The accompanying notes are an integral part of the consolidated financial
statements.
Management's Discussion and Analysis
Acquisitions
On January 22, 1997, the Company announced the successful completion of its
tender offer for all of the outstanding common shares of Tylan General, Inc.
(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 was accounted for as a purchase and resulted in a write-off for
purchased research and development of $114.1 million in the first quarter of
1997.
On December 31, 1996, the Company acquired the Amicon Separation Science
Business of W.R. Grace & Co. (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 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.
Results of Operations
The Company's results of operations in 1997 were significantly impacted by the
acquisitions of Amicon and Tylan. The following discussion of the results of
operations should be read in connection with the Business Outlook and
Uncertainties section below.
Net Sales
Consolidated net sales, measured in U.S. dollars, increased 23 percent in 1997,
compared to an increase of 4 percent in 1996 and an increase of 20 percent in
1995. The higher sales growth rate in 1997 compared to 1996 was primarily
attributable to the acquisitions of Amicon and Tylan. Without these
acquisitions, sales in 1997 declined by 1 percent from sales in 1996. Sales
growth in 1997 was adversely impacted by a cyclical downturn in the
microelectronics industry as well as unfavorable foreign currency exchange rate
comparisons and certain other factors discussed below. Sales growth by
geography and market, measured in local currencies and U.S. dollars, is
summarized in the table below:
In Local Currencies In U.S. Dollars
With Withou With Withou
Acquis t Acquis t
itions Acquis itions Acquis
itions itions
1997 1997 1996 1995 1997 1997 199 199
6 5
Americas 49% 7% 8% 15% 48% 6% 7% 13%
Europe 26% 8% 6% 10% 15% (3%) 4% 20%
Asia/Pacific 13% 2% 14% 18% 3% (8%) 2% 27%
30% 6% 10% 15% 23% (1%) 4% 20%
Consolidated
Microelectro 56% 2% 8% 43% 50% (4%) 0% 50%
nics
BioPharmaceu 22% 6% 14% 9% 15% (1%) 10% 14%
tical
Analytical 17% 8% 8% 3% 9% 0% 3% 8%
Laboratory
30% 6% 10% 15% 23% (1%) 4% 20%
Consolidated
Excluding the impact of the acquisition of Tylan, sales to microelectronics
customers measured in local currencies increased 2 percent in 1997 compared to 8
percent in 1996 and 43 percent in 1995. A cyclical downturn in the
microelectronics market, which began to negatively impact the Company's sales
growth during the middle of 1996, continued throughout 1997. The downturn
particularly impacted growth in the Asia/Pacific region. Total sales into the
microelectronics market, with the addition of Tylan, increased to 35 percent of
total consolidated sales in 1997 as compared to 28 percent of total sales in
1996 and 29 percent in 1995.
Excluding the impact of the acquisition of Amicon, sales to the
biopharmaceutical market grew 6 percent in 1997 in local currencies compared to
growth of 14 percent in 1996 and 9 percent in 1995. Sales of large protein
processing systems in 1997 to biotechnology customers were level with those in
1996. In addition, sales to a beer-manufacturing customer in Japan were lower
in 1997 as compared to 1996. These two factors, which were significant in
boosting the 1996 overall biopharmaceutical growth rate, combined to depress the
overall sales growth rate in the biopharmaceutical market in 1997. Total sales
into the biopharmaceutical market, including Amicon (1997 only), represented 28
percent of total sales in 1997, down from 31 percent in 1996 and 29 percent in
1995.
Excluding the impact of the acquisition of Amicon, sales to the analytical
laboratory market measured in local currencies grew 8 percent in 1997, the same
growth rate that was achieved in 1996. New product introductions in the past
two years, particularly for laboratory water and applied microbiology products,
and a new distribution alliances launched late in 1996 in the United States have
enhanced sales growth in this market. Sales growth in 1997 was strongest in
Europe and the Asia/Pacific region. Sales to analytical laboratory customers,
with the addition of Amicon (1997 only), comprised 37 percent of total sales in
1997 compared to 41 percent in 1996 and 42 percent in 1995.
The strengthening of the U.S. dollar against most European and Asian currencies
reduced reported sales growth by 7 percentage points in 1997 compared to a
reduction of 6 percentage points in 1996 and an increase of 5 percentage points
in 1995. On average, the U.S. dollar was 11 percent stronger against most
European currencies in 1997 as compared to 1996. The U.S. dollar was also
approximately 5 percent stronger against the Japanese yen in 1997 compared to
1996; which follows a 15 percent strengthening of the U.S. dollar against the
yen in 1996 as compared to 1995. The U.S. dollar has strengthened significantly
against the yen since 1995, when the dollar was at historic post-war lows
against the yen. As a general matter, a weaker dollar will benefit, and a
stronger dollar will adversely affect future reported sales growth of the
Company. However, 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 54.9 percent in 1997, 59.7 percent in 1996, and 59.0 percent
in 1995. The lower gross margin percentage in 1997 includes the impact of low
margin sales related to the acquired businesses; as the inventory acquired in
each acquisition was written up to net realizable value as part of the
acquisition accounting and consequently, very low margins were generated when
this inventory was sold. Without this impact, gross margins would have been
55.6 percent in 1997. These margin percentages are significantly lower than
those achieved in 1996 and 1995 as the acquired businesses, particularly Tylan,
have lower gross margin percentages than those of the Company's pre-existing
business.
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 partially offset gains or losses
on the underlying exposure. Realized gains of $4.4 million in 1997, $2.7
million in 1996 and realized losses of $2.3 million in 1995 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, 1997, the Company has only option contracts to
sell yen aggregating $40.5 million. In the event of a significant strengthening
of the U.S. dollar against the yen, the exercise of these options will partially
mitigate losses which would be incurred by the Company on the underlying
currency exposure. The open options had an unrealized gain of $2.4 million at
December 31, 1997 based on exchange rates in effect on that date. All open
options mature within 15 months. The Company does not engage in speculative
trading activity.
Operating Expenses
Selling, General and Administrative (S,G&A) Expenses, excluding the effects of
foreign exchange, grew 28 percent in 1997, 8 percent in 1996, and 17 percent in
1995. The increase in 1997 is mainly due to incremental expenses in support of
the acquired businesses. 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, excluding the effects of foreign
exchange, increased by 49 percent in 1997, 5 percent in 1996 and 6 percent in
1995. The significant increase in 1997 was due mainly to the acquired
businesses, as well as increased investment in research and development programs
to support the pre-existing businesses.
Other Income/Expense
Gain on Sale of Equity Securities in 1997 reflects the sale of a portion of the
Company's holdings in PerSeptive Biosystems common shares.
Gain on Sale of Equity Securities in 1996 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.
Net Interest Expense
Net Interest Expense in 1997 was significantly higher than net interest expense
in 1996 due to increased borrowings, which were used to acquire both Amicon and
Tylan. Interest on borrowings required to complete the Tylan acquisition, as
well as Tylan's assumed debt, are included in the Company's statement of income
from January 22, 1997. 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.
Provision For Income Taxes
The Company's effective income tax rate in 1997, excluding the non-tax
deductible write-off of purchased research and development associated with the
Tylan acquisition, was 21.0 percent compared to 23.5 percent in 1996 and 22.5
percent in 1995. The effective tax rate was lower in 1997 as compared to 1996,
reflecting a higher proportion of income generated by low tax rate manufacturing
sites. In 1996, the overall increase in profitability as compared to 1995
slightly diminished the relative benefit derived from these low tax
jurisdictions.
Earnings Per Share
Earnings per share in the past two years includes significant write-offs of
purchased research and development associated with the Company's acquisitions of
Amicon and Tylan. Basic earnings per share adjusted for purchase accounting
charges are summarized as follows:
1997 1996 1995
As reported $(0.89) $1.00 $1.90
Purchase accounting charges 2.73 1.20 -
Pro forma without purchase
accounting charges $ 1.84 $ 2.20 $ 1.90
Additionally, earnings per share in 1997 as compared to 1996 were negatively
impacted by losses of $0.26 per share incurred by the acquired companies and
unfavorable foreign exchange comparisons amounting to $0.25 per share.
Legal Proceedings
As reported in the Company's Form 10-Q Report for the quarter ended March 31,
1997, the Company's wholly-owned subsidiary, Millipore Cidra, Inc. has been
served with an Administrative Order by the Environmental Quality Board of Puerto
Rico with respect to filter membrane scrap produced by Millipore Cidra's
manufacturing operations, which proposed penalties in the amount of $96.5
million. The Company believes that it has meritorious arguments, intends to
vigorously contest this Administrative Order and believes that it should
prevail.
Depending on the ultimate outcome of these proceedings (or if there are interim
material adverse developments), the Company could be in violation of certain
provisions contained in its $350.0 million Revolving Credit Facility, which, in
turn, would cause the Company to be in violation of the cross default provisions
of the $100.0 million 6.88 percent notes due in 2004, $100.0 million 7.23
percent notes due in 2002 and $100.0 million 7.60 percent notes due in 2007.
Violation of these provisions would allow the lenders to require repayment on
demand (or, in the case of the Revolving Credit Facility, restrict borrowings or
re-borrowings). In any such event, the Company believes that it would be able
to renegotiate the terms of its existing debt, although potentially on less
favorable terms.
The Company and Waters Corporation have previously been engaged in litigation
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 1994. While the Company has prevailed in this
litigation, in the second quarter of 1996, Waters also 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. A judgement in the Company's favor in this action was handed down by the
Federal District Court in July 1997. Waters has appealed the federal court
judgement. Although there can be no assurance of the outcome of this appeal, or
that federal agencies with jurisdiction over pension benefit transfers might not
review this transaction independently, the Company believes that it will prevail
in the appeal and in any such review that may be undertaken.
Capital Resources and Liquidity
In 1997, the Company generated approximately $54.0 million of cash from
operating activities, compared to $102.2 million of cash generated in 1996 and
$99.1 million generated in 1995. Cash flow from operating activities in 1997
was reduced by outflows of $23.3 million related to employee severance and
integration costs associated with the acquisitions of Amicon and Tylan.
Excluding acquisition related expenditures, cash generated from operating
activities in 1997 was $77.3 million. The Company generated less cash from
operations in 1997 compared to 1996, as overall earnings were significantly
lower, reflecting the losses incurred by the acquired businesses and lower
foreign currency values.
In 1997, cash generated from operating activities, along with increased
borrowings, was used for the acquisition of Tylan, the purchase of certain
assets and technology of FAStar Ltd. and FAS Holding Company, and capital
expenditures. The Company continued to invest in capacity expansions and the
upgrade of manufacturing facilities and in information technology systems and
equipment. The Company expects capital expenditures and depreciation expense in
1998 to be slightly higher than capital spending and depreciation expense in
1997. Late in 1997, the Company announced that it was moving the headquarters
and manufacturing operations of the acquired Tylan business to Allen, Texas.
Although the facility in Allen will be leased, the Company expects to spend in
excess of $10.0 million in capital to ready the facility for its intended use.
The Company had no other significant commitments for capital expenditures at
December 31, 1997. The Company expects to spend an additional $25.0 million in
cash to complete the integration of Amicon and Tylan during 1998.
In 1996 and 1995, the Company used cash generated from its operations and, in
1995 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 in 1996 and $64.0
million in 1995 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 the pending acquisitions of Amicon and Tylan.
The Company did not purchase additional shares of its outstanding common stock
in 1997.
The net cash outflow of $3.5 million in 1997 for operations discontinued in 1994
were in line with the Company's expectations. At December 31, 1997, the Company
had no significant remaining obligations related to these discontinued
operations.
The use of debt to finance the acquisitions of Amicon and Tylan has
substantially increased the Company's debt to equity ratio. In the first
quarter of 1997, the Company successfully completed a public debt offering.
Proceeds from the offering of $197.9 million were used to repay borrowings
outstanding under the Company's $350.0 million Revolving Credit Facility. At
December 31, 1997, the Company had additional borrowing capacity of $184.0
million under its Revolving Credit Facility. Although the Company's financial
position remains strong and the Company believes it has flexibility in financing
future requirements, such flexibility is more limited than it had been prior to
the acquisitions of Amicon and Tylan.
At December 31, 1997 the Company held 2.2 million shares of PerSeptive
Biosystems common stock and 1,000 shares of PerSeptive Biosystems preferred
stock. On January 22, 1998, PerSeptive merged with Perkin-Elmer Corporation.
Pursuant to the merger, all of the Company's shares held in PerSeptive were
converted into 587,000 shares of Perkin-Elmer common stock. In the first
quarter of 1998, the Company sold all of its shares of The Perkin-Elmer stock
for approximately $35.7 million in cash.
Dividends
The quarterly dividend was increased in the second quarter of 1997 from $0.09 to
$0.10 per share. Dividends paid in 1997 were $16.6 million.
Business Outlook and Uncertainties
The following statements are based on current expectations. These statements
are forward looking, are subject to the comments under "Forward Looking
Statements" below and actual results may differ materially.
Integration of Tylan: The Company intends to reduce the number of major
manufacturing sites of the acquired Tylan business from three to one in 1998.
The Company announced plans to close all three existing sites and open a new
facility in Allen, Texas. The Company expects to commence manufacturing at the
Allen site late in the third quarter of 1998. The process of consolidating
these manufacturing activities may involve unforeseen difficulties and there can
be no assurance that the potential benefits of such consolidation will be
realized on the schedule expected by the Company. Moreover, such consolidation
may require a disproportionate amount of 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 consolidations could have a material
adverse effect on the Company's results of operations.
Sales: As previously noted, sales to the microelectronics market in 1997
represented 35 percent of consolidated 1997 sales as the acquisition of Tylan
increased the Company's presence in this market. 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 and increased only 2 percent in 1997.
Market research data for the microelectronics market in which the Company
participates is forecasting 1998 industry sales growth rates ranging from flat
to moderately positive. Sales growth in this market in the past has been
volatile, due to general cyclicality, which historically has been exhibited by
this market. In addition, a significant portion of the Company's Asia/Pacific
business is in the microelectronics market. As this market has become a more
significant component of the Company's consolidated sales, the effects of future
industry volatility along with uncertainties caused by the recent Asian
financial crisis could significantly impact the Company's 1998 consolidated
sales growth.
Approximately 58 percent of the Company's sales are transacted in currencies
other than the U.S. dollar. Late in 1997, the U.S. dollar began to further
strengthen against the Japanese yen while, in December, the Korean won
devalued approximately 50 percent against the U.S. dollar. If foreign
exchange rates remain at February 1, 1998 levels, the effect of foreign
exchange will reduce first quarter 1998 and full-year 1998 reported sales
growth by 4 to 5 percentage points and 2 to 4 percentage points, respectively
compared to 1997. Any change in foreign exchange rates will be
reflected in the results of operations.
Gross Margins: The Company expects gross margin percentages in 1998 to be
comparable with those of 1997, as improved margins resulting from increased
volume in the Company's manufacturing plants to support anticipated sales growth
is expected to offset a higher level of sales of acquired business products,
which have lower margins than those of the Company's pre-existing business. The
continuing strength of the US dollar will also constrain margin improvement in
1998.
Operating Expenses: The Company expects operating expenses as a percentage of
sales in 1998 will be consistent with the percentage achieved in previous years.
Interest Expense: The Company expects net interest expense in 1998 will be
slightly lower than in 1997 as cash generated from operating activities and the
sale of Perkin-Elmer stock will be used to reduce outstanding borrowings.
Provision for Income Taxes: The effective tax rate in 1998 is projected to be
in the range of 21 percent; consistent with the effective rate reported in 1997.
The tax rate estimate is based on the Company's current expectations for 1998
income and current tax law and, therefore, is subject to change. At December
31, 1997, the Company had a net deferred tax asset of $88.8 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 1998 effective tax rate increasing above the expected range of 21
percent.
Capital Spending: The Company expects to spend more for fixed asset additions
in 1998 than it spent in 1997. The Company does not believe it needs to
significantly expand or add manufacturing capacity in 1998 to handle its
anticipated 1998 sales growth. The Company will continue to invest in tooling
within its manufacturing plants and in information technology, particularly in
Japan. Accordingly, the Company also expects that 1998 depreciation expense
will be higher than 1997 depreciation expense.
Year 2000 Issues: The Company utilizes a common worldwide software system for
its financial and business reporting. The Company believes that its system is
Year 2000 ready and that future costs necessary to ensure successful Year 2000
compliance will not have a material effect on the Company's 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 in
such statements, 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. In addition to the matters discussed herein, 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, including uncertainties in selected Asian economies, 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 overriding
rights by third parties, and the risk factors listed from time-to-time in the
Company's filings with the SEC, which include the report on Form 10-Q for the
period ended March 31, 1997 and the Company's Form 10-K Annual Report for the
year ended December 31, 1997, and in particular the matters described under the
heading "Business--Environmental Matters". Specific reference is also made to
the risks and uncertainties described in the Registration Statement on Form S-3
(Registration 333-23025) filed by the Company in connection with its offering of
$300 million of Debt Securities in May 1997, and, in particular, to those
described under "Factors Which May Affect Future Results". See also "Legal
Proceedings" and "Business Outlook and Uncertainties" above.
Consolidated Statements of Income
Millipore Corporation
Year ended December 31
(In thousands except per 1997 1996 1995
share data)
Net sales $ 758,919 $ 618,735 $ 594,466
Cost of sales 342,237 249,443 243,849
Gross profit 416,682 369,292 350,617
Selling, general and 245,585 202,140 195,026
administrative expenses
Research and development 55,899 38,429 36,515
expenses
Purchased research and 114,091 68,311 -
development expense
Operating income 1,107 60,412 119,076
Gain on sale of equity 8,330 5,329 -
securities
Interest income 2,937 2,780 1,682
Interest expense (30,484) (11,498) (10,623)
(Loss)/Income before income (18,110) 57,023 110,135
taxes
Provision for income taxes 20,674 13,401 24,781
Net (Loss)/Income $ (38,784) $ 43,622 $ 85,354
(Loss)/Income per share
Basic $ (0.89) $ 1.00 $ 1.90
Diluted $ (0.89) $ 0.98 $ 1.86
Weighted average common
shares outstanding
Basic 43,527 43,602 44,985
Diluted 43,527 44,457 45,887
The accompanying notes are an integral part of the consolidated financial
statements.
Consolidated Balance Sheets
Millipore Corporation
December 31
(In thousands) 1997 1996
Assets
Current assets:
Cash $ 2,240 $ 4,010
Short-term investments 18,029 42,860
Accounts receivable (less allowance
for doubtful accounts of $3,010 in 176,585 151,653
1997 and $2,490 in 1996)
Inventories 127,192 106,410
Other current assets 28,362 6,979
Total current assets 352,408 311,912
Property, plant and equipment, net 220,094 203,017
Intangible assets (less accumulated
amortization of $10,000 in 1997 and $3,084
in 1996) 77,394 58,866
Deferred income taxes 88,760 69,086
Other assets 27,588 40,011
Total assets $766,244 $682,892
Liabilities and Shareholders' Equity
Current liabilities:
Notes payable $165,576 $ 101,546
Accounts payable 46,088 34,404
Accrued expenses 74,856 60,615
Dividends payable 4,369 3,899
Accrued retirement plan contributions 7,088 4,705
Accrued income taxes payable 6,896 11,231
Total current liabilities 304,873 216,400
Long-term debt 286,844 224,359
Other liabilities 25,533 24,528
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, 1997 and
1996, respectively 56,988 56,988
Additional paid-in capital
10,927 8,800
Unrealized gain on securities available for
sale 18,115 9,536
Retained earnings
490,289 548,598
Translation adjustments
(39,835) (8,280)
536,484 615,642
Less: Treasury stock at cost, 13,291
and 13,666 shares as of December 31, 1997
and 1996, respectively (387,490) (398,037)
Total shareholders' equity 148,994 217,605
Total liabilities and shareholders' equity $ 766,244 $ 682,892
The accompanying notes are an integral part of the consolidated financial
statements.
Consolidated Statements of Shareholders' Equity
Millipore Corporation
Year ended Dec. 31, 1995,
1996 and 1997
(In thousands, except per
share data)
Additional
Common Common Paid-in Retained
Stock Stock
Shares Par Value Capital Earnings
Balance at January 1,
1995 28,494 $ 28,494 $ 23,603 $ 458,579
Net income 85,354
Effect of two-for-one
stock split 28,494 28,494 (23,603) (4,891)
Cash dividends declared,
$0.315 per share (14,071)
Treasury stock acquired
Stock options exercised (1,553)
Employees' stock purchase (4)
plan proceeds
Savings and Participation 86
Plan proceeds
Incentive plan awards 124
Stock awards 9
Translation adjustments
Balance at December 31, 56,988 $ 56,988 $ - $ 523,633
1995
Net income 43,622
Cash dividends declared,
$0.35 per share (15,261)
Treasury stock acquired
Stock options exercised (4,218)
Employees' stock purchase 195
plan proceeds
Savings and Participation 209
Plan proceeds
Incentive plan awards 408
Stock awards 10
Unrealized gain on
securities available for
sale
U.S. tax benefit from
stock plan activity 8,800
Translation adjustments
Balance at December 31, 56,988 $ 56,988 $ 8,800 $ 548,598
1996
Net loss (38,784)
Cash dividends declared,
$0.39 per share (17,028)
Stock options exercised (3,335)
Employees' stock purchase 305
plan proceeds
Savings and Participation 306
Plan proceeds
Incentive plan awards 209
Stock awards 18
Unrealized gain on
securities available for
sale
U.S. tax benefit from 2,127
stock plan activity
Translation adjustments
Balance at December 31, 56,988 $ 56,988 $ 10,927 $ 490,289
1997
The accompanying notes are an integral part of the consolidated financial
statements.
Year ended Dec. 31, 1995, Unrealized
1996 and 1997
(In thousands, except per Gain on
share data)
Securities Total
Available Translation Treasury Shareholders
Stock
for Sale Adjustments Shares Cost Equity
Balance at January 1, $ - $ 5,147 (5,361) $(294,546) $ 221,277
1995
Net income 85,354
Effect of two-for-one -
stock split (5,361)
Cash dividends declared,
$0.315 per share (14,071)
Treasury stock acquired (2,962) (90,113) (90,113)
Stock options exercised 895 28,366 26,813
Employees' stock purchase 33 905 901
plan proceeds
Savings and Participation 14 456 542
Plan proceeds
Incentive plan awards 13 354 478
Stock awards 2 57 66
Translation adjustments
(4,772) (4,772)
Balance at December 31, $ - $ 375 (12,727) $(354,521) $ 226,475
1995
Net income 43,622
Cash dividends declared,
$0.35 per share (15,261)
Treasury stock acquired (1,462) (58,362) (58,362)
Stock options exercised 384 10,880 6,662
Employees' stock purchase 72 2,076 2,271
plan proceeds
Savings and Participation 27 735 944
Plan proceeds
Incentive plan awards 39 1,120 1,528
Stock awards 1 35 45
Unrealized gain on
securities available for 9,536 9,536
sale
U.S. tax benefit from
stock plan activity 8,800
Translation adjustments (8,655) (8,655)
Balance at December 31, $ 9,536 $ (8,280) (13,666) $ (398,037) $ 217,605
1996
Net loss (38,784)
Cash dividends declared,
$0.39 per share (17,028)
Stock options exercised 284 7,937 4,602
Employees' stock purchase 33 955 1,260
plan proceeds
Savings and Participation 27 788 1,094
Plan proceeds
Incentive plan awards 30 836 1,045
Stock awards 1 31 49
Unrealized gain on 8,579 8,579
securities available for
sale
U.S. tax benefit from
stock plan activity 2,127
Translation adjustments (31,555) (31,555)
Balance at December 31, $ 18,115 $ (39,835) (13,291) $ (387,490) $148,994
1997
Consolidated Statements of Cash Flows
Millipore Corporation
Year ended December 31
(In thousands) 1997 1996 1995
Cash Flows from Operating
Activities:
Net (loss)/income $ (38,784) $ 43,622 $ 85,354
Adjustments to reconcile net
(loss)/income to net cash provided
by operating activities:
Purchased research and 114,091 68,311 -
development expense
Write-off of acquired 5,000 - -
inventory step-up
Gain on sale of (8,330) (5,329) -
securities
Depreciation and 40,661 30,587 27,478
amortization
Deferred income tax
provision 5,835 (8,212) 1,372
Change in operating
assets and liabilities, net of
effect of
acquisitions:
(Increase) decrease
in accounts receivable (24,468) 247 (10,548)
(Increase) in
inventories (13,361) (11,612) (7,218)
(Increase) decrease
in other current assets (6,937) 1,661 409
(Increase) in other
assets (8,648) (8,747) (8,209)
(Decrease) increase
in accounts payable
and accrued
expenses (21,629) (11,087) 5,931
Increase (decrease)
in accrued retirement plan
contributions 2,557 (36) 543
Increase in accrued
income taxes 1,050 1,723 6,475
Other 6,942 1,058 (2,438)
Net cash provided by operating
activities 53,979 102,186 99,149
Cash Flows from Investing
Activities:
Additions to property, plant and
equipment (41,063) (30,427) (30,010)
Additions to intangible assets (6,135) (1,760) (2,135)
Acquisitions, net of cash acquired (159,158) (122,576) -
Other investments (1,646) (4,010) -
Net cash used by discontinued
businesses (3,516) (7,939) (6,967)
Proceeds from sale of securities 8,330 5,745 -
Net cash used in investing
activities (203,188) (160,967) (39,112)
Cash Flows from Financing
Activities:
Treasury stock acquired - (58,362) (90,113)
Issuance of treasury stock under
stock plans 6,956 11,450 16,937
Cash paid to close out foreign
currency swap - - (3,546)
Net change in short-term debt
65,036 20,045 25,795
Proceeds from issuance of long-term
debt 197,950 124,397 -
Payments on long-term debt (126,018) - -
Dividends paid
(16,558) (14,899) (14,117)
Net cash provided by (used by)
financing activities 127,366 82,631 (65,044)
Effect of foreign exchange rates on
cash and
short-term investments
(4,758) (738) (1,471)
Net (decrease) increase in cash and
short-term investments (26,601) 23,112 (6,478)
Cash and short-term investments on
January 1 46,870 23,758 30,236
Cash and short-term investments on $ 20,269 $ 46,870 $ 23,758
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, 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.
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 its inventories 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
which extend the life of the underlying asset 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 10-40 Years
Production and Other Equipment 3-15 Years
Intangible Assets
Intangible assets consist primarily of acquired patented and unpatented
technology, trade names, licenses and goodwill and are recorded at cost.
Intangible assets are amortized on a straight line basis over periods ranging
from 3 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 intangible assets,
the amount of such impairment is computed by comparing the discounted expected
cash flows to the assets' carrying value. If an impairment exists, the
carrying amount of the intangible asset is reduced by the estimated shortfall of
cash flows.
Marketable Securities
The Company's investments in equity securities are categorized as available-for-
sale as defined by Statement of Financial Accounting Standards (SFAS) No. 115,
"Accounting for Certain Investments in Debt and Equity Securities". Equity
securities are included in both Other current assets and Other assets in the
accompanying consolidated balance sheets and are recorded at fair value. The
cost of each investment is determined primarily on a specific identification
method. 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 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 options 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/(Loss) Per Common Share
In 1997, the Company adopted SFAS No. 128, "Earnings Per Share", which requires
dual presentation of earnings per share. Basic net income (loss) per common
share is calculated by dividing the net income (loss) for the period by the
weighted average number of common shares outstanding for the period. Diluted
net income per common share is calculated by considering the impact of common
stock equivalents (outstanding stock options) as if they were converted into
common stock at the beginning of the period. Common stock equivalents are not
included in loss periods as they are anti-dilutive.
Revenue Recognition
Sales of products and services are recorded principally at the time of product
shipment or performance of services. Certain contract revenue associated with
the Company's process systems business is recorded principally on the percentage
of completion method. The cumulative impact of any revisions in estimates of the
percent complete is reflected in the period in which the changes become known.
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.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income", which is effective for fiscal years beginning
after December 15, 1997, including interim periods. SFAS 130 requires the
presentation of comprehensive income and its components. Comprehensive income
presents a measure of all changes in equity that result from recognized
transactions and other economic events of the period other than transactions
with owners. SFAS 130 requires restatement of all prior-period statements
presented after the effective date. The Company will adopt SFAS 130 during the
first quarter of 1998 and has not yet determined the impact of such adoption.
In July 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information" which is
effective for fiscal years beginning after December 15, 1997. The interim
reporting disclosures are not required in the first year of adoption. SFAS 131
specifies revised guidelines for determining an entity's operating segments and
the type and level of financial information to be disclosed. SFAS 131 changes
current practice under SFAS 14 by establishing a new framework on which to base
segment reporting. The "management" approach expands the required disclosures
for each segment. The Company will adopt SFAS 131 in its fiscal year ended
December 31, 1998 and has not yet determined the impact of such adoption on its
segment reporting as currently presented.
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 1997 presentation.
Note B - Subsequent Event
In partial consideration for the sale of its non-membrane bioscience instrument
division in 1994, the Company received four thousand shares of preferred stock
of PerSeptive Biosystems, Inc ("PerSeptive"). The preferred stock was
redeemable in four equal annual installments of $10,000, commencing in August
1995, in the equivalent value as of each redemption date in common stock, $0.01
par value of PerSeptive. Effective January 22, 1998, PerSeptive completed a
merger with Perkin-Elmer Corporation ("Perkin-Elmer") pursuant to which
PerSeptive became a wholly-owned subsidiary of Perkin-Elmer. Pursuant to this
merger all of the Company's remaining holdings in PerSeptive, which consisted of
2,213,357 shares of common stock and the one thousand shares of preferred stock
were converted into 586,541 shares of Perkin-Elmer common stock. The Company
sold all 586,541 shares of Perkin-Elmer common stock in the first quarter of
1998 and will record a gain on the sale of these securities of approximately
$33,000 in the first quarter of 1998.
The 2,213,375 shares of PerSeptive common stock held by the Company at December
31, 1997 were considered available for sale securities in accordance with SFAS
No. 115 and were recorded at fair value on that date, net of income taxes, in
Other current assets.
Note C - Acquisitions
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 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 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 completed technology. These intangible
assets will be amortized over their estimated useful lives ranging from 5 to 30
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
Revolving Credit Facility as discussed in Notes H and I.
On January 22, 1997, the Company completed a cash tender offer for all of the
outstanding common shares of Tylan General, Inc. (Tylan). Tylan, which became a
wholly-owned subsidiary on January 27, 1997, supplies precision mass flow
controllers, pressure and vacuum measurement and control equipment, and
ultraclean gas panels to the microelectronics industry. The aggregate purchase
price, including the assumption of Tylan debt and transaction costs, was
$163,371. The acquisition was 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 $31,000 for additional costs associated with
the acquisition. These costs include severance costs, abandonment and
consolidation of facilities, and termination of certain Tylan contractual
obligations. The Company expects that the integration of Tylan's operations
into those of the Company will be substantially complete by December 31, 1998,
following the completion of the Company's new facility currently being
constructed in Allen, Texas. The ultimate execution of the Company's plans 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 price included at estimated fair value, current
assets of $45,044, property and equipment of $22,759, other assets of $16,477
and liabilities of $22,042. Identifiable intangible assets were valued at
$18,042 and included tradenames and patented and unpatented completed
technology. These intangible assets are being amortized over their estimated
useful lives ranging from six to ten years. The value of in-process research
and development for which technical feasibility has not been achieved was
$114,091 and was charged to earnings in the first quarter of 1997. The purchase
was financed through the Company's Revolving Credit Facility as discussed in
Notes H and I.
During 1997, the Company charged $14,801 of employee costs, $1,442 of facilities
related costs, $1,284 of contract termination costs, and $5,815 of other
integration expenses against the acquisition accruals. As of December 31, 1997,
employment for 120 employees of the acquired companies, principally within
general and administrative functions, had been terminated. As a result of the
Company's plans to construct a new facility in Allen, Texas as noted above, the
Company plans to exit its three existing Tylan manufacturing facilities in the
United States; all of which are occupied under long-term lease agreements. Two
of the facilities to be vacated are in California while the third facility is in
the Allen, Texas area. The Company expects to pay severance and related costs
for approximately 350 employees currently employed at the California sites. In
addition, the Company expects to incur costs to settle its contractual
obligations associated with the long-term lease agreements on the facilities
from which it will be vacating. The Company believes that the remaining
acquisition accruals at December 31, 1997 will be sufficient to satisfy its
future obligations arising from the implementation of its integration plans.
The following table reflects unaudited pro forma combined results for 1996 of
the Company, Amicon and Tylan on the basis that both acquisitions had taken
place on January 1, 1996.
1996
Revenues $ 824,555
Net Income $ 26,175
Net Income per common share -Basic $ 0.60
Shares used in computation 43,602
These pro forma results are not necessarily indicative of what the actual
consolidated results of operations might have been if the acquisitions had been
effective at the beginning of 1996. Pro forma results for 1997 resulting from
the acquisition of Tylan would not have been materially different from the
results reported.
Note D - Basic and Diluted Earnings per Share
For 1997 basic and diluted earnings per share are the same as the Company was in
a loss position. The effect of anti-dilutive securities in 1997 amounted to 788
shares. The following is a reconciliation for 1996 and 1995 of the numerators
and denominators for basic and diluted earnings per share:
Net Income Shares EPS
1996
Basic Earnings per share $ 43,622 43,602 $ 1.00
Effect of dilutive
securities:
Stock options 855
Diluted Earnings per share $ 43,622 44,457 $ 0.98
1995
Basic Earnings per share $ 85,354 44,985 $ 1.90
Effect of dilutive
securities:
Stock options 902
Diluted Earnings per share $ 85,354 45,887 $ 1.86
Note E - 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 percent 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 F - Inventories
Inventories at December 31, stated at the lower of first-in, first-out (FIFO)
cost or market, consisted of the following:
1997 1996
Raw materials $ 42,518 $ 27,502
Work in process
16,545 16,310
Finished goods
68,129 62,598
$ 127,192 $ 106,410
Note G - Property, Plant and Equipment
Property, plant and equipment at December 31 consisted of the following:
1997 1996
Land $8,750 $9,002
Leasehold improvements 18,846 9,587
Buildings and improvements
118,923 123,256
Production and other equipment
223,720 240,612
Construction in progress 16,440 15,957
386,679 398,414
Less: accumulated depreciation and
amortization 166,585 195,397
$220,094 $203,017
Depreciation expense for the years ended 1997, 1996, and 1995 was $32,797,
$27,972, and $27,478 respectively.
Note H - Notes Payable
Short-term borrowings and related lines of credit at December 31 are summarized
as follows:
1997 1996
Notes payable $165,576 $101,546
Unused lines of credit $214,424 $295,927
Average amount outstanding at
month-end during the year $226,379 $115,461
Maximum amount outstanding at
month-end during the year $392,817 $132,338
Weighted average interest rate
during the year 6.0% 5.6%
Weighted average interest rate at
year-end 6.1% 5.7%
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. In July, 1997,
the Company reduced the maximum funds available under the agreement from
$450,000 to $350,000. Individual borrowings under the Revolving Credit Facility
are made on terms not to exceed six months. At December 31, 1997 the Company
had borrowings of $155,000 outstanding under this facility. Interest is payable
on outstanding borrowings at a floating rate defined in the agreement as LIBOR
plus a margin. 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. At December 31, 1997
the Company also had $10,576 of other short-term borrowings.
Note I - Long-term Debt
Long-term debt at December 31 consisted of the following:
1997 1996
7.23% unsecured notes due in 2002 $100,000 $ -
7.60% unsecured notes due in 2007 100,000 -
6.88% notes payable due in 2004
100,000 100,000
Amounts outstanding under bridge -
loan 124,397
Unrealized gain on revaluation of
yen-denominated debt (13,156) (3,727)
Other notes payable to banks -
3,689
Long-term debt $ 286,844 $ 224,359
In March, 1997, the Company sold $100,000 of 7.23 percent unsecured notes due in
2002 and $100,000 of 7.60 percent unsecured notes due in 2007, pursuant to a
public offering. Net proceeds from the offering of $197,950 were used to repay
borrowings outstanding under the Company's revolving credit agreement. Interest
on the new notes is payable semi-annually in April and October. At December 31,
1997, these rates have a fair value of $100,527 and $100,711, respectively. The
$100,000 of 6.88 percent notes payable are due in 2004. Interest on these notes
is payable semi-annually in March and September. The agreement calls for the
Company to maintain certain financial covenants in the areas of operating cash
flow and interest coverage. As these notes are not publicly traded, a
determination of their fair value is not readily determinable. However, the
Company believes that the carrying values approximates fair value.
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 Japanese yen and
33,193 German Deutche Marks (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. In December, 1997, the Company entered into a currency swap maturing
in 2003. Under the terms of this swap, the Company exchanged $30,000 of dollar
debt service obligations for a yen-denominated obligation of 3,840,000 yen,
which bears interest at a rate of 1.39 percent. The Company's foreign currency
obligations had effective weighted average interest rates of 4.53 and 4.86
percent in 1997 and 1996, respectively. The effect of foreign currency exchange
rate fluctuations resulting from the yen swap agreements open at December 31,
1997 are included in translation adjustments.
Amounts outstanding under the bridge loan at December 31, 1996 represent
borrowings on a 90 day $250,000 bridge loan which was made available to the
Company as temporary financing pending finalization of the Revolving Credit
Facility discussed in Note H. Other notes payable to banks represent borrowings
outstanding at an Amicon subsidiary acquired by the Company on December 31,
1996.
The Company capitalized interest costs associated with the construction of
certain capital assets of $753 in 1997, $785 in 1996 and $929 in 1995. Interest
paid on short-term and long-term debt during 1997, 1996, and 1995 amounted to
$25,579, $12,171, and $11,481 respectively.
Note J - Foreign Exchange
A significant volume of the Company's 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 on these transactions offset gains and
losses on the underlying exposure. Realized gains of $4,374 in 1997, $2,687 in
1996, and a realized loss of $2,287 in 1995 relating to these contracts are
included in cost of sales, partially offsetting the impact of foreign currency
fluctuations.
At December 31, 1997, the Company has open option contracts to sell yen
aggregating $40,480. These open contracts have an unrealized gain of $2,470 at
December 31, 1997. All open contracts mature within 15 months.
Note K - Income Taxes
Income taxes have been provided in accordance with the provisions of SFAS No.
109. The Company's provisions for income taxes are summarized as follows:
1997 1996 1995
Domestic and foreign income before
income taxes:
Domestic $(69,479) $195 $51,933
Foreign 51,369 56,828 58,202
Income before income taxes $(18,110) $57,023 $110,135
Domestic and foreign provisions
for income taxes:
Domestic $6,873 $(2,362) $9,039
Foreign 13,011 15,427 14,642
State 790 336 1,100
$20,674 $13,401 $24,781
Current and deferred provisions
for income taxes:
Current $14,839 $21,613 $23,409
Deferred 5,835 (8,212) 1,372
$20,674 $13,401 $24,781
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:
1997 1996 1995
U.S. statutory income tax rate
35.0% 35.0% 35.0%
Puerto Rico tax rate benefits
(4.0) (6.4) (4.8)
Ireland tax rate benefits
(8.2) (11.0) (5.2)
State income tax, net of federal .5 .4 .7
income tax benefit
Foreign Sales Corporation income
not taxed (2.3) (4.0) (2.0)
Tax credits - - (1.2)
Change in valuation allowance - 9.5 -
Effective tax rate applicable to
operations 21.0 23.5 22.5
Non-deductible charge for
purchased research and
development 93.2 - -
Effective tax rate
114.2% 23.5% 22.5%
Tax exemptions relating to Puerto Rico and Ireland operations are effective
through 2004 and 2010, respectively. Income taxes paid (net of refunds) during
1997, 1996, and 1995 were $18,704, $24,228, and $9,999, 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 $106,178 at December 31,
1997. If earnings of such foreign subsidiaries were not indefinitely
reinvested, a deferred tax liability of approximately $26,544 would have been
required.
At December 31, 1997, the Company has foreign tax credit carryforwards of
approximately $7,300 that expire in the years 1998 through 2002. General
business credit carryforwards of approximately $7,300 expire in the years 2001
through 2010. Net operating loss carryforwards of $30,212 expire in the year
2012. In addition, the Company has alternative minimum tax credit carryforwards
of approximately $17,016 which can be carried forward indefinitely.
Significant components of the Company's net deferred tax assets are as follows:
1997 1996
Intercompany and inventory related $15,962 $12,734
transactions
Postretirement benefits other than
pensions 3,605 3,500
Tax credits (including foreign tax
credits on unremitted earnings) 50,064 55,586
Net operating loss carryforwards -
10,750
Deferred gain on sale of
securities 8,750 -
Divestiture related costs - 5,109
Amortization of intangible assets 22,247 23,776
Depreciation
(3,756) (3,381)
Other, net
3,273 (6,103)
110,895 91,221
Valuation allowance (22,135) (22,135)
Net deferred tax asset $88,760 $69,086
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. 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.
Note L - Legal Proceedings
On May 2, 1997, the Environmental Quality Board (EQB) of Puerto Rico served an
administrative order on Millipore Cidra, Inc., a wholly-owned subsidiary of the
Company. The administrative order (EQB order) generally alleges: (I) that the
nitrocellulose filter membrane scrap produced by Millipore Cidra's manufacturing
operations is a hazardous waste as defined in EQB regulations; (II) that
Millipore Cidra, Inc. failed to manage, transport and dispose of the
nitrocellulose membrane scrap as a hazardous waste; and (III) that such failure
violated EQB regulations. The EQB order proposes penalties in the amount of
$96,500 and orders Millipore Cidra, Inc. to manage the nitrocellulose membrane
scrap as a hazardous waste. The Company believes that it has meritorious
arguments, intends to vigorously contest the EQB order and believes that it
should prevail.
Depending on the ultimate outcome of these proceedings (or if there are interim
material adverse developments), the Company could be in violation of certain
provisions contained in its $350,000 Revolving Credit Facility which, in turn
would cause the Company to be in violation of the cross-default provisions of
the $100,000 6.88 percent notes due in 2004, $100,000 7.23 percent notes due in
2002 and $100,000 7.60 percent notes due in 2007. Violation of these provisions
would allow the lenders to require repayment on demand (or, in the case of the
Revolving Credit Facility, restrict borrowings or re-borrowings). In any such
event, the Company believes that it would be able to renegotiate the terms of
its existing debt, although potentially on less favorable terms.
The Company and Waters Corporation have 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 1994.
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.
Judgements in the Company's favor were handed down by both the Massachusetts
Superior Court and the Federal District Court in May 1997 and July 1997,
respectively. Waters has appealed the federal court judgement. Although there
can be no assurances of the outcome of any judicial appeal of this decision, or
that federal agencies with jurisdiction over pension benefit transfers might not
review this transaction independently, the Company believes that it will prevail
in any such appeal or review.
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, 1997 will not materially affect its future operating
results and liquidity. Amounts paid by the Company in 1997 and 1996 with
respect to the Superfund obligations were insignificant.
The Company is also subject to a number of other claims and legal proceedings
which, in the opinion of the Company's management, are incidental to the
Company's normal business operations. In the opinion of the Company, although
final settlement of these suits and claims may impact the Company's financial
statements in a particular period, they will not, in the aggregate, have a
material adverse effect on the Company's financial position.
Note M - Leases
Operating lease agreements cover sales offices, manufacturing and warehouse
space, office equipment and automobiles. These leases have expiration dates
through 2008. Certain land and building leases contain renewal options for
periods ranging from one to ten years and purchase options at fair market value.
Rental expense was $16,423 in 1997, $12,547 in 1996, and $11,397 in 1995. At
December 31, 1997 future minimum rents payable under noncancelable leases with
initial terms exceeding one year were as follows:
1998 $ 14,910
1999 11,292
2000 8,786
2001 5,497
2002 4,063
2003 - 2008 12,644
At December 31, 1997, the Company had long-term lease obligations at three Tylan
manufacturing sites in the United States. As a result of the Company's
announced plans to consolidate its Tylan U.S. operations into a single site in
Allen, Texas, the Company plans to vacate these three Tylan facilities by
December 31, 1998. Accordingly, future rents payable under these three leases
are included in the table above for 1998 only. Costs expected to be incurred by
the Company to vacate these premises prior to completion of each respective
lease term are accrued as discussed in Note C.
Note N - 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 SFAS No. 123 "Accounting for Stock - Based Compensation."
Accordingly, no compensation cost has been recognized. Had compensation cost
been determined based on the fair value at the grant date consistent with the
provisions of SFAS 123, the Company's net income and basic earnings per share
would have been reduced by $2,112 or $.05 per share in 1997, and $1,015 or $.02
per share in 1996, and would have been unchanged for 1995. The weighted average
fair value of options granted under the stock option plan was $11.13 in 1997,
$12.48 in 1996, and $10.91 in 1995. The weighted average fair value of shares
issued under the employee stock purchase plan was $4.61 in 1997, $3.97 in 1996,
and $3.75 in 1995. The pro forma expense amounts assume that the fair value
assigned to the 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
1997, 1996 and 1995: 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 5.9 percent in 1997, 6.1 percent in 1996 and 5.5 percent in 1995. This
rate approximated that of 5 year U.S. government interest bearing securities.
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, shares authorized for issuance under the Plan were
increased from 8,100,000 to 9,131,000. 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. Stock activity under the Plan is presented as follows:
Weighted
Option Option Average
Shares Price Exercise
Price
Per Share
Outstanding at 3,518,000 $9.72 - $23.69 $17.96
December 31, 1994
Granted 373,000 $37.63 -$37.63 $37.63
Exercised (885,000) $ 9.72 - $23.69 $16.70
Canceled (66,000) $16.88 - $23.69 $17.97
Outstanding at 2,940,000 $13.56 - $37.63 $20.82
December 31, 1995
Granted 461,000 $37.63 - $42.00 $41.30
Exercised (369,000) $13.56 - $37.63 $17.41
Canceled (62,000) $17.25 - $37.63 $25.06
Outstanding at 2,970,000 $14.50 - $42.00 $24.33
December 31, 1996
Granted 683,000 $36.94 - $44.13 $37.94
Exercised (302,000) $14.50 - $37.63 $18.26
Canceled (24,000) $17.44 - $42.00 $29.19
Outstanding at 3,327,000 $14.50 - $44.13 $27.64
December 31, 1997
At December 31, 1997, 1996 and 1995, 2,000,000, 1,850,000 and 1,747,000 options
were exercisable, respectively, under the Plan. The following table summarizes
information about stock options under the Plan outstanding at December 31, 1997:
Options Outstanding Options Exercisable
Weighted
Average Weighted
Options Remaining Average Weighted
Range of Outstanding Contractual Exercise Exercisable Average
Exercise at 12/31/97 Life Price at 12/31/97 Exercise
Price Price
$14.50- 1,848,000 6 years $18.62 1,725,000 $18.26
$23.69
$36.94- 1,479,000 9 years $38.90 275,000 $39.15
$44.13
$14.50- 3,327,000 2,000,000
$44.13
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, 1997, 134,000 options are both issued and
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 1997, 1996 and 1995, shares issued under the Plan were 33,000, 72,000, and
33,000, respectively. As of December 31, 1997, 262,000 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 1997,
1996, and 1995, 116,000, 119,000, and 109,000 shares, respectively, were
outstanding under the plan. Plan expense was $657 in 1997, $559 in 1996, and
$450 in 1995. As of December 31, 1997, 65,000 shares of Millipore common stock
were available for future awards under this plan.
Note O - 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 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 $6,700 in
1997, $4,866 in 1996, and $4,512 in 1995.
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 five 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 1997, 1996 and 1995.
The following table summarizes the funded status of the plan and amounts
reflected in the Company's consolidated balance sheets at December 31. The
projected benefit obligation was calculated using a discount rate of 7.0 percent
in 1997 and 7.5 percent in 1996, 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, 1997 and 1996 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
Corporation.
1997 1996
Actuarial present value of benefit
obligations:
Accumulated benefit obligation,
including vested benefits of $(6,921) on $ (7,162) $ (6,195)
December 31, 1997 and $(5,990) on December
31, 1996
Projected benefit obligation for service $ (7,824) $ (7,022)
rendered to date
Plan assets at fair value 8,794 7,657
Plan assets in excess of projected 970 635
benefit obligation
Unrecognized net actuarial loss 2,542 3,268
Unrecognized prior service cost 100 111
Unrecognized net asset being amortized
over 16.7 years (411) (495)
Prepaid pension cost included in $ 3,201 $ 3,519
financial statements
1997 1996 1995
Net pension (expense)/income includes
the following components
Service cost $ (270) $ 29 $ 179
Interest cost (523) (499) (471)
Return on plan assets 1,551 788 942
Amortization and deferral (1,076) (420) (630)
Net pension (expense)/income $ (318) $ (102) $ 20
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.
Net periodic postretirement benefit cost included the following components:
1997 1996 1995
Service cost-benefits attributed $ 317 $ 298 $ 357
to service during the year
Interest cost on accumulated
postretirement benefit obligation 418 453 548
Net amortization and deferral (93)
(166) (205)
Net periodic postretirement $ 569 $ 546 $ 812
benefit cost
Summary information on the Company's plans as of December 31 is as follows:
1997 1996
Accumulated postretirement benefit
obligation:
Retirees and dependents $(3,164) $(4,029)
Fully eligible active plan (203) (176)
participants
Other active plan participants
(3,217) (2,604)
Accrued postretirement benefit
obligation (6,584) (6,809)
Unrecognized gain from past
experience different
from that assumed and from
changes in assumptions (3,587) (3,126)
Accrued postretirement benefit $(10,171) $(9,935)
cost
The discount rate used in determining the accumulated postretirement benefit
obligation was 7.0 percent as of December 31, 1997 and 7.5 percent as of
December 31, 1996. The assumed health care cost trend rate used in measuring
the accumulated postretirement benefit obligation was 7.0 percent in 1997,
declining gradually to 5.0 percent over 3 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, 1997 would be
increased by $834 while the aggregate of the service and interest cost
components of net periodic postretirement benefit cost for 1997 would be
increased by $118.
Note P - 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, which are classified as corporate assets.
Americas Europe Asia/Pacific Eliminations Total
1997
Sales:
Unaffiliated $317,063 $222,452 $214,832 - $754,347
customers
Unaffiliated export:
Pacific
customers 2,196 2,196
European
customers 2,376 2,376
Total
unaffiliated 321,635 222,452 214,832 - 758,919
Transfer between areas 127,216 102,883 9,973 (240,072) -
Total sales $ 448,851 $325,335 $224,805 $(240,072) $758,919
Operating profits $50,299 $64,070 $10,846 $ - $125,215
General corporate expenses (10,017)
Purchased research and (114,091)
development expenses
Gain on sale of equity
securities 8,330
Interest expense, net
(27,547)
Loss before income taxes
$(18,110)
Identifiable assets $586,401 $228,110 $151,751 $(220,287) $745,975
Corporate assets 20,269
Total assets $766,244
1996
Sales:
Unaffiliated $215,875 $192,838 $208,229 - $616,942
customers
Unaffiliated export:
Pacific 839 839
customers
European 954 954
customers
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 and (68,311)
development expenses
Gain on sale of equity
securities 5,329
Interest expense, net
(8,718)
Income 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
Americas Europe Asia/Pacific Eliminations Total
1995
Sales:
Unaffiliated $202,717 $185,402 $204,895 $593,014
customers
Unaffiliated export:
Pacific 553 553
customers
European 899 899
customers
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 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
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, 1997 and 1996, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the three
years in the period ended December 31, 1997. 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, 1997 and 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
Boston, Massachusetts Coopers & Lybrand L.L.P.
January 21, 1998, except for Note B,
for which the date is February 6, 1998.
Eleven-year Summary of Operations
Millipore Corporation
(In thousands, except per share 1997 1996 1995 1994 1993
data)
Net sales $ 758,919 $618,735 $594,466 $497,252 $445,366
Cost of sales 342,237 249,443 243,849 212,675 193,575
Gross profit 416,682 369,292 350,617 284,577 251,791
Selling, general and 245,585 202,140 195,026 159,591 145,647
administrative expenses
Research and development 55,899 38,429 36,515 34,327 34,952
expenses
Purchased research & 114,091 68,311 - - -
development expense
Restructuring charge - - - - -
Operating income 1,107 60,412 119,076 90,659 71,192
Gain on sale of equity 8,330 5,329 - - -
securities
Other income (expense), net - - - (10,800) -
Interest income 2,937 2,780 1,682 4,091 4,069
Interest expense (30,484) (11,498) (10,623) (7,035) (12,038)
(Loss)/Income from continuing
operations before income taxes (18,110) 57,023 110,135 76,915 63,223
Provision for income taxes 20,674 13,401 24,781 17,306 14,225
(Loss)/Income from continuing
operations before extraordinary (38,784) 43,622 85,354 59,609 48,998
item
Earnings (loss) from - - - - (10,851)
discontinued operations
Loss on disposal of - - - (3,400) -
discontinued operations
(Loss)/Income before
extraordinary item and (38,784) 43,622 85,354 56,209 38,147
cumulative effect of change in
accounting principle
Extraordinary item-loss on - - - - (3,544)
early extinguishment of debt
Cumulative effect of change in
accounting
for postretirement - - - - -
benefits
Net (Loss)/Income $ (38,784) $43,622 $ 85,354 $ 56,209 $ 34,603
Net income per common share-
BASIC:
Income from continuing $ (0.89) $ 1.00 $ 1.90 $ 1.09 $ 0.88
operations
Net income per common $ (0.89) $ 1.00 $ 1.90 $ 1.03 $ 0.62
share
Net income per common share-
DILUTED:
Income from continuing $ (0.89) $ 0.98 $ 1.86 $ 1.07 $ 0.87
operations
Net income per common $ (0.89) $ 0.98 $ 1.86 $ 1.01 $ 0.62
share
Cash dividends declared per $ 0.39 $ 0.35 $ 0.315 $ 0.295 $ 0.275
share
Weighted average common shares
outstanding:
Basic 43,527 43,602 44,985 54,726 55,902
Diluted 43,527 44,457 45,887 55,644 56,049
Financial Data
Working capital $ 47,535 $ 95,512 $ 90,337 $100,649 $232,865
Total assets 766,244 682,892 530,945 536,980 728,573
Long-term debt 286,844 224,359 105,272 109,327 110,067
Shareholders' equity $148,994 $217,605 $226,475 $221,277 $461,154
The Company adopted SFAS No. 109 "Accounting for Income Taxes" during 1992 and
restated tax provisions in 1991 and 1990.
Eleven-year Summary of Operations (continued)
Millipore Corporation
(In thousands except per 1992 1991 1990 1989 1988 1987
share data)
Net sales $427,188 $415,075 $380,983 $365,825 $347,267 $298,728
Cost of sales 195,462 194,557 170,049 165,979 161,613 138,587
Gross profit 231,726 220,518 210,934 199,846 185,654 160,141
Selling, general and 142,701 129,593 117,214 115,951 116,636 98,730
administrative expenses
Research and development 32,953 32,633 29,538 28,756 22,336 19,742
expenses
Purchased research and - - - - - -
development expense
Restructuring charge - - 17,103 - - -
Operating income 56,072 58,292 47,079 55,139 46,682 41,669
Gain on sale of equity - - - - - -
securities
Other income (expense), (2,415) - - 3,149 - -
net
Interest income 6,888 6,182 6,723 3,914 3,450 2,234
Interest expense (14,692) (13,984) (10,418) (8,543) (6,543) (3,432)
(Loss)/Income from
continuing operations 45,853 50,490 43,384 53,659 43,589 40,471
before income taxes
Provision for income taxes 10,317 14,570 13,629 11,619 10,955 10,040
(Loss)/Income from
continuing operations 35,536 35,920 29,755 42,040 32,634 30,431
before extraordinary item
Earnings (loss) from 2,715 18,645 (6,678) 10,462 22,751 17,993
discontinued operations
Loss on disposal of - - - - - -
discontinued operations
(Loss)/Income before
extraordinary item and
cumulative effect of 38,251 54,565 23,077 52,502 55,385 48,424
change in accounting
principle
Extraordinary item-loss on
early extinguishment of - - - - - -
debt
Cumulative effect of
change in accounting
for postretirement (5,068) - - - - -
benefits
Net (Loss)/Income $33,183 $54,565 $23,077 $52,502 $55,385 $48,424
Net income per common
share-BASIC:
Income from $ 0.63 $ 0.64 $ 0.53 $ 0.74 $ 0.58 $ 0.54
continuing operations
Net income per common $ 0.59 $ 0.97 $ 0.41 $ 0.93 $ 0.98 $ 0.86
share
Net income per common
share-DILUTED:
Income from $ 0.63 $ 0.63 $ 0.52 $ 0.74 $ 0.57 $ 0.53
continuing operations
Net income per common $ 0.58 $ 0.95 $ 0.40 $ 0.92 $ 0.97 $ 0.84
share
Cash dividends declared $ 0.255 $ 0.235 $ 0.215 $ 0.195 $ 0.175 $ 0.155
per share
Weighted average common
shares and equivalents:
Basic 56,484 56,588 56,614 56,646 56,658 56,688
Diluted 56,763 57,227 57,064 57,109 57,330 57,566
Financial Data
Working capital $220,378 $247,399 $225,039 $249,777 $251,825 $168,594
Total assets 764,950 766,582 700,415 605,388 545,523 452,387
Long-term debt 103,332 107,759 102,961 94,788 103,472 6,378
Shareholders' equity $452,835 $464,496 $427,008 $403,827 $362,800 $327,604
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)
1997
Net sales $ 178,839 $192,498 $ 184,544 $ 203,038 $ 758,919
Cost of sales 80,634 86,424 82,372 92,807 342,237
Gross profit 98,205 106,074 102,172 110,231 416,682
Selling, general and 59,777 63,273 58,965 63,570 245,585
administrative expenses
Research and development 13,151 15,003 14,353 13,392 55,899
expenses
Purchased research and 114,091 - - - 114,091
development expense
Operating (88,814) 27,798 28,854 33,269 1,107
(loss)/income
Gain on sale of equity 1,769 - 5,304 1,257 8,330
securities
Interest income 761 636 708 832 2,937
Interest expense (6,024) (8,159) (8,026) (8,275) (30,484)
(Loss) / income (92,308) 20,275 26,840 27,083 (18,110)
before income taxes
Provision for income taxes 5,454 3,894 5,637 5,689 20,674
Net (loss) / $ (97,762) $ 16,381 $ 21,203 $ 21,394 $ (38,784)
income
Per share information
Net (loss) /
income per share:
Basic $ (2.25) $ 0.38 $ 0.49 $ 0.49 $ (0.89)
Diluted $ (2.25) $ 0.37 $ 0.48 $ 0.48 $ (0.89)
Weighted average common
shares outstanding
Basic 43,391 43,512 43,565 43,629 43,527
Diluted 43,391 44,274 44,428 44,344 43,527
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 and - - - 68,311 68,311
development expense
Operating 34,981 34,716 28,303 (37,588) 60,412
income/(loss)
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 / $ 25,233 $ 24,810 $ 22,052 $ (28,473) $ 43,622
(loss)
Per share information
Net income /
(loss) per share:
Basic $ 0.57 $ 0.57 $ 0.51 $ (0.66) $ 1.00
Diluted $ 0.56 $ 0.56 $ 0.50 $ (0.66) $ 0.98
Weighted average common
shares outstanding
Basic 44,163 43,642 43,335 43,284 43,602
Diluted 45,112 44,534 44,118 43,284 44,457
Investor Information
Registrar and Transfer Agent
Bank Boston, N.A.
c/o Boston EquiServe
P.O. Box 8040
Boston, Massachusetts 02266-8040
Annual Meeting
The Annual Meeting of Shareholders of Millipore Corporation will be held at
our Bedford, Massachusetts facility (80 Ashby Road) on Thursday, April 16, 1998
at 11 a.m.
Dividend Reinvestment
An automatic dividend reinvestment program is available to shareholders. A
descriptive brochure and authorization card are available on request.
Reports
Quarterly results are available through facsimile, voice mail, and the
Internet, or on request from the Company. Form 10-K is filed annually with the
Securities and Exchange Commission and is available on the Internet and on
request from the Company. To receive the latest quarterly results through
facsimile, call (800) 758-5804 (PIN# 101371); through voice mail call (800) 605-
5249; through the Internet go to URL http://www.millipore.com. The 10-K is also
available through that voice mail number and that Internet address. For other
investor information, contact:
Geoffrey E. Helliwell
Director of Treasury Operations
Millipore Corporation
80 Ashby Road
Bedford, Massachusetts 01730-2271
(781) 533-2032
Common Stock
Millipore's Common Stock is traded on the New York Stock Exchange. Our
symbol is MIL. Stock price information is shown below.
Millipore Stock Prices
Stock price data from the New York Stock Exchange is based on high and low sales
prices. There were approximately 3,318 shareholders of record as of December
31, 1997.
Dividends Declared
Range of Stock Prices Per Share
1997 1996 1997 1996
High Low High Low
First Quarter $45.63 $38.88 $47.13 $36.00 $0.09 $0.08
Second Quarter 44.88 37.25 47.13 35.50 0.10 0.09
Third Quarter 51.88 41.06 43.13 33.88 0.10 0.09
Fourth Quarter 52.00 33.50 43.00 33.63 0.10 0.09