SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
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 001-09781 (0-1052)
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Millipore Corporation
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(Exact name of registrant as specified in its charter)
Massachusetts
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(State or other jurisdiction of incorporation or organization)
04-2170233
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(I.R.S. Employer Identification No.)
80 Ashby Road
Bedford, Massachusetts 01730
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(Address of principal executive offices)
Registrant's telephone number, include area code (781) 533-6000
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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 ___
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The Company had 48,371,883 shares of common stock outstanding as of July 24,
2002.
MILLIPORE CORPORATION
INDEX TO FORM 10-Q
Page No.
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Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets -
June 30, 2002 and December 31, 2001 2
Condensed Consolidated Statements of Income -
Three and Six Months Ended June 30, 2002 and 2001 3
Condensed Consolidated Statements of Cash Flows -
Six Months Ended June 30, 2002 and 2001 4
Notes to Condensed Consolidated
Financial Statements 5-8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 9-12
Item 3. Quantitative and Qualitative Disclosures about Market Risk 13
Part II. Other Information
Item 1 Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 14
MILLIPORE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30, December 31,
2002 2001
----------- ------------
ASSETS (Unaudited)
- ------
Current assets
Cash and cash equivalents $ 76,992 $ 62,450
Accounts receivable, net 166,147 154,606
Deferred income taxes 8,509 8,509
Inventories 100,860 80,046
Other current assets 8,696 4,513
----------- ------------
Total Current Assets 361,204 310,124
Property, plant and equipment, net 222,330 200,330
Deferred income taxes 82,622 82,622
Intangible assets, net 28,792 29,991
Other assets 13,926 11,674
Net assets of discontinued operations - 279,155
----------- ------------
Total Assets $ 708,874 $ 913,896
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities
Notes payable $ 1,729 $ 1,958
Accounts payable 53,693 47,403
Accrued expenses 50,904 63,534
Dividends payable - 5,266
Accrued retirement plan contributions 5,333 7,741
Accrued income taxes payable 738 6,546
----------- ------------
Total Current Liabilities 112,397 132,448
Long-term debt 339,000 320,000
Other liabilities 24,113 22,075
Minority interest in discontinued operations - 45,417
Shareholders' equity
Common stock 56,988 56,988
Additional paid-in capital 88,908 88,584
Retained earnings 391,654 600,479
Unearned compensation (1,949) (2,785)
Accumulated other comprehensive loss (47,872) (83,457)
----------- ------------
487,729 659,809
Less: Treasury stock, at cost, 8,697
shares in 2002 and 9,112 in 2001 (254,365) (265,853)
----------- ------------
Total Shareholders' Equity 233,364 393,956
----------- ------------
Total Liabilities and Shareholders' Equity $ 708,874 $ 913,896
=========== ============
The accompanying notes are an integral part of the condensed consolidated
financial statements.
2
MILLIPORE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
-------------- -------------- ---------------- --------------
Net sales $ 176,124 $ 167,953 $ 342,756 $ 330,470
Cost of sales 74,819 72,061 144,050 146,014
-------------- -------------- ---------------- --------------
Gross profit 101,305 95,892 198,706 184,456
Selling, general and administrative expenses 54,778 52,707 109,344 100,529
Research and development expenses 13,531 11,208 25,918 21,937
Restructuring and other charges - - - 17,962
-------------- -------------- ---------------- --------------
Operating income 32,996 31,977 63,444 44,028
Interest income 282 863 522 1,581
Interest expense (4,610) (6,638) (10,093) (13,265)
-------------- -------------- ---------------- --------------
Income from continuing operations before
income taxes 28,668 26,202 53,873 32,344
Provision for income taxes 6,307 5,764 11,852 4,781
-------------- -------------- ---------------- --------------
Income from continuing operations 22,361 20,438 42,021 27,563
-------------- -------------- ---------------- --------------
Loss from discontinued operations, net of taxes - (4,782) - (6,736)
(Loss) income on disposal of discontinued
operations, net of taxes - (24,400) 2,900 (24,400)
-------------- -------------- ---------------- --------------
Total discontinued operations - (29,182) 2,900 (31,136)
-------------- -------------- ---------------- --------------
Net income (loss) $ 22,361 $ (8,744) $ 44,921 $ (3,573)
============== ============== ================ ==============
Basic income (loss) per share:
Continuing operations $ 0.46 $ 0.44 $ 0.87 $ 0.59
Discontinued operations - (0.62) 0.06 (0.67)
-------------- -------------- ---------------- --------------
Net income $ 0.46 $ (0.18) $ 0.93 $ (0.08)
============== ============== ================ ==============
Diluted income (loss) per share:
Continuing operations $ 0.46 $ 0.43 $ 0.87 $ 0.58
Discontinued operations - (0.61) 0.06 (0.66)
-------------- -------------- ---------------- --------------
Net income $ 0.46 $ (0.18) $ 0.93 $ (0.08)
============== ============== ================ ==============
Cash dividends declared per share $ - $ 0.11 $ - $ 0.22
Weighted average shares outstanding:
Basic 48,176 46,928 48,034 46,678
Diluted 48,476 47,881 48,477 47,657
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
MILLIPORE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended
June 30,
2002 2001
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Cash Flows From Operating Activities:
- -------------------------------------
Net income $ 44,921 $ (3,573)
Less: Loss from discontinued operations, net of taxes - (6,736)
Income (loss) on disposal of discontinued operations, net of taxes 2,900 (24,400)
------------ --------------
Income from continuing operations 42,021 27,563
Adjustments to reconcile income from continuing operations to net cash provided
by operating activities:
Restructuring and other charges - 17,962
Depreciation and amortization 16,188 15,797
Changes in operating assets and liabilities, net:
(Increase) in accounts receivable (1,081) (6,821)
(Increase) in inventories (13,700) (3,634)
(Increase) in other current assets and other assets (3,472) (3,014)
(Decrease) in accounts payable and accrued expenses (10,641) (18,453)
(Decrease) in accrued retirement plan contributions (2,668) (1,400)
(Decrease) in accrued income taxes (5,749) (21,896)
Increase in other 1,490 2,480
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Net cash provided by operating activities 22,388 8,584
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Cash Flows From Investing Activities:
- -------------------------------------
Additions to property, plant and equipment (29,261) (25,311)
Additions to investments and intangible assets (2,609) -
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Net cash used in investing activities (31,870) (25,311)
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Cash Flows From Financing Activities:
- -------------------------------------
Proceeds from issuance of treasury stock under stock plans 12,573 30,352
Net change in debt 18,771 9,159
Dividends paid (5,276) (10,235)
Decrease in cash held as collateral - 3,212
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Net cash provided by financing activities 26,068 32,488
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Effect of foreign exchange rates on cash and cash equivalents 1,375 (3,451)
------------ --------------
Net cash provided by continuing operations 17,961 12,310
Net cash used by discontinued operations (3,419) (4,731)
------------ --------------
Net increase in cash and cash equivalents 14,542 7,579
Cash and cash equivalents on January 1 62,450 55,186
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Cash and cash equivalents on June 30 $ 76,992 $ 62,765
============ ==============
The accompanying notes are an integral part of the condensed consolidated
financial statements.
4
MILLIPORE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, shares in thousands)
1. General: The accompanying unaudited condensed consolidated 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 which substantially duplicate information provided in the
Company's latest audited financial statements. These financial statements
should be read in conjunction with the financial statements and notes
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 2001. In the opinion of management, these financial statements
reflect all adjustments necessary for a fair presentation of the results for
the interim periods presented. The accompanying unaudited condensed
consolidated financial statements are not necessarily indicative of future
trends or the Company's operations for the entire year. Certain
reclassifications have been made to prior year financial statements to
conform with the 2002 presentation.
2. Inventories: Inventories consisted of the following:
June 30, December 31,
2002 2001
----------------- -----------------
Raw materials $ 35.6 $ 28.5
Work in process 17.1 12.5
Finished goods 48.2 39.0
----------------- -----------------
Total $ 100.9 $ 80.0
================= =================
3. Property, Plant and Equipment: Accumulated depreciation on property, plant
and equipment was $174.7 at June 30, 2002 and $157.4 at December 31, 2001.
4. Restructuring Program and Other Charges: In the first quarter of 2001, the
Company initiated a restructuring program and recorded a $16.5 restructuring
charge, consisting primarily of employee termination costs, and $1.5 of
fixed asset write-offs for assets which were no longer in use. Approximately
215 positions were eliminated and through June 30, 2002, approximately 175
employees have left the Company. The restructuring actions are proceeding as
planned and the remaining reserve balance, which is included in accrued
expenses at June 30, 2002, will be substantially paid by the end of 2002.
The following is a summary of the 2001 Restructuring Program reserve balance
at June 30, 2002:
Balance at Cash Balance at
December 31, 2001 disbursements June 30, 2002
------------------ --------------- --------------
Employee severance costs $ 4.6 $ 1.4 $ 3.2
Leasehold and other costs 0.7 0.3 0.4
--------------- ----------- --------------
Total $ 5.3 $ 1.7 $ 3.6
=============== =========== ==============
5. Basic and Diluted Earnings Per Share: Share information used to calculate
earnings per share ("EPS") is as follows:
Three Months Ended Six Months Ended
June 30, June 30,
------------------- ------------------
2002 2001 2002 2001
---- ---- ---- ----
Weighted average common shares outstanding for 48,176 46,928 48,034 46,678
basic EPS
Dilutive effect of stock options and restricted stock 300 953 443 979
------ ------ ------ ------
Weighted average common shares outstanding for 48,476 47,881 48,477 47,657
diluted EPS ====== ====== ====== ======
5
MILLIPORE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, shares in thousands)
6. Comprehensive Income: The following table presents the components of
comprehensive income (loss), net of taxes:
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- -------------------
2002 2001 2002 2001
---- ---- ---- ----
Net unrealized gain (loss) on securities available for sale $ - $ 0.5 $ (0.1) $ (0.8)
Impact of adopting SFAS No. 133 - - - (5.1)
Change in value of foreign currency interest rate swaps
designated as hedges - - - 5.9
Foreign currency translation adjustments 25.5 (6.7) 20.4 (23.8)
------ ------- ------- --------
Other comprehensive income (loss) 25.5 (6.2) 20.3 (23.8)
Net income (loss) 22.4 (8.7) 44.9 (3.6)
------ ------- ------- --------
Total comprehensive income (loss) $ 47.9 $ (14.9) $ 65.2 $ (27.4)
====== ======= ======= ========
7. Legal proceedings: On July 21, 1999 Amersham Pharmacia Biotech AB ("APB")
(now known as Amersham Biosciences AB) of Sweden 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 of the claims contained in
certain APB patents. APB sought an injunction against the alleged
infringement as well as damages. On October 26, 2000, the High Court ruled
that the chromatography valve currently sold by the Company did not infringe
the APB patents. APB appealed this decision and, on July 5, 2001, the
British Appeals Court affirmed the decision of the High Court. On February
13, 2002, the House of Lords rejected APB's request for leave to appeal the
decision of the Appeals Court. The High Court also ruled that a discontinued
product did infringe one of the APB patents. A hearing on damages has yet to
be scheduled with respect to this matter. In any event, the outcome of this
suit is not expected to have a material adverse effect on the Company's
financial position, cash flows and results of operations.
8. Business Segment Information: The Company's chief decision makers evaluate
the performance of the Company and make resource allocation decisions based
on total consolidated company results. As a result of this evaluation, the
Company determined that it has three operating segments: BioPharmaceutical,
Laboratory Water and Life Sciences.
BioPharmaceutical develops, manufactures and sells consumable products and
capital equipment and provides related services used in drug manufacturing.
Laboratory Water and Life Sciences manufacture and sell instrumentation,
consumable products and services used in drug discovery and development.
For all three of these operating segments within the bioscience industry,
economic characteristics, production processes, products and services,
types and classes of customers, methods of distribution and regulatory
environments are similar. Because of these similarities, the three segments
have been aggregated into one reporting segment for financial statement
purposes.
6
MILLIPORE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, shares in thousands)
Please refer to the condensed consolidated financial statements for
financial information regarding the one reportable segment of the Company.
9. Discontinued Operations: On February 27, 2002, the Company distributed its
remaining ownership interest in Mykrolis Corporation common stock as a
dividend to the Company's shareholders. At that date, the net assets of
discontinued operations less minority interest was recorded as a $300.2
reduction to shareholders' equity.
In the first quarter of 2002, the $24.4 (net of tax) estimated loss on
disposal of discontinued operations recorded in 2001 was reduced by $2.9
(net of tax) to reflect the actual operating losses through the
distribution date.
In the second quarter of 2001, the Company and Mykrolis Corporation entered
into various agreements covering a range of issues relating to the
separation of Mykrolis Corporation from the Company. Among other things,
these agreements provide for facilities, services, contract manufacturing
and research for various periods of time and under various pricing
arrangements. For the period from January 1, 2002 through February 27,
2002, the Company recognized revenues of $0.5 and expenses were reduced by
$1.3 as a result of these agreements.
As discussed in note 10, the Company adopted SFAS No. 142 effective January
1, 2002. The adoption of SFAS No. 142 did not have a significant impact on
the Company's discontinued operations included in the consolidated
financial statements. The aggregate amortization expense included in the
accrued loss on disposal of discontinued operations was $0.4 in the second
quarter of 2001 which would not have changed the basic or diluted income
(loss) per share.
10. Adoption of New Accounting Pronouncements: Effective January 1, 2002, the
Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS
No. 142 requires that ratable amortization of goodwill be replaced with
periodic tests of the goodwill's impairment and that intangible assets
other than goodwill be amortized over their economic lives. The adoption of
SFAS No. 142 did not have an impact on the Company's continuing operations
presented in the consolidated financial statements. SFAS No. 142 did not
have a significant impact on the Company's discontinued operations. See
note 9 for additional information regarding the impact of the adoption on
the Company's discontinued operations.
The following is the summary of amortized intangible assets:
June 30, 2002 December 31, 2001
Gross Carrying Accumulated Gross Carrying Accumulated
Amount Amortization Amount Amortization
---------------------------------- ----------------------------------
Patented and unpatented technology $ 18.4 $ 9.7 $ 18.1 $ 9.0
Trade names 19.0 4.5 19.0 3.9
Licenses and other 9.2 3.6 8.8 3.0
------- -------- ------- -------
Total $ 46.6 $ 17.8 $ 45.9 $ 15.9
======= ======== ======= =======
Aggregate amortization expense for intangible assets for the six months ended
June 30, 2002 and 2001 was approximately $1.8 and $2.0, respectively.
The estimated aggregate amortization expense for amortized intangible assets
owned as of June 30, 2002 for each of the five succeeding fiscal years is as
follows:
2002 $ 3.3
2003 $ 2.9
2004 $ 2.8
2005 $ 2.6
2006 $ 2.6
7
MILLIPORE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, shares in thousands)
Effective January 1, 2002, the Company adopted SFAS No.144, "Accounting
for the Impairment or Disposal of Long-Lived Assets". SFAS No. 144
supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" and provides a single
accounting model for long-lived assets to be disposed of. In addition, the
standard eliminates the requirement to accrue for losses through the
estimated date of disposal of a business. The adoption of SFAS No. 144 did
not have an impact on the Company's consolidated financial statements.
8
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Basis of Presentation
The following discussion of the Results of Operations includes reference to
"local currencies". Local currency results represent the foreign currency
balances translated, in all periods presented, at Millipore's budgeted exchange
rates for 2002, thus excluding the impact of fluctuations in the actual foreign
currency rates. The Company's management uses this presentation for internal
evaluation of the financial performance of the Company because it believes that
the local currency results provide a clearer presentation of underlying business
trends. The U.S. dollar results represent the foreign currency balances
translated at actual exchange rates.
Results of Operations
The following table summarizes sales growth by geography in the second quarter
of 2002 as compared to the second quarter of 2001:
June 30, Sales Growth In
U.S. dollars in millions 2002 2001 U.S. Dollars Local Currency
Americas $ 80 $ 80 - -
Europe 64 55 18% 12%
Asia/Pacific 32 33 (3)% (2)%
------ ------ ----- ----
Total $ 176 $ 168 5% 4%
====== ====== ===== ====
Net sales for the second quarter of 2002 were $176.1 million as compared to
$168.0 million for the same period of the prior year, an increase of 5 percent.
Sales growth of 4 percent, in local currency, was 100 basis points lower than
the 5 percent sales growth in U.S. dollars due to the impact of translating
sales denominated in currencies other than the U.S. dollar. In general, a weaker
U.S. dollar will positively impact sales growth. During the second quarter of
2002 as compared to the second quarter of 2001 the U.S. dollar weakened against
the Euro on average by approximately 4% and strengthened against the Yen by
approximately 4%. The geographic sales volume and the timing of sales
transactions during the quarter resulted in a more significant foreign exchange
impact to reported results from the Euro as compared to the Japanese Yen.
By geography, local currency sales in North America were flat with the same
quarter in 2001. Sales in the second quarter of 2001 were unusually strong in
the biopharmaceutical manufacturing business in the United States as a result of
sales to three customers which were completing and validating new manufacturing
facilities. The strong European sales growth, in local currency, in the second
quarter of 2002 was reflective of an expanding biotechnology business with both
U.S. multinational customers and European customers as well as strong sales of
instrumentation and consumables to laboratories. The Asia/Pacific business
declined 2% in local currency compared to the same quarter last year. We believe
this is primarily a result of the recessionary economic conditions in the
region, particularly in Japan.
By market, local currency revenue growth was strongest for products used in the
biotechnology markets (12%) and life science research (6%) which together
account for 49% of sales. The other bioscience markets which include classical
pharmaceutical, clinical and analytical laboratories and food and beverage
markets declined 2% in local currency. The strong growth in the biotechnology
markets is a combination of a 14% increase in consumables and a 2% increase in
hardware sales reflecting the continued growth of commercialized biologicals,
recombinant proteins and vaccines. The life science research growth rate has
declined as compared to the growth rates reported in the last few quarters
reflecting a decrease in demand as pharmaceutical companies shift resources from
discovery of new targets to validation of targets identified in 2000 and 2001.
We continued to see a decline in sales to ultra-high throughput sequencing
laboratories as these customers completed the study of their chosen model
organisms. Additionally, we believe recent customer consolidations have resulted
in a temporary reduction in demand as the consolidated companies refocus
projects, potentially relocate laboratories and work down duplicate inventories.
The declining demand in the other biosciences markets was primarily a result of
beverage customers' process improvements which enable a delay in consumable
change outs as well as a changing mix of products which require less
clarification. Additionally, the Company saw relatively flat demand for
sterilizing filtration devices used in feed
9
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
streams for parenteral products, vaccines and contact lens solutions. Offsetting
these was an approximately 1% growth in the laboratory general filtration
business.
Gross profit margins were 57.5% in the second quarter of 2002 compared to 57.1%
reported in the second quarter of 2001. The improved margins were the result of
a favorable mix of sales in high margin consumables, increased sales in higher
margin geographies and volume efficiencies. Somewhat offsetting this
favorability were increased costs resulting from the strengthening of the Euro
specifically for products manufactured in Europe which were sold to customers
located in other geographic locations.
Selling, general and administrative (SG&A) expenses increased 4% in the second
quarter of 2002 as compared to the second quarter of 2001. This growth rate is
consistent with the growth in sales. As a percentage of net sales, SG&A expenses
in local currencies were 31% in the second quarters of both 2002 and 2001.
Research and development (R&D) expenses increased 21% in the second quarter of
2002, as compared to the second quarter of 2001. This increase is due to planned
investments in strategic R&D programs particularly in biopharmaceutical
manufacturing applications. As a percentage of sales, R&D expenses represented
7.7% as compared to 6.7% in the same quarter of 2001.
In the first quarter of 2001, the Company initiated a restructuring program and
recorded a $16.5 million restructuring charge, consisting primarily of employee
termination costs and $1.5 million of fixed asset write-offs for assets which
were no longer in use. Approximately 215 positions were eliminated and, through
June 30, 2002, approximately 175 employees have left the Company. The $3.6
million remaining balance of the restructuring reserve at June 30, 2002 relates
primarily to employee severance costs which will be substantially paid by the
end of 2002.
Net interest expense decreased in the second quarter of 2002 as compared to the
second quarter of 2001 primarily attributed to lower average borrowings and
decreased average rates which were partially offset by lower interest income
from cash and cash equivalents. The decrease in average rates primarily relates
to the Company replacing its $100.0 million 7.23% unsecured note with available
borrowing capacity under its revolving credit facility which had a 3.1% average
rate during the second quarter of 2002.
The effective income tax rate for the second quarter of 2002 was 22% consistent
with the same quarter of the prior year.
Discontinued Operations
On February 27, 2002, the Company distributed its remaining ownership interest
in Mykrolis Corporation common stock as a dividend to Millipore shareholders. At
that date, the net assets of discontinued operations less minority interest was
recorded as a $300.2 million reduction to shareholders' equity.
In the first quarter of 2002, the $24.4 million estimated loss on disposal of
discontinued operations (net of tax) recorded in 2001 was reduced by $2.9
million (net of tax) to reflect the actual operating losses through the
distribution date.
In the second quarter of 2001, the Company and Mykrolis Corporation entered into
various agreements covering a range of issues relating to the separation of
Mykrolis Corporation from the Company. Among other things, these agreements
provide for facilities, services, contract manufacturing and research for
various periods of time and under various pricing arrangements. For the period
from January 1, 2002 through February 27, 2002, the Company recognized revenues
of $0.5 million and expenses were reduced by $1.3 million as a result of these
agreements.
Foreign Currency Exchange Rate Risks
A substantial portion of the Company's business is conducted outside of the
United States through its foreign subsidiaries, generally in the local currency.
Approximately 37% of the Company's sales are derived from Europe
10
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
where, in the second quarter of 2002 the U.S. dollar weakened against the Euro
and 19% of the sales are from Asia/Pacific where the U.S. dollar strengthened
against the Japanese Yen as compared to the second quarter of 2001. The Company
is able to partially mitigate the impact of currency fluctuations by active
management of cross border currency flows, varied geographic material sourcing
and the use of forward contracts to hedge certain foreign currency exposures.
Generally, when the U.S. dollar strengthens against currencies in which the
Company transacts its business, sales and net income will be adversely impacted.
The Company enters into forward foreign exchange contracts principally to hedge
the impact of currency fluctuations on certain intercompany balances. Principal
hedged currencies include the Euro, Japanese Yen and British Pound. The periods
of these forward contracts typically range for less than three months. At June
30, 2002, the Company held forward foreign exchange contracts with notional
amounts totaling approximately $25 million. The fair value of these contracts
was not material at June 30, 2002.
Capital Resources and Liquidity
Cash generated by operations in the first six months of 2002 was $22.4 million,
compared to $8.6 million in the first six months of 2001. The increase in cash
flow from operations was primarily the result of improvements in the collections
of accounts receivable in 2002 as compared to 2001 as well as the payment of
income taxes in first quarter of 2001 which was principally offset by increased
inventory in 2002. In both years, accrued expenses declined as prior year
incentive accruals were paid to employees. For the six months of 2002, although
accounts receivable increased $1.1 million, days sales outstanding in local
currencies improved from 85 days at December 31, 2001 to 83 days at the end of
the second quarter of 2002 related to improved collection activity primarily in
the United States which offset a mix of slower paying European and Japanese
customers. Inventory levels increased $13.7 million (10 days of supply in local
currency) due to anticipation of increased sales in the second half of 2002 and
specific raw material advance purchases. Cash generated by operations in 2001
was negatively impacted by approximately $20.0 million for payments made to
foreign tax jurisdictions.
Operating cash flow generated in 2002 was used to invest in $31.9 million of
property plant and equipment, other assets and intangibles. The Company also
paid $5.3 million of dividends in the first quarter of 2002. The Company
discontinued future dividend payments and instead will focus on investing in R&D
and building productive capacity. The Company received $12.6 million from the
exercise of employee stock options and increased borrowings under its revolving
credit facility by $18.8 million.
On April 1, 2002, the Company used available borrowing capacity under its
revolving credit facility to satisfy the $100.0 million 7.23% unsecured note due
at that time. Because of the Company's ability and intent to continuously
refinance such borrowings under its revolving credit facility, short-term
borrowings with maturities within the next 12 months have been classified as
long-term.
Legal Proceedings
On July 21, 1999 Amersham Pharmacia Biotech AB ("APB") (now known as Amersham
Biosciences AB) of Sweden 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 of the
claims contained in certain APB patents. APB sought an injunction against the
alleged infringement as well as damages. On October 26, 2000, the High Court
ruled that the chromatography valve currently sold by the Company did not
infringe the APB patents. APB appealed this decision and, on July 5, 2001, the
British Appeals Court affirmed the decision of the High Court. On February 13,
2002, the House of Lords rejected APB's request for leave to appeal the decision
of the Appeals Court. The High Court also ruled that a discontinued product did
infringe one of the APB patents. A hearing on damages has yet to be scheduled
with respect to this matter. In any event, the outcome of this suit is not
expected to have a material adverse effect on the Company's financial position,
cash flows and results of operations.
Adoption of New Accounting Pronouncements
Effective January 1, 2002, the Company adopted SFAS No.142, "Goodwill and Other
Intangible Assets" and SFAS No.144, "Accounting for the Impairment or Disposal
of Long-Lived Assets". SFAS No. 142 requires that ratable amortization of
goodwill is replaced with periodic tests of the goodwill's impairment and that
intangible
11
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
assets other than goodwill be amortized over their economic lives. The adoption
of SFAS No. 142 did not have a significant impact on the Company's consolidated
financial statements.
SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" and provides a
single accounting model for long-lived assets to be disposed of. In addition,
the standard eliminates the requirement to accrue for losses through the
estimated date of disposal of a business. The adoption of SFAS No. 144 did not
have an impact on the Company's consolidated financial statements.
Forward Looking Statements
The foregoing Management's Discussion and Analysis of Financial Condition and
Results of Operations contain certain forward-looking statements based on
current management expectations involving substantial risks and uncertainties
that could cause actual results to differ materially from the results expressed
in, or implied by, these forward-looking statements. These risks and
uncertainties include, without limitation those risks and uncertainties
described in our Form 10-K for the year ended December 31, 2001.
12
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The mitigating actions enumerated above under "Foreign Currency Exchange Rate
Risks" 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 mitigated 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.
Part II - Other Information
Item 1. Legal Proceedings
On July 21, 1999 Amersham Pharmacia Biotech AB ("APB") (now known as Amersham
Biosciences AB) of Sweden 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 of the
claims contained in certain APB patents. APB sought an injunction against the
alleged infringement as well as damages. On October 26, 2000, the High Court
ruled that the chromatography valve currently sold by the Company did not
infringe the APB patents. APB appealed this decision and, on July 5, 2001, the
British Appeals Court affirmed the decision of the High Court. On February 13,
2002, the House of Lords rejected APB's request for leave to appeal the decision
of the Appeals Court. The High Court also ruled that a discontinued product did
infringe one of the APB patents. A hearing on damages has yet to be scheduled
with respect to this matter. In any event, the outcome of this suit is not
expected to have a material adverse effect on the Company's financial position,
cash flows and results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
The annual Meeting of Stockholders of Millipore Corporation was held on April
25, 2002. At the Annual Meeting the following matters were voted on:
a. The election of three Class III Directors for a three-year term
(expiring in 2005). The following votes were tabulated with respect to
the election:
Votes "For" Against
----------- -------
Maureen A. Hendricks 43,674,868 1,017,781
Richard J. Lane 37,371,437 7,321,212
Francis J. Lunger 43,661,361 1,031,288
b. Adoption of an amendment to the Millipore Corporation 1999 Stock
Incentive Plan ("the Plan") to increase the number of shares subject
to the Plan. The following votes were tabulated and the amendment was
accordingly adopted:
For 29,161,931
Against 11,437,678
Abstain 285,351
Broker Non-Votes 3,807,689
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Item 6. Exhibits and Reports on Form 8-K
a. Exhibits.
10.1 Amended and restated 1999 Stock Incentive Plan
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
b. Report on Form 8-K
No reports on Form 8-K have been filed by the Company during the
fiscal quarter ended June 30, 2002.
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
August 8, 2002 /s/ Kathleen B. Allen
- -------------- ------------------------------------
Date Kathleen B. Allen
Vice President and Chief Financial
Officer
August 8, 2002 /s/ Donald B. Melson
- -------------- ------------------------------------
Date Donald B. Melson
Corporate Controller and Chief
Accounting Officer
Exhibit Index
Exhibit
Number Exhibit Title
- ------- -------------
10.1 Amended and restated 1999 Stock Incentive Plan
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
14