FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1999 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from to COMMISSION FILE NUMBER 0-1052 Millipore Corporation (Exact name of registrant as specified in its charter) Massachusetts (State or other jurisdiction of incorporation or organization) 04-2170233 (I.R.S. Employer Identification No.) 80 Ashby Road Bedford, Massachusetts 01730 (Address of principal executive offices) Registrant's telephone number, include area code (781) 533-6000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No The Company had 45,264,130 shares of common stock outstanding as of October 29, 1999. MILLIPORE CORPORATION INDEX TO FORM 10-Q Page No. Part I. Financial Information Item 1. Condensed Financial Statements Consolidated Balance Sheets - September 30,1999 and December 31, 1998 2 Consolidated Statements of Income - Three and Nine Months Ended September 30, 1999 and 1998 3 Consolidated Statements of Cash Flows - Nine Months Ended September 30, 1999 and 1998 4 Notes to Consolidated Condensed Financial Statements 5-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-12 Item 3. Quantitative and Qualitative Disclosures About Market Risk 12 Part II. Other Information Item 1. Legal Proceedings 13 Item 6. Exhibits and Reports on Form 8-K 13 Signatures 14 MILLIPORE CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands) September December 30, 31, 1998 1999 ASSETS (Unaudited) Current assets Cash and cash equivalents $ 52,445 $ 36,022 Cash held as collateral 14,386 - Accounts receivable, net 178,490 154,258 Inventories 101,162 107,241 Other current assets 8,102 7,231 Total Current Assets 354,585 304,752 Property, plant and equipment, net 225,624 237,414 Deferred income taxes 106,725 108,545 Intangible assets 71,991 76,507 Other assets 34,918 35,222 Total Assets $ 793,843 $ 762,440 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Notes payable $ 166,450 $ 171,340 Accounts payable 46,208 39,729 Accrued expenses 63,941 75,544 Dividends payable 4,955 4,847 Accrued retirement plan contributions 6,084 6,931 Accrued income taxes payable 2,769 290 Total Current Liabilities 290,407 298,681 Long-term debt 307,746 299,110 Other liabilities 30,709 27,741 Shareholders' equity Common stock 56,988 56,988 Additional paid-in capital 16,544 11,780 Retained earnings 475,284 472,746 Accumulated other comprehensive loss (35,967) (27,668) 512,849 513,846 Less: Treasury stock, at cost, 11,944 shares in 1999 and 12,921 in 1998 (347,868) (376,938) Total Shareholders' Equity 164,981 136,908 Total Liabilities and Shareholders' Equity $ 793,843 $ 762,440 The accompanying notes are an integral part of the consolidated condensed financial statements. -2- MILLIPORE CORPORATION CONSOLIDATED STATEMENTS OF INCOME (In thousands except per share data) (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, 1999 1998 1999 1998 Net sales $188,635 $159,181 $556,504 $520,015 Cost of sales 86,920 101,493 257,895 273,429 Gross profit 101,715 57,688 298,609 246,586 Selling, general & administrative expenses 64,387 56,588 189,103 179,084 Research & development expenses 13,305 13,301 39,012 40,346 Restructuring (5,200) 33,641 (5,200) 33,641 Litigation settlement - - - 11,766 Operating income (loss) 29,223 (45,842) 75,694 (18,251) Gain on sale of equity securities - - - 35,594 Interest income 671 877 2,061 2,252 Interest expense (7,482) (7,098) (22,594) (21,229) Income (loss) before income 22,412 taxes (52,063) 55,161 (1,634) Income tax provision (benefit) 5,435 (15,643) 12,312 (3,457) Net income (loss) $16,977 $(36,420) $42,849 $1,823 Net income (loss) per share: Basic $ 0.38 $ (0.83) $ 0.96 $ 0.04 Diluted $ 0.37 $ (0.83) $ 0.95 $ 0.04 Cash dividends declared per share $ 0.11 $ 0.11 $ 0.33 $ 0.32 Weighted average shares outstanding: Basic 44,994 43,891 44,617 43,814 Diluted 45,681 43,891 45,161 44,279 The accompanying notes are an integral part of the consolidated condensed financial statements. -3- MILLIPORE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Nine Months Ended September 30, 1999 1998 Cash Flows From Operating Activities: Net income $42,849 $1,823 Adjustments to reconcile net income to net cash provided by operating activities: Restructuring (5,200) 42,816 Depreciation and amortization 33,324 33,036 Gain on sale of equity securities - (35,594) Deferred tax provision (benefit) 1,820 (16,176) Changes in operating assets and liabilities, net: (Increase) decrease in accounts receivable (22,833) 21,212 Decrease in inventories 4,492 5,736 Decrease (increase) in other current assets and other assets 1,182 (1,220) Increase (decrease) in accounts payable and accrued expenses 1,774 (27,984) Increase in accrued income taxes 6,069 838 Increase (decrease) in accrued retirement plan contributions and other 2,689 (337) Net cash provided by operating activities 66,166 24,150 Cash Flows From Investing Activities: Additions to property, plant and equipment (20,220) (42,227) Proceeds from sale of equity securities - 35,594 Investments in intangibles (225) (3,453) Net cash used by discontinued operations - (2,255) Net cash used in investing activities (20,445) (12,341) Cash Flows From Financing Activities: Issuance of treasury stock under stock plans 6,751 4,890 (Decrease) increase in short-term debt (4,890) 20,736 Increase in cash held as collateral (14,386) - Dividends paid (14,659) (13,578) Net cash (used in) provided by financing activities (27,184) 12,048 Effect of foreign exchange rates on cash and cash equivalents (2,114) (140) Net increase in cash and cash equivalents 16,423 23,717 Cash and cash equivalents on January 1 36,022 20,269 Cash and cash equivalents on September 30 $52,445 $43,986 The accompanying notes are an integral part of the consolidated condensed financial statements. -4- MILLIPORE CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Dollars in millions, shares in thousands) 1. General: The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with the instructions to Form 10-Q and, accordingly, these footnotes condense or omit certain information and disclosures normally included in financial statements. These financial statements, which in the opinion of management reflect all adjustments necessary for a fair presentation, should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K/A for the year ended December 31, 1998. The accompanying unaudited consolidated condensed financial statements are not necessarily indicative of future trends or the Company's operations for the entire year. As a result of correspondence with the staff of the Securities and Exchange Commission the Company's 1998 financial statements have been restated to recognize the charge to discontinued operations, previously reported in the third quarter of 1998, in fiscal years 1994 and 1996. In connection with this restatement, the Company has filed a 10-K/A Amended Annual Report for the year ended December 31, 1998. 2.Inventories: Inventories consisted of the following: September December 30, 1999 31, 1998 Raw materials $ 34.2 $ 35.4 Work in process 22.3 18.6 Finished goods 44.7 53.2 Total $101.2 $107.2 3. Property, Plant and Equipment: Accumulated depreciation on property, plant and equipment was $206.9 at September 30,1999 and $188.3 at December 31, 1998. 4.Cash Held as Collateral: The Company is required to provide cash collateralization on one of its yen denominated debt swap agreements. The amount of the collateral is dependent, among other things, on the exchange rate of the yen to the US dollar and is restricted as to withdrawal or alternative usage. 5.Restructuring Charges: In the third quarter of 1998, a restructuring program was initiated to improve the competitive position of the Company by streamlining worldwide operations and reducing the overall cost structure resulting in a restructuring charge of $33.6. In the third quarter of 1999, the Company reevaluated the accrual for the restructuring program and reversed $5.2 of the remaining balance. The reversal reflects a lower estimate for severance pay and lease cancellation costs. Although the planned number of employee positions had been eliminated, the reduction in severance cost is attributed to higher levels of attrition than originally anticipated and impacted employees filling open positions as demand increased due to improved sales volume. Following is a summary of the restructuring program reserve balances at September 30, 1999: Balance Balance at Cash Reversal at December disburse- of September 31, 1998 ments reserve 30, 1999 Employee severance $ 12.8 $ 3.9 $ 4.7 $ 4.2 Lease cancellations 3.7 0.3 0.5 2.9 Contract terminations & other 2.0 0.2 - 1.8 Total $ 18.5 $ 4.4 $ 5.2 $ 8.9 -5- MILLIPORE CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Dollars in millions, shares in thousands) 6. Business Segment Information: The Company has two reportable business segments Biopharmaceutical & Research and Microelectronics. The results for Biopharmaceutical & Research, Microelectronics and Corporate are presented below in "local currencies". For comparability of financial results, the local currency results are calculated by translating the foreign currency balances, in the periods presented, at Millipore's 1999 budgeted exchange rates, which differ from actual rates of exchange. The foreign exchange impact is shown separately and reconciles the local currency reporting to the consolidated results at the actual rates of exchange. This provides a clearer presentation of underlying trends in the Company's business, before the impact of foreign currency translation. Three Months Nine Months Ended Ended September 30, September 30, Consolidated Net Sales 1999 1998 1999 1998 Biopharmaceutical & Research $ 136.8 $ 127.7 $419.7 $387.4 Microelectronics 53.4 37.8 143.8 151.5 Foreign exchange (1.6) (6.3) (7.0) (18.9) Total net sales $ 188.6 $159.2 $556.5 $520.0 Three Months Nine Months Ended Ended September 30, September 30, Consolidated Operating Income 1999 1998 1999 1998 Biopharmaceutical & Research $29.2 $ 24.8 $ 91.2 $78.1 Microelectronics 4.7 (11.5) 9.3 (6.8) Corporate (8.1) (8.4) (25.5) (24.7) Restructuring 5.2 (48.8) 5.2 (48.8) Litigation settlement - - - (11.8) Foreign exchange (1.8) (1.9) (4.5) (4.3) Total operating income $29.2 $(45.8) $75.7 $(18.3) 7. Basic and Diluted Earnings Per Share: The following table sets forth the computation of basic and diluted earnings per share: Three Months Nine Months Ended Ended September 30, September 30, 1999 1998 1999 1998 Numerator: Net income (loss) $17.0 $(36.4) $42.8 $1.8 Denominator: For basic earnings per share: Weighted average shares outstanding 44,994 43,891 44,617 43,814 Effect of dilutive securities-stock options 687 - 544 465 Diluted weighted average shares outstanding 45,681 43,891 45,161 44,279 Net income per share: Basic $ 0.38 $(0.83) $ 0.96 $ 0.04 Diluted $ 0.37 $(0.83) $ 0.95 $ 0.04 -6- MILLIPORE CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Dollars in millions, shares in thousands) 8. Comprehensive Income: The following table presents the components of comprehensive income (loss), net of taxes: Three Months Nine Months Ended Ended September 30, September 30, 1999 1998 1999 1998 Unrealized holding (losses) gains on marketable securities $(0.1) $ 0.1 $ 1.1 $9.5 Reclassification adjustment for gains realized in net income - (0.5) (0.3) (28.1) Net unrealized (loss) gain on securities available for sale (0.1) (0.4) 0.8 (18.6) Foreign currency translation adjustments 8.6 9.4 (9.1) 4.7 Other comprehensive income (loss) 8.5 9.0 (8.3) (13.9) Net income (loss) 17.0 (36.4) 42.8 1.8 Total comprehensive income (loss) $ 25.5 $(27.4) $34.5 $(12.1) 9.Acquisition: On May 18, 1999, the Company acquired all outstanding shares of Bioprocessing Corporation Limited (Bioprocess) in exchange for 660 shares of Millipore common stock. The transaction was accounted for as a pooling-of-interests. The consolidated financial statements for prior periods were not restated because the addition of Bioprocess did not have a material impact on the Company's results of operations. Bioprocess develops, manufactures and sells chromatographic media for the purification of proteins. 10. Legal Proceedings: On July 21,1999, Amersham Pharmacia Biotech AB of Sweden (APB) filed a complaint in the high Court of Justice in the United Kingdom against the Company and two of its subsidiaries alleging that the sale of the Company's ISOPAK chromatography valve infringed one or more claims of certain APB patents. APB is seeking an injunction against the alleged infringement and damages. The Company believes that its ISOPAK product does not infringe the patents in question. The Company intends to vigorously defend this action. In any event, the outcome of the suit will not have a material adverse impact on the Company's financial condition. 11. New Accounting Pronouncements: In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" effective January 1, 2001 for the Company. SFAS 133 establishes accounting and reporting standards requiring that every derivative instrument, including certain derivative instruments embedded in other contracts, be recorded in the balance sheet as either an asset or liability measured at its fair value. The statement also requires that changes in the derivative's fair value be recognized in earnings unless specific hedge accounting criteria are met. The Company is currently assessing the impact of this new statement on its consolidated financial position, liquidity and results of operations. -7- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward Looking Statements The following discussion and analysis includes certain forward- looking statements which are subject to substantial risks and uncertainties described in Management's Discussion and Analysis in the Company's Annual Report on Form 10-K/A for the year ended December 31, 1998. Such forward-looking statements are based on management's current expectations and actual results may differ materially from the results expressed in, or implied by, these forward-looking statements. Local Currency Results The following discussion of the Results of Operations includes reference to revenue, margins and expenses in "local currencies". For comparability of financial results, the foreign currency balances, for the periods presented, are translated at Millipore's 1999 budgeted exchange rates which differ from actual rates of exchange. This provides a clearer presentation of underlying trends in the Company's business, before the impact of foreign currency translation. Results of Operations Consolidated net sales for the third quarter of 1999 were $189 million, an increase of 19% from sales for the same period last year. Revenues increased 15% as measured in local currency terms for the third quarter of 1999. The Company reported a profit of $0.37 per share for the third quarter of 1999 compared to a loss of $0.83 per share for the third quarter of 1998. Excluding restructuring and unusual items from both periods, the Company would have reported earnings per share of $0.30 and a loss per share of $0.06 for the third quarter of 1999 and 1998, respectively. The following table summarizes sales growth by business segment and geography in the third quarter of 1999 as compared to the third quarter of 1998 (dollars in millions): September 30, Sales Sales Growth Growth 1999 1998 in U.S. Local Dollars Currency Biopharmaceutical & Research $ 135 $ 124 9% 7% Microelectronics 54 35 52% 41% Total $ 189 $159 19% 15% Americas $ 77 $ 68 13% 13% Europe 58 54 6% 11% Asia/Pacific 54 37 48% 24% Total $189 $159 19% 15% Compared to the third quarter of 1998, the Japanese yen has strengthened against the U.S. dollar in excess of 20% during the period, while the Euro has weakened against the U.S. dollar by 5%. The strength of the Japanese yen more than offset the impact of the Euro resulting in an increase in the reported growth in sales by 4%. If foreign exchange rates remain at October 28, 1999 levels, the expected fourth quarter sales growth in dollars should approximate the growth in local currency. Projected full year 1999 reported sales growth rates are anticipated to be generally 2% higher than local currency growth rates. -8- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Biopharmaceutical & Research sales, in local currency, increased 7% in the third quarter of 1999 as compared to the third quarter of 1998. The growth was broad-based across product lines and geographies. Sales growth was strongest for consumable filtration products used in sterile drug production, laboratory research applications and water filtration devices. Revenue growth from the sale of process systems was positive, although to a lesser extent than other product lines. The order pattern for process systems is not linear and large orders are received on a periodic basis which may positively or negatively impact quarterly comparisons. Sales growth, in local currency, was positive in all geographies. This segment anticipates continued sales growth in the fourth quarter of 1999. Microelectronics sales in local currency increased 41% in the third quarter of 1999 compared to the third quarter of 1998. This segment had negative quarterly sales comparisons starting in the second quarter of 1998 reflecting the impact of the semiconductor industry downturn and the recessionary conditions of the Asia/Pacific region. Since first quarter of 1999, the Company began to see an indication of a recovery in the semiconductor industry coupled with some stabilization of the Asian economies. The third quarter of 1999 reported the first positive sales comparisons for the current year when compared to the prior year. The growth in this segment is expected to continue in the fourth quarter of 1999. The third quarter of 1999, on a sequential quarterly comparison basis, represents the third quarter of increased sales in the Microelectronics business segment. Recent industry reports suggest a reduction in excess capacity in the semiconductor industry and some increase in overall semiconductor demand. While the Company expects these trends to create increased demand for Microelectronics equipment as well as consumables, the timing and extent of the overall industry "recovery" is not certain. Gross profit margins were 55% of sales, in local currencies, in the third quarter of 1999 compared to 46% reported in the third quarter of 1998, excluding certain one-time charges recorded in the third quarter of 1998. Gross profit margins have improved consistently since the third quarter of 1998 as a result of increased volume as well as the restructuring initiatives taken in the third quarter of 1998. The Company expects gross margin percentages in the fourth quarter of 1999 to increase as compared to the fourth quarter of 1998. Selling, general and administrative expenses in local currencies increased 11% in the third quarter of 1999 as compared to the third quarter of 1998. As a percentage of net sales, selling, general and administrative expenses in local currencies decreased 1%. Research and development expenses in local currencies decreased 1% in the third quarter of 1999 as compared to the third quarter of 1998 due to the consolidation of the Company's Microelectronics operations. Research and development expenses decreased from 8% to 7% as a percentage of net sales in local currencies. Net interest expense in the third quarter of 1999 was slightly higher than the third quarter of 1998. The increase is due to higher interest rates resulting from the September 1998 renegotiation of the Company's Revolving Credit Agreement and higher effective interest due to the impact of foreign exchange under the yen debt swap agreements. These increases were offset in part by lower average borrowings. The Company expects interest expense for the fourth quarter of 1999 to be slightly lower than the fourth quarter of 1998 due to lower average borrowings. The effective income tax rate for the third quarter of 1999 was 21.0%, the same as the effective income tax rate from operations for the full year of 1998, excluding the one-time impact of the restructuring program from both periods and the litigation settlement from 1998. The Company expects to sustain the 21.0% tax rate for the remainder of 1999. -9- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Foreign Exchange A substantial portion of the Company's business is conducted outside of the United States through its foreign subsidiaries. This business is transacted through the Company's network of international subsidiaries generally in the local currency. This exposes the Company to risks associated with foreign currency rate fluctuations, which can impact the Company's revenue, net income and cash flow. Sourcing of product from international subsidiary plants and active management of cross border currency flows partially mitigates the impact of changes in foreign currency. However, the Company has significant exposure to changes in the Japanese yen that can not be mitigated through normal financing or operating activities. Accordingly, this risk is managed through the use of derivative financial instruments. The income and cash flow exposure had been managed through the use of option contracts and the net equity exposure to the Japanese yen is hedged through the use of debt swap agreements. Although the Company mitigates its foreign currency exchange risk through these activities, when the U.S. dollar strengthens against currencies in which the Company transacts its business, sales and net income will be adversely impacted. Restructuring Charges In the third quarter of 1998, a restructuring program was initiated to improve the competitive position of the Company by streamlining worldwide operations and reducing the overall cost structure resulting in a restructuring charge of $33.6 million. Approximately $5.6 million of restructuring costs were paid in 1998 and $4.4 million to date in 1999. These expenditures consisted primarily of employee severance. In the third quarter of 1999, the Company reevaluated the accrual for the restructuring program and reversed $5.2 million of the remaining balance. The reversal reflects a lower estimate for severance pay and lease cancellation costs. Although the planned number of employee positions had been eliminated, the reduction in severance cost is attributed to higher levels of attrition than originally anticipated and impacted employees filling open positions as demand increased due to improved sales volume. The major programs, most of which will be completed in 1999, include the realignment of European operating units, establishment of the European regional transaction center, streamlining the supply chain management function, consolidating certain manufacturing operations and cancellation of leases. Certain of the manufacturing consolidations originally planned for 1999 have been delayed to 2000 due to facility preparation and customer requirements. The restructuring initiatives combined with the consolidation of the Company's Microelectronics plants resulted in the elimination of 620 positions worldwide. Notification to employees was completed during the third quarter of 1998, although some of the affected employees will continue in their existing positions through 2000 with their related salary costs charged to operations as incurred. As of September 30, 1999, 580 employees have left the Company pursuant to this initiative. Under the terms of the severance agreements, the Company expects to pay severance and associated benefits through the early part of 2000. When fully implemented the combination of the restructuring programs and the Microelectronics plant consolidation are expected to yield savings for the full year of $38 million as compared to the annualized results of the third quarter of 1998. The savings in employee compensation, facility related costs, depreciation and amortization will be primarily reflected as reductions in Cost of Sales. In the first nine months of 1999, the Company realized savings of approximately $28 million. -10- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Capital Resources and Liquidity Cash generated by operations in the first nine months of 1999 was $66.2 million compared to $24.2 million in the first nine months of 1998. During the first nine months of 1999 and 1998, cash expenditures amounting to $7.9 million and $21.9 million, respectively, were charged against reserves established for the 1998 restructuring activities and the integration of the Amicon and Tylan Acquisitions. Excluding the restructuring and acquisition related expenditures, cash flow from operations for the first nine months of 1999 and 1998 was $74.1 million and $46.1 million, respectively. The increase in cash flow from operations, excluding the restructuring and acquisition expenditures, for the first nine months of 1999 as compared to the same period of the prior year is primarily a result of improved results of operations, improved inventory utilization attributed to asset management initiatives launched in 1998 and actions taken as part of the 1998 restructuring program. Partially offsetting this is an increase in account receivables resulting from significantly higher sales volume in the third quarter of 1999. The Company continues to aggressively manage its collection activities. These collection efforts resulted in a decrease in the days sales outstanding in accounts receivable from 88 days in the third quarter of 1998 to 85 days in the third quarter of 1999. Cash generated by the Company during the first nine months of 1999 was used to invest in property, plant and equipment, pay dividends, and reduce short-term debt. Property, plant and equipment expenditures for the first nine months of 1999 were $22.0 million lower than the same period of the prior year due to the construction in 1998 of the new manufacturing facility in Allen, Texas which was substantially completed during that year. The Company expects to spend approximately $30.0 to $35.0 million for property, plant and equipment during 1999. The Company is required to provide cash collateralization on one of its yen denominated debt swap agreements if the value of its position declined. While this will not impact the Company's foreign exchange exposure, it could impact short-term liquidity if there were a serious deterioration in the value of the Company's swap position. The amount of the collateral is dependent, among other things, on the exchange rate of the yen to the U.S. dollar and is restricted as to withdrawal or alternative usage. Year 2000 The Company is aware of the "Year 2000" issue that will affect certain products and systems that were not designed to properly handle the transition between the twentieth and twenty-first centuries. The Company has recognized the need to ensure that its business operations will not be adversely impacted by the Year 2000. Accordingly, the Company has authorized an internal team to assess the Company's Year 2000 readiness and to determine the steps necessary to address its Year 2000 issues. Among the areas that have been assessed are the Company's internal information systems, its manufacturing equipment, its facilities and its products. In addition, the team has assessed the Year 2000 readiness of the Company's key suppliers and financial institutions. As part of the assessment of its Year 2000 readiness, the Company has identified and completed testing its key internal information systems (which includes order entry, manufacturing and financial systems) as well as its facilities, manufacturing and other key systems for Year 2000 compliance. Implementation of modifications or replacements necessary to make all key systems Year 2000 compliant has been substantially completed. The Company has completed its testing of the Year 2000 compliance of its products. A large majority of the Company's products do not present Year 2000 compliance issues, and for those products that do present issues the Company has communicated with its customers regarding appropriate solutions. -11- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS In addition to testing of the Company's internal systems and its products, the Company has implemented its plan of communication with its suppliers and financial institutions regarding their Year 2000 readiness and the Year 2000 compliance of the products and services that they provide to the Company. As of September 30, 1999 the Company has not identified any important Year 2000 readiness issues of its key supply-chain partners. The Company has substantially completed its risk analysis and developed supply chain related contingency plans where reasonably possible. The Company anticipates that an inventory build of $1.0 million to $2.0 million will occur in the fourth quarter of 1999 for key materials. The Company is developing contingency plans to deal with other Year 2000 readiness risks as well. Through September 30, 1999, the Company has incurred approximately $1.0 million in its Year 2000 assessment and remediation program and currently estimates that the total costs will be $1.5 million. Incremental spending has not been and is not expected to be material because most Year 2000 readiness costs will be met with amounts that are normally budgeted for procurement and maintenance of the Company's information systems and infrastructure. However, the redirection of spending to the implementation of its Year 2000 readiness program may in some instances delay productivity improvements. The Year 2000 presents a number of risks and uncertainties that could affect the Company. Those risks and uncertainties include, but are not limited to, failure of utilities or transportation systems, failure of key suppliers or customers to address their software and systems problems, and failure of the Company to fully develop its contingency plans. Though the Company continues to believe that the Year 2000 will not have a material impact on its business, financial condition or results of operations, the occurrence of any of the above risks or uncertainties could result in such a material impact. Item 3. Quantitative and Qualitative Disclosures About Market Risk Since the end of 1998, the mitigating actions enumerated above under "Foreign Exchange" in Management's Discussion and Analysis of Financial Condition and Results of Operations and in Management's Discussion and Analysis of Financial Condition and Results of Operations contained in the Company's Annual Report on Form 10-K have effectively limited the impact of exchange rate fluctuations and credit risk on the Company's results of operations and financial position to a level which is not material. -12- Part II - Other Information Item 1.Legal Proceedings On July 21,1999, Amersham Pharmacia Biotech AB of Sweden (APB) filed a complaint in the high Court of Justice in the United Kingdom against the Company and two of its subsidiaries alleging that the sale of the Company's ISOPAK chromatography valve infringed one or more claims of certain APB patents. APB is seeking an injunction against the alleged infringement and damages. The Company believes that its ISOPAK product does not infringe the patents in question. The Company intends to vigorously defend this action. In any event, the outcome of the suit will not have a material adverse impact on the Company's financial condition. Item 6. Exhibits and Reports on Form 8-K a. Exhibits 27 Article 5 Financial Data Schedule - for the three months ended September 30, 1999 -13- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Millipore Corporation Registrant November 15, 1999 /s/Kathleen B. Allen Date Kathleen B. Allen Chief Accounting Officer -14-