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 March 31, 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 (617) 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 43,503,163 shares of common stock outstanding as
of April 25, 1997.
MILLIPORE CORPORATION
INDEX TO FORM 10-Q
Page No.
Part I. Financial Information
Item 1. Condensed Financial Statements
Consolidated Balance Sheets --
March 31, 1997 and December 31, 1996 2
Consolidated Statements of Income --
Three Months Ended March 31, 1997 and 1996 3
Consolidated Statements of Cash Flows --
Three Months Ended March 31, 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 7-8
Part II. Other Information
Item 1. Legal Proceedings 9
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
MILLIPORE CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31, December 31,
1997 1996
ASSETS (Unaudited)
Current assets
Cash $ 9,710 $ 4,010
Short-term investments 37,555 42,860
Accounts receivable, net 172,624 151,653
Inventories 126,189 106,410
Other current assets 14,948 6,979
Total Current Assets 361,026 311,912
Property, plant and equipment, net 218,991 203,017
Intangible assets 75,982 58,866
Deferred income taxes 81,430 69,086
Other assets 32,387 40,011
Total Assets $ 769,816 $ 682,892
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities
Notes payable and current
portion of
long-term debt $ 193,619 $ 101,546
Accounts payable 46,784 34,404
Accrued expenses 92,197 57,011
Accrued divestiture costs 1,595 3,604
Dividends payable 3,905 3,899
Accrued retirement plan 3,138 4,705
contributions
Accrued and deferred income 7,095 11,231
taxes payable
Total Current Liabilities 348,333 216,400
Long-term debt 293,092 224,359
Other liabilities 24,107 24,528
Shareholders' equity
Common stock 56,988 56,988
Additional paid-in capital 8,800 8,800
Retained earnings 444,539 548,598
Unrealized gain on securities 9,411 9,536
available for sale
Translation adjustments (22,366) (8,280)
497,372 615,642
Less: Treasury stock, at cost,
13,490 shares in 1997 and 13,666 in (393,088) (398,037)
1996
Total shareholders' equity 104,284 217,605
Total Liab and Shareholders' Equity $ 769,816 $ 682,892
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
March 31,
1997 1996
Net sales $ 178,839 $ 156,476
Cost of sales 80,015 61,946
Gross profit 98,824 94,530
Selling, general & administrative 60,096 50,140
expenses
Research & development expenses 13,451 9,409
Purchased research & development 114,091 -
expense
Operating (loss) / income (88,814) 34,981
Gain on sale of equity securities 1,769 -
Interest income 761 713
Interest expense (6,024) (2,710)
(Loss) / income before income (92,308) 32,984
taxes
Provision for income taxes 5,454 7,751
Net (loss) / income $(97,762) $ 25,233
Net (loss) / income per common $ (2.25) $ 0.57
share
Cash Dividends declared per $ 0.09 $ 0.08
common share
Weighted average common shares 43,391 44,163
The accompanying notes are an integral part of the consolidated
condensed financial statements.
-3-
MILLIPORE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
March 31,
1997 1996
Cash Flows From Operating Activities:
Net (loss) income $(97,762) $25,233
Adjustments to reconcile net income to
net cash provided:
Purchased research and development 114,091 -
expense
Write-off of acquired inventory 5,000 -
step-up
Depreciation and amortization 8,666 7,661
Gain on sale of equity securities (1,769) -
Deferred income tax provision - -
Change in operating assets and
liabilities:
(Increase) in accounts receivable (12,500) (5,784)
(Increase) in inventories (4,515) (8,207)
(Increase) in other current assets (6,594) (1,719)
Decrease (increase) in other assets 8,059 (220)
(Decrease) increase in accounts
payable and accrued expenses (6,073) 887
(Decrease) in accrued retirement (1,567) (2,419)
plan contributions
(Decrease) increase in accrued (870) 2,626
income taxes
Other 2,186 765
Net cash provided by operating 6,352 18,823
activities
Cash Flows From Investing Activities:
Additions to property, plant and (7,144) (7,282)
equipment
Investment in businesses - (2,990)
Acquisition of Tylan, net of cash (161,267) -
acquired
Proceeds from sale of equity 1,769 -
securities
Net cash used by discontinued (2,009) (2,560)
operations
Net cash used in investing activities (168,651) (12,832)
Cash Flows From Financing Activities:
Treasury stock acquired - (37,278)
Issuance of treasury stock under stock 3,127 3,607
plans
Net change in short-term debt 92,073 33,144
Borrowings (repayment) of long-term 74,418 (32)
debt
Dividends paid (3,899) (3,559)
Net cash used in financing activities 165,719 (4,118)
Effect of foreign exchange rates on
cash and short-term investments (3,025) (597)
Net increase in cash and short-term 395 1,276
investments
Cash and short-term investments on 46,870 23,758
January 1
Cash and short-term investments on $47,265 $25,034
March 31
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 consist of the following:
March 31, December 31,
1997 1996
Raw materials $46,854 $27,502
Work in process 19,740 16,310
Finished goods 59,595 62,598
$126,189 $106,410
3. Accumulated depreciation on property, plant and equipment was
$197,404 at March 31, 1997, and $195,397 at December 31, 1996.
4. On January 22, 1997, the Company successfully completed a cash
tender offer for all of the outstanding common shares of Tylan
General, Inc. (Tylan). Tylan, which became a wholly-owned subsidiary
on January 27, 1997, supplies precision mass flow controllers,
pressure and vacuum measurement and control equipment, and ultraclean
gas panels to the microelectronics industry. The aggregate purchase
price, including the assumption of Tylan debt and transaction costs,
was $163,371. The acquisition 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 within 18 to 24
months. 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 the assumption
of liabilities of $22,042. Identifiable intangible assets were
valued at $18,042 and included tradenames and patented and unpatented
complete technology. These intangible assets will be 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 $450,000 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 $450,000 Revolving Credit Facility. Interest on the new
notes is payable semi-annually in April and October.
Individual borrowings under the $450,000 five-year 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. While the Company is still in the process
of analyzing the EQB Order and evaluating its impact, if any, on
Millipore Cidra's business operations, 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
$450,000 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 are engaged in an arbitration
proceeding and related litigation, 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. The Company believes that it has
meritorious arguments and should prevail. In the opinion of the
Company, although final settlement of this matter may impact the
Company's financial statements in a particular period, it is not
expected to have a material adverse affect on the Company's
financial statments.
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 establishes standards for
computing and presenting earnings per share (EPS) and requires 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. The
Company is currently assessing the impact of SFAS No. 128.
-6-
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 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 purchase
price, including transaction costs, was $137.0 million, plus the
assumption of Tylan's outstanding debt, net of cash, totaling $24.3
million. This acquisition has also been accounted for as a purchase
and resulted in a non-tax deductible charge for purchased research
and development of $114.0 million 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 $129.3
million 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
financial statements in the first quarter of 1997 from their
respective date of acquisition and, accordingly, results of
operations in the first quarter of 1997 are not comparable to results
of operations in the first quarter of 1996.
Results of Operations
Consolidated net sales for the first quarter of 1997 were $179.0
million, an increase of 14 percent over sales for the same period
last year. Sales growth measured in local currency terms was 21
percent in the first quarter of 1997, but fluctuations in foreign
currency exchange rates, primarily the strengthening of the U.S.
dollar against both the Japanese Yen and most European currencies,
decreased reported sales growth by 7 percentage points. The growth
rate in sales in the first quarter of 1997 was due to the Company's
recent acquisitions of Amicon and Tylan. Without these acquisitions,
revenues decreased 6 percent over the same period last year, and, in
local currency, were flat. The following table summarizes sales
growth by geography and market in the first 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 35% 0% 35% (1)%
Europe 21% 5% 12% (4)%
Asia/Pacific 6% (4)% (5)% (14)%
21% 0% 14% (6)%
Consolidated
Microelectroni 27% (15)% 20% (20)%
cs Mfg.
BioPharmaceuti 25% 10% 18% 3%
cal Mfg.
Analytical 14% 4% 7% (2)%
Laboratory
21% 0% 14% (6)%
Consolidated
-7-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Sales growth in the BioPharmaceutical manufacturing market was 10
percent in local currency, with sales to biotechnology customers
especially strong. Sales to microelectronics manufacturing customers
continued to be affected by a down cycle in the microelectronics
industry, a trend which has negatively affected the Company's sales
and income since the middle of 1996. Sales growth of 4 percent in
local currency to analytical laboratory customers was slower than the
growth rates achieved in the last two quarters of 1996, partially due
to manufacturing issues which delayed production of new products.
These problems have been resolved.
If foreign exchange rates remain at May 1, 1997 levels, the affect of
foreign exchange currencies is expected to reduce reported second
quarter 1997 sales growth by approximately 8 percentage points and
full year 1997 sales growth by approximately 7 percentage points.
Gross margins in the first quarter of 1997 were 55.3 percent of
sales, compared to 60.4 percent in the first quarter of 1996. The
gross margin percentage of 55.3 percent includes the impact of low
margin sales related to the acquired businesses; as the inventory
acquired in each acquisition was written up to net realizable value
as part of the acquisition accounting and consequently, very low
margins were generated in the period directly following the
acquisitions. Without this, gross margins in the first quarter of
1997 were 58.1 percent. 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.
Operating expenses in the first quarter of 1997 increased 24 percent
over operating expenses for the first quarter of 1996. The increase
is mainly due to operating expenses of the acquired businesses. The
Company expects operating expenses to increase in the second quarter
as a full quarter of Tylan operating expenses will be included.
The gain on sale of equity securities of $1.8 million represents the
sale of a portion of the Company's holdings in PerSeptive BioSystems
common shares. The Company anticipates selling additional portions
of this equity investment in the future, although it has no specific
commitments to do so at this time.
Net interest expense in the first quarter of 1997 was much higher
than that of the first quarter of 1996, due to increased borrowings
required to acquire Amicon and Tylan. Interest on borrowings
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. Interest expense in subsequent
quarters of 1997 will be higher as such borrowings will be
outstanding for the entire quarter.
The Company's effective income tax rate for the first quarter,
excluding the non-tax deductible purchased research and development
expense associated with the Tylan acquisition was 22.5 percent
compared to 23.5 percent for the full year in 1996. The effective
rate for the first quarter is expected to be maintained throughout
1997. 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.
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.
To partially mitigate this risk, the Company has 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 first quarter of 1997, a gain of $1.6 million was realized on the
Company's foreign exchange contracts and was recorded in cost of
sales, compared to a gain of $.4 million in the first quarter of
1996. The Company does not engage in speculative trading activity.
-8-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Capital Resources And Liquidity
Cash flow from operations in the first quarter of 1997 was $6.4
million compared to $18.8 million in the first quarter of 1996. Cash
flow from operations in the first quarter of 1997 included outflows
of $7.8 million for non-transaction costs associated with the
acquisitions.
During the first quarter of 1997, cash generated from operations,
along with increased borrowings, was used to acquire Tylan, invest in
property, plant and equipment, and pay dividends. Property, plant
and equipment expenditures in the first quarter of 1997 were lower
than for the same period in 1996, but are expected to increase in
subsequent quarters during 1997.
The Company spent approximately $2.0 million in the first quarter of
1997 to satisfy obligations related to discontinued operations. The
Company expects that cash expenditures related to its discontinued
operations will decline in subsequent quarters during 1997 and will
be insignificant after the third quarter of 1997, as contractual
support services provided to the divested businesses will expire.
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
$197.9 million were used to repay borrowings outstanding under the
Company's $450.0 million 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 1. Legal Proceedings.
On May 2, 1997 the Environmental Quality Board of the Commonwealth of
Puerto Rico ("EQB") issued an administrative order (the "EQB Order")
against Millipore Cidra, Inc. ("Millipore Cidra"), a wholly owned
subsidiary of the Company. The EQB Order generally alleges that the
nitrocellulose membrane filter scrap discarded by Millipore Cidra
during its manufacturing operations (the "filter scrap") is a
hazardous waste as defined in EQB regulations. The EQB Order also
alleges that Millipore Cidra managed, transported and disposed of the
filter scrap as a non-hazardous solid waste and that this practice
violates numerous EQB regulations. The EQB ordered Millipore Cidra
to manage the filter scrap as a hazardous waste in compliance with
EQB regulations and proposes an administrative fine against Millipore
Cidra for the alleged violation of EQB regulations aggregating
$96,463,450.50. The EQB Order also demands the production of
documents relating to Millipore Cidra's manufacturing operations and
to Millipore Cidra's disposal practices with respect to the filter
scrap. Finally the EQB Order summons Millipore Cidra to an
administrative hearing in August 1997.
The Company disputes the entire basis upon which the EQB Order
concluded that the filter scrap is a hazardous waste under EQB
regulations. Further, the Company believes that Millipore Cidra has
meritorious defenses to the EQB Order and the Company intends to
vigorously contest the EQB Order. Pending a resolution of this
matter, however, Millipore Cidra will accommodate the EQB Order and
has adopted procedures to assure that the filter scrap is managed and
disposed of as if it were a hazardous waste under the EQB
regulations.
Item 6. Exhibits and Reports on Form 8-K.
b. Reports on Form 8-K
The Company filed the following reports on Form 8-K
during the first quarter of 1997:
Form 8-K report dated December 31, 1996, filed on
January 15, 1997; the Company acquires the Amicon
Separation Science Business (Amicon) of W.R. Grace & Co. in
a $125 million cash transaction.
Form 8-K report dated January 31, 1997, filed on
February 7, 1997; the Company completes a cash tender offer
to acquire Tylan General, Inc. (Tylan).
Form 8-K/A report dated December 31, 1996, filed on
March 17, 1997; the Company amended the previous 8-K
filings for both the Amicon and Tylan acquisitions, to
include the financial statements and exhibits.
The following financial statements were also filed with the
Form 8-K/A:
Unaudited Pro Forma Statement of Income of Millipore
Corporation for the year ended December 31, 1996.
Unaudited Pro Forma Balance Sheet of Millipore
Corporation as of December 31, 1996.
Audited Historical Combined Financial Statements of
the Amicon Product Line of W.R. Grace & Co - Conn. for the
year ended December 31, 1996.
Audited Historical Consolidated Financial Statements
of Tylan General, Inc. for the years ended October 31,
1994, 1995 and 1996.
-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
May 15, 1997 /s/ Michael P. Carroll
Date Michael P. Carroll
Vice President, Chief Financial Officer
and Treasurer
-11-
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