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, 1997
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) 275-
9200
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities and Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
The Company had 43,596,783 shares of common stock outstanding as
of October 26, 1997.
MILLIPORE CORPORATION
INDEX TO FORM 10-Q
Page No.
Part I. Financial Information
Item 1. Condensed Financial Statements
Consolidated Balance Sheets --
September 30, 1997 and December 31, 1996 2
Consolidated Statements of Income --
Three and Nine Months Ended September 30,
1997 and 1996 3
Consolidated Statements of Cash Flows --
Nine Months Ended September 30, 1997 and
1996 4
Notes to Consolidated Condensed
Financial Statements 5-6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 7-9
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
MILLIPORE CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
September 30, December 31,
1997 1996
ASSETS (Unaudited)
Current assets
Cash $ 1,891 $ 4,010
Short-term investments 29,204 42,860
Accounts receivable, net 181,145 151,653
Inventories 129,305 106,410
Other current assets 14,253 6,979
Total Current Assets 355,798 311,912
Property, plant and equipment, net 219,011 203,017
Intangible assets 78,484 58,866
Deferred income taxes 82,464 69,086
Other assets 49,626 40,011
Total Assets $ 785,383 $ 682,892
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities
Notes payable $ 180,129 $ 101,546
Accounts payable 46,922 34,404
Accrued expenses 85,532 57,011
Accrued divestiture costs 337 3,604
Dividends payable 4,359 3,899
Accrued retirement plan 6,273 4,705
contributions
Accrued income taxes payable 5,457 11,231
Total Current Liabilities 329,009 216,400
Long-term debt 292,793 224,359
Other liabilities 26,281 24,528
Shareholders' equity
Common stock 56,988 56,988
Additional paid-in capital 8,800 8,800
Retained earnings 473,373 548,598
Unrealized gain on securities 16,873 9,536
available for sale
Translation adjustments (28,107) (8,280)
527,927 615,642
Less: Treasury stock, at cost,
13,399 shares in 1997 and 13,666 in
1996 (390,627) (398,037)
Total Shareholders' Equity 137,300 217,605
Total Liabilities and Shareholders' $ 785,383 $ 682,892
Equity
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,
1997 1996 1997 1996
Net sales $184,544 $148,913 $555,881 $467,317
Cost of sales 82,372 60,774 249,430 188,132
Gross profit 102,172 88,139 306,451 279,185
Selling, general &
administrative expenses 58,965 50,226 182,015 152,425
Research & development
expenses 14,353 9,610 42,507 28,760
Purchased research &
development expense - - 114,091 -
Operating income / (loss) 28,854 28,303 (32,162) 98,000
Gain on sale of equity
securities 5,304 2,858 7,073 2,858
Interest income 708 660 2,105 2,034
Interest expense (8,026) (2,995) (22,209) (8,650)
Income / (loss) before
income taxes 26,840 28,826 (45,193) 94,242
Provision for income taxes 5,637 6,774 14,985 22,147
Net income / (loss) $21,203 $22,052 $(60,178) $72,095
Net income / (loss) per $ 0.49 $ 0.51 $(1.38) $1.65
common share
Cash dividends declared per $ 0.10 $ 0.09 $ 0.29 $ 0.26
common share
Weighted average common
shares 43,565 43,335 43,492 43,714
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,
1997 1996
Cash Flows From Operating Activities:
Net (loss) income $(60,178) $72,095
Adjustments to reconcile net (loss)
income to net
cash provided:
Purchased research and development 114,091 -
expense
Write-off of acquired inventory step- 5,000 -
up
Depreciation and amortization 30,358 22,736
Gain on sale of equity securities (7,073) (2,858)
Change in operating assets and
liabilities:
(Increase) in accounts receivable (20,354) (9,042)
(Increase) in inventories (11,024) (13,377)
(Increase) in other current assets (8,783) (3,223)
(Increase) in other assets (2,382) (4,582)
(Decrease) increase in accounts
payable and accrued (11,578) 4,407
expenses
Increase(decrease) in accrued 1,648 (310)
retirement plan
contributions
(Decrease) increase in accrued (389) 1,746
income taxes
Other 4,782 2,993
Net cash provided by operating 34,118 70,585
activities
Cash Flows From Investing Activities:
Additions to property, plant and (28,464) (22,808)
equipment
Investment in businesses (5,395) (3,990)
Acquisition of Tylan, net of cash (159,158) -
acquired
Investment in intangible assets - (1,523)
Proceeds from sale of equity 7,073 2,979
securities
Net cash used by discontinued (3,246) (7,735)
operations
Other investing activities (1,146) -
Net cash used in investing activities (190,336) (33,077)
Cash Flows From Financing Activities:
Treasury stock acquired - (57,552)
Issuance of treasury stock under stock 5,178 8,454
plans
Increase in short-term debt 79,583 26,147
Proceeds from issuance of long-term 197,950 -
debt
Payments on long-term debt (126,018) (735)
Dividends paid (12,185) (11,109)
Net cash provided by (used in) 144,508 (34,795)
financing activities
Effect of foreign exchange rates on
cash and (4,065) (738)
short-term investments
Net (decrease) increase in cash and (15,775) 1,975
short-term investments
Cash and short-term investments on 46,870 23,758
January 1
Cash and short-term investments on $31,095 $25,733
September 30
The accompanying notes are an integral part of the
consolidated condensed financial statements.
-4-
MILLIPORE CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(In thousands)
1.The accompanying unaudited consolidated condensed financial
statements have been prepared in accordance with the instructions
to Form 10-Q and, accordingly, these footnotes condense or omit
certain information and disclosures normally included in financial
statements. These financial statements, which in the opinion of
management reflect all adjustments necessary for a fair
presentation, should be read in conjunction with the financial
statements and notes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1996. The
accompanying unaudited consolidated condensed financial statements
are not necessarily indicative of future trends or the Company's
operations for the entire year.
2. Inventories consisted of the following:
September 30, December 31,
1997 1996
Raw materials $45,726 $ 27,502
Work in 17,969 16,310
process
Finished 65,610 62,598
goods
$129,305 $ 106,410
3. Accumulated depreciation on property, plant and equipment was
$215,078 at September 30, 1997, and $195,397 at December 31, 1996.
4. 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. On June 27, 1997 the Company sold a seventy-five percent
owned subsidiary of Tylan. Cash proceeds from the sale of $2,700 are
reflected as a reduction in the cost to acquire Tylan in the
accompanying consolidated statement of cash flows. The acquisition
is accounted for as a purchase, and accordingly, the purchase price
has been preliminarily allocated to the identifiable tangible and
intangible assets based on estimated fair market values of those
assets. The Company has accrued approximately $31,000 for additional
costs associated with the acquisition. These costs include severance
payable to Tylan employees, abandonment of duplicate Tylan
manufacturing and sales 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. The ultimate execution of the
Company's plans and costs incurred may result in an adjustment to the
amounts preliminarily allocated to assets and liabilities and to
amounts accrued for additional costs associated with the acquisition.
The purchase 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 complete technology. These intangible assets are being
amortized over their estimated useful lives ranging from 6 to 10
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 discussed in
Note J to the Company's financial statements for the year ended
December 31, 1996.
-5-
MILLIPORE CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(In thousands)
5. In March 1997, the Company sold $100,000 of 7.23% unsecured
notes due in 2002 and $100,000 of 7.60% 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 Facility. Interest on the new notes is
payable semi-annually in April and October.
In July 1997, the Company reduced the maximum funds available
under the five year Revolving Credit Facility from $450,000 to
$350,000. Individual borrowings under the Revolving Credit
Facility are made on terms not exceeding six months. Accordingly,
borrowings under the facility are reflected in notes payable as a
current liability in the accompanying consolidated balance sheet.
6.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, $100,000 6.88% notes due in
2004, $100,000 7.23% notes due 2002 and $100,000 7.60% 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.
7.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 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. Judgments 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 both the state and
federal court judgments. Although there can be no assurances of
the outcome of any judicial appeals of these decisions, 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.
8.In February 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standard (SFAS) No. 128 -
Earnings per Share. SFAS No. 128 supersedes Accounting Principles
Board Opinion No. 15 (APB No. 15), by establishing new standards
for computing and presenting earnings per share (EPS) and
requiring a dual presentation of basic and dilutive EPS. SFAS No.
128 is effective for financial statements issued for periods
ending after December 15, 1997 and earlier adoption is not
permitted. Neither basic nor dilutive EPS as calculated in
accordance with SFAS No. 128 would be materially different from
primary EPS as presented in these financial statements.
In June 1997, the FASB issued SFAS No. 130 - Reporting
Comprehensive Income. SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components
in a full set of general purpose financial statements. SFAS No.
130 is effective for fiscal years beginning after December 15,
1997 with earlier application permitted. The Company is currently
assessing the impact of SFAS No. 130.
-6-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands)
Forward Looking Statements
The following Discussion and Analysis includes certain forward-
looking statements which are subject to a number of risks and
uncertainties as described in Management's Discussion and Analysis in
the Company's Annual Report on Form 10-K for the year ended December
31, 1996. Such forward-looking statements are based on current
expectations and actual results may differ materially.
Recent Developments
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 aggregate
purchase price, including the assumption of Tylan debt and
transaction costs, was $163,371. This acquisition has been accounted
for as a purchase and resulted in a non-tax deductible charge for
purchased research and development of $114,091 in the first quarter
of 1997.
On December 31, 1996, the Company acquired the Amicon Separation
Science Business "Amicon" of W.R. Grace and Co. for a price of
$129,265 in cash, including transaction costs. This acquisition,
which is discussed more fully in the financial statements of the
Company for the year ended December 31, 1996, has also been accounted
for as a purchase.
Both acquisitions are included in the Company's consolidated year to
date and quarterly financial statements in 1997 from their respective
date of acquisition and, accordingly, results of operations of 1997
are not comparable to results of operations of 1996.
Results of Operations
Consolidated net sales for the third quarter of 1997 were $184,544,
an increase of 24% over sales for the same period last year. Sales
growth measured in local currency terms was 31% in the third quarter
of 1997, with the stronger U.S. dollar against the Japanese Yen and
most European currencies decreasing reported sales growth by 7%
points. Sales growth in the third quarter of 1997 was generated
primarily by the Company's acquisitions of Amicon and Tylan. Without
these acquisitions, revenues increased 1% over the same period last
year, and, in local currency increased 8%. Third quarter earnings
per share were $0.49, compared to $0.51 per share last year.
Dilution due to the Tylan acquisition reduced earnings per share by
$0.09 in the third quarter. The Company expects a similar dilution
impact in the fourth quarter of 1997. The following table summarizes
sales growth by geography and market in the third quarter of 1997
with and without the recent acquisitions.
Sales growth rates Sales growth rates
measured in local measured in U.S.
currencies dollars
With Without With Without
Acquisi- Acquisi- Acquisi- Acquisi-
tions tions tions tions
Americas 47% 9% 48% 9%
Europe 32% 13% 15% (3)%
Asia/Pacific 15% 3% 7% (4)%
31% 8% 24% 1%
Consolidated
Microelectronics 68% 9% 60% 3%
Mfg.
BioPharmaceutical 17% 6% 10% (1)%
Mfg.
Analytical 19% 9% 10% 1%
Laboratory
31% 8% 24% 1%
Consolidated
-7-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands)
Sales growth in the analytical laboratory market in the third quarter
was 9% in local currency consistent with the growth rate achieved in
this market in the second quarter of 1997 and the second half of
1996. Growth in this market in the third quarter of 1997 was driven
by the successful introduction of a new family of laboratory water
purification systems. Sales to microelectronics manufacturing
customers continued to be affected by a down cycle in the
microelectronics industry, a trend which started in the middle of
1996. This downturn has negatively impacted both sales and income
for the first nine months of 1997 as compared to the first nine
months of 1996. Sales of microelectronics products did increase in
the third quarter of 1997 compared to the second quarter of 1997.
Sales growth in the BioPharmaceutical market was 6%, consistent with
the growth rate achieved in the second quarter of 1997. Sales to
biotechnology customers within this market remained strong.
In the third quarter of 1997, the U.S. dollar continued to strengthen
against all European currencies and, in the fourth quarter has
continued to strengthen against most Asian currencies. If foreign
exchange rates remain at October 30, 1997 levels, the affect of
foreign exchange currencies is expected to reduce reported fourth
quarter and full year 1997 sales growth by approximately 7 to 8 %
points when compared to local currency growth rates.
Gross margins in the third quarter of 1997 were 55.4% of sales,
compared to 59.2% in the third quarter of 1996. Gross margin
percentages were lower than those in the same period last year as the
acquired businesses both have lower gross margin percentages than
those achieved by the Company in 1996. The Company expects that
gross margin percentages in the fourth quarter of 1997 will
approximate those reported in the third quarter of 1997.
Operating expenses in the third quarter of 1997 increased 23% over
operating expenses for the third quarter of 1996. The increase is
mainly due to operating expenses of the acquired businesses. The
Company expects operating expenses in the fourth quarter of 1997 will
increase slightly over those incurred in the third quarter of 1997.
The gain on sale of equity securities of $5,304 in the third quarter
of 1997, represents the sale of a portion of the Company's holdings
in PerSeptive Biosystem's common shares. The Company has sold
additional portions of this equity investment in the fourth quarter
of 1997.
Net interest expense in the third quarter of 1997 was significantly
higher than that of the third quarter of 1996, due to increased
borrowings used to acquire Amicon and Tylan. Interest on borrowing
required to complete the Tylan acquisition, as well as interest on
Tylan's assumed debt, are included in the Company's statement of
income from January 22, 1997. The Company expects that interest
expense in the fourth quarter will approximate that reported in the
third quarter 1997.
The Company's effective income tax rate for the first nine months of
1997, excluding the non-tax deductible write-off of purchased
research and development associated with the Tylan acquisition, was
21.0% compared to 23.5% for the full year in 1996. The effective rate
in 1997 is lower than the effective rate in 1996 as the Company's
current estimates of 1997 income increase the relative importance of
the Company's low tax rate manufacturing sites as compared to 1996.
-8-
A substantial portion of the Company's business is conducted outside
of the United States through its foreign subsidiaries. This exposes
the Company to risks associated with foreign currency rate
fluctuations which can impact the Company's revenue and net income.
The Company had entered into foreign currency transactions, primarily
forward and option contracts to sell Yen, on a continuing basis in
amounts and timing consistent with the underlying currency exposure
so that the gains or losses on these transactions offset gains or
losses on the underlying exposure. In the third quarter of 1997, a
gain of $1,000 was realized on the Company's foreign exchange
contracts and was recorded in cost of sales, compared to a gain of
$400 in the third quarter of 1996. As of September 30, 1997, the
Company has only forward option contracts to sell yen. In the event
of a significant strengthening of the U.S. dollar against the yen,
the exercise of these forward options will partially mitigate losses
incurred by the Company on the underlying currency exposure. The
Company does not engage in speculative trading activity.
Capital Resources And Liquidity
Cash flow from operations in the first nine months of 1997 was
$34,118 compared to $70,585 in the first nine months of 1996. Cash
flow from operations in the first nine months of 1997 included
outflows of $19,468, primarily employee severance and related costs
associated with the acquisitions of Amicon and Tylan.
During the nine months of 1997, cash generated from operations, along
with increased borrowings, was used to acquire Tylan, invest in
property, plant and equipment, and pay dividends. In addition, in the
third quarter of 1997, the Company acquired for a purchase price of
$5,395 certain assets and technology, principally dispense pump
technology used in the microelectronics market, of FAStar Ltd. and
FAS Holding Corporation. Property, plant and equipment expenditures
in the first nine months of 1997 were higher than for the same period
in 1996. The Company expects capital expenditures in the fourth
quarter of 1997 will approximate capital expenditures in the third
quarter of 1997.
At September 30, 1997, the Company held 2,318 shares of common stock
of PerSeptive Biosystems (PBIO). In addition, the Company holds one
thousand shares of PBIO preferred stock, which is redeemable by PBIO
in August 1998 at a value of $10,000. On August 25, 1997, PBIO
announced it was being acquired by Perkin-Elmer Corp. Under the
agreement, holders of PBIO shares would be paid the equivalent of
$13.00 a share in Perkin-Elmer stock (NYSE: PKN). The acquisition
is subject to certain conditions relating to price and regulatory
approvals. A successful conclusion of the acquisition will result in
the automatic conversion of PBIO common stock into Perkin-Elmer
common stock and the acceleration of the preferred stock redemption
to the date of the acquisition close.
As noted in Footnote 5 to the Consolidated Condensed Financial
Statements, the Company successfully completed a public debt offering
in the first quarter of 1997. Net proceeds from the offering of
$197,950 were used to repay borrowings outstanding under the
Company's Revolving Credit Facility.
Refer to Footnote 6 to the Consolidated Condensed Financial
Statements regarding the Company's recent notification from the
Environmental Quality Board of Puerto Rico and the potential capital
resource and liquidity issues arising from the resolution of this
notification.
-9-
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
a.Exhibits
27 Article 5 Financial Data Schedule - Third Quarter 1997
-10-
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 14, 1997 /s/ Francis J. Lunger
Date Francis J. Lunger
Corporate Vice President, Chief
Financial Officer and Treasurer
-11-
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