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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 2001 or
[_] Transition report pursuant to Section 13 or 15(d) of the Securities Act
of 1934
For the transition period from to
Commission File Number 001-09781 (0-1052)
MILLIPORE CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts 04-2170233
(State or Other (I.R.S. Employer
Jurisdiction of Identification No.)
Incorporation or 01730
Organization (Zip Code)
80 Ashby Road, Bedford, MA
(Address of principal
executive offices)
(781) 533-6000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of Exchange on Which
Title of Class Registered
------------------------- -------------------------
Common Stock, $1.00 Par New York Stock Exchange,
Value Inc.
Securities registered pursuant to Section 12(g) of the Act: None
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 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 [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best or registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of Form 10-K or any amendment to this
Form 10-K. [_]
As of February 26, 2002, the aggregate market value of the registrant's
voting stock held by non-affiliates of the registrant was approximately
$1,846,353,611 based on the closing price on that date on the New York Stock
Exchange.
As of February 26, 2002, 48,012,498 shares of the registrant's Common Stock
were outstanding.
------------------------------------------
Documents Incorporated by Reference
Incorporated into Form
Document 10-K
------------------------------------------------ -------------------------
Definitive Proxy Statement, dated March 14, 2002 Part III
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PART I
Item 1. Business.
The Company
Millipore Corporation was incorporated under the laws of Massachusetts on
May 3, 1954. Unless the context otherwise requires, the terms "Millipore" or
the "Company" shall mean Millipore Corporation and its subsidiaries.
Millipore is a multinational bioscience company that provides technologies,
tools and services for the discovery, development and production of new
therapeutic drugs. The Company's products serve the worldwide life science
research, biotechnology and pharmaceutical industries. Millipore's products are
based on a variety of enabling technologies, including the Company's membrane
filtration and chromatography technologies. In life science research, Millipore
offers products for genomics, proteomics, drug discovery and general laboratory
applications. For the biotechnology and pharmaceutical industries, Millipore
offers products for development, scale-up, production and quality assurance of
therapeutics, as well as validation services.
On October 3, 2000, the Company announced its plans, subject to certain
conditions, to separate into two distinct companies by making its
Microelectronics business segment an independent, publicly traded company.
These plans called for an initial public offering of less than 20% of the
shares of the new Microelectronics company and a subsequent spin-off of the
remaining shares to Millipore shareholders through a dividend distribution.
In accordance with these plans, the Microelectronics business segment was
separated into a wholly owned Millipore subsidiary named Mykrolis Corporation
("Mykrolis") on March 31, 2001. During the second quarter of 2001, the Company
received a ruling from the Internal Revenue Service that the Mykrolis spin-off
transaction, as planned, would be tax-free to the Company and its shareholders.
Thereafter, the Company's management and Board of Directors approved the plan
of disposition for Mykrolis. On August 9, 2001, Mykrolis completed its initial
public offering (the "Mykrolis IPO"). Prior to the Mykrolis IPO, the Company's
ownership in Mykrolis' outstanding common shares was 100%, and following the
Mykrolis IPO the Company's ownership in Mykrolis' outstanding common shares was
approximately 82%.
The Company distributed its remaining ownership interest in Mykrolis common
stock on February 27, 2002 as a dividend to its shareholders of record as of
February 13, 2002.
As part of the separation of Mykrolis from Millipore in 2001, the two
companies entered into a number of agreements covering a range of issues
relating to the separation, including transitional services, intellectual
property rights, product manufacturing and supply, research and development
services and employee matters.
As of the end of the second quarter of 2001, the Company's consolidated
financial statements were restated to reflect the Company's Microelectronics
business segment as a discontinued operation in accordance with applicable
accounting principles. See Note 2 to the Millipore Corporation Consolidated
Financial Statements (the "Financial Statements") included in Item 8 below.
Information About Operating Segments
In conjunction with the reporting of the Company's Microelectronics business
segment as a discontinued operation, the Company evaluated its continuing
business activities and determined that it operates in one reportable business
segment: Bioscience. The Bioscience segment includes consumable products,
capital equipment and services sold principally to pharmaceutical,
biotechnology and life science research companies, university and government
laboratories and research institutes. The Company's product offerings are used
in the discovery, development and manufacture of therapeutic compounds. During
2001, approximately 55% of net sales in the Company's Bioscience business were
made to customers outside the Americas, and approximately 77% of such net sales
were of consumable products. Geographic and segment information is discussed
in Note 15 to the Financial Statements, which Note is hereby incorporated
herein by reference.
2
Except as otherwise indicated or as the context otherwise requires, all
references hereafter to Millipore or its business or operations shall be to its
continuing operations (i.e. its Bioscience business) only and not to
Millipore's former Microelectronics business or Mykrolis.
Products, Technologies and Applications
Millipore sells approximately 5,500 products (not including spare parts)
which are listed in its catalogs and are sold as standard items, systems or
devices. For special applications, the Company assembles custom products,
usually based upon standard modules and components. In certain instances, the
Company also designs and engineers process filtration systems and process
chromatography systems to meet specific needs of its customers.
Millipore's products include membranes, filter devices and ancillary
equipment and supplies, laboratory water purification systems, cartridge
filters and housings of various sizes and configurations, process liquid
chromatography media and systems, process filtration systems, and filter- and
chromatography media-based sample preparation devices and kits.
The principal technologies utilized by Millipore's products are based on
membranes and chromatography. Membranes are used to filter either the wanted or
the unwanted particulate or bacterial, molecular or viral entities from fluids.
Some of the Company's newer membrane materials also use affinity, ion-exchange
or electrical charge mechanisms to effect the desired separation. Membranes are
incorporated into both microfiltration and ultrafiltration devices, cartridges
and modules of different configurations to address a variety of customer
separation needs. Chromatography media is used to purify biopharmaceutical
compounds or to remove contaminants from these compounds by chemical
adsorption. The Company's laboratory water purification products combine
membrane, resin and other separations technologies to provide ultrapure water
for critical applications.
Millipore has also introduced novel technologies and products to meet the
needs of the burgeoning life sciences research industry, including sample
preparation products using both membranes and chromatographic separation
techniques. In addition, products based on the Company's proprietary size
exclusion membrane technology have been introduced to improve speed, automation
and cost-effectiveness of a number of DNA-based separations for sequencing,
plasmid prep, PCR, diagnostic and microarray applications. These novel
technologies are also being used for new applications in the drug discovery
markets for the screening of potential drug compounds and for sample
preparation in the rapidly emerging field of proteomics. During 2001, Millipore
launched a series of kits based on these technologies that are intended for a
variety of genomics and proteomics applications. More such kits are expected to
be released in 2002.
The Company's products are used in biopharmaceutical manufacturing and
research operations to isolate and purify specific components of fluid streams
for analysis, to concentrate identified compounds for further processing and to
purify small and large volumes of critical fluids. Customers also use the
Company's products to gain knowledge about a molecule, compound or
microorganism by detecting, identifying and quantifying the relevant components
of a fluid sample. The Company's laboratory water purification products are
used by customers to provide ultrapure water for critical laboratory analysis
and for clinical testing.
Customers and Markets
Major customer groups served by Millipore include pharmaceutical,
biotechnology and life science research companies, university and government
laboratories and research institutes.
The Company's products are used by the pharmaceutical and biotechnology
industries in sterilization, including virus reduction, and sterility testing
of products such as antibiotics, vaccines, vitamins and protein solutions;
concentration and purification of biological molecules such as vaccines and
blood protein products; cell harvesting; isolation and purification of
compounds from complex mixtures; and the purification of water for laboratory
use. The Company's membrane and chromatography products also play an important
role in the development of new drugs by offering customers a continuum of
products capable of being scaled-up to match customer needs at different stages
during the development process from laboratory research through full scale
3
drug production. In addition, Millipore has developed and is continuing to
develop products specifically targeted to meet the purification requirements of
the biotechnology industry.
Life science research companies, university and government laboratories,
private and corporate research and testing laboratories and regulatory agencies
purchase a wide range of the Company's products. Typical applications include:
sample preparation; purification of proteins; cell culture and cell structure
studies and interactions; concentration of biological molecules; fractionation
of complex molecular mixtures; and collection of microorganisms. The Company's
water purification products are used extensively by these organizations to
prepare high purity water for sensitive assays and the preparation of tissue
culture media.
The Company's products are used to a lesser extent in several other
industries as well. The food and beverage industry uses the Company's products
for quality control and process applications principally to monitor for
microbiological contamination and to prevent spoilage by removal of bacteria
and yeast from products such as wine, beer, bottled juices and water. Chemical
manufacturers and processors and environmental service laboratories use the
Company's analytical products, and laboratory water purification systems for a
variety of applications.
While no single customer is material to the Company taken as a whole, some
of the Company's individual customers do purchase significant quantities of the
Company's products.
Sales and Marketing
The Company focuses its sales efforts upon those areas where customers have
specific requirements that can be satisfied by the Company's products and
services.
The Company sells its products within the United States to end users
primarily through its own direct sales force and web site and, in the case of
products used in laboratory applications, to a limited extent through an
independent distributor. The Company sells its products in international
markets through the sales forces of its subsidiaries and branches located in
more than 30 major industrialized and developing countries as well as through
independent distributors. As of December 31, 2001, the Company's marketing,
sales and service forces consisted of approximately 1,100 employees worldwide.
The Company's marketing efforts focus on application development for
existing products and on new and differentiated products for newly identified
and proposed customer uses. The Company seeks to educate customers as to the
variety of analytical and purification problems which may be addressed by its
products and to adapt its products and technologies to separations and process
control problems identified by its customers.
The Company believes that its technical support services are important to
its marketing efforts. These services include assisting in defining the
customer's needs, evaluating alternative solutions, designing a specific system
to perform the desired separation, training users, and assisting customers in
compliance with relevant government regulations.
Research and Development
In its role as a pioneer of membrane separations, Millipore has
traditionally placed heavy emphasis on research and development. This emphasis
has permitted Millipore to be the first company to introduce a number of major
new enabling separations membranes and membrane devices. Examples include:
nitrocellulose microfiltration membrane in 1954, compact high purity laboratory
water systems in 1972, membrane based syringe filter devices in 1973, membrane
based filters for intravenous drug therapy in 1975, tangential flow filtration
cassette devices in 1975, chemically modified polyvinylidene fluoride membrane
in 1978, continuous electro-deionization water purification systems in 1988,
composite ultrafiltration membranes in 1989, melt-cast PFA membranes in 1990,
composite microfiltration membranes for the removal of viruses from solution in
1991, ultra-high weight polyethylene membrane in 1993, and non-dewetting PTFE
membrane in 1997.
4
The Company's ongoing research and development activities include the
extension and enhancement of existing Millipore technologies to respond to new
applications, the development of new membranes and chromatography media, and
the upgrading of membrane- and media-based systems to afford the user greater
purification capabilities. Over the last several years, through acquisitions,
alliances, licenses and research and development investments, Millipore has
expanded and diversified its technology base significantly. Millipore has
focused this expansion and diversification strongly on life science research
and biotechnology applications. The rapidly changing life science markets
require novel technologies to meet the needs of high throughput sample
analysis. This has led to products utilizing both membranes and chromatographic
separation techniques, including an entire platform based on chromatographic
media embedded in membrane structures which was introduced for the proteomics
market. Millipore has very rapidly become a leader in chromatography hardware
and has progressed substantially in its efforts to develop a differentiated
line of chromatography media products for the rapidly growing biotechnology
market. For biopharmaceutical manufacturing applications, process scale
integrated systems have been introduced that include chromatography hardware
and media as well as software and membrane devices.
Millipore performs most of its own research and development. Other than a
limited amount of research and development work related to membrane surface
modification that is being provided to Mykrolis as part of the separation of
Mykrolis from Millipore, the Company does not provide material amounts of
research services for others. As a percent of sales, Millipore has increased
its research and development spending to 7.0% in 2001 from 6.8% in 2000 and
6.1% in 1999.
The Company has followed a practice of supplementing its internal research
and development efforts by acquiring or licensing newly developed technology
from unaffiliated third parties, acquiring distribution rights with respect
thereto, and undertaking collaborative or sponsored research and development
activities with unaffiliated third parties, when it believes it is in its long
term interests to do so.
Millipore has been granted and has licensed rights under a number of patents
and has other patent applications pending both in the United States and abroad.
While these patents and licenses in the aggregate are viewed as valuable
assets, the Company believes that no individual patent is critical to its
ongoing operations. Millipore also owns a number of trademarks, the most
significant being "Millipore."
Competition
The Company faces intense competition in all of its markets. The Company
believes that its principal competitors include Amersham Biosciences, Pall
Corporation, Qiagen NV, Whatman PLC, Promega Corporation, Apogent Technologies
Inc., and United States Filter Corporation. Certain of the Company's
competitors are larger and have greater resources than the Company. However,
the Company believes that, within the markets it serves, it offers a broader
line of products, making use of a wider range of technologies and addressing a
broader range of applications than any single competitor.
While price is an important factor, the Company competes primarily on the
basis of technical expertise, product quality and responsiveness to customer
needs, including service and technical support.
Environmental Matters
The Company is subject to numerous federal, state and foreign laws and
regulations that impose strict requirements for the control and abatement of
air, water and soil pollutants and the manufacturing, storage, handling and
disposal of hazardous substances and waste. The Company is in substantial
compliance with all applicable environmental requirements. Compliance with the
foregoing environmental laws during 2001, 2000 and 1999 has had no material
effect on the Company's capital expenditures, earnings or competitive position.
Because regulatory standards under environmental laws and regulations are
becoming increasingly stringent, however, there can be no assurance that future
developments will not cause the Company to incur material environmental
liabilities or costs.
5
Other Information
Millipore's products are made from a wide variety of raw materials that are
generally available from alternate sources of supply. For certain critical raw
materials, Millipore has qualified only a single source. With sufficient lead
times, the Company believes it would be able to validate alternate suppliers
for each of these raw materials. Two of these critical raw materials are used
in a significant portion of the Company's products. If the Company were unable
to obtain supply of either of these raw materials, the loss of revenues to the
Company would be material.
As of December 31, 2001, Millipore employed approximately 4,160 persons
worldwide, of whom approximately 1,900 were employed in the United States and
approximately 2,260 were employed overseas.
Executive Officers of Millipore
The following is a list, as of March 1, 2002, of the Executive Officers of
Millipore. All of such Executive Officers were elected to serve until the first
Directors Meeting following the Company's 2002 Annual Stockholders
Meeting.
First Elected or
Appointed
-----------------------
An Executive To Present
Name Age Office Officer Office
---- --- ------ ------------ ----------
C. William Zadel... 58 Chairman of the Board of Directors of 1996 1996
Millipore Corporation
Francis J. Lunger.. 56 President, Chief Executive Officer 1997 2001
and Director of Millipore Corporation
Kathleen B. Allen.. 46 Vice President and Chief Financial 2000 2000
Officer of Millipore Corporation
Dominique F. Baly.. 53 Vice President of Millipore Corporation 2000 2001
William C. Emhiser. 47 Vice President of Millipore Corporation 2001 2001
Vinay Goel......... 53 Vice President of Millipore Corporation 2000 2001
John E. Lary....... 56 Vice President of Millipore Corporation 1994 1994
Jeffrey Rudin...... 50 Vice President, General Counsel and 1996 1996
Clerk of Millipore Corporation
Kevin D. Sanborn... 34 Vice President of Millipore Corporation 2000 2000
Kathleen M. Stearns 49 Vice President of Millipore Corporation 2001 2001
Susan L.N. Vogt.... 48 Vice President of Millipore Corporation 2000 2001
Mr. Zadel was elected Chairman of the Board, President and Chief Executive
Officer of Millipore in February 1996. As of April 2001, after becoming
Chairman and Chief Executive Officer of Mykrolis, Mr. Zadel continued as
Chairman and Chief Executive Officer of Millipore until August 2001, at which
time he stepped down from his position of Chief Executive Officer of Millipore
but remained as Chairman. Prior to joining Millipore, Mr. Zadel had been, since
1986, President and Chief Executive Officer of Ciba Corning Diagnostics Corp.,
a developer, manufacturer and seller of medical diagnostic products. Prior to
that he was Senior Vice President of Corning Glass Works' (now Corning Inc.)
Americas Operations (1985) and Vice President of Business Development (1983).
Mr. Zadel currently serves on the Boards of Directors of Kulicke and Soffa
Industries, Inc., Matritech, Inc., Citizens Bank of Massachusetts, the
Massachusetts High Technology Council, and the American Business Conference. He
has also served as Chairman of the Board of Directors of the Massachusetts High
Technology Council (1999-2001) and as Chairman of the Health Industry
Manufacturers Association (1994-1995).
Mr. Lunger was elected President of Millipore in April 2001 and Chief
Executive Officer in August 2001. Mr. Lunger was also elected to the Company's
Board of Directors in August 2001. Before being elected President, Mr. Lunger
was Executive Vice President and Chief Operating Officer of Millipore
(2000-2001) and
6
Vice President, Chief Financial Officer and Treasurer of Millipore (1997-2000).
Prior to joining Millipore, Mr. Lunger had been, since 1995, Senior Vice
President and Chief Financial Officer of Oak Industries, Inc., a developer,
manufacturer and supplier of components to the telecommunications industry.
From 1994 until 1995, Mr. Lunger had been acting Chief Executive Officer and
Chief Administrative Officer of Nashua Corporation, a conglomerate with diverse
businesses ranging from office supplies to photo finishing. During the period
1983-1994, Mr. Lunger served in various business operations and financial
management positions with Raychem Corporation, an international material
science company serving the telecommunication, automotive, energy and defense
markets, including Vice President and Group General Manager (1992-1994), Vice
President and Assistant Sector General Manager (1991-1992) and Vice President,
Finance (1988-1991).
Ms. Allen was elected Vice President and Chief Financial Officer of
Millipore in January 2000. Prior to that, Ms. Allen held a wide variety of
positions in Millipore's financial organization since joining the Company in
1983, most recently as the Company's Corporate Controller and Chief Accounting
Officer (1998-2000). Prior to joining Millipore, Ms. Allen practiced public
accounting for six years with Arthur Young and Company.
Mr. Baly was elected Vice President of Millipore in December 2001 and
continues as President of the Laboratory Water Division and of Millipore
International (formerly Millipore Bioscience International), to which he was
appointed in February 2001. Prior to that, Mr. Baly held a wide variety of
positions since joining Millipore in 1972, most recently as Vice President of
the Analytical Divisions of Millipore from 1994 until February 2001.
Mr. Emhiser was elected Vice President of Millipore in December 2001 and
continues as President of the Company's Life Sciences Division, to which he was
appointed in February 2001. Since joining Millipore in 1997 as a result of
Millipore's acquisition of Amicon Inc., Mr. Emhiser has served as Vice
President & General Manager, Applied Microbiology Division (1997-1999) and Vice
President & General Manager, Analytical Products Division (1999-2001). Mr.
Emhiser was with Amicon from 1991 to 1997 where he served as President from
1995 to 1997. Prior to joining Amicon, Mr. Emhiser was President and Chief
Operating Officer of Gelman Sciences, Inc. from 1986 to 1990.
Mr. Goel was elected Vice President of Millipore in December 2001 and also
continues as President of the Company's Membrane Technology Division, to which
he was appointed in February 2001. Mr. Goel joined Millipore in 1977 as a
product development engineer for high purity water products. From 1988 through
1998 Mr. Goel served as Vice President Membrane Research & Development,
Analytical Laboratory, and from 1999 through 2001, Mr. Goel served as Vice
President, Corporate Technology Operations.
Mr. Lary was elected Vice President of Millipore in November 1994 and is
responsible for the Company's device manufacturing, facilities and supply chain
organizations. From May of 1993 until his election as a Vice President, Mr.
Lary served as Senior Vice President and General Manager of the Americas
Operation. For the ten years prior to that time, he served as Senior Vice
President of the Membrane Operations Division of Millipore.
Mr. Rudin was elected Vice President and General Counsel of Millipore in
December 1996. Prior to joining Millipore, Mr. Rudin served Ciba Corning
Diagnostics Corp. as Senior Vice President and General Counsel (since 1993) and
as Vice President and General Counsel (1988-1993). Prior to that, Mr. Rudin was
Assistant Division Counsel for the Pharmaceutical Division of Ciba-Geigy
Corporation. Mr. Rudin was appointed Clerk of Millipore Corporation in 1999.
Mr. Sanborn was elected Vice President of Strategic Planning and Business
Development of Millipore in September 2000. Prior to joining Millipore, Mr.
Sanborn was a Manager (1997-2000) and Consultant (1994-1997) of Bain & Company,
a global consulting firm specializing in management and business strategy
development at the organizational and business unit levels. Mr. Sanborn also
served as a Financial Analyst at Goldman Sachs & Co., a leading investment
banking and securities firm (1989-1992). He received his Masters of Business
Administration from The Amos Tuck School of Business Administration, Dartmouth
College (1994) and graduated from Bowdoin College (1989).
7
Ms. Stearns was elected Vice President for Human Resources of Millipore in
April 2001. From 1993 to 2001, Ms. Stearns served the Company in several senior
human resources management positions and as country manager of the Company's
United Kingdom subsidiary. From 1991 to 1993, Ms. Stearns was Director, Human
Resources for Ionpure Technologies, Inc., a process water company.
Ms. Vogt was elected Vice President of Millipore in December 2001 and
continues as President of the Company's BioPharmaceutical Division, to which
she was appointed in February 2001. Prior to that, Ms. Vogt held a wide variety
of positions since joining the Company in 1981, most recently as Vice President
& General Manager, Laboratory Water Division (1999-2001) and General Manager of
the Analytical Products Division (1997-1999).
Item 2. Properties.
Millipore operates 11 manufacturing sites located in the United States,
France, Ireland, United Kingdom, Japan and Brazil. The following table
identifies the major production sites that are owned by Millipore, and
describes the purpose, floor space and land area of each.
Floor Space Land Area
Location Facility Sq. Ft. Acres
- ------------------ -------------------------------------------------------- ----------- ---------
Bedford, MA....... Executive Offices, research, manufacturing and warehouse 384,000 31
Billerica, MA..... Manufacturing, warehouse, research and office 88,000 5
Danvers, MA....... Manufacturing, research and office 65,000 16
Jaffrey, NH....... Manufacturing, warehouse and office 177,000 31
Cidra, Puerto Rico Manufacturing, warehouse and office 125,000 29
Molsheim, France.. Manufacturing, research, warehouse and office 163,000 20
Cork, Ireland..... Manufacturing, warehouse and office 120,000 7
Millipore owns a total of approximately 1.1 million square feet of
facilities worldwide, which are used for office, research and development,
manufacturing (including the manufacturing facilities listed above) and
warehouse purposes. All of these facilities are owned in fee and are not
subject to any material encumbrances.
In addition to its owned properties, Millipore currently leases facilities
throughout the world for manufacturing, sales, research, warehouse, and
administrative uses. The aggregate area of rented space is approximately
721,000 square feet and cost was approximately $6,213,000 in 2001. The
following leased facilities are the most significant:
1. A lease of a 134,000 square foot building in Bedford, Massachusetts near
the Company's headquarters provides for a term ending in 2006, with
renewal options for an aggregate of 20 years as well as a purchase
option.
2. A lease of a building of 130,000 square feet located in Burlington,
Massachusetts, approximately 5 miles from Millipore's Bedford
headquarters, provides for a term expiring in 2007 and has a single
5-year extension option.
3. A lease of a building of 26,000 square feet located in Consett, England
that is used for manufacture of the company's chromatography media
products and for related research and development provides for a term
expiring in 2016.
The Company's headquarters in Bedford, Massachusetts currently operates at
approximately 95% of capacity. The facilities located in Cidra, Puerto Rico and
Cork, Ireland currently operate at approximately 65% and 85%, respectively, of
capacity. All of the other above listed owned and leased major facilities are
fully utilized.
Millipore is of the opinion that all the facilities owned or leased by it
are well maintained, appropriately insured, in good operating condition and
suitable for their present uses.
8
Item 3. Legal Proceedings.
The Company currently is not a party to any material legal proceeding and
the Company knows of no material legal proceeding contemplated by any
governmental authority.
On July 21, 1999, Amersham Pharmacia Biotech AB (now known as Amersham
Biosciences AB) ("APB") 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.
This item is not applicable.
PART II
Item 5. Market for Millipore's Common Stock, and Related Stockholder Matters.
Millipore's Common Stock, $1.00 par value, is listed on the New York Stock
Exchange and is traded under the symbol "MIL". The following table sets forth,
for the indicated fiscal periods, the high and low sales prices of Millipore's
Common Stock (as reported on the New York Stock Exchange Composite Tape) and
the dividends declared (on a per share basis). As of February 26, 2002 there
were approximately 2,668 shareholders of record.
Dividends
Range of Stock Prices Declared
--------------------------- -----------
2001 2000 2001 2000
- ------------- ------------- ----- -----
High Low High Low
- ------ ------ ------ ------ (Per Share)
First Quarter. $62.00 $44.82 $64.00 $36.63 $0.11 $0.11
Second Quarter $61.98 $43.16 $76.00 $53.00 $0.11 $0.11
Third Quarter. $66.67 $51.23 $76.31 $46.31 $0.11 $0.11
Fourth Quarter $62.73 $50.95 $63.13 $44.00 $0.11 $0.11
Item 6. Selected Financial Data.
The following selected consolidated financial data for Millipore are derived
from the Company's Financial Statements and related notes thereto. The
following selected consolidated financial data should be read in connection
with and is qualified in its entirety by Millipore's Financial Statements and
related notes thereto and other financial information included elsewhere in
this Form 10-K report.
During 2001, the Company adopted a plan of disposition of its subsidiary
Mykrolis Corporation ("Mykrolis"). In accordance with Accounting Principles
Board Opinion No. 30, the Company's consolidated financial statements and notes
reflect Mykrolis as a discontinued operation.
Prior to the Mykrolis initial public offering, the Company's ownership in
Mykrolis' outstanding common shares was 100%, and at December 31, 2001 the
Company's ownership was approximately 82%. On February 27, 2002, the Company
distributed its remaining ownership interest in Mykrolis common stock.
9
Millipore Corporation--Five-year Summary of Operations
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
(In thousands, except per share data)
Net sales.......................................... $656,898 $600,161 $566,295 $521,566 $501,372
Cost of sales...................................... 291,219 266,227 252,940 246,176 211,242
-------- -------- -------- -------- --------
Gross profit................................... 365,679 333,934 313,355 275,390 290,130
Selling, general and administrative expenses....... 200,757 190,556 186,389 165,918 174,082
Research and development expenses.................. 45,816 40,580 34,443 33,808 30,863
Restructuring and other items...................... 17,962(1) 320(1) (3,979)(1) 34,621(2) --
-------- -------- -------- -------- --------
Operating income............................... 101,144 102,478 96,502 41,043 85,185
Net gain on sale of equity securities.............. -- 7,151(1) -- 35,594(3) 8,330(3)
Interest income.................................... 2,591 3,486 3,025 3,090 2,937
Interest expense................................... (25,336) (26,922) (30,155) (29,474) (30,484)
-------- -------- -------- -------- --------
Income before income taxes......................... 78,399 86,193 69,372 50,253 65,968
Provision for income taxes......................... 14,913 20,108 15,125 8,436 13,853
-------- -------- -------- -------- --------
Income from continuing operations.............. 63,486 66,085 54,247 41,817 52,115
-------- -------- -------- -------- --------
(Loss) income from discontinued operations, net of
taxes............................................. (6,736) 53,109 10,081 (31,953) (90,899)
(Loss) on disposal of discontinued operations, net
of taxes.......................................... (24,400) -- -- -- --
-------- -------- -------- -------- --------
Total discontinued operations.................. (31,136) 53,109 10,081 (31,953) (90,899)
-------- -------- -------- -------- --------
Extraordinary loss on early extinguishment of debt,
net of taxes...................................... (1,233) -- -- -- --
-------- -------- -------- -------- --------
Net income (loss).................................. $ 31,117 $119,194 $ 64,328 $ 9,864 $(38,784)
======== ======== ======== ======== ========
Basic income (loss) per share
Continuing operations............................ $ 1.35 $ 1.44 $ 1.21 $ 0.95 $ 1.20
Discontinued operations.......................... (0.66) 1.16 0.23 (0.73) (2.09)
Extraordinary item............................... (0.03) -- -- -- --
-------- -------- -------- -------- --------
Net income (loss)................................ $ 0.66 $ 2.60 $ 1.44 $ 0.22 $ (0.89)
======== ======== ======== ======== ========
Diluted income (loss) per share
Continuing operations............................ $ 1.32 $ 1.40 $ 1.20 $ 0.94 $ 1.20
Discontinued operations.......................... (0.65) 1.13 0.22 (0.72) (2.09)
Extraordinary item............................... (0.02) -- -- -- --
-------- -------- -------- -------- --------
Net income (loss)................................ $ 0.65 $ 2.53 $ 1.42 $ 0.22 $ (0.89)
======== ======== ======== ======== ========
Cash dividends declared per share.................. $ 0.44 $ 0.44 $ 0.44 $ 0.43 $ 0.39
Weighted average shares outstanding:
Basic............................................ 47,100 45,803 44,731 43,864 43,527
Diluted.......................................... 48,060 47,039 45,274 44,289 43,527
Financial Data
Working capital.................................. $177,676 $103,083 $ 21,114 $(33,762) $ (9,557)
Total assets..................................... 915,767 820,099 743,835 720,895 708,397
Total assets from continuing operations.......... 636,612 571,309 543,391 536,262 541,492
Long-term debt................................... 320,000 300,130 313,107 299,110 286,844
Shareholders' equity............................. $393,956 $305,368 $176,851 $133,791 $140,809
- --------
(1) See Notes 3 and 14 of the Notes to the Financial Statements.
(2) Includes the litigation settlements of $5,000 for proceeding related to an
administrative order issued by the Environmental Quality Board ("EQB") of
Puerto Rico and $3,100 of a private lawsuit brought by an intervening party
in the same EQB administrative case and 1998 restructuring charges of
$26,521.
(3) Represents the 1998 sale of all of the Company's shares of Perkin-Elmer
stock and Glyko Biomedical Ltd. common shares and the 1997 sale of a
portion of the Company's holdings in PerSeptive Biosystems common shares.
Note: Certain reclassifications have been made to previously reported financial
data to conform with the 2001 presentation.
10
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations should be read in connection with Millipore's
Consolidated Financial Statements and related notes thereto and other financial
information included elsewhere in this Form 10-K report.
Discontinued Operations
On October 3, 2000, the Company announced its plans, subject to certain
conditions, to separate into two distinct companies by making its
Microelectronics business segment an independent, publicly traded company. In
accordance with these plans, the Microelectronics business segment was
separated into a wholly owned Millipore subsidiary named Mykrolis Corporation
("Mykrolis") on March 31, 2001.
During the second quarter of 2001, the Company received a ruling from the
Internal Revenue Service that the Mykrolis spin-off transaction, as planned,
would be tax-free to the Company and its shareholders. Thereafter, the
Company's management and Board of Directors approved the plan of disposition
for Mykrolis. Accordingly, the Company's consolidated financial statements and
notes reflect the Company's Microelectronics business as a discontinued
operation in accordance with Accounting Principles Board Opinion No. 30.
On August 9, 2001, Mykrolis completed an initial public offering (the
"Mykrolis IPO") of 7 million of its common shares at a price of $15.00 per
share. Net proceeds from the Mykrolis IPO, after deducting the underwriting
discount, commissions and other direct costs, were approximately $94.1 million.
Of that amount, Mykrolis paid $19.1 million to the Company as a repayment of
amounts outstanding under the separation agreements between the two companies.
No additional Mykrolis shares were purchased pursuant to the underwriters'
overallotment option provided for as part of the Mykrolis IPO. Prior to the
Mykrolis IPO, the Company's ownership in Mykrolis' outstanding common shares
was 100%, and at December 31, 2001 the Company's ownership in Mykrolis'
outstanding common shares was approximately 82%. On January 28, 2002, the
Company announced a stock dividend of all of the shares of common stock of
Mykrolis owned by the Company. The dividend distribution occurred on February
27, 2002 to shareholders of record as of the close of business on February 13,
2002.
Critical Accounting Policies and Estimates
The Company's discussion and analysis of its financial condition and results
of operations are based upon Millipore's consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial statements
requires Millipore to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure
of contingent assets and liabilities. On an on-going basis, the Company
evaluates its estimates and judgments, including those related to revenue
recognition, bad debts, inventories, intangible assets and income taxes.
Millipore bases its estimates and judgments on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances. Actual results may differ materially from these estimates under
different assumptions or conditions. The Company believes the following
critical accounting policies affect its more significant estimates and
judgments used in the preparation of its consolidated financial statements.
Revenue is recognized when contractual obligations have been satisfied,
title and risk of loss have been transferred to the customer and collection of
the resulting receivable is reasonably assured. Certain contracts associated
with the Company's process equipment business are recorded on the percentage of
completion method. Revenue is recognized based on the ratio of hours expended
compared to the total estimated hours to complete the construction of the
process equipment. The cumulative impact of any revisions in estimates of the
percent complete is reflected in the period in which the changes become known.
Revenue from deferred service arrangements is recognized when the services are
provided.
11
Millipore maintains allowances for doubtful accounts for specifically
identified estimated losses resulting from the inability of its customers to
make required payments. If the financial condition of the Company's customers
were to deteriorate, resulting in an impairment of their ability to make
payments, additional allowances may be required.
The Company writes down its inventory for estimated obsolescence or
unmarketable inventory equal to the difference between the cost of inventory
and the estimated market value based upon assumptions about historic usage,
future demand and market conditions. If actual market conditions are less
favorable than those projected by management, additional inventory write-downs
may be required.
The Company periodically reviews intangible assets to determine if
impairment has taken place due to changed business conditions or technological
obsolescence and accordingly, the net book value of the asset may be reduced.
Millipore records a valuation allowance to reduce its deferred tax assets to
the amount that is more likely than not to be realized. While the Company has
considered future taxable income and ongoing prudent and feasible tax planning
strategies in assessing the need for the valuation allowance, in the event the
Company were to determine that it would be able to realize its deferred tax
assets in the future in excess of its net recorded amount, an adjustment to the
deferred tax asset would increase income in the period such determination was
made. Likewise, should the Company determine that it would not be able to
realize all or part of its net deferred tax asset in the future, an adjustment
to the deferred tax asset would be charged to income in the period such
determination was made.
Results of Operations
Basis of Presentation
As noted above, the Company's consolidated financial statements and notes
reflect the Company's Microelectronics business as a discontinued operation in
accordance with Accounting Principles Board Opinion No. 30. Unless otherwise
indicated, the remainder of this discussion is on a continuing operations basis
only.
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 2001, 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.
Reported Earnings
The Company reported diluted earnings per share of $0.65, $2.53 and $1.42
for 2001, 2000 and 1999, respectively. The Company reported diluted earnings
per share from continuing operations of $1.32, $1.40 and $1.20 for 2001, 2000
and 1999, respectively. Excluding unusual items, the Company would have
reported diluted earnings per share from continuing operations of $1.56, $1.32
and $1.14 for 2001, 2000 and 1999, respectively.
Below is a summary of the unusual items affecting diluted earnings per share
from continuing operations. Refer to the discussions in Restructuring and Other
Items and Gain on Sale of Equity Securities for additional information related
to these items.
12
Summary of Unusual Items
Year Ended December 31,
----------------------
2001 2000 1999
------ ----- -----
(In millions, except
per share data)
Restructuring and other items.................................. $(18.0) $(0.3) $ 4.0
Gain on sale of equity securities, net......................... -- 7.2 --
------ ----- -----
Impact on income from continuing operations before income taxes (18.0) 6.9 4.0
Tax impact of unusual items.................................... 6.3 (2.7) (1.4)
------ ----- -----
Net income (loss) from unusual items........................... $(11.7) $ 4.2 $ 2.6
====== ===== =====
Diluted income (loss) per share from unusual items............. $(0.24) $0.08 $0.06
====== ===== =====
Net Sales
Net sales, measured in U.S. dollars, increased 9% in 2001 compared to 6% in
2000. The net sales increase in 2001 as compared to 2000 was primarily due to
continued growth in the biotech and life sciences markets which was partially
offset by negative net currency effects.
Sales growth by geography, measured in local currencies and U.S. dollars, is
summarized in the table below.
Sales Growth in Sales Growth in
Local Currencies U.S. Dollars
--------------- ------------
2001 2000 2001 2000
---- ---- ---- ----
Americas........ 11% 14% 11% 13%
Europe.......... 14% 7% 12% (5)%
Asia/Pacific.... 16% 8% 4% 12%
-- -- -- --
Consolidated. 13% 10% 9% 6%
-- -- -- --
In general, a stronger U.S. dollar will adversely affect sales growth. Since
the Company has a higher percentage of sales in Europe than Asia, strengthening
of the dollar against the European currencies will have a larger impact on
sales. The impact of translating sales denominated in currencies other than the
U.S. dollar reduced the reported sales growth rate by approximately 400 basis
points in 2001. During 2001 as compared to 2000 the Yen weakened on average
against the U.S. dollar by approximately 12% and the Euro weakened against the
U.S. dollar on average by approximately 4%. Although the percentage decline in
the Euro was much smaller than the percentage decline in the Yen, the dollar
impact of both currencies' decline was approximately equivalent since sales in
Europe represent almost 34% of the Company's sales compared to approximately
15% for Japan. In 2000, the reported sales growth rate was negatively impacted
by approximately 400 basis points due to exchange rates. While the Japanese Yen
favorably impacted reported sales as it strengthened against the U.S. dollar by
approximately 5%, it was more than offset by the Euro which weakened by 15%.
Non-currency related price changes have not significantly affected the
comparability of sales during the past three years.
The Company's sales, measured in local currencies, increased 13% in 2001
compared to 2000. The growth was broad-based across product lines and
geographies. By market, revenue growth was strongest for products used in
advanced life science research and in the biotechnology markets, which
collectively grew at 18% and account for 45% of sales. The growth in these
markets resulted from increases in new biotech drugs currently in clinical
approval phases, biotech drugs that have been approved and are in production as
well as increased spending in genomics and proteomics research. In addition,
products sold to the Company's legacy markets, which include classical
pharmaceutical, clinical and analytical laboratories, and food and beverage
markets, also experienced strong growth at 9% in 2001 as compared to 2000. By
product, growth was strongest in higher margin consumables and services, which
grew 14% and 27%, respectively. These products represented approximately 80% of
total revenues in 2001. Lower margin equipment sales increased 6% as compared
to 2000.
13
The Company's sales, measured in local currencies, increased 10% in 2000
compared to 1999. Growth was strongest in the biotechnology and life science
research markets where sales increased approximately 14% compared to 1999.
Sales to these markets comprised approximately 43% of total sales in 2000.
Legacy sales increased 7% versus sales in 1999. By product, consumables and
services increased 11% and 27%, respectively, over 1999 levels. Equipment
increased 6% as compared to 1999.
Gross Profit Margins
Gross profit margin percentages were 56% in 2001 and 2000 and 55% in 1999.
The gross profit margin percentage for 2001 as compared to 2000 and 1999 was
positively impacted by a favorable mix in higher margin consumables products,
volume efficiencies and cost reduction programs, as well as by the benefit in
manufacturing in overseas locations where production costs benefited from a
weaker local exchange rate. This was partially offset as the strengthening U.S.
dollar adversely impacted sales. In local currencies, the gross profit margin
for 2001 was 57% versus 56% for the prior two years.
Operating Expenses
Selling, general and administrative ("SG&A") expenses increased 5% in 2001
and 2% in 2000. In local currencies, SG&A increased 9% and 6% in the two years,
respectively. The increase in 2001 was primarily due to higher head count and
related expenses needed to support sales. As a percentage of sales, SG&A
expenses in local currencies decreased approximately one percentage point
during 2001 to 31%. The Company continues to invest in sales, service and
marketing resources focused on maintaining or improving customer services,
supporting the launch of new products and development of future sales
initiatives aimed at improving the Company's competitive positions.
Research and development ("R&D") expenses increased 13% in 2001 and 18% in
2000, as compared to the prior years. In local currencies, R&D, which is
primarily based in the United States, increased 14% in 2001 and 20% in 2000,
versus prior years. As a percentage of sales, R&D expenses in local currencies
increased from 6.0% in 1999 to 6.6% in 2000 to 6.7% in 2001. The Company has
pursued a strategy of increased research and development spending to fund
future growth opportunities including membrane and chromatography based
solutions for genomics, proteomics, and biopharmaceutical manufacturing
applications.
Restructuring and Other Items
In the first quarter of 2001, the Company initiated a restructuring program.
Key initiatives of the program included:
. Globally streamlining of certain corporate shared services and
divisional overhead functions to serve smaller organizations. This
action was completed in 2001.
. Centralizing into two locations European shared services including order
processing, cash collections and cash applications processes. This
action began in the first quarter of 2001 and will be completed in the
second half of 2002.
. Closing the manufacturing operation in China in order to reduce
manufacturing infrastructures. This action was completed in the first
quarter of 2001.
. Outsourcing certain manufacturing processes in Puerto Rico to third
party vendors in order to create a more flexible cost structure. This
action was completed in the second quarter of 2001.
These initiatives included a $16.5 million restructuring charge and $1.5
million of fixed asset write-offs for assets that were no longer in use. The
restructuring charge included $15.4 million of employee severance costs and
$1.1 million of lease cancellation costs. Approximately 215 positions were
eliminated and the affected employees were notified by March 31, 2001, however,
for employees temporarily continuing in their existing positions, related
salary costs will be charged to operations as incurred. Under the terms of the
severance agreements, the Company
14
expects to pay severance and associated benefits through 2002. Through December
31, 2001, approximately 160 employees have left the Company and $8.6 million of
severance benefits have been paid.
The restructuring program is expected to yield annualized savings of over
$10.0 million related to reduced wages, facility related costs and
depreciation, and will be reflected in cost of sales, SG&A expenses and R&D
expenses. The savings, which began in the second quarter of 2001, will not be
fully realizable until the first quarter of 2002.
In 1998, the Company recorded a restructuring charge related to the
streamlining of its operations. In 1999, the Company reevaluated the accrual
for the 1998 restructuring program and reversed $4.0 million of the remaining
balance. The reversal reflected a lower estimate for employee severance and
lease cancellation costs. In 2000, the Company reversed an additional $1.2
million in restructuring reserves primarily related to additional proceeds from
the sale of facilities. The final cash payments, consisting primarily of lease
termination costs, occurred in the third quarter of 2001. As of December 31,
2001, the 1998 restructuring program has been completed. Of the planned 160
employees, all left the Company pursuant to this initiative.
In 2000, the Company recorded a charge of $1.5 million for past royalties as
part of the settlement of a patent lawsuit.
Gain on Sale of Equity Securities
During the second quarter of 2000, the Company sold its holdings in Oxford
GlycoSciences Plc, resulting in a gain on sale of securities of $7.5 million.
Net Interest Expense
Net interest expense decreased $0.7 million in 2001 as compared to 2000. The
decrease was the result of lower average borrowings and lower interest rates
partially offset by lower rates on interest income from cash and cash
equivalents. The benefit from the reduction in interest rates was offset in
part by the termination of the Company's Yen debt swap agreement. Net interest
expense decreased $3.7 million in 2000 as compared 1999 primarily as a result
of lower average borrowings and additional interest income from increased cash
and cash equivalents offset by an increase in average rates.
Provision (Benefit) for Income Taxes
The Company's effective tax rate on net income for 2001, 2000 and 1999 was
19.0%, 23.3% and 21.8%, respectively. Excluding the effect of the restructuring
items, sales of equity securities, and litigation settlements, the Company's
tax rate on income from operations in 2001 and 2000 was 22%. In 2000, the
Company's tax rate on income from operations increased to 22% from 21% in 1999.
This increase was due to changes in the profitability mix between the various
tax jurisdictions within which the Company operates.
Discontinued Operations
The $6.7 million loss from discontinued operations for 2001 represents the
net losses of Mykrolis from the beginning of 2001 through the adoption of the
plan of disposition in the second quarter of 2001. The income from discontinued
operations for 2000 and 1999 were $53.1 million and $10.1 million,
respectively. The significant fluctuation in the performance of Mykrolis was
primarily due to strong sales growth related to improvements in the
semiconductor industry which began in 1999 and continued into 2000. During
2001, a decline in the semiconductor industry adversely affected sales for
Mykrolis. See Note 2 to the Consolidated Financial Statements.
Loss on disposal of discontinued operations of $24.4 million ($35.1 million
pre-tax) recorded in the second quarter of 2001 included estimated future
operating losses of $18.6 million for Mykrolis through the planned
15
disposition date in the first quarter of 2002 and disposition expenses of $5.8
million. In the third quarter of 2001, the Company revised the $24.4 million
estimated loss on disposal of discontinued operations. The pre-tax revision
included an $8.7 million increase in the estimated future operating losses for
Mykrolis through the planned disposition date offset by reduced disposition
expenses of $2.0 million and a $6.7 million reduction to adjust for the 17.7
percent minority interest share of forecasted operating losses through the
disposition date resulting from the of Mykrolis IPO in the third quarter.
Extraordinary Loss on Early Extinguishment of Debt
The Company recorded an extraordinary loss of $1.2 million after taxes ($1.9
million pre-tax) related to the $25.0 million prepayment under one of the
Company's long term notes.
Earnings Per Share
Restructuring charges, several unusual items as well as discontinued
operations impacted earnings per share in 2001, 2000 and 1999. Also refer to
the Summary of Unusual Items above for additional information. In addition, in
2001, earnings per share reflect the extraordinary loss as described above.
Earnings per share were also negatively impacted in 2001 as compared to 2000
by approximately $0.17 per share due to the impact of the weakening of the Euro
and the Yen. In 2000, earnings per share were negatively impacted as compared
to 1999 by approximately $0.07 per share due to the impact of the weakening
Euro partially offset by a stronger Yen.
Acquisition
On May 18, 1999, the Company acquired all outstanding shares of
Bioprocessing Corporation Limited ("Bioprocessing") in exchange for 660,000
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 Bioprocessing did not have a material
impact on the Company's results of operations.
Market Risk
The Company is exposed to market risks, which include changes in interest
rates and changes in foreign currency exchange rates as measured both against
the U.S. dollar and each other. The Company manages these market risks through
its normal financing and operating activities and, when appropriate, through
the use of derivative financial instruments.
Foreign Currency Exchange Rate Risk
The Company is exposed to foreign currency exchange rate risk inherent in
revenues, net income and assets and liabilities denominated in currencies other
than the U.S. dollar. The Company's risk management strategy uses various
derivative financial instruments, including from time to time, swaps, options
and forward contracts to hedge certain foreign currency and interest rate
exposures. The intent is to offset gains and losses that occur on the
underlying exposures, with gains and losses on the derivative contracts hedging
these exposures. Additionally, the Company is able to partially mitigate the
impact of fluctuations in currencies by active management of cross border
currency flows and material sourcing. The Company does not enter into
derivatives for trading purposes. See Notes 1 and 8 to the Consolidated
Financial Statements for more detailed information.
16
Although the Company attempts to manage its foreign currency exchange risk
through the above activities, when the U.S. dollar strengthens against the
basket of currencies in which the Company transacts its business, generally
sales and net income will be adversely impacted.
Credit Risk
The Company is exposed to concentrations of credit risk in cash and cash
equivalents and trade receivables. Cash and cash equivalents are placed with
major financial institutions with high quality credit ratings. The amount
placed with any one institution is limited by policy. Trade receivables credit
risk exposure is limited due to the large number of customers and their
dispersion across different geographies.
Capital Resources and Liquidity
Cash flow provided from operations was $61.9 million in 2001, $85.3 million
in 2000 and $101.0 million in 1999. Reported cash flow from operations was
reduced by $8.3 million in 2001, $2.4 million in 2000 and $4.8 million in 1999
for costs associated with the 2001 and 1998 restructuring programs and a 1996
acquisition. Excluding the restructuring and acquisition related expenditures,
cash flow from operations was $70.2 million in 2001, $87.7 million in 2000,
$105.8 million in 1999.
The decrease in cash flow from operations in 2001 from 2000 was primarily
the result of increased accounts receivable and payment of income taxes
partially offset by improved operating income excluding the $11.7 million
(after tax) restructuring charge. The increase in accounts receivable was
attributable to increased sales volume primarily in the United States and
Europe. While the Company continues to aggressively manage its receivables
portfolio, it experienced a slight slowdown during 2001 due to the temporary
disruption in collection activities caused by the Mykrolis reorganization as
well as consolidation of collection activities in the European shared service
center. Accrued income taxes decreased approximately $24.3 million for payments
made in foreign tax jurisdictions. Inventory levels increased $4.3 million due
principally to increased business activity, as days of supply remained flat in
local currencies. Partially offsetting the impact of accounts receivable and
inventory increases and payments for income taxes were increases in accounts
payable and accrued expenses, due to higher business activity and variable
compensation programs resulting from improved financial performance.
The decrease in cash flow from operations in 2000 over 1999 was primarily
the result of increased accounts receivable and inventories offset by improved
operating income. The increase in accounts receivable was attributable to
increased sales volume primarily in the United States and Asia Pacific. The
increase in sales in the Asia Pacific region further impacted accounts
receivable where regional business practices result in longer collection
periods. Inventory levels increased due to stocking levels. Partially
offsetting the impact of accounts receivable and inventory increases were
increases in accounts payable and accrued expenses, due to higher business
activity, and variable compensation programs resulting from improved financial
performance.
Operating cash flow generated by the Company during 2001 was used to invest
in property, plant and equipment, reduce and refinance debt, and pay dividends.
The Company received $49.8 million from the exercise of employee stock options
exercises and $3.2 million of cash previously restricted as part of the close
out of the debt swap agreements. The Company spent $72.3 million for property,
plant and equipment during 2001. The $35.8 million increase in capital
expenditures in 2001 versus 2000 was primarily due to additional manufacturing
capacity and laboratories in the United States and Europe. During 2000, the
Company received $8.8 million from the sale of property, $7.5 million from the
sale of equity securities and $28.0 million from the exercise of employee stock
options. The Company expects capital expenditures for 2002 to be in the range
of $80.0 to $85.0 million. This increase will be driven by the continued need
to add manufacturing capacity and research and development facilities.
17
The Mykrolis IPO resulted in net proceeds of $94.1 million. These proceeds
less $75.0 million retained by Mykrolis pursuant to the separation agreements
between the two companies and an additional $6.8 million of cash generated from
the operations through the date of the Mykrolis IPO resulted in net cash
provided from discontinued operations of approximately $25.9 million.
Cash generated by the Company during 1999 was used to reduce short-term
debt, to invest in property, plant and equipment and to pay dividends.
Property, plant and equipment expenditures for 1999 were $27.1 million which
included $4.0 million for the completion of the membrane manufacturing facility
expansion in Cork, Ireland. The Company also received $9.5 million in cash for
the sale of securities in Waters Corporation.
On October 5, 2001, the Company entered into a five year unsecured revolving
credit agreement which replaced its prior revolving credit agreement. The new
revolving credit agreement, together with a Lender Joinder Agreement that the
Company entered into on October 23, 2001, (together the "Credit Agreement")
allows for revolving loan borrowings of up to $250.0 million. Interest rates on
individual borrowings are made on terms not to exceed twelve months. Because of
the Company's ability and intent to continuously refinance such borrowings
under the Credit Agreement, short-term borrowings expected to be refinanced,
including $45.0 million of amounts outstanding at December 31, 2001 and $100.0
million due on notes payable with maturities within the next 12 months, have
been classified as long-term. Interest is payable on outstanding borrowings at
a floating rate defined in the agreement as Eurocurrency rate plus a margin.
The Credit Agreement also calls for a facility fee at a rate ranging from 0.25
to 0.625 percent of the available facility. The exact amount of the margin and
the facility fee is dependent on the Company's debt rating. The Credit
Agreement calls for the Company to maintain certain financial covenants in the
areas of leverage ratios and interest coverage. The Company is compliant with
all required covenants.
On October 4, 2001, the Company amended the agreement governing its $100.0
million 7.23% note payable (the "Note Agreement"). The amended Note Agreement's
financial covenants were modified and mirror the financial covenants under the
Credit Agreement. The Company also prepaid $25.0 million of the note at that
time.
The Company believes that its balances of cash and cash equivalents, funds
available under the Credit Agreement and cash flows expected to be generated by
future operating activities will be sufficient to meet its cash requirements
over the next twelve to twenty-four months.
The following summarizes the Company's contractual obligations at December
31, 2001 and the maturity periods, and the effect such obligations are expected
to have on its liquidity and cash flow in future periods.
Less than 1-3 After
December 31, Total 1 year years 3 years
------------ ------ --------- ----- -------
(in millions)
Long-term debt.................... $320.0 $100.0 $75.0 $145.0
Non-cancellable operating leases.. 27.5 6.8 10.1 10.6
------ ------ ----- ------
Total contractual cash obligations $347.5 $106.8 $85.1 $155.6
====== ====== ===== ======
Related Party Agreements
At March 31, 2001 (the "Separation Date"), the Company and Mykrolis entered
into various agreements covering a range of issues relating to the separation
of Mykrolis from the Company (the "Separation Agreements"). A list of the
Separation Agreements is provided below. All of the Separation Agreements were
filed with the Securities and Exchange Commission as exhibits to the Company's
Form 10-Q for the quarter ended June 30, 2001. Additionally, refer to Note 16
of the Consolidated Financial Statements for further information. The
Separation Agreements include:
Master Separation and Distribution Agreement
18
General Assignment and Assumption Agreement
Separation Revolving Credit Agreement and Separation Note
Employee Matters Agreement
Tax Sharing Agreement
Intellectual Property Agreements
Membrane Manufacture and Supply Agreement
Product Distribution Agreement
Contract Manufacturing Agreements
Master Transitional Services Agreement
Research Agreement
The Separation Agreements were entered into for the purpose of enabling an
effective separation of Mykrolis from the Company and the operation of Mykrolis
and Millipore as independent companies. The Separation Agreements generally
provide for:
. The transfer from Millipore to Mykrolis of assets and the assumption by
Mykrolis of liabilities relating to Mykrolis' business.
. Ongoing relationships between Millipore and Mykrolis to enable each of
them to carry on their respective businesses as independent companies.
These contractual relationships, including contract research services,
product manufacturing and distribution, are for terms not exceeding five
years from the Separation Date. The prices provided in these agreements
generally allow for the recovery of costs with profit.
. Interim relationships between Millipore and Mykrolis to enable a smooth
transition for the separation and independent existence of Mykrolis.
These relationships are intended to provide for facilities and services
for various periods up to two years, with minimal extensions, at which
point Mykrolis must secure alternative sources of facilities and
services. These include services such as human resources, financial
systems and information technology. The prices provided for in these
agreements generally allow for the recovery of costs without profit.
For the nine months from the Separation Date through December 31, 2001,
Millipore recognized revenues of $1.9 million and expenses were reduced by $6.4
million for the Separation Agreements. Some of the Separation Agreements will
terminate during 2002. Although, the Company does not expect a significant
increase in its expenses in 2002 as a result of these agreements lapsing as a
portion of Millipore's costs related to these expenses are variable and expense
reduction programs are in place, the final outcome is not known at this time.
The $6.4 million expense reduction included $1.1 million for cost of sales,
$4.2 million for selling, general and administrative and $1.1 million for
research and development.
The Company also has significant transactions with companies with which
several of its directors are affiliated. During 2001, Bristol-Myers Squibb
Company purchased an aggregate of approximately $2.0 million of products from
Millipore. Richard J. Lane, a Director of Millipore since 1999, is currently
Executive Vice President and President, Worldwide Medicines of Bristol-Myers
Squibb Company. The relationship between Millipore and Bristol-Myers Squibb
Company predates by many years Mr. Lane's election as a Director. During 2001,
Merck & Co., Inc. purchased approximately $13.0 million of products from
Millipore. Dr. Edward M. Scolnick, a Director of Millipore since December 2001,
is currently Executive Vice President, Science & Technology, Merck & Co., Inc.
and President of Merck Research Laboratories. The relationship between
Millipore and Merck & Co., Inc. predates by many years Dr. Scolnick's election
as a Director. During 2001, the Company paid Salomon Smith Barney, Inc.
approximately $2.3 million of underwriter commissions in connection with the
Mykrolis IPO. Maureen A. Hendricks, a Director of Millipore since 1995, is
currently a Managing Director of Salomon Smith Barney, Inc.
19
Dividends
The quarterly dividend was $0.11 per share throughout 2001. The Company paid
dividends of $20.7 million in 2001.
Euro
On January 1, 1999, several member countries of the European Union
established fixed conversion rates between their existing sovereign currencies,
and adopted the Euro as their new common legal currency. As of that date, the
Euro began trading on currency exchanges and the sovereign currencies remained
legal tender in the participating countries for a transition period between
January 1, 1999 and January 1, 2002. In the first quarter of 1999, the Company
began invoicing certain customers and intercompany transactions in the Euro.
The Company also assessed its pricing/marketing strategy in order to ensure
that it remains competitive in a broader European market. It also has evaluated
its cash management opportunities. Further, the Company upgraded its computer
systems in 2001 which successfully enabled all business transactions in the
Euro effective January 1, 2002.
Legal Proceedings
The Company currently is not a party to any material legal proceeding and
the Company knows of no material legal proceeding contemplated by any
governmental authority.
On July 21, 1999, Amersham Pharmacia Biotech AB (now known as Amersham
Biosciences AB) ("APB") 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.
As has been previously disclosed, Millipore has, in the past, been named as
a potentially responsible party ("PRP") under the Comprehensive Environmental
Response Compensation and Liability Act of 1980, as amended by the Superfund
Amendments and Reauthorization Act of 1986 ("Superfund") by the U.S.
Environmental Protection Agency ("EPA") with respect to a "release" (as defined
in Section 101 of Superfund), at twelve sites to which chemical wastes
generated by the manufacturing operations of Millipore or one of its divisions
may have been sent. The Company has settled its liability pursuant to consent
decrees releasing Millipore from further liability with respect to certain
covered matters at all of these Superfund sites. However, as is typical with
consent decrees in such Superfund proceedings, EPA and the relevant state
agencies have reserved the right to maintain actions against the settling
parties, including the Company, in the event certain events occur or do not
occur at those sites. The Company does not expect that the conditions in the
consent decrees permitting these governmental parties to "re-open" the cases
will occur. In any event, the Company believes that the aggregate of any future
potential liabilities should not have a material adverse effect on the
Company's financial position, cash flows and results of operations in light of
the advanced stage of funded remedial action at each site and the likely
availability of contribution from numerous other financially solvent PRPs
participating at each such Superfund site.
20
New Accounting Pronouncements
Effective January 1, 2001, the Company adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS No. 138.
SFAS No. 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.
With respect to all derivative instruments, SFAS No. 133 requires that
companies, upon adoption of the new standard, record an adjustment to record
the difference between a derivative's previous carrying amount and its current
fair market value as a transition adjustment. At December 31, 2000, the Company
was a party to U.S. dollar to Japanese Yen foreign currency fixed rate-to-fixed
rate interest rate swap agreements, which were designated as a hedge of the
Company's net investment exposure in its Japanese subsidiary. On January 1,
2001, the Company recorded a net derivative liability transition adjustment of
$5.1 million which was the difference between the Company's carrying value and
the fair value of this derivative. This transition adjustment was recorded as a
cumulative-effect type adjustment to other comprehensive income. During the
first quarter of 2001, the swap agreements were terminated and a gain of $0.8
million was realized and recorded in other comprehensive income. In addition,
the Company is no longer required to provide any cash collateralization which
had previously been required as part of one of its swap agreements.
In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other
Intangible Assets". SFAS No. 141 requires that all business combinations be
accounted for under the purchase method only and that certain acquired
intangible assets in a business combination be recognized as assets apart from
goodwill. 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 useful lives. SFAS No. 141
is effective for all business combinations initiated after June 30, 2001. The
provisions of SFAS No. 142 will be effective for fiscal years beginning after
December 15, 2001, and will thus be adopted by the Company as required in the
first quarter of fiscal year 2002. The adoption of SFAS No. 142 is not expected
to have a significant impact on the Company's consolidated financial statements.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" effective January 1, 2002. 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 provisions of this standard do not apply to
the Company's disposal of Mykrolis Corporation in the second quarter of 2001.
The adoption of SFAS No. 144 is not expected to have a significant impact on
the Company's consolidated financial statements.
Business Outlook and Uncertainties
The following statements are based on current expectations. These statements
are forward looking and actual results may differ materially.
Sales: The Company has demonstrated relatively stable patterns of sales
growth and expect 2002 revenues in local currencies to increase 12 to 14
percentage points over 2001. The Company's customers, particularly those
involved in the production of therapeutic compounds, purchase products for use
in validated production processes. Accordingly, it is important to participate
in the development of the manufacturing process for these new drugs in order to
be specified into the ultimate manufacturing process. Adoption of new
technologies and products requires a lengthy validation process prior to
adoption. Growth in this market is highly dependent on the
21
development and approval of new drugs. It is difficult to ascertain the number
or timing of such approvals, however, the number of drugs at various stages in
the approval process has increased over the past two years. The remaining
driver of this segment is life science research and development spending.
Recently published industry reports in the area of life science anticipate
increased research and development spending for genomics, proteomics and drug
discovery. The Company will benefit if these trends prove out, however the
extent to which the Company will benefit from this trend is not quantifiable.
Approximately 55 percent of the Company's sales are to customers outside of
the Americas and are generally made in local currency. As previously noted,
currencies had a net negative impact to both sales and earnings in 2001 as
compared to 2000. This was the composite result of both a weaker Yen and a
weaker Euro in 2001. Since the end of 2001, the dollar has continued to
strengthen against the Yen and the Euro. Therefore, if rates of exchange remain
at the March 1, 2002 level, there could be a significant negative impact on
sales for the first quarter and full year 2002 as compared to 2001.
Gross Margins: The Company expects slightly higher gross margin percentages
in 2002 as compared to 2001. The continued favorable mix of higher margin
consumable products versus lower margin process systems hardware combined with
automation and volume efficiencies will combine to more than offset increased
costs of certain raw materials and labor, continued new product start up costs,
volume driven pricing arrangements and additional costs due to increased
manufacturing capacity. However, to the extent that foreign currency exchange
rates relative to the U.S. dollar remain at March 1, 2002 levels, first quarter
2002 and full year margins could be significantly negatively impacted by
foreign currency exchange rate fluctuations as compared to the same periods of
the prior year.
Millipore's products are made from a wide variety of raw materials that are
generally available from alternate sources of supply. For certain critical raw
materials, Millipore has qualified only a single source. With sufficient lead
times, the Company believes it would be able to validate alternate suppliers
for each of these raw materials. Two of these critical raw materials are used
in a significant portion of the Company's products. If the Company were unable
to obtain supply of either of these raw materials, the loss of revenues to the
Company would be material. In December 1999, the Company's sole supplier of one
of these two critical raw materials, which is used in the manufacture of one
type of membrane sold by the Company, advised the Company that it would
discontinue manufacture of that raw material during the second half of 2000. In
the second quarter of 2000 the Company established supply arrangements with a
successor company to the former supplier of this raw material. In addition, the
Company is in the process of identifying alternative sources of supply
of this raw material. The Company believes that these arrangements will provide
an adequate source of supply for this raw material.
Operating Expenses: The Company expects that operating expenses, before the
impact of changes in foreign currency rates of exchange, as a percentage of
sales, in 2002 will be slightly greater than the percentage achieved in the
previous year primarily as a result of continued investment in strategic R&D
projects. In addition, the Company will continue to invest in sales, service
and marketing resources focused on maintaining or improving customer services,
supporting the launch of new products and development of future sales
initiatives aimed at improving the Company's competitive positions.
Net Interest Expense, Capital Resources and Liquidity: The Company intends
to use its excess borrowing capacity under the Credit Agreement to satisfy the
$100.0 million 7.23% unsecured note due on April 1, 2002. Accordingly, the
Company expects that its interest expense should decline due to a lower
interest rate under the Credit Agreement.
Provision for Income Taxes: The effective tax rate in 2002 is projected to
be approximately 22%, equivalent to the effective rate for 2001, excluding
unusual items. The tax rate estimate is based on the Company's current
expectations for 2002 income, current tax law and tax jurisdiction mix of
revenues and profits. In the event that the Company's cash needs significantly
increase above those currently projected and exceed the resources identified
under Capital Resources and Liquidity above, then an additional upward
influence on the Company's tax rate could develop if the Company were required
to repatriate cash from certain foreign operations.
22
Capital Spending: The Company expects to spend between $80.0 and $85.0
million for fixed asset additions in 2002. This increase will be driven by the
on-going need to add manufacturing capacity, expand automated manufacturing
processes and upgrade research and development facilities. Accordingly, the
Company also expects that 2002 depreciation expense will be higher than
reported in 2001.
Forward-Looking Statements
The matters discussed in this Form 10-K Annual Report, as well as in future
oral and written statements by management of the Company, that are
forward-looking statements are based on current management expectations that
involve substantial risks and uncertainties which could cause actual results to
differ materially from the results expressed in, or implied by, these
forward-looking statements. When used herein or in such statements, the words
"anticipate", "believe", "estimate", "expect", "may", "will", "should" or the
negative thereof and similar expressions as they relate to the Company or its
management are intended to identify such forward-looking statements. In
addition to the matters discussed herein, potential risks and uncertainties
that could affect the Company's future operating results include, without
limitation, difficulties associated with the separation of Mykrolis from the
Company; foreign exchange rates; increased regulatory concerns on the part of
the biopharmaceutical industry; further consolidation of drug manufacturers;
competitive factors such as new membrane technology; lack of availability of
raw materials or component products on a timely basis; inventory risks due to
shifts in market demand; change in product mix; conditions in the economy in
general and in Bioscience markets in particular; potential environmental
liabilities; the inability to utilize technology in current or planned products
due to overriding rights by third parties; difficulties inherent in research
and development activities; and the other risk factors described elsewhere in
this Form 10-K Annual Report, and in particular the matters described in Item 1
above under the heading "Environmental Matters". Specific reference is also
made to the risks and uncertainties described in the Registration Statement on
Form S-3 (Registration 333-80781) filed by the Company in connection with its
offering of 660,000 shares of its Common Stock, $1.00 par value in November
1999 (in particular, to those risks described under "Risk Factors"). See also
"Legal Proceedings" and "Business Outlook and Uncertainties" above.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The information called for by this item is set forth under the heading
"Market Risk" in Management's Discussion and Analysis contained in Item 7 above
which information is hereby incorporated by reference.
Item 8. Financial Statements and Supplementary Data.
The information called for by this item is set forth in the Financial
Statements at the end of this report commencing at the pages indicated below:
Consolidated Statements of Income for the years ended December 31, 2001, 2000 and 1999.......... 31
Consolidated Balance Sheets at December 31, 2001 and 2000....................................... 32
Consolidated Statements of Shareholders' Equity for the years ended December 31, 2001, 2000 and
1999.......................................................................................... 33
Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999...... 34
Notes to Consolidated Financial Statements...................................................... 35
Report of Independent Accountants............................................................... 57
Quarterly Results (Unaudited)................................................................... 58
All of the foregoing Financial Statements are hereby incorporated by
reference.
Item 9. Disagreements on Accounting and Financial Disclosure.
This item is not applicable.
23
PART III
Item 10. Directors and Executive Officers of Millipore.
The information called for by this item with respect to registrant's
directors and compliance with Section 16(a) of the Securities Exchange Act of
1934 as amended is set forth under the captions "MANAGEMENT AND ELECTION OF
DIRECTORS--Nominees for Election as Directors" and "OWNERSHIP OF MILLIPORE
COMMON STOCK--Section 16(a) Beneficial Ownership Reporting Compliance",
respectively, in Millipore's definitive Proxy Statement for Millipore's Annual
Meeting of Stockholders to be held on April 25, 2002, and to be filed with the
Securities and Exchange Commission on or about March 14, 2002, which
information is hereby incorporated herein by reference.
Information called for by this item with respect to registrant's executive
officers is set forth under "Executive Officers of Millipore" in Item 1 of this
report.
Item 11. Executive Compensation.
The information called for by this item is set forth under the caption
"Executive Compensation" in Millipore's definitive Proxy Statement for
Millipore's Annual Meeting of Stockholders to be held on April 25, 2002, and to
be filed with the Securities and Exchange Commission on or about March 14,
2002, which information is hereby incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information called for by this item is set forth under the caption
"OWNERSHIP OF MILLIPORE COMMON STOCK--Management Ownership of Millipore Common
Stock" in Millipore's definitive Proxy Statement for Millipore's Annual Meeting
of Stockholders to be held April 25, 2002, and to be filed with the Securities
and Exchange Commission on or about March 14, 2002, which information is hereby
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information called for by this item with respect to registrant's
directors' relationships and related transactions is set forth under the
caption "Certain Relationships and Related Transactions" in Millipore's
definitive Proxy Statement for Millipore's Annual Meeting of Stockholders to be
held on April 25, 2002, and to be filed with the Securities and Exchange
Commission on or about March 14, 2002, which information is hereby incorporated
herein by reference.
24
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The following documents are filed as a part of this Report:
1. Financial Statements.
The following Financial Statements are filed as part of this report
Consolidated Statements of Income for the years ended December 31, 2001,
2000 and 1999
Consolidated Balance Sheets at December 31, 2001 and 2000
Consolidated Statements of Shareholders' Equity for the years ended December
31, 2001, 2000 and 1999
Consolidated Statements of Cash Flows for the years ended December 31, 2001,
2000 and 1999
Notes to Consolidated Financial Statements
Report of Independent Accountants
Quarterly Results (Unaudited)
2. Financial Statement Schedules.
No financial statement schedules have been included because they are not
applicable or not required under Regulation S-X.
3. List of Exhibits.
A. The following exhibits are incorporated by reference:
Reg. S-K
Item
601(b) Referenced Document on
Reference Document Incorporated file with the Commission
- --------- ------------------------------------------------ ------------------------
(2) Form of Master Separation and Distribution Form 10-Q for the quarter ended June 30, 2001
Agreement between Millipore and Mykrolis [Commission File No. 0-1052]
Corporation ("Mykrolis")+
Form of General Assignment and Assumption Form 10-Q for the quarter ended June 30, 2001
Agreement between Millipore and Mykrolis+ [Commission File No. 0-1052]
(3)(i) Restated Articles of Organization, as amended Form 10-K Report for year ended December 31,
May 6, 1996 1996 [Commission File No. 0-1052]
(ii) By Laws, as amended Form 10-K Report for year ended December 31,
1990 [Commission File No. 0-1052]
(4) Indenture dated as of May 3, 1995, relating to Registration Statement on Form S-4
the issuance of $100,000,000 principal amount (No. 33-58117)
of the Company's 6.78% Senior Notes due 2004
Indenture dated as of April 1, 1997, relating to Registration Statement on Form S-3
the issuance of Debt Securities in Series (No. 333-23025)
(10) Shareholder Rights Agreement dated as of April Form 8-K Report for April, 1998
15, 1988, as amended and restated April 16, [Commission File No. 0-1052]
1998 between Millipore and The First National
Bank of Boston
Distribution Agreement, dated as of July 1, Form 10-K Report for the year ended
1996, by and among the Company and Fisher December 31, 1996 [Commission File
Scientific Company No. 0-1052]
25
Reg. S-K
Item
601(b) Referenced Document on
Reference Document Incorporated file with the Commission
- --------- ------------------------------------------------ ------------------------
Note Purchase and Exchange Agreement, as Form 10-K Report for the year ended December 31,
amended through November 2, 1998, between 1998 [Commission File No. 0-1052]
Millipore and Metropolitan Life Insurance
Company
Amendment No. 3, dated October 4, 2001, to Form 10-Q Report for the quarter ended
Note Purchase and Exchange Agreement September 30, 2001 [Commission File No. 0-1052]
between Millipore and Metropolitan Life
Insurance Company
Form of letter agreement with directors relating Form 10-K Report for the year ended December 31,
to the deferral of directors fees and conversion 1998 [Commission File No. 0-1052]
into phantom stock units*
1989 Stock Option Plan for Non-Employee Form 10-K Report for the year ended December 31,
Directors* 1998 [Commission File No. 0-1052]
Standard Executive Termination Agreement, as Form 10-K Report for the year ended December 31,
amended* 1999 [Commission File No. 0-1052]
1999 Stock Incentive Plan* Form 10-K Report for the year ended December 31,
1999 [Commission File No. 0-1052]
1995 Employees' Stock Purchase Plan, as Form 10-K Report for the year ended December 31,
amended* 1999 [Commission File No. 0-1052]
1999 Stock Option Plan for Non-Employee Form 10-K Report for the year ended December 31,
Directors* 1999 [Commission File No. 0-1052]
2000 Deferred Compensation Plan for Senior Form 10-K Report for the year ended December 31,
Management* 2000 [Commission File No. 0-1052]
Standard Deferred Compensation Agreement* Form 10-K, Report for the year ended December
31, 2000 [Commission File No. 0-1052]
Supplemental Savings and Retirement Plan for Form 10-K Report for the year ended December 31,
Key Salaried Employees of Millipore 2000 [Commission File No. 0-1052]
Corporation, as amended*
2000 Management Incentive Plan* Form 10-K Report for the year ended December 31,
2000 [Commission File No. 0-1052]
Master Patent Assignment between Millipore Form 10-Q for the quarter ended June 30, 2001
and Mykrolis [Commission File No. 0-1052]
Master Patent License Agreement between Form 10-Q for the quarter ended June 30, 2001
Millipore and Mykrolis [Commission File No. 0-1052]
Master Patent Grantback License Agreement Form 10-Q for the quarter ended June 30, 2001
between Millipore and Mykrolis [Commission File No. 0-1052]
Master Trademark Assignment between Form 10-Q for the quarter ended June 30, 2001
Millipore and Mykrolis [Commission File No. 0-1052]
26
Reg. S-K
Item
601(b) Referenced Document on
Reference Document Incorporated file with the Commission
- --------- ------------------------------------------------- ------------------------
Master Trademark License Agreement between Form 10-Q for the quarter ended June 30, 2001
Millipore and Mykrolis [Commission file No. 0-1052]
Master Invention Disclosure Assignment Form 10-Q for the quarter ended June 30, 2001
between Millipore and Mykrolis [Commission File No. 0-1052]
Master Trade Secret and Know-How Agreement Form 10-Q for the quarter ended June 30, 2001
between Millipore and Mykrolis [Commission File No. 0-1052]
Tax Sharing Agreement between Millipore and Form 10-Q for the quarter ended June 30, 2001
Mykrolis [Commission File No. 0-1052]
Employee Matters Agreement between Form 10-Q for the quarter ended June 30, 2001
Millipore and Mykrolis [Commission File No. 0-1052]
Master Transitional Services Agreement Form 10-Q for the quarter ended June 30, 2001
between Millipore and Mykrolis [Commission File No. 0-1052]
Reorganization of Operations Outside the U.S. Form 10-Q for the quarter ended June 30, 2001
[Commission File No. 0-1052]
Membrane Manufacture and Supply Agreement Form 10-Q for the quarter ended June 30, 2001
between Millipore and Mykrolis [Commission File No. 0-1052]
Research Agreement between Millipore and Form 10-Q for the quarter ended June 30, 2001
Mykrolis [Commission File No. 0-1052]
Product Distribution Agreement between Form 10-Q for the quarter ended June 30, 2001
Millipore and Mykrolis [Commission File No. 0-1052]
Millipore Contract Manufacturing Agreement Form 10-Q for the quarter ended June 30, 2001
[Commission File No. 0-1052]
Mykrolis Contract Manufacturing Agreement Form 10-Q for the quarter ended June 30, 2001
[Commission File No. 0-1052]
Form of Mykrolis Separation Note Form 10-Q for the quarter ended June 30, 2001
[Commission File No. 0-1052]
Separation Revolving Credit Agreement Form 10-Q for the quarter ended June 30, 2001
between Millipore and Mykrolis [Commission File No. 0-1052]
Credit Agreement between Millipore and certain Form 10-Q for the quarter ended September 30,
of its subsidiaries, Bank of America, N.A., and 2001 [Commission File No. 0-1052]
certain other lending and arranging institutions,
dated October 5, 2001
Lender Joinder Agreement between Millipore Form 10-Q for the quarter ended September 30,
and certain of its subsidiaries, Bank of America, 2001 [Commission File No. 0-1052]
N.A., and PB Capital Corporation, dated
October 23, 2001
- --------
+ Millipore Corporation agrees to furnish supplementally to the Commission a
copy of any omitted schedule or exhibit to such agreement upon request by the
Commission.
* A "management contract or compensatory plan"
27
B. The following exhibits are filed herewith:
Reg. S-K
Item
601(b)
Reference Documents Filed Herewith
- --------- ---------------------------------------------------------------------------------------------
(10) Amendment No. 1, dated March 31, 2001, to 2000 Deferred Compensation Plan for Senior
Management *
Amendment, dated March 31, 2001, to Supplemental Savings and Retirement Plan for key salaried
Employees of Millipore Corporation *
(21) Subsidiaries of Millipore
(23) Consent of Independent Accountants relating to the incorporation of their report on the
Consolidated Financial Statements into Company's Securities Act Registration Nos. 2-72124,
2-85698, 2-97280, 33-37319, 33-37323, 33-11790, 33-55613, 33-59005, 33-10801, 333-79227,
333-90127 and 333-30918 on Form S-8, Securities Act Registration Nos. 2-84252, 33-9706,
33-22196, 33-47213, 333-23025 and 333-80781 on Form S-3, and Securities Act Registration
No. 33-58117 and 33-48960 on Form S-4
(24) Power of Attorney
- --------
* A "management contract or compensatory plan"
(b) Reports on Form 8-K.
No reports on Form 8-K have been filed by Registrant during the last quarter
of the fiscal year ended December 31, 2001.
(c) Exhibits.
The Company hereby files as exhibits to this Annual Report on Form 10-K
those exhibits listed in Item 14(a)(3)(B) above, which are attached hereto.
(d) Financial Statement Schedules.
No financial statement schedules have been included because they are not
applicable or are not required under Regulation S-X.
28
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
Dated: March 8, 2002
By: /S/ JEFFREY RUDIN
-----------------------------
Jeffrey Rudin, Vice President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacity and on the dates indicated.
Signature Title Date
--------- ----- ----
/S/ C. WILLIAM ZADEL Chairman of the Board of March 8, 2002
- ----------------------------- Directors
C. William Zadel
/S/ FRANCIS J. LUNGER March 8, 2002
- ----------------------------- President, Chief Executive
Francis J. Lunger Officer, and Director
/S/ KATHLEEN B. ALLEN March 8, 2002
- ----------------------------- Vice President, Chief
Kathleen B. Allen Financial Officer
/S/ DONALD B. MELSON March 8, 2002
- ----------------------------- Corporate Controller (Chief
Donald B. Melson Accounting Officer)
/S/ DANIEL BELLUS* Director March 8, 2002
- -----------------------------
Daniel Bellus
/S/ ROBERT C. BISHOP* Director March 8, 2002
- -----------------------------
Robert C. Bishop
/S/ MAUREEN A. HENDRICKS* Director March 8, 2002
- -----------------------------
Maureen A. Hendricks
/S/ MARK HOFFMAN* Director March 8, 2002
- -----------------------------
Mark Hoffman
/S/ RICHARD J. LANE* Director March 8, 2002
- -----------------------------
Richard J. Lane
/S/ JOHN F. RENO* Director March 8, 2002
- -----------------------------
John F. Reno
/S/ EDWARD M. SCOLNICK* Director March 8, 2002
- -----------------------------
Edward M. Scolnick
*By: /S/ JEFFREY RUDIN
-------------------------
Jeffrey Rudin,
Attorney-in-Fact
29
MILLIPORE CORPORATION
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Statements of Income for the years ended December 31, 2001, 2000 and 1999.............. 31
Consolidated Balance Sheets at December 31, 2001 and 2000........................................... 32
Consolidated Statements of Shareholders' Equity for the years ended December 31, 2001, 2000 and 1999 33
Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999.......... 34
Notes to Consolidated Financial Statements.......................................................... 35
Report of Independent Accountants................................................................... 57
Quarterly Results (Unaudited)....................................................................... 58
30
MILLIPORE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Year ended December 31
------------------------------------
2001 2000 1999
-------- -------- --------
(In thousands, except per share data)
Net sales....................................................... $656,898 $600,161 $566,295
Cost of sales................................................... 291,219 266,227 252,940
-------- -------- --------
Gross profit............................................. 365,679 333,934 313,355
Selling, general and administrative expenses.................... 200,757 190,556 186,389
Research and development expenses............................... 45,816 40,580 34,443
Restructuring and other items................................... 17,962 320 (3,979)
-------- -------- --------
Operating income......................................... 101,144 102,478 96,502
Net gain on sale of equity securities........................... -- 7,151 --
Interest income................................................. 2,591 3,486 3,025
Interest expense................................................ (25,336) (26,922) (30,155)
-------- -------- --------
Income before income taxes...................................... 78,399 86,193 69,372
Provision for income taxes...................................... 14,913 20,108 15,125
-------- -------- --------
Income from continuing operations............................... 63,486 66,085 54,247
-------- -------- --------
(Loss) income from discontinued operations, net of taxes........ (6,736) 53,109 10,081
Loss on disposal of discontinued operations, net of taxes....... (24,400) -- --
-------- -------- --------
Total discontinued operations................................ (31,136) 53,109 10,081
-------- -------- --------
Extraordinary loss on early extinguishment of debt, net of taxes (1,233) -- --
-------- -------- --------
Net income...................................................... $ 31,117 $119,194 $ 64,328
======== ======== ========
Basic income (loss) per share:..................................
Continuing operations........................................ $ 1.35 $ 1.44 $ 1.21
Discontinued operations...................................... (0.66) 1.16 0.23
Extraordinary item........................................... (0.03) -- --
-------- -------- --------
Net income................................................... $ 0.66 $ 2.60 $ 1.44
======== ======== ========
Diluted income (loss) per share:................................
Continuing operations........................................ $ 1.32 $ 1.40 $ 1.20
Discontinued operations...................................... (0.65) 1.13 0.22
Extraordinary item........................................... (0.02) -- --
-------- -------- --------
Net income................................................... $ 0.65 $ 2.53 $ 1.42
======== ======== ========
Weighted average shares outstanding:............................
Basic........................................................ 47,100 45,803 44,731
Diluted...................................................... 48,060 47,039 45,274
The accompanying notes are an integral part of the consolidated financial
statements
31
MILLIPORE CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31
--------------------
2001 2000
--------- ---------
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents......................................................... $ 62,450 $ 55,186
Cash held as collateral........................................................... -- 3,212
Accounts receivable (less allowance for doubtful accounts of $3,106 in 2001 and
$2,833 in 2000)................................................................. 152,108 137,035
Inventories....................................................................... 84,415 84,051
Deferred income taxes............................................................. 8,509 13,077
Other current assets.............................................................. 4,513 5,214
--------- ---------
Total current assets.......................................................... 311,995 297,775
Property, plant and equipment, net................................................... 200,330 159,820
Deferred income taxes................................................................ 82,622 71,283
Intangible assets (less accumulated amortization of $15,932 in 2001 and $11,816 in
2000).............................................................................. 29,991 30,993
Other assets......................................................................... 11,674 11,438
Net assets of discontinued operations................................................ 279,155 248,790
--------- ---------
Total assets.................................................................. $ 915,767 $ 820,099
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable..................................................................... $ 1,958 $ 52,544
Accounts payable.................................................................. 47,403 46,912
Accrued compensation.............................................................. 30,141 32,414
Other accrued expenses............................................................ 35,264 29,122
Dividends payable................................................................. 5,266 5,319
Accrued retirement plan contributions............................................. 7,741 8,244
Accrued income taxes payable...................................................... 6,546 20,137
--------- ---------
Total current liabilities..................................................... 134,319 194,692
Long-term debt....................................................................... 320,000 300,130
Other liabilities.................................................................... 22,075 19,909
Commitments and contingent liabilities............................................... -- --
Minority interest in discontinued operations......................................... 45,417 --
Shareholders' equity:
Common stock, par value $1.00 per share, 120,000 shares authorized; 56,988
shares issued as of December 31, 2001 and 2000.................................. 56,988 56,988
Additional paid-in capital........................................................ 88,584 31,370
Retained earnings................................................................. 600,479 585,971
Unearned compensation............................................................. (2,785) (4,490)
Accumulated other comprehensive loss.............................................. (83,457) (55,791)
--------- ---------
659,809 614,048
Less: Treasury stock at cost, 9,112 and 10,594 shares as of December 31, 2001 and
2000, respectively.............................................................. (265,853) (308,680)
--------- ---------
Total shareholders' equity.................................................... 393,956 305,368
--------- ---------
Total liabilities and shareholders' equity........................................... $ 915,767 $ 820,099
========= =========
The accompanying notes are an integral part of the consolidated financial
statements
32
MILLIPORE CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years Ended December 31, 2001, 2000 and 1999
(In thousands, except per share data)
Common Accumulated Other
Stock Comprehensive Income (Loss)
-------------- -------------------------------------
Unrealized
Additional Unearned Gain
Par Paid-In Retained Compen- (Loss) on Translation
Shares Value Capital Earnings sation Securities Adjustments Total
------ ------- ---------- --------- -------- ---------- ----------- ------------
Balance at December 31, 1998............. 56,988 $56,988 $11,780 $472,746 $(3,117) $(158) $(27,510) $(27,668)
Comprehensive income:
Net income............................... 64,328
Unrealized holding gains arising during
period, net of tax of $325.............. 1,221
Less: reclassification adjustment for
gains realized in net income, net of tax
of $63.................................. (238)
-------
Net unrealized gains on securities
available for sale, net of tax of $262.. 983 983
Translation adjustments.................. (15,607) (15,607)
Total comprehensive income...............
Cash dividends declared, $0.44 per share. (19,736)
Stock issued under stock plans........... (3,189) (2,144)
Amortization of unearned compensation.... 1,220
Shares issued to pooled company.......... 4,763 (22,720)
U.S. tax benefit from stock plan activity 1,729
------ ------- ------- --------- -------- ------- ----------- ------------
Balance at December 31, 1999............. 56,988 56,988 18,272 491,429 (4,041) 825 (43,117) (42,292)
Comprehensive income:....................
Net income............................... 119,194
Unrealized holding gains arising during
period, net of tax of $1,884............ 6,681
Less: reclassification adjustment for
gains realized in net income, net of tax
of $1,661............................... (5,890)
-------
Net unrealized gains on securities
available for sale, net of tax of $223.. 791 791
Translation adjustments.................. (14,290) (14,290)
Total comprehensive income...............
Cash dividends declared, $0.44 per
share.................................. (20,321)
Stock issued under stock plans........... 824 (4,331) (3,041)
Amortization of unearned compensation.... 2,592
U.S. tax benefit from stock plan activity 12,274
------ ------- ----- --------- -------- ------- ----------- ------------
Balance at December 31, 2000............. 56,988 $56,988 $31,370 $585,971 $ (4,490) $ 1,616 $ (57,407) $ (55,791)
Comprehensive income:
Net income............................... 31,117
Net unrealized losses on securities
available for sale, net of tax of $651.. (1,209) (1,209)
Impact of adopting SFAS No. 133.......... (5,100) (5,100)
Change in value of foreign currency
interest rate swaps designated as
hedges.................................. 5,900 5,900
Translation adjustments.................. (27,257) (27,257)
Total comprehensive income...............
Cash dividends declared, $0.44 per
share................................... (20,856)
Stock issued under stock plans........... 5,096 4,247
Amortization of unearned compensation.... 1,705
U.S. tax benefit from stock plan activity 10,159
Gain on sale of Mykrolis Corporation
stock................................... 41,959
------ ------- ------- --------- -------- ------- ----------- ------------
Balance at December 31, 2001............. 56,988 $56,988 $88,584 $600,479 $ (2,785) $ 407 $ (83,864) $ (83,457)
====== ======= ======= ========= ======== ======= =========== ============
Total
Shareholders'
Treasury Stock Equity
----------------------------- -------------
Shares Cost
-------- --------------------
Balance at December 31, 1998............. (12,921) $(376,938) $133,791
Comprehensive income:
Net income............................... 64,328
Unrealized holding gains arising during
period, net of tax of $325..............
Less: reclassification adjustment for
gains realized in net income, net of tax
of $63..................................
Net unrealized gains on securities
available for sale, net of tax of $262.. 983
Translation adjustments.................. (15,607)
--------
Total comprehensive income............... 49,704
Cash dividends declared, $0.44 per share. (19,736)
Stock issued under stock plans........... 467 13,516 8,183
Amortization of unearned compensation.... 1,220
Shares issued to pooled company.......... 660 19,917 1,960
U.S. tax benefit from stock plan activity 1,729
------- -------------------- ----------
Balance at December 31, 1999............. (11,794) (343,505) 176,851
Comprehensive income:....................
Net income............................... 119,194
Unrealized holding gains arising during
period, net of tax of $1,884............
Less: reclassification adjustment for
gains realized in net income, net of tax
of $1,661...............................
Net unrealized gains on securities
available for sale, net of tax of $223.. 791
Translation adjustments.................. (14,290)
--------
Total comprehensive income............... 105,695
Cash dividends declared, $0.44 per
share.................................. (20,321)
Stock issued under stock plans........... 1,200 34,825 28,277
Amortization of unearned compensation.... 2,592
U.S. tax benefit from stock plan activity 12,274
------- -------------------- ----------
Balance at December 31, 2000............. (10,594) $ (308,680) $305,368
Comprehensive income:
Net income............................... 31,117
Net unrealized losses on securities
available for sale, net of tax of $651.. (1,209)
Impact of adopting SFAS No. 133.......... (5,100)
Change in value of foreign currency
interest rate swaps designated as
hedges.................................. 5,900
Translation adjustments.................. (27,257)
--------
Total comprehensive income............... 3,451
Cash dividends declared, $0.44 per
share................................... (20,856)
Stock issued under stock plans........... 1,482 42,827 52,170
Amortization of unearned compensation.... 1,705
U.S. tax benefit from stock plan activity 10,159
Gain on sale of Mykrolis Corporation
stock................................... 41,959
------- -------------------- ----------
Balance at December 31, 2001............. (9,112) $ (265,853) $393,956
======= ==================== ==========
The accompanying notes are an integral part of the consolidated financial
statements
33
MILLIPORE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31
----------------------------
2001 2000 1999
-------- -------- --------
(In thousands)
Cash Flows from operating activities:
Net income............................................................ $ 31,117 $119,194 $ 64,328
Less: (Loss) income from discontinued operations...................... (6,736) 53,109 10,081
Loss on disposal of discontinued operations...................... (24,400) -- --
-------- -------- --------
Income from continuing operations..................................... 62,253 66,085 54,247
Adjustments to reconcile income from continuing operations to net cash
provided by operating activities:
Extraordinary loss on early extinguishment of debt.................. 1,899 -- --
Restructuring and other items....................................... 17,962 (1,180) (3,979)
Net gain on sale of equity securities............................... -- (7,151) --
Depreciation and amortization....................................... 30,744 30,536 29,952
Deferred income tax provision....................................... 1,404 803 4,712
Change in operating assets and liabilities:.........................
(Increase) in accounts receivable................................. (23,371) (12,040) (14,860)
(Increase) decrease in inventories................................ (4,347) (18,823) 6,288
(Increase) decrease in other current assets....................... (847) 1,682 (419)
Decrease (increase) in other assets............................... 377 (802) (2,922)
Increase in accounts payable...................................... 1,229 3,881 36,281
(Decrease) increase in accrued expenses........................... (12,156) 7,183 (13,451)
Increase in accrued retirement plan contributions................. 1,510 794 664
(Decrease) increase in accrued income taxes....................... (17,528) 11,976 1,335
Other............................................................. 2,740 2,354 3,164
-------- -------- --------
Net cash provided by operating activities....................... 61,869 85,298 101,012
-------- -------- --------
Cash Flows from investing activities:
Additions to property, plant and equipment............................ (72,264) (36,418) (27,065)
Additions to intangible assets........................................ (1,705) -- (1,202)
Proceeds from sale of property........................................ -- 8,808 --
Proceeds from sale of securities...................................... -- 7,498 9,500
-------- -------- --------
Net cash used in investing activities........................... (73,969) (20,112) (18,767)
-------- -------- --------
Cash Flows from financing activities:
Proceeds from issuance of treasury stock under stock plans............ 49,807 28,012 8,574
Net change in short-term debt......................................... (30,586) (63,101) (55,695)
Changes in cash held as collateral.................................... 3,212 15,428 (18,640)
Debt refinancing fees................................................. (3,462) -- --
Dividends paid........................................................ (20,687) (20,193) (19,614)
-------- -------- --------
Net cash used in financing activities........................... (1,716) (39,854) (85,375)
-------- -------- --------
Effect of foreign exchange rates on cash and cash equivalents.......... (4,804) (340) (314)
-------- -------- --------
Net cash (used) provided by continuing operations...................... (18,620) 24,992 (3,444)
Net cash provided (used) by discontinued operations.................... 25,884 (2,226) (159)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents................... 7,264 22,766 (3,603)
Cash and cash equivalents on January 1................................. 55,186 32,420 36,023
-------- -------- --------
Cash and cash equivalents on December 31............................... $ 62,450 $ 55,186 $ 32,420
======== ======== ========
The accompanying notes are an integral part of the consolidated financial
statements
34
MILLIPORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except per share data)
1. Summary of Significant Accounting Policies
Description of Operations
Millipore Corporation is a multinational bioscience company that provides
technologies, tools and services for the discovery, development and production
of new therapeutic drugs. The Company's products principally serve the
worldwide life science research, biotechnology and pharmaceutical industries.
Millipore's products are based on a variety of enabling technologies, including
the Company's membrane filtration and chromatography technologies. In life
science research, Millipore offers products for genomics, proteomics, drug
discovery and general laboratory applications. For the biotechnology and
pharmaceutical industries, Millipore offers products for development, scale-up,
production and quality assurance of therapeutics, as well as validation
services.
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated in consolidation. See Note 2 for a discussion of the
Mykrolis initial public offering and spin-off transactions.
Translation of Foreign Currencies
For all of the Company's foreign subsidiaries, assets and liabilities are
translated at exchange rates prevailing on the balance sheet date, revenues and
expenses are translated at average exchange rates prevailing during the period,
and elements of shareholders' equity are translated at historical rates. Any
resulting translation gains and losses are reported separately in shareholders'
equity. The aggregate transaction gains and losses included in the consolidated
statements of income are not material.
Cash Equivalents
Cash equivalents consisting primarily of time deposits are carried at cost
plus accrued interest, which approximates market value. All cash equivalents
have maturities of three months or less.
Cash Held as Collateral
The Company had been required to provide cash collateralization on one of
its Yen-denominated debt swap agreements. During the first quarter of 2001, the
swap agreements were terminated and, therefore, the Company is no longer
required to provide any cash collateralization.
Allowance for Doubtful Accounts
Millipore maintains allowances for doubtful accounts for specifically
identified estimated losses resulting from the inability of its customers to
make required payments. If the financial condition of the Company's customers
were to deteriorate, resulting in an impairment of their ability to make
payments, additional allowances may be required.
35
MILLIPORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands except per share data)
Inventories
The Company values its inventories at actual cost on a first-in, first-out
(FIFO) basis. The Company writes down its inventory for estimated obsolescence
or unmarketable inventory equal to the difference between the cost of inventory
and the estimated market value based upon assumptions about historic usage,
future demand and market conditions. If actual market conditions are less
favorable than those projected by management, additional inventory write-downs
may be required.
Property, Plant and Equipment
Property, plant and equipment is recorded at cost. Expenditures for
maintenance and repairs are charged to expense while the costs of significant
improvements which extend the life of the underlying asset are capitalized.
Assets are primarily depreciated using straight-line methods. Upon retirement
or sale, the cost of assets disposed and the related accumulated depreciation
are eliminated and related gains or losses are reflected in income.
The Company capitalizes internal use software development costs. These
costs, which are included in Production and Other Equipment, are amortized on a
straight-line basis over the estimated useful lives of the related software,
generally three years.
The estimated useful lives of the Company's depreciable assets are as
follows:
Leasehold Improvements........ The shorter of the life of the improvement or the life of the lease
Buildings and Improvements.... 10-40 years
Production and Other Equipment 3-15 years
Intangible Assets
Intangible assets, primarily acquired through the acquisition of the Amicon
Separation Science Business in 1996, consist primarily of patented and
unpatented technology, trade names and licenses. The assets are recorded at
cost and amortized on a straight-line basis over periods ranging from 3 to 20
years. On a periodic basis, the value of the intangible assets is reviewed to
determine if impairment has taken place due to changed business conditions or
technological obsolescence. The amount of such impairment, if any, is computed
by comparing the discounted future cash flows associated with the underlying
intangible asset to the then current net book value. If an impairment exists,
the net book value of the intangible asset is reduced accordingly.
Marketable Securities
The Company's investments in equity securities are categorized as
available-for-sale as defined by Statement of Financial Accounting Standards
(SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity
Securities". Equity securities are included in Other Assets in the accompanying
consolidated balance sheets and are recorded at fair value. The cost of each
investment is determined primarily on a specific identification method.
Unrealized holding gains and losses are reflected, net of income tax, as a
separate component of accumulated other comprehensive income (loss). As of
December 31, 2001, marketable securities had a fair value of $1,277 and a cost
of $1,149. The fair value of these securities reflects unrealized holding gains
of $653 and unrealized holding losses of $525 at December 31, 2001.
Financial Instruments
The Company had entered into U.S. dollar to Japanese Yen debt swap
agreements and had entered into foreign exchange option contracts to manage
interest and foreign currency exchange rate exposures. The swap
36
MILLIPORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands except per share data)
agreements were terminated during the first quarter of 2001. The cash
differential paid or received under the interest rate component of the debt
swap agreements were accrued and recognized as an adjustment to interest
expense. Net amounts receivable or payable to counterparties were included in
long-term debt. Cash flows related to the interest rate swap were classified as
part of operating activities in the consolidated statement of cash flows
consistent with the interest payments on the underlying debt. The U.S. dollar
to Japanese Yen swap was designated as a hedge of the Company's net investment
exposure. Unrealized gains and losses were recorded as an adjustment of the
underlying long-term debt and the cumulative translation adjustments in
shareholders' equity. In addition to the swaps, the Company from time to time
uses other various derivative financial instruments, including options and
forward contracts to hedge certain foreign currency and interest rate
exposures. The intent is to offset gains and losses that occur on the
underlying exposures, with gains and losses on the derivative contracts hedging
these exposures. At December 31, 2001, the Company did not have any derivative
financial instruments. The Company does not hold or issue derivative financial
instruments for trading purposes.
Income Taxes
Deferred tax assets reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial statement
purposes and the amounts used for income tax purposes. With respect to the
unremitted earnings of the Company's foreign and Puerto Rican subsidiaries,
deferred taxes are provided only on amounts expected to be repatriated. The
Company records a valuation allowance to reduce the deferred tax assets to the
amount that is more likely than not to be realized.
Treasury Stock
Treasury stock is recorded at its cost on the date acquired and is reissued
at its weighted average cost. The excess of cost over the proceeds of reissued
treasury stock is charged to retained earnings.
Net Income Per Share
Basic net income per share is calculated by dividing the net income for the
period by the weighted average number of shares outstanding for the period.
Diluted net income per share is calculated by considering the impact of common
stock equivalents (outstanding stock options and restricted stock) as if they
were converted into common stock at the beginning of the period. Common stock
equivalents are not included in periods of net losses as they are anti-dilutive.
Revenue Recognition
Revenue is recognized when contractual obligations have been satisfied,
title and risk of loss have been transferred to the customer and collection of
the resulting receivable is reasonably assured. Certain contract revenues
associated with the Company's process equipment business are recorded on the
percentage of completion method. Revenue is recognized based on the ratio of
hours expended compared to the total estimated hours to complete the
construction of the process equipment. The cumulative impact of any revisions
in estimates of the percent complete is reflected in the period in which the
changes become known. Revenue from services is recognized when the services are
provided.
Warranty Costs
The Company provides for estimated warranty costs at the time of the product
sale.
37
MILLIPORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands except per share data)
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and cash equivalents
and accounts receivable.
The Company places its temporary cash and cash equivalents with high credit
qualified financial institutions, and, by policy, limits the amount of credit
exposure to any one financial institution.
Concentrations of credit risk with respect to accounts receivable is limited
due to the large number of customers comprising the Company's customer base,
and their dispersion across different geographies. The Company performs ongoing
credit evaluations of its customers and generally does not require collateral.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications
Certain reclassifications have been made to prior years' financial
statements to conform with the 2001 presentation.
New Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other
Intangible Assets". SFAS No. 141 requires that all business combinations be
accounted for under the purchase method only and that certain acquired
intangible assets in a business combination be recognized as assets apart from
goodwill. 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 useful lives. SFAS No. 141
is effective for all business combinations initiated after June 30, 2001. The
provisions of SFAS No. 142 will be effective for fiscal years beginning after
December 15, 2001, and will thus be adopted by the Company as required in the
first quarter of fiscal year 2002. The adoption of SFAS No. 142 is not expected
to have a significant impact on the Company's consolidated financial statements.
In October 2001, the FASB issued SFAS No.144, "Accounting for the Impairment
or Disposal of Long-Lived Assets" effective January 1, 2002. 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 provisions of this standard do not apply to the
Company's disposal of Mykrolis Corporation in the second quarter of 2001. The
adoption of SFAS No. 144 is not expected to have a significant impact on the
Company's consolidated financial statements.
Adoption of New Accounting Pronouncement
Effective January 1, 2001, the Company adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities", as amended by SFAS No. 138.
SFAS No. 133 establishes accounting and reporting
38
MILLIPORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands except per share data)
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.
With respect to all derivative instruments, SFAS No. 133 requires that
companies, upon adoption of the new standard, record an adjustment for the
difference between a derivative's previous carrying amount and its current fair
market value as a transition adjustment. At December 31, 2000, the Company was
a party to U.S. dollar to Japanese Yen foreign currency fixed rate-to-fixed
rate interest rate swap agreements, which were designated as a hedge of the
Company's net investment exposure in its Japanese subsidiary. On January 1,
2001, the Company recorded a net derivative liability transition adjustment of
$5,100, which was the difference between the Company's carrying value and the
fair value of this derivative. This transition adjustment was recorded as a
cumulative-effect type adjustment to other comprehensive income. During the
first quarter of 2001, the swap agreements were terminated and a gain of $800
was realized and recorded in other comprehensive income. In addition, the
Company is no longer required to provide any cash collateralization which had
previously been required as part of one its swap agreements.
2. Discontinued Operations
On October 3, 2000, the Company announced its plans, subject to certain
conditions, to separate into two distinct companies by making its
Microelectronics business segment an independent, publicly traded company. In
accordance with these plans, the Microelectronics business segment was
separated into a wholly owned Millipore subsidiary named Mykrolis Corporation
("Mykrolis") on March 31, 2001 (the "Separation Date").
During the second quarter of 2001, the Company received a ruling from the
Internal Revenue Service that the Mykrolis spin-off transaction, as planned,
would be tax-free to the Company and its shareholders. Thereafter, the
Company's management and Board of Directors approved the plan of disposition
for Mykrolis. Accordingly, the Company's consolidated condensed financial
statements and notes reflect the Company's Microelectronics business as a
discontinued operation in accordance with Accounting Principles Board Opinion
No. 30.
On August 9, 2001, Mykrolis completed an initial public offering (the
"Mykrolis IPO") of 7,000 of its common shares at a price of $15.00 per share.
Net proceeds from the Mykrolis IPO, after deducting the underwriting discount,
commissions and other direct costs, were approximately $94,076. Of that amount,
Mykrolis paid $19,100 to the Company as a repayment of amounts outstanding
under the separation agreements between the two companies. No additional
Mykrolis shares were purchased pursuant to the underwriters' overallotment
option provided for as part of the Mykrolis IPO. Prior to the Mykrolis IPO, the
Company's ownership in Mykrolis' outstanding common shares was 100%, and at
December 31, 2001 the Company's ownership in Mykrolis' outstanding common
shares was approximately 82%. As a result of the planned distribution of
Mykrolis common shares to Millipore shareholders, the Company recorded an
increase to additional paid-in capital for the gain on its investment in
Mykrolis of $41,959.
Loss on disposal of discontinued operations of $24,400 ($35,100 pre-tax)
recorded in the second quarter of 2001 included estimated future operating
losses of $18,600 for Mykrolis from July 1, 2001 through the planned
disposition date in the first quarter of 2002 and disposition expenses of
$5,800. In the third quarter of 2001, the Company revised the $24,400 estimated
loss on disposal of discontinued operations. The pre-tax revision included an
$8,700 increase in the estimated future operating losses for Mykrolis through
the planned disposition
39
MILLIPORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands except per share data)
date offset by reduced disposition expenses of $2,000 and a $6,700 reduction to
adjust for the 17.7 percent minority interest share of forecasted operating
losses through the disposition date resulting from the Mykrolis IPO in the
third quarter.
Losses for Mykrolis in the second half of 2001, of $17,732 were charged
against the reserve for estimated losses. Included in the operating results of
the discontinued business was a $4,922 restructuring charge taken in response
to the prolonged duration and severity of the current semiconductor industry
downturn.
On February 27, 2002 (the "Distribution Date") the Company distributed its
remaining ownership interest in Mykrolis common stock as a dividend to its
shareholders of record as of February 13, 2002. At that date, the net assets of
discontinued operations less minority interest will be recorded as a reduction
to shareholders' equity.
The summary of operating results from discontinued operations is as follows:
2001 2000 1999
-------- -------- --------
Net sales...................................................... $214,228 $355,924 $207,117
Gross margin................................................... 77,198 179,701 99,664
======== ======== ========
(Loss) income from discontinued operations, before income taxes $(10,729) $ 67,474 $ 12,978
(Benefit) provision for income taxes........................... (3,993) 14,365 2,897
-------- -------- --------
(Loss) income from discontinued operations, net of taxes....... (6,736) 53,109 10,081
Loss on disposal of discontinued operations, net of taxes...... (24,400) -- --
-------- -------- --------
Total discontinued operations, net of taxes.................... $(31,136) $ 53,109 $ 10,081
======== ======== ========
Net assets of discontinued operations at December 31 consisted of the
following:
2001 2000
-------- --------
Current assets....................... $178,082 $157,880
Non-current assets................... 139,546 145,736
Current liabilities.................. (28,360) (39,955)
Non current liabilities.............. (10,113) (14,871)
-------- --------
Net assets of discontinued operations $279,155 $248,790
======== ========
Current assets include cash and cash equivalents, accounts receivable and
inventory. Non-current assets include property, plant and equipment, deferred
income taxes, intangible assets and other assets. Current liabilities consist
of accounts payable, income taxes payable, accrued expenses and amounts due to
Millipore. Non-current liabilities consist principally of pension obligations.
As part of the separation of Mykrolis from Millipore, the two companies
entered into a number of agreements covering a range of issues relating to the
separation, including transitional services, intellectual property rights,
product manufacturing and supply, research and development services and
employee matters (see note 16).
3. Restructuring Programs and Other Items
In the first quarter of 2001, a restructuring program was initiated to
reorganize the Company. The program included reducing, consolidating and
outsourcing of certain manufacturing operations, centralization of European
40
MILLIPORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands except per share data)
shared services (including order processing, cash collections and cash
applications processes) and streamlining certain corporate shared services and
divisional overhead functions to serve a smaller organization.
These initiatives included a $16,504 restructuring charge and $1,458 of
fixed asset write-offs for assets that are no longer in use. The restructuring
charge included $15,432 of employee severance costs and $1,072 of lease
cancellation costs. The severance costs included non-cash stock-based
compensation expense related to changes in stock awards. Approximately 215
positions will be eliminated and the affected employees were notified by March
31, 2001. Certain of these employees will continue in their existing positions
for a limited period with their related salary costs charged to operations as
incurred. The Company anticipates that the restructuring program will be
substantially completed by the second half of 2002. Under the terms of the
severance agreements, the Company expects to pay severance and associated
benefits through 2002. Through December 31, 2001, approximately 160 employees
have left the Company.
The following is a summary of the 2001 restructuring program reserve
balances at December 31, 2001 which are included in accrued expenses:
Stock Based Balance at
Restructuring Cash Compensation December 31,
Charge Disbursements Expense 2001
------------- ------------- ------------ ------------
Employee severance costs. $15,432 $8,571 $2,221 $4,640
Leasehold and other costs 1,072 382 -- 690
------- ------ ------ ------
Total.................... $16,504 $8,953 $2,221 $5,330
======= ====== ====== ======
In 1998, the Company recorded a restructuring charge related to the
streamlining of its operations. In 1999, the Company reevaluated the accrual
for the 1998 restructuring program and reversed $3,979 of the remaining
balance. The reversal reflected a lower estimate for employee severance and
lease cancellation costs. In 2000, the Company reversed an additional $1,180 in
restructuring reserves primarily related to additional proceeds from the sale
of facilities. The final cash payments, consisting primarily of lease
termination costs, occurred in the third quarter of 2001. As of December 31,
2001, the 1998 restructuring program has been completed. Of the planned 160
employees, all left the Company pursuant to this initiative.
Following is a summary of the 1998 restructuring charges and related reserve
balances at December 31, 2001 and 2000:
Balance at Balance at Balance at
December 31, Cash Reversal of December 31, Cash December 31,
1999 Disbursements Reserve 2000 Disbursements 2001
------------ ------------- ----------- ------------ ------------- ------------
Employee
severance costs $3,209 $2,229 $ 43 $ 937 $ 937 $--
Leasehold and
other costs.... 3,887 1,240 1,137 1,510 1,510 --
------ ------ ------ ------ ------ ---
Total............ $7,096 $3,469 $1,180 $2,447 $2,447 $--
====== ====== ====== ====== ====== ===
In the third quarter of 2000, the Company agreed in principle to settle a
patent lawsuit and recorded a charge of $1,500 for past royalties.
41
MILLIPORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands except per share data)
4. Acquisition
On May 18, 1999, the Company acquired all outstanding shares of
Bioprocessing Corporation Limited ("Bioprocessing") 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 Bioprocessing did not have a material
impact on the Company's results of operations and financial position.
5. Basic and Diluted Earnings per Share
The following table sets forth the computation of basic and diluted earnings
per share for 2001, 2000 and 1999:
2001 2000 1999
-------- -------- -------
Numerator:
Income from continuing operations, net of taxes.................. $ 63,486 $ 66,085 $54,247
(Loss) income from discontinued operations, net of taxes......... (31,136) 53,109 10,081
Extraordinary loss on early extinguishment of debt, net of taxes. (1,233) -- --
-------- -------- -------
Net income....................................................... $ 31,117 $119,194 $64,328
======== ======== =======
Denominator:
Basic weighted average shares outstanding........................ 47,100 45,803 44,731
Effect of dilutive securities-stock options and restricted stock. 960 1,236 543
-------- -------- -------
Diluted weighted average shares outstanding...................... 48,060 47,039 45,274
======== ======== =======
Basic income (loss) per share:
Continuing operations............................................ $ 1.35 $ 1.44 $ 1.21
Discontinued operations.......................................... (0.66) 1.16 0.23
Extraordinary item............................................... (0.03) -- --
-------- -------- -------
Net income....................................................... $ 0.66 $ 2.60 $ 1.44
======== ======== =======
Diluted income (loss) per share:
Continuing operations............................................ $ 1.32 $ 1.40 $ 1.20
Discontinued operations.......................................... (0.65) 1.13 0.22
Extraordinary item............................................... (0.02) -- --
-------- -------- -------
Net income....................................................... $ 0.65 $ 2.53 $ 1.42
======== ======== =======
6. Inventories
Inventories at December 31, stated at the lower of first-in, first-out
(FIFO) cost or market, consisted of the following:
2001 2000
------- -------
Raw materials... $28,531 $22,770
Work in process. 16,896 17,625
Finished goods.. 38,988 43,656
------- -------
$84,415 $84,051
======= =======
42
MILLIPORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands except per share data)
7. Property, Plant and Equipment
Property, plant and equipment at December 31 consisted of the following:
2001 2000
-------- --------
Land.......................... $ 7,381 $ 4,784
Leasehold improvements........ 9,068 8,430
Buildings and improvements.... 130,127 104,580
Production and other equipment 186,958 180,739
Construction in progress...... 24,166 24,335
-------- --------
357,700 322,868
Less: accumulated depreciation 157,370 163,048
-------- --------
$200,330 $159,820
======== ========
Depreciation expense for the years ended 2001, 2000 and 1999 was $25,136,
$24,695 and $26,292 respectively.
8. Notes Payable and Long-Term Debt
On October 5, 2001, the Company entered into a five year unsecured revolving
credit agreement which replaced its prior revolving credit agreement. The new
revolving credit agreement, together with a Lender Joinder Agreement that the
Company entered into on October 23, 2001, (together, the "Credit Agreement")
allows for revolving loan borrowings of up to $250,000. Interest rates on
individual borrowings under the Credit Agreement are made on terms not to
exceed twelve months. Because of the Company's ability and intent to
continuously refinance such borrowings under the Credit Agreement, $45,000 of
short-term borrowings outstanding at December 31, 2001 and $100,000 due on
notes payable with maturities within the next 12 months have been classified as
long-term. Interest is payable on outstanding borrowings at a floating rate
defined in the Credit Agreement as Eurocurrency rate plus a margin. The Credit
Agreement also calls for a facility fee at a rate ranging from 0.25 to 0.625
percent of the available facility. The exact amount of the margin and the
facility fee is dependent on the Company's debt rating. The Credit Agreement
calls for the Company to maintain certain financial covenants in the areas of
leverage ratios and interest coverage.
On October 4, 2001, the Company amended the agreement governing its $100,000
7.23% note payable (the "Note Agreement"). The amended Note Agreement's
financial covenants were modified and mirror the financial covenants under the
Credit Agreement. At that time, the Company also prepaid $25,000 of the note
and recorded an $1,899 ($1,233 after tax) extraordinary loss for the premium
associated with the early redemption. The Company intends to use its excess
borrowing capacity under the Credit Agreement to satisfy the $100,000 7.23%
unsecured note due on April 1, 2002.
Short-term borrowings and related lines of credit at December 31 are
summarized as follows:
2001 2000
-------- --------
Notes payable.......................................... $ 1,958 $ 52,544
Unused lines of credit................................. $213,042 $217,456
Average amount outstanding at month-end during the year $ 49,486 $101,906
Maximum amount outstanding at month-end during the year $ 78,000 $137,000
Weighted average interest rate during the year......... 5.9% 7.5%
Weighted average interest rate at year-end............. 4.9% 7.8%
43
MILLIPORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands except per share data)
Long-term debt at December 31 consisted of the following:
2001 2000
-------- --------
Credit agreement due in 2006.................................... $ 45,000 $ --
7.2% unsecured notes due in 2002................................ 100,000 100,000
7.5% unsecured notes due in 2007................................ 100,000 100,000
7.23% note payable due in 2004.................................. 75,000 100,000
Unrealized loss on revaluation of Yen-denominated debt.......... -- 130
-------- --------
Long-term debt.................................................. $320,000 $300,130
======== ========
Weighted average interest rate, net of impact of swap agreements 7.0% 6.7%
Interest on the 7.2% unsecured notes and the 7.5% unsecured notes is payable
semi-annually in April and October. At December 31, 2001, these notes had a
fair market value of $99,000 and $96,000, respectively.
Interest on the 7.23% notes is payable semi-annually in March and September.
As this note is not publicly traded, the fair value is not readily
determinable. However, the Company believes that the above carrying values
approximate fair value.
At December 31, 2000, the Company was a party to two U.S. dollar to Japanese
Yen foreign currency fixed rate-to-fixed rate interest rate swap agreements,
which were designated as a hedge of the Company's net investment exposure in
its Japanese subsidiary. On January 1, 2001, the Company recorded a net
derivative liability transition adjustment of $5,100 which was the difference
between the Company's carrying value and the fair value of this derivative.
This transition adjustment was recorded as a cumulative-effect type adjustment
to other comprehensive income. During the first quarter of 2001, the swap
agreements were terminated and a gain of $800 was realized and recorded in
other comprehensive income. In addition, the Company is no longer required to
provide any cash collateralization which had previously been required as part
of one of its swap agreements.
The two Yen denominated swap agreements included a swap of $80,000 in debt
service obligations for a Yen denominated obligation of 8,760,000 Yen, bearing
interest at a rate of 4.49 percent and maturing in 2004 and a swap of $30,000
in debt service obligations for a Yen denominated obligation of 3,840,000 Yen,
bearing interest at a rate of 1.39 percent and maturing in 2003. The effect of
foreign currency exchange rate fluctuations resulting from the Yen swap
agreements open at December 31, 2000 were included in translation adjustments.
The Company capitalized interest costs associated with the construction of
certain capital assets of $1,529 in 2001, $1,436 in 2000 and $1,121 in 1999.
Interest paid during 2001, 2000 and 1999 amounted to $26,662, $27,755 and
$30,804 respectively.
44
MILLIPORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands except per share data)
9. Income Taxes
The Company's provisions for income taxes attributable to income from
continuing operations are summarized as follows:
2001 2000 1999
------- ------- -------
Domestic and foreign income from continuing operations before
income taxes:
Domestic..................................................... $29,904 $38,009 $27,945
Foreign...................................................... 48,495 48,184 41,427
------- ------- -------
Income before income taxes................................... $78,399 $86,193 $69,372
======= ======= =======
Domestic and foreign provision (benefit) for income taxes:
Domestic..................................................... $ 3,641 $ 7,702 $ 5,242
Foreign...................................................... 11,198 12,419 10,393
State........................................................ 74 (13) (510)
------- ------- -------
$14,913 $20,108 $15,125
======= ======= =======
Current and deferred provision for income taxes:
Current...................................................... $13,509 $19,305 $10,413
Deferred..................................................... 1,404 803 4,712
------- ------- -------
$14,913 $20,108 $15,125
======= ======= =======
A summary of the differences between the Company's worldwide effective tax rate for continuing
operations and the United States statutory federal income tax rate is as follows:
2001 2000 1999
------- ------- -------
U.S. statutory income tax rate..................................... 35.0% 35.0% 35.0%
Puerto Rico tax rate benefit....................................... (5.2) (6.3) (8.5)
Ireland tax rate benefit........................................... (8.6) (7.5) (9.5)
State income tax, net of federal income tax benefit................ 0.1 (0.1) (0.5)
Export sales benefit............................................... (2.3) (3.6) (3.3)
Change in valuation allowance...................................... -- 5.8 8.6
------- ------- -------
Effective tax rate................................................. 19.0% 23.3% 21.8%
======= ======= =======
Tax exemptions relating to Puerto Rico and Ireland operations are effective
through 2004 and 2010, respectively. Income taxes paid (net of refunds) during
2001, 2000 and 1999 were $24,295, $17,267, and $5,700, respectively.
The Company has not recorded deferred income taxes applicable to
undistributed earnings of foreign subsidiaries that are indefinitely reinvested
in foreign operations. These earnings amounted to approximately $233,624 at
December 31, 2001. If earnings of such foreign subsidiaries were not
indefinitely reinvested, a deferred tax liability of approximately $64,895
would have been required.
At December 31, 2001, the Company has foreign tax credit carryforwards of
approximately $39,969 that expire in the years 2002 through 2006. General
business credit carryforwards of approximately $5,884 expire in the years 2002
through 2020. Net operating loss carryforwards of $71,424 expire through the
year 2021. In
45
MILLIPORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands except per share data)
addition, the Company has alternative minimum tax credit carryforwards of
approximately $15,999, which can be carried forward indefinitely.
Significant components of the Company's net deferred tax assets are as
follows:
2001 2000
-------- --------
Intercompany and inventory related transactions................... $ 12,731 $ 13,115
Postretirement benefits other than pensions....................... 3,810 3,706
Tax credits (including foreign tax credits on unremitted earnings) 65,302 55,372
Net operating loss carryforwards.................................. 24,999 27,490
Restructuring related costs....................................... 2,992 2,333
Amortization of intangible assets................................. 9,161 9,764
Depreciation...................................................... (3,399) (1,863)
Other, net........................................................ (331) (1,423)
-------- --------
115,265 108,494
Valuation allowance............................................... (24,134) (24,134)
-------- --------
Net deferred tax asset............................................ $ 91,131 $ 84,360
======== ========
The valuation allowance is provided primarily against foreign tax credit
carryforwards and foreign tax credits on unremitted earnings, which can be
utilized against future taxable income in the United States. Although
realization is not assured, the Company believes it is more likely than not
that the remainder of the deferred tax asset, net of the valuation allowance,
will be realized. The amount of the deferred tax asset considered realizable,
however, could be reduced in the near term if estimates of future taxable
income are reduced.
10. Legal Proceedings
The Company currently is not a party to any material legal proceeding and
the Company knows of no material legal proceeding contemplated by any
governmental authority.
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.
Millipore has, in the past, been named as a potentially responsible party
("PRP") under the Comprehensive Environmental Response Compensation and
Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986 ("Superfund") by the U.S. Environmental Protection
Agency ("EPA") with respect to a "release" (as defined in Section 101 of
Superfund), at twelve sites to which chemical wastes
46
MILLIPORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands except per share data)
generated by the manufacturing operations of Millipore or one of its divisions
may have been sent. The Company has settled its liability pursuant to consent
decrees releasing Millipore from further liability with respect to certain
covered matters at all of these Superfund sites. However, as is typical with
consent decrees in such Superfund proceedings, EPA and the relevant state
agencies have reserved the right to maintain actions against the settling
parties, including the Company, in the event certain events occur or do not
occur at those sites. The Company does not expect that the conditions in the
consent decrees permitting these governmental parties to "re-open" the cases
will occur. In any event, the Company believes that the aggregate of any future
potential liabilities should not have a material adverse effect on the
Company's future results of operations or financial condition in light of the
advanced stage of funded remedial action at each site and the likely
availability of contribution from numerous other financially solvent PRPs
participating at each such Superfund site.
The Company is also subject to a number of other claims and legal
proceedings which, in the opinion of the Company's management, are incidental
to the Company's normal business operations. In the opinion of the Company,
although final settlement of these suits and claims may impact the Company's
financial statements in a particular period, they will not, in the aggregate,
have a material adverse effect on the Company's financial position, cash flows
and results of operations.
11. Leases
Operating lease agreements cover sales offices, manufacturing and warehouse
space. These leases have expiration dates through 2009. Certain land and
building leases contain renewal options for periods ranging from one to ten
years and purchase options at fair market value. Rental expense was $6,213 in
2001, $4,683 in 2000 and $4,856 in 1999. At December 31, 2001 future minimum
rents payable under noncancelable operating leases with initial terms exceeding
one year were as follows:
2002..... $6,772
2003..... 5,244
2004..... 4,860
2005..... 4,654
2006..... 3,663
2007-2009 2,316
12. Stock Plans
Stock Incentive Plans
The "1999 Stock Incentive Plan" (the "1999 Plan") provides for the issuance
of stock options and restricted stock to key employees as incentive
compensation. The 1999 Plan allows for the issuance of 4,000 shares of common
stock of which a maximum of 250 shares can be issued as restricted stock. The
exercise price of the stock options may not be less than the fair market value
of the stock at the date of grant and the stock options must expire no later
than 10 years from the date of grant. Stock options are no longer granted under
any predecessor plans although 1,232 shares issued under such predecessor plans
remain outstanding.
The 1999 Plan provides that the restricted stock, which is awarded to key
members of senior management at no cost to them, cannot be sold, assigned,
transferred or pledged during a restriction period. The restriction
47
MILLIPORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands except per share data)
period is normally four years but in some cases may be less and may be
accelerated based on exceeding annual performance targets. In most instances,
shares are subject to forfeiture should employment terminate during the
restriction period. The restricted stock is recorded at its fair market value
on the award date; the related deferred compensation is amortized to Selling,
General and Administrative expenses over the restriction period. At the end of
2001, 2000 and 1999 104, 173 and 167 shares, respectively, were outstanding as
restricted shares which includes restricted stock for Mykrolis employees in the
amounts of 26, 60 and 53 at the end of 2001, 2000 and 1999, respectively.
Non-Employee Director Stock Option Plan
The 1999 Stock Option Plan for Non-Employee Directors (the "Directors Plan")
allows for the issuance of 250 shares of common stock. Each newly elected
eligible director is awarded a stock option to purchase 4 shares of common
stock on the date of his or her first election. Following the initial grant,
each director shall automatically be awarded options to purchase 2 shares of
common stock for each subsequent year of service as a director. The exercise
price of the stock options may not be less than the fair market value of the
stock at the date of grant. At December 31, 2001, 56 options were outstanding.
Employees' Stock Purchase Plan
During 1999, the Company's Employees' Stock Purchase Plan ("ESPP") was
amended to allow for the issuance of up to 1,300 shares of common stock. The
amended plan allows eligible employees to purchase the stock at 85% of the
lesser of the fair market value of the common stock on June 1, the beginning of
the plan year, or the closing price at the end of each subsequent quarter. Each
employee may purchase up to 10% (up to a maximum of $25) of eligible
compensation.
In 2001, 2000 and 1999, shares issued under the ESPP were 65, 90 and 51,
respectively. As of December 31, 2001, 1,094 shares of Millipore common stock
were available for sale to employees under the ESPP.
Mykrolis spin-off
On the Distribution Date, the Company distributed all of its remaining
interest in Mykrolis through a stock dividend to Millipore stockholders of
record on February 13, 2002. This distribution was made in the amount of
0.6768132 share of Mykrolis common stock for each outstanding share of
Millipore common stock. The decrease in the intrinsic value of Millipore's
stock plans attributed to the distribution of Mykrolis was restored in
accordance with the methodology set forth in the FASB Interpretation No. 44
"Accounting for Certain transactions involving Stock Compensation".
Accordingly, the number of Millipore employee options outstanding on the
Distribution Date were increased and the exercise prices were correspondingly
decreased to maintain the intrinsic value of the options on the Distribution
Date. As of December 31, 2001, Mykrolis' employees held 553 unvested Millipore
stock options. At the Distribution Date, Mykrolis employees held 536 unvested
Millipore stock options, which were subsequently cancelled. The Mykrolis
employees have 90 days from the Distribution Date to exercise their vested
options.
48
MILLIPORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands except per share data)
The stock option table below is based on data as of December 31, 2001 and
does not reflect the above mentioned changes.
Stock option activity is presented as follows:
2001 2000 1999
------------------------------ ------------------------------ -----------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Option Price Price Shares Option Price Price Shares Option Price Price
------ ------------- -------- ------ ------------- -------- ------ ------------- --------
Outstanding at January 1.. 5,052 $13.81-$74.06 $36.45 4,826 $13.81-$48.13 $30.28 4,111 $13.81-$48.13 $28.08
Granted................... 1,702 $52.71-$60.96 $60.89 1,465 $46.06-$74.06 $46.73 1,231 $29.63-$37.13 $36.23
Exercised................. (1,436) $16.88-$49.38 $31.32 (1,079) $13.81-$43.50 $23.16 (349) $13.81-$37.63 $18.77
Canceled.................. (151) $16.88-$69.94 $38.08 (160) $17.31-$69.94 $33.92 (167) $16.88-$43.50 $35.48
------ ------------- ------ ------ ------------- ------ ----- ------------- ------
Outstanding at December 31 5,167 $13.81-$74.06 $45.87 5,052 $13.81-$74.06 $36.45 4,826 $13.81-$48.13 $30.28
Exercisable at December 31 1,772 2,212 2,605
The following table summarizes information about stock options at December
31, 2001:
Options Outstanding Options Exercisable
- ------------------------------------------------------------- ----------------------------
Weighted
Range of Average Remaining Weighted Average Weighted Average
Exercise Price Outstanding Life in years Exercise Price Exercisable Exercise Price
- -------------- ----------- ----------------- ---------------- ----------- --------------
$13.81-$35.13 1,567 7 $31.32 910 $29.62
$35.63-$44.13 559 5 $38.97 552 $39.00
$46.06-$46.06 1,274 9 $46.06 291 $46.06
$47.06-$56.60 56 9 $52.51 11 $49.54
$60.96-$74.06 1,711 10 $61.12 8 $69.03
----- -- ------ ----- ------
$13.81-$74.06 5,167 8 $45.87 1,772 $35.55
Accounting for Stock Based Compensation
The Company has adopted the disclosure-only provisions of SFAS No. 123
"Accounting for Stock-Based Compensation." Accordingly, no compensation cost
has been recognized. Had compensation cost been determined based on the fair
value at the grant date consistent with the provisions of SFAS 123, the
Company's net income and basic earnings per share would have been reduced by
$11,582 or $0.24 per share in 2001, $7,104 or $0.15 per share in 2000 and
$5,174 or $0.11 per share in 1999. The weighted average fair value of options
granted under the stock option plan was $27.37 in 2001, $20.11 in 2000 and
$12.86 in 1999. The weighted average fair value of shares issued under the
employee stock purchase plan was $16.37 in 2001, $11.33 in 2000 and $7.43 in
1999. The pro forma expense amounts assume that the fair value assigned to the
option grants was amortized over the vesting period of the options, which is
four years, while the fair value assigned to grants under the stock purchase
plan is recognized in full at the date of grant.
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes model with the following assumptions in 2001, 2000 and
1999: expected life of five years and a dividend rate of zero in 2001 and $0.44
in 2000 and 1999, respectively. The expected volatility was 45% in 2001 and
2000, and 35% in 1999. The weighted average risk-free interest rate was 4.2% in
2001, 5.3% in 2000 and 6.2% in 1999.
Non-Employee Director Deferred Compensation Agreements
Non-Employee Directors may elect to defer their fees earned as Directors.
The fees are converted to deferred compensation phantom stock units based on
100% of the fair market value of Millipore common stock
49
MILLIPORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands except per share data)
on periodic conversion dates. Upon retirement or earlier termination of service
from the Board of Directors, the phantom stock units are converted at fair
market value of Millipore common stock on the date of conversion to cash
equivalents and distributed in annual installments over ten years. The Company
records a compensation adjustment related to the change in the fair market
value of stock at the grant date as compared to the current fair market value
of the stock.
13. Employee Retirement Plans
Participation and Savings Plan
The Millipore Corporation Employees' Participation and Savings Plan
("Participation and Savings Plan"), maintained for the benefit of all U.S.
employees, combines both a defined contribution plan ("Participation Plan") and
an employee savings plan ("Savings Plan"). Contributions to the Participation
Plan are allocated among the U.S. employees of the Company who have completed
at least two years of continuous service on the basis of the compensation they
received during the year for which the contribution is made. The Savings Plan
allows employees to make certain tax-deferred voluntary contributions upon hire
date, which the Company matches after 1 year of service with a 25% contribution
(50% contribution for employees with 10 or more years of service). Total
expense under the Participation and Savings Plan was $6,979 in 2001, $6,604 in
2000 and $5,785 in 1999.
The Mykrolis employees within the Participation Plan elected between
alternative options as to how their individual balances were treated in regards
to distribution or roll over. The Savings Plan liabilities for Mykrolis
employees were transferred to Mykrolis as of the Separation Date.
Supplemental Savings and Retirement Plan for Key Salaried Employees
The Company offers a Supplemental Savings and Retirement Plan for Key
Salaried Employees (the "Supplemental Plan") to certain senior executives that
allows certain salary deferral benefits that would otherwise be lost by reason
of restrictions imposed by the Internal Revenue Code limiting the amount of
compensation which may be deferred under tax-qualified plans. Total expense
under the Supplemental Plan was $142 in 2001, $273 in 2000 and $1,028 in 1999.
Any obligations or liabilities for Mykrolis employees were assumed by Mykrolis.
Retirement Plans
The Company's Retirement Plan for Employees of Millipore Corporation
("Retirement Plan") is a defined benefit plan for all U.S. employees which
provides benefits to the extent that assets of the Participation Plan,
described above, do not provide guaranteed retirement income levels. Guaranteed
retirement income levels are determined based on years of service and salary
level as integrated with Social Security benefits. Employees are eligible under
the Retirement Plan after one year of continuous service and are vested after
five years of service. For accounting purposes, the Company uses the projected
unit credit method of actuarial valuation.
Prior to the Distribution Date, the U.S. employees of Mykrolis participated
in Retirement Plan. Subsequent to the Distribution Date, the Mykrolis employees
within the Retirement Plan will elect between alternative options as to how
their individual balances, if any, were treated in regards to distribution or
roll over.
The actuarial method for funding purposes is the entry age normal method.
The Company contributes annually to the Retirement Plan, subject to Internal
Revenue Service and ERISA funding limitations. No contributions were required
for 2001, 2000, and 1999. Plan assets are invested primarily in mutual funds
and money market funds.
50
MILLIPORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands except per share data)
In addition to the Retirement Plan, the Company sponsors several unfunded
defined benefit postretirement plans covering all U.S. employees, which are
included in Other Benefits. The plans provide medical and life insurance
benefits and are, depending on the plan, either contributory or
non-contributory.
The following tables summarize the funded status of the U.S. Employee
Retirement Plans and amounts reflected in the Company's consolidated balance
sheets at December 31, based on Statement No. 132, Employers' Disclosures about
Pensions and Other Postretirement Benefits.
Pension Benefits Other Benefits
--------------- ------------------
2001 2000 2001 2000
------- ------ -------- --------
Change in benefit obligation:
Benefit obligation at beginning of year....... $ 9,571 $8,271 $ 7,791 $ 6,691
Service (benefit) cost........................ (321) (231) 226 369
Interest cost................................. 697 706 434 522
Plan participants' contributions.............. 150 50 175 70
Actuarial loss (gain)......................... 701 1,667 (965) 539
Benefits paid................................. (759) (892) (584) (400)
------- ------ -------- --------
Benefit obligation at end of year............. $10,039 $9,571 $ 7,077 $ 7,791
======= ====== ======== ========
Change in plan assets:
Fair value of plan assets at beginning of year $ 9,114 $9,625 $ -- $ --
Actual return on plan assets.................. 588 331 -- --
Company contributions......................... 52 -- 409 330
Plan participant contribution................. 150 50 175 70
Benefits paid................................. (759) (892) (584) (400)
------- ------ -------- --------
Fair value of plan assets at end of year...... $ 9,145 $9,114 $ -- $ --
======= ====== ======== ========
Funded status................................. $ (894) $ (457) $ (7,077) $ (7,791)
Unrecognized net loss (gain).................. 4,551 4,003 (3,220) (2,453)
Unrecognized prior service cost............... 41 67 -- --
Unrecognized net transition obligation........ (71) (151) -- --
------- ------ -------- --------
Prepaid (accrued) benefit cost................ $ 3,627 $3,462 $(10,297) $(10,244)
======= ====== ======== ========
Pension Benefits Other Benefits
--------------- ---------------
2001 2000 1999 2001 2000 1999
---- ---- ---- ---- ---- ----
Weighted average assumptions as of December 31:
Discount rate.................................. 7.25% 7.50% 8.0% 7.25% 7.50% 8.0%
Expected return on plan assets................. 8.0% 8.0% 8.0% N/A% N/A% N/A%
Rate of compensation increase.................. 5.0% 5.0% 5.0% N/A% N/A% N/A%
For measurement purposes, a 10% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 2001. The rate was assumed
to remain at this level.
51
MILLIPORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands except per share data)
Pension Benefits Other Benefits
------------------- -------------------
2001 2000 1999 2001 2000 1999
----- ----- ----- ----- ----- -----
Components of net periodic benefit cost:
Service (benefit) cost................. $(321) $(231) $ 62 $ 226 $ 369 $ 353
Interest cost.......................... 697 706 597 434 522 392
Expected return on plan asstes......... (699) (738) (714) -- -- --
Amortization of unrecognized gain...... (80) (80) (80) (197) (104) (113)
Amortization of prior service cost..... 9 11 11 -- -- ---
Recognized actuarial loss.............. 265 179 222 -- -- --
----- ----- ----- ----- ----- -----
Net periodic benefit cost.............. $(129) $(153) $ 98 $ 463 $ 787 $ 632
===== ===== ===== ===== ===== =====
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A one-percentage-point change in
the assumed health care cost trend rates would have the following effects.
1% 1%
Point Point
Increase Decrease
-------- --------
Effect on total of services and interest cost components $106 $ (89)
Effect on postretirement benefit obligations............ 862 (772)
14. Gain on Sale of Equity Securities
During the second quarter of 2000, the Company sold its holdings in Oxford
GlycoSciences Plc, resulting in a gain on sale of securities of $7,500.
The $9,500 of proceeds on sale of securities in 1999 reflects the sale by
the Company of 100 shares of Series A Preferred Stock of Waters Corporation,
which the Company received in connection with the divestiture of its Waters
Chromatography Division in 1994.
15. Business Segment Information
In conjunction with its reporting of the Microelectronics business segment
as discontinued operations in the second quarter, the Company evaluated its
continuing business activities. 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.
BioPharmacuetical develops, manufactures and sells consumable products and
capital equipment and related services used in drug development and
manufacturing. Laboratory Water and Life Sciences manufactures and sells
consumable products used in drug discovery and development. Laboratory Water
also provides services to its respective customers. 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. The accounting policies of the
reportable segment are the same as those described in the Summary of
Significant Accounting Policies.
52
MILLIPORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands except per share data)
Please refer to the consolidated financial statements for financial
information regarding the one reportable segment of the Company.
The following net sales table is presented in "local currencies". For
comparability of financial results, the foreign currency balances, in all
periods presented, are translated at Millipore's 2001 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 translations. The foreign exchange impact is shown
separately and reconciles the local currency reporting to the consolidated
results at the actual rates of exchange.
The Company sells products and services detailed as follows:
Net Sales
----------------------------
2001 2000 1999
-------- -------- --------
Consumable products $547,961 $481,026 $433,013
Equipment.......... 142,006 132,415 124,966
Services........... 20,649 16,271 12,784
Foreign exchange... (53,718) (29,551) (4,468)
-------- -------- --------
Total.............. $656,898 $600,161 $566,295
======== ======== ========
Geographical Information:
The Company attributes net sales to different geographic areas on the basis
of the location of the customer. The Company has three geographic regions. The
United States represents greater than 90% of the Americas region. Net sales and
long-lived asset information by geographic area in U.S. dollars for each of the
three years ended December 31, 2001, 2000 and 1999 and as of December 31, 2001
and 2000 is presented as follows:
Net Sales
--------------------------
2001 2000 1999
-------- -------- --------
Americas.... $301,613 $272,790 $241,623
Europe...... 222,371 199,306 209,929
Asia/Pacific 132,914 128,065 114,743
-------- -------- --------
Total....... $656,898 $600,161 $566,295
======== ======== ========
Long-Lived Assets
-----------------
2001 2000
-------- --------
Americas.... $178,143 $151,153
Europe...... 57,014 45,104
Asia/Pacific 6,838 5,994
-------- --------
Total....... $241,995 $202,251
======== ========
53
MILLIPORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands except per share data)
16. Transactions with Mykrolis
Separation Agreements
For purposes of governing certain of the ongoing relationships between the
Company and Mykrolis after the Separation Date and to provide for an orderly
transition, the Company and Mykrolis entered into various agreements at the
Separation Date. A brief description of the agreements follows.
Master Separation and Distribution Agreement
The Master Separation and Distribution Agreement contains the key provisions
relating to the separation of Mykrolis from Millipore as of the Separation Date
(the "Separation"), Mykrolis' initial funding, the Mykrolis IPO and the
distribution of Mykrolis shares to Millipore shareholders. The agreement lists
the documents and items that the parties delivered in order to accomplish the
transfer of assets and liabilities from the Company to Mykrolis, effective on
the Separation Date. The parties also entered into ongoing covenants that
survive the transactions, including covenants to establish interim service
level agreements, exchange information, notify each other of changes in their
accounting principles and resolve disputes in particular ways.
General Assignment and Assumption Agreement
The General Assignment and Assumption Agreement identifies the assets that
the Company transferred to Mykrolis and the liabilities that Mykrolis assumed
from the Company in the Separation.
Separation Revolving Credit Agreement and Separation Note
The Separation Revolving Credit Agreement (the "Separation Credit
Agreement") provided for the Company to lend Mykrolis funds between the
Separation Date and the date of the Mykrolis IPO in order to fund Mykrolis'
working capital needs and to settle any amounts payable by Mykrolis related to
the retention by the Company of specified assets and liabilities of Mykrolis
and the retention by Mykrolis of specified Millipore assets and liabilities
that could not be transferred at the Separation due to restrictions imposed by
foreign laws or because such transfer was not practical. The Separation Note
provided for a payment by Mykrolis to the Company of all net proceeds from the
Mykrolis IPO in excess of $75,000. There was no interest expense associated
with the Separation Note or the Separation Credit Agreement.
Master Transitional Services Agreement
The Master Transitional Services Agreement governs the terms and conditions
upon which interim transitional services will be provided to both the Company
and Mykrolis. The nature of the services include facilities, engineering,
information technology, equipment usage, financial accounting, distribution and
warehousing and human resources administration. The Company and Mykrolis will
also provide each other additional services as the Company and Mykrolis may
identify from time to time after the Separation. Specific charges for such
services are generally intended to allow the company providing the service to
recover direct costs plus expenses, without profit.
Membrane Manufacture and Supply Agreement
The Membrane Manufacture and Supply Agreement enables Mykrolis to
manufacture certain membranes in the same production areas and with the same
processes as were available to the Company's Microelectronics
54
MILLIPORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands except per share data)
business prior to the Separation Date for both its own use and sale. Under the
agreement, the Company leases this space and manufacturing equipment to
Mykrolis for five years. This agreement also provides for the supply of certain
membranes manufactured by either Mykrolis or the Company to the other party at
costs appropriate to that of a third party contract manufacturer.
Product Distribution Agreement
The Product Distribution Agreement allows each of Mykrolis and Millipore to
purchase from the other company for distribution those products that have
historically been sold within the purchasing company's defined field of use.
The prices at which each company can purchase such products from the other
represent discounts off the companies' published list prices.
Research Agreement
The Research Agreement defines specific research projects that the Company
will perform for Mykrolis on a contract basis and the process for conducting
such research.
Employee Matters Agreement
The Employee Matters Agreement outlines how the Company and Mykrolis
allocate responsibility for and liability related to the employment of those
employees of the Company who became Mykrolis' employees. The agreement also
contains provisions describing the Mykrolis' benefit and equity plans.
Contract Manufacturing Agreements
The Company's Contract Manufacturing Agreement provides for the Company to
manufacture certain products for resale by Mykrolis at prices subject to annual
increases equal to actual increases in the Company's cost to manufacture these
products. There are no minimum or maximum purchase requirements, subject to
binding three-month forecasts that may increase or decrease by 25% without
penalty. Mykrolis may not resell these products into the Company's
biopharmaceutical business. This agreement has a term of five years, unless
terminated by Mykrolis on sixty days prior written notice. Mykrolis has also
agreed to manufacture parts for the Company for use in the Company's products
on substantially similar terms pursuant to the Mykrolis Contract Manufacturing
Agreement.
Tax Sharing Agreement
Mykrolis and the Company entered into a Tax Sharing Agreement, which governs
the Company's and Mykrolis' respective rights, responsibilities and obligations
to one another regarding taxes both before and after the Distribution Date. The
Tax Sharing Agreement addresses the allocation of liabilities for taxes that
may result from the restructuring activities undertaken to implement the
Separation. The Tax Sharing Agreement also allocates tax liabilities between
the Company and Mykrolis if the distribution of Mykrolis shares to Millipore
shareholders on the Distribution Date fails to qualify as a tax-free
distribution under Section 355 of the Internal Revenue Code. If one party or
the other is responsible for the failure of the transaction to qualify as a tax
free distribution, the tax liability falls on the party responsible for the
failure to qualify. If neither party is responsible for the failure of the
transaction to qualify for tax free treatment, the Tax Sharing Agreement
apportions tax liability between the parties. For periods prior to April 1,
2001, the Company is responsible for all tax matters and issues related to its
United States group tax returns including any matters or issues relating to
Mykrolis. With
55
MILLIPORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands except per share data)
regard to certain foreign tax returns and subsidiaries, Mykrolis is responsible
for all tax matters both before and after the Distribution Date. The Tax
Sharing Agreement also governs carryback and carryforward rights Mykrolis might
have for the use of its tax attributes in various tax jurisdictions.
Intellectual Property Agreements
Under the intellectual property agreements, the Company transferred to the
Mykrolis its rights in specified patents, specified trademarks and other
intellectual property related to Mykrolis' current business and research and
development efforts. The Company and Mykrolis will each license to the other
under selected patents and other intellectual property the right to use those
patents and other intellectual property in their respective businesses, subject
to field of use restrictions. The Company and Mykrolis will each have an
option, exercisable within the first five years of the agreements, to be
licensed under specified patents of the other issued on patent applications
with effective filing dates before the Separation Date, subject to field of use
restrictions and the payment of a royalty. Mykrolis was also assigned know-how
that is used in the manufacture of its products as of the Separation Date. The
agreements include certain rights to sublicense for both parties. Mykrolis is
licensed to use the Company's trademark for up to three years with certain
field of use limitations.
Income and expenses
For the nine months from the Separation on March 31, 2001 through December
31, 2001, net sales and services provided under the separation agreements by
the Company to Mykrolis are as follows:
Net sales.......................... $1,898
Cost of sales...................... 1,105
Selling, general and administrative 4,250
Research and development........... 1,083
56
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Directors of Millipore Corporation:
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Millipore Corporation and its subsidiaries at December 31, 2001 and
2000, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2001 in conformity with accounting
principles generally accepted in the United States of America. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
/S/ PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
January 22, 2002, except for Note 10 for which the date is February 13, 2002
and Notes 2 and 12 for which the date is February 27, 2002
57
MILLIPORE CORPORATION
Quarterly Results (Unaudited)
The Company's unaudited quarterly results are summarized below.
First Second Third Fourth Full
Quarter Quarter Quarter Quarter Year
-------- -------- -------- -------- --------
(In thousands, except per share data)
2001
Net sales.............................................. $162,517 $167,953 $157,667 $168,761 $656,898
Cost of sales.......................................... 73,953 72,061 70,579 74,626 291,219
-------- -------- -------- -------- --------
Gross profit........................................ 88,564 95,892 87,088 94,135 365,679
Selling, general and administrative expenses........... 47,822 52,707 49,659 50,569 200,757
Research and development expenses...................... 10,729 11,208 11,458 12,421 45,816
Restructuring and other items.......................... 17,962 -- -- -- 17,962
-------- -------- -------- -------- --------
Operating income.................................... 12,051 31,977 25,971 31,145 101,144
Interest income........................................ 718 863 577 433 2,591
Interest expense....................................... (6,627) (6,638) (6,081) (5,990) (25,336)
-------- -------- -------- -------- --------
Income before income taxes............................. 6,142 26,202 20,467 25,588 78,399
(Benefit) provision for income taxes................... (983) 5,764 4,503 5,629 14,913
-------- -------- -------- -------- --------
Income from continuing operations................... 7,125 20,438 15,964 19,959 63,486
-------- -------- -------- -------- --------
(Loss) from discontinued operations, net of taxes...... (1,954) (4,782) -- -- (6,736)
Net loss on disposal of discontinued operations, net of
taxes................................................ -- (24,400) -- -- (24,400)
-------- -------- -------- -------- --------
Total discontinued operations....................... (1,954) (29,182) -- -- (31,136)
-------- -------- -------- -------- --------
Extraordinary loss from early extinguishment of debt,
net of taxes......................................... -- -- -- (1,233) (1,233)
-------- -------- -------- -------- --------
Net income (loss)...................................... $ 5,171 $ (8,744) $ 15,964 $ 18,726 $ 31,117
======== ======== ======== ======== ========
Basic income (loss) per share:
Continuing operations................................. $ 0.15 $ 0.44 $ 0.34 $ 0.42 $ 1.35
Discontinued operations............................... (0.04) (0.62) -- -- (0.66)
Extraordinary item.................................... -- -- -- (0.03) (0.03)
-------- -------- -------- -------- --------
Net income............................................ $ 0.11 $ (0.18) $ 0.34 $ 0.39 $ 0.66
======== ======== ======== ======== ========
Diluted income (loss) per share:
Continuing operations................................. $ 0.15 $ 0.43 $ 0.33 $ 0.41 $ 1.32
Discontinued operations............................... (0.04) (0.61) -- -- (0.65)
Extraordinary item.................................... -- -- -- (0.02) (0.02)
-------- -------- -------- -------- --------
Net income............................................ $ 0.11 $ (0.18) $ 0.33 $ 0.39 $ 0.65
======== ======== ======== ======== ========
Weighted average shares outstanding
Basic................................................. 46,414 46,928 47,377 47,660 47,100
Diluted............................................... 47,414 47,881 48,364 48,487 48,060
58
MILLIPORE CORPORATION
Quarterly Results (Unaudited) (continued)
First Second Third Fourth Full
Quarter Quarter Quarter Quarter Year
-------- -------- -------- -------- --------
(In thousands, except per share data)
2000
Net sales........................................ $147,658 $153,360 $148,267 $150,876 $600,161
Cost of sales.................................... 62,569 68,721 66,828 68,109 266,227
-------- -------- -------- -------- --------
Gross profit.................................. 85,089 84,639 81,439 82,767 333,934
Selling, general and administrative expenses..... 50,394 48,539 45,778 45,845 190,556
Research and development expenses................ 9,958 10,108 10,309 10,205 40,580
Restructuring and other items.................... -- -- 320 -- 320
-------- -------- -------- -------- --------
Operating income.............................. 24,737 25,992 25,032 26,717 102,478
Net gain on sale of equity securities............ -- 7,151 -- -- 7,151
Interest income.................................. 466 1,067 1,006 947 3,486
Interest expense................................. (7,034) (7,259) (6,436) (6,193) (26,922)
-------- -------- -------- -------- --------
Income before income taxes....................... 18,169 26,951 19,602 21,471 86,193
Provision for income taxes....................... 3,815 7,256 4,313 4,724 20,108
-------- -------- -------- -------- --------
Income from continuing operations................ 14,354 19,695 15,289 16,747 66,085
Income from discontinued operations, net of taxes 11,859 12,195 13,437 15,618 53,109
-------- -------- -------- -------- --------
Net income....................................... $ 26,213 $ 31,890 $ 28,726 $ 32,365 $119,194
======== ======== ======== ======== ========
Basic income per share:
Continuing operations........................... $ 0.32 $ 0.43 $ 0.33 $ 0.36 $ 1.44
Discontinued operations......................... 0.26 0.27 0.29 0.34 1.16
-------- -------- -------- -------- --------
Net income...................................... $ 0.58 $ 0.70 $ 0.62 $ 0.70 $ 2.60
======== ======== ======== ======== ========
Diluted income per share:
Continuing operations........................... $ 0.31 $ 0.41 $ 0.32 $ 0.36 $ 1.40
Discontinued operations......................... 0.25 0.26 0.29 0.33 1.13
-------- -------- -------- -------- --------
Net income...................................... $ 0.56 $ 0.67 $ 0.61 $ 0.69 $ 2.53
======== ======== ======== ======== ========
Weighted average shares outstanding
Basic........................................... 45,273 45,849 46,073 46,123 45,803
Diluted......................................... 46,452 47,314 47,328 47,057 47,039
59