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-
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