Kingdom Millipore S.A. France Prochrom S.A. France Prochrom Recherche et Development S.A. France Prochrom, Inc. Indiana Prochrom OY Finland Millipore Ireland B.V. Netherlands Millipore Dublin International Finance Company Ireland Millipore GmbH West Germany Amicon GmbH West Germany Millipore S.p.A. Italy Millipore A.B. Sweden Millipore AS Norway Millipore A.G. Switzerland Millipore A/S Denmark Millipore Australia Pty. Ltd. Australia Millipore Iberica S.A. Spain Millipore I.E.C., Ltda. Brazil Millipore OY Finland Millipore B.V. The Netherlands Millipore China Ltd. Hong Kong Exhibit 21 [Cont'd] Millipore Pacific Limited Delaware Millipore (Suzhou) Filter Company Limited Peoples Republic of China Millicorp, Inc. Delaware Minerva Insurance Corp. Ltd. Bermuda Tylan General, Inc. Delaware Tylan General GmbH Germany Tylan General U.K. Ltd. United Kingdom TG SARL France Tylan General K.K. Japan TG Korea Ltd. Korea Span Instruments, Inc. Texas Ocala, Inc. Texas Span Instruments Singapore, Pte. Ltd. Singapore Vermeer Ireland EXHIBIT 23 Consent of Independent Accountants CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Millipore Corporation on Form S-8 (File Nos. 2- 91432, 2-72124, 2-85698, 2-97280, 33-37319, 33-37323, 33-59005, 33- 10801, 33-11-790), on Form S-3 (File Nos. 2-84252, 33-9706, 33- 22196, 33-47213) and on Form S-4 (File No. 33-58117) of our report dated January 22, 1997 on our audits of the consolidated financial statements of Millipore Corporation as of December 31, 1996 and 1995, and for the years ended December 31, 1996, 1995, and 1994, which report is incorporated by reference in this Annual Report on Form 10-K. COOPERS & LYBRAND L.L.P. Boston, Massachusetts March 7, 1997 EXHIBIT 24 Power of Attorney KNOW ALL MEN BY THESE PRESENTS, that the undersigned Directors and Officers of Millipore Corporation (the "Corporation"), do hereby constitute and appoint C. William Zadel and Jeffrey Rudin and each of them individually, their true and lawful attorneys and agents to execute on behalf of the Corporation the Form 10-K Annual Report of the Corporation for the fiscal year ended December 31, 1996, and all such additional instruments related thereto which such attorneys and agents may deem to be necessary and desirable to enable the Corporation to comply with the requirements of the Securities Exchange Act of 1934, as amended, and any regulations, orders, or other requirements of the United States Securities and Exchange Commission thereunder in connection with the preparation and filing of said Form 10-K Annual Report, including specifically, but without limitation of the foregoing, power and authority to sign the names of each of such Directors and Officers on his behalf, as such Director or Officer, as indicated below to the said Form 10-K Annual Report or documents filed or to be filed as a part of or in connection with such Form 10-K Annual Report; and each of the undersigned hereby ratifies and confirms all that said attorneys and agents shall do or cause to be done by virtue thereof. SIGNATURE TITLE DATE /s/C. William Zadel Chairman, President March 7, 1997 C. William Zadel Chief Executive Officer and Director /s/Charles D. Baker Director March 7, 1997 Charles D. Baker /s/Samuel C. Butler Director March 7, 1997 Samuel C. Butler /s/Robert E. Caldwell Director March 7, 1997 1997 Robert E. Caldwell /s/Maureen A. Hendricks Director March 7, 1997 Maureen A. Hendricks /s/Mark Hoffman Director March 7, 1997 Mark Hoffman /s/Steven Muller Director March 7, 1997 Steven Muller /s/Thomas O. Pyle Director March 7, 1997 Thomas O. Pyle /s/John F. Reno Director March 7, 1997 John F. Reno