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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the transition period from             to            

Commission File Number 001-09781 (0-1052)

MILLIPORE CORPORATION

(Exact name of registrant as specified in its charter)

(978) 715-4321

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

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.  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule  12b-2).    Yes  x      No  ¨

As of June 28, 2002, the aggregate market value of the registrant’s voting stock held by non-affiliates of the registrant was approximately $985,700,000 based on the closing price on that date on the New York Stock Exchange.

As of February 26, 2003, 48,443,595 shares of the registrant’s Common Stock were outstanding.

Documents Incorporated by Reference

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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 biotechnology, pharmaceutical and life science research industries. Millipore’s products are based on a variety of enabling technologies, including the Company’s membrane filtration and chromatography technologies. For the biotechnology and pharmaceutical industries, Millipore offers products for development, scale-up, production and quality assurance of therapeutics, as well as validation services. In life science research, Millipore offers products for drug discovery, proteomics, genomics, and general laboratory applications.

In 2002, Millipore completed the spin-off of its former Microelectronics business, Mykrolis Corporation (“Mykrolis”). 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. In 2001, 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, of which some agreements remain in effect.

Information About Operating Segments

The Company’s chief decision makers have determined that the Company has three operating segments: BioPharmaceutical, Laboratory Water and Life Sciences, which are aggregated into one reportable business segment: Bioscience. The Bioscience segment includes consumable products, hardware 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 primarily in the discovery, development and manufacture of therapeutic compounds. During 2002, approximately 55% of net sales in the Company’s 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 the Financial Statements, which are hereby incorporated by reference.

Products, Technologies and Applications

Millipore sells over 5,000 products, not including spare parts, which are listed in its catalogs and are sold as standard items, systems or devices. Millipore manufactures the majority of the products that it sells.

The Company divides its product offerings into three categories: Consumables, Hardware and Services. Consumables is the largest category with approximately 77% of sales in 2002. Products in this category range from handheld laboratory sample prep and screening devices and kits in various low and high throughput formats to specialty membranes to large process scale cartridges manufactured in various flat or cylindrical formats used to filter thousands of liters of fluid. Also included in the category of Consumables is media used for chromatographic separations. Hardware sales represented approximately 20% of 2002 consolidated sales. Products in this category range from small benchtop filtration systems and cartridge integrity testers to large stainless steel process scale filtration and chromatography systems and columns costing up to several million dollars. Consumables typically have higher profit margins than Hardware. The Services category represents approximately 3% of sales in 2002. Included in this category are field services for the maintenance of laboratory water systems and validation services offered to biopharmaceutical customers.

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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 and purification needs. Chromatography media is used to purify or separate 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 emerging field of proteomics. During 2001 and 2002, Millipore launched a series of kits based on these technologies that are intended for a variety of genomics and proteomics applications.

In the past several years, Millipore has developed and acquired rights to certain products and technologies designed to simplify and to reduce the time and expense of certain steps in the downstream and final fill processes of pharmaceutical manufacturing by replacing stainless steel hardware with disposable plastic products. These “disposable manufacturing” products include products for the sterile transfer of components into pharmaceutical filling environments and disposable filling systems for sterile fill and finish operations.

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 or sterilize 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. The Company’s newer disposable manufacturing products are expected to be used in a variety of applications in downstream and final fill processes of pharmaceutical manufacturing.

Customers and Markets

The Company sells its products into three markets: Biotechnology, Life Science Research and Other Bioscience. A variety of the Company’s products are used in the Biotechnology market in the development and production of therapeutic products based on recombinant proteins, including monoclonal antibodies, enzymes, coagulation factors, vaccines, cytokines, hormone growth factors, plasma products and transgenic and gene therapy products. Millipore’s membrane and chromatography products play an important role in the development of new biotech drugs by offering a continuum of products capable of being scaled-up to match customer needs at different stages during the development process through full scale drug production. The Company’s new disposable manufacturing products will also enable its biopharmaceutical customers to simplify and to reduce the time and expenses of certain steps in their downstream and final fill processes of biotech drugs.

The Life Science Research market consists of research activities in drug discovery, proteomics and genomics. Life science research companies, pharmaceutical companies, private and public research and testing laboratories and regulatory agencies use a number of the Company’s products in a variety of life science research applications, including gene sequencing, functional genomics, SNP Analysis, genotyping, expression analysis, affinity purification, biomarkers, functional and structural analysis, combinatorial chemistry, assay development and ADME screening. The Company’s products used in these life science research applications include sample preparation devices and kits and drug screening and water purification products.

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The Company’s products are used in Other Bioscience markets by a wide spectrum of customers primarily in bioscience applications. Pharmaceutical, diagnostics and ophthalmics manufacturers use Millipore products in clarification, concentration, purification, sterilization and sterility testing of their products. Hospitals and analytical laboratories use Millipore’s laboratory scale filtration devices in sample preparation, sterile particulate removal and concentration of samples. The 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.

Although no single customer accounts for 10% or greater of the Company’s sales, some of the Company’s individual customers do purchase significant quantities of the Company’s products.

Sales and Marketing

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, 2002, the Company’s marketing, sales and service forces consisted of approximately 1,600 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 needs. 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 ultrafiltration membranes for the removal of viruses from protein solution in 1991, ultra-high molecular weight polyethylene membrane in 1993, and non-dewetting PTFE membrane in 1997).

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 and, more recently, on disposable manufacturing initiatives. 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

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media embedded in membrane structures which was introduced for the proteomics market. Millipore has progressed substantially in recent years 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 computer process 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 7.4% in 2002 from 7.0% in 2001 and 6.8% in 2000.

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 companies and academic or research institutions, when it believes it is in its long term interests to do so.

Patents, Trademarks and Licenses

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, Sartorius AG, 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 2002, 2001 and 2000 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.

Raw Materials

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

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materials. Several of these critical raw materials are used in a significant portion of the Company’s products and if the Company were unable to obtain supply of any one of them, the loss of revenues to the Company would be material.

Other Information

As of December 31, 2002, Millipore employed approximately 4,310 people worldwide, of whom approximately 1,970 were employed in the United States and approximately 2,340 were employed overseas.

The Company’s Internet website address is www.millipore.com. Millipore’s annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, and all amendments thereto, are available free of charge on the Company’s website as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the Securities and Exchange Commission.

Executive Officers of Millipore

The following is a list, as of March 1, 2003, of the Executive Officers of Millipore. All of such Executive Officers were elected to serve until the first Directors Meeting following the Company’s 2003 Annual Stockholders Meeting.

Mr. Lunger was elected President of Millipore in April 2001 and Chief Executive Officer in August 2001 and Chairman of the Board in April 2002. Before being elected President, Mr. Lunger was Executive Vice President and Chief Operating Officer of Millipore (2000-2001) and 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).

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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. 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 appointed President of the Company’s Life Sciences Division in December 2002 and remains a Vice President of Millipore to which he was elected (as Vice President of Strategic Planning and Business Development) in September 2000. Prior to joining Millipore, Mr. Sanborn was a Manager (1997-2000) and Consultant (1994-1997) at Bain & Company, a global consulting firm. Mr. Sanborn also served as a Financial Analyst at Goldman Sachs & Co. (1989-1992).

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).

Mr. Wagner joined Millipore in December 2002 as Director of Strategic Planning and Business Development and was elected Vice President of the Company effective March 2003. Prior to joining Millipore, Mr. Wagner served as a Manager (2001-2002) and Consultant (1998-2001) at Bain & Company. From 1996 to 1998, Mr. Wagner attended Harvard University Graduate School of Business Administration, where he received his MBA. Prior to that, Mr. Wagner served as a Manager of Corporate Accounting Analysis at Millipore (1995-1996), and practiced public accounting from 1990 to 1995 with Coopers & Lybrand LLP.

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Item 2.    Properties.

Millipore operates 12 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 purposes and the approximate floor space and land area of each.

Millipore owns a total of approximately 1.2 million square feet of usable space in facilities worldwide (including the facilities listed above), which is used for office, research and development, manufacturing and warehouse purposes. All of the Company’s owned facilities are owned in fee and are not subject to any material encumbrances, except for a finance lease on a portion of the Molsheim, France property.

In addition to its owned properties, Millipore currently leases facilities throughout the world for manufacturing, sales, research, warehouse, and administrative uses. In December 2002, Millipore moved its corporate headquarters from its owned facility in Bedford, Massachusetts to a leased facility in Billerica, Massachusetts, approximately 4 miles from the former headquarters. The aggregate area of Millipore’s leased space worldwide is approximately 700,000 square feet and the cost of such leased space was approximately $8.1 million in 2002. The following leased facilities are the most significant:

The Company’s owned facilities in Bedford, Massachusetts, in Cidra, Puerto Rico, in Cork, Ireland, and in Molsheim, France currently operate at approximately 65%, 65%, 85% and 80% of capacity, respectively. All of the other above listed owned and leased major facilities are at least 90% 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.

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.

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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. The parties settled this matter on December 30, 2002. Under the settlement, Millipore paid APB an agreed amount in respect of damages for the infringement by the discontinued product and took a license from APB under related patents.

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, (i) the high and low sales prices of Millipore’s Common Stock (as reported on the New York Stock Exchange Composite Tape) restated to reflect the stock distribution of its interest in Mykrolis Corporation (“Mykrolis”) as described below and (ii) the cash dividends declared (on a per share basis). On March 7, 2003, there were approximately 2,578 shareholders of record.

The Company did not declare any cash dividends during 2002 nor does the Company intend to make future dividend declarations or payments as the Company will instead focus on investing in R&D and building productive capacity.

The Company’s stock price history as set forth above is restated for all periods prior to February 28, 2002 to reflect the impact on its stock price of the distribution of the Company’s ownership of Mykrolis common stock to the Company’s stockholders on February 27, 2002. The price per share of the Company’s common stock decreased $6.60 from the market close of $57.02 on February 27, 2002 to $50.42 at the opening trade on February 28, 2002.

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. The Company’s results from discontinued operations reflect the financial results of Mykrolis through February 27, 2002, the date on which the Company distributed its ownership of Mykrolis common stock to the Company’s shareholders.

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Millipore Corporation—Five-year Summary of Operations

Note:  Certain reclassifications have been made to previously reported financial data to conform with the 2002 presentation.

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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. Unless otherwise indicated, all items refer to continuing operations only.

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 Company’s most critical accounting policies had a significant impact on the preparation of these financial statements. These policies include estimates and significant judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. The Company evaluates its estimates and judgments on an on-going basis. By their nature, these estimates and judgments are subject to an inherent degree of uncertainty. 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 and estimates require it to make the most difficult and subjective judgments in the preparation of its consolidated financial statements.

Revenue Recognition.    Revenue from the sale of products is recognized when evidence of an arrangement is in place, related prices are fixed or determinable, 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. When significant obligations remain after products are delivered, such as site assessment acceptance, revenue and related costs are deferred until such obligations are fulfilled. Revenue from service arrangements is recognized when the services are provided.

Revenue for certain fixed price contracts associated with the Company’s process equipment business are recognized under the percentage of completion method (“POC”). Historically, less than 2% of the Company’s revenues have been derived from POC sales. Revenue is recognized based on the ratio of hours expended compared with 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. Actual results related to POC estimates have been materially the same as the assumptions used at the beginning of each contract. In addition, should a POC contract be cancelled while in progress, the Company would offset the lost revenue and incurred expense with progress payments previously received during the design and construction period. Typically such progress payments can range between 20% and 60% of the total contract sales value. The Company has experienced few cancellations. During the last three years, cancellations related to POC were less than $1 million in sales.

Allowance for Doubtful Accounts.    Millipore regularly evaluates its ability to collect outstanding receivables. Allowances for doubtful accounts are provided when collection becomes unlikely. In performing this evaluation, significant estimates are involved, including an analysis of risks on a customer-by-customer basis. Based upon this information, management reserves an amount representing those receivables believed to be uncollectible. At December 31, 2002, the allowance for doubtful accounts represented approximately 2% of gross receivables. During the past three years, the Company has provided between $1 - 2 million per year for allowances for doubtful accounts, which approximates bad debts during those years. If the financial condition of the Company’s customers were to deteriorate, resulting in their inability to make payments, additional allowances may be required.

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Inventory Valuation Analysis.    The Company’s product life cycle is generally a minimum of 5 years and may be in excess of 20 years. The Company considers recent historic usage and future demand in estimating its realizable value of its inventory. Finished goods and components that are obsolete are written-off at the point of obsolescence. In certain cases, for newly introduced products and overstocked products, future demand is considered in establishing inventory write downs. Raw material and work-in-process inventories are also reviewed for obsolescence and alternative or future use by reviewing manufacturing plans, future demand and market conditions. Inventory at December 31, 2002 reflects cumulative net realizable value write-downs of $14.1 million. Should it be determined that write downs are insufficient, then the Company would be required to record additional inventory write downs, which would have a negative impact on gross margin.

Valuation of Long-lived Assets.    Long-lived assets are comprised of property, plant and equipment, intangible assets and goodwill. The Company periodically reviews its long-lived assets to determine if impairment has taken place. The review of goodwill is performed annually at a minimum. In addition, all long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable and accordingly, the net book value of the asset may be reduced. Significant judgments are required to estimate the future cash flows, appropriate discount rates and other assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value for each asset group.

The Company had various capital programs in progress at December 31, 2002 which it anticipates substantially completing during 2003. During 2002, the Company invested $8 million of a planned $30 million project to expand manufacturing capacity adjacent to its existing manufacturing facility in Ireland. The Company has delayed completion of this facility as existing manufacturing capacity can meet the expected demand of its core consumable product through 2006. The Company does not expect to complete the construction of this facility prior to 2006. This facility is currently a multipurpose building shell that is expected to increase manufacturing capacity for its core consumable product. If necessary, this facility could be used for the manufacturing of alternative products.

In connection with the acquisition of CPG, Inc. (“CPG”) in August 2002, the Company recorded $9.6 million of goodwill. The impairment review of this goodwill was based on a discounted cash flow approach that uses the Company’s estimates of revenues and costs from its BioPharmaceutical operating segment, as well as appropriate discount rates. If the fair value of the Company’s BioPharmaceutical operating segment was substantially reduced, then the Company may incur charges for impairment of this goodwill.

Income Tax Provision.    The Company recognizes income taxes when transactions are recorded in its statement of operations, with deferred taxes provided for items that are recognized in different periods for financial reporting and tax return purposes. The Company records a valuation allowance to reduce the deferred tax assets to the amount that is more likely than not to be realized. In addition, the Company estimates its exposures relating to uncertain tax positions and establishes reserves for such exposures when they become probable and reasonably estimable.

The Company’s valuation allowance is primarily attributable to foreign tax credit carryforwards which can be utilized against future taxable income in the United States, to reduce its deferred tax assets to the amount of future tax benefit that is more likely than not to be realized. At December 31, 2002, the Company had net operating loss carryforwards of approximately $34 million which must be utilized prior to utilization of foreign tax credit carryforwards of approximately $43 million that expire in the years 2003 through 2007. Of the $43 million of foreign tax credit carryforwards, $21 million is reserved as a valuation allowance. While the Company has considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, the valuation allowance may need to be increased if the Company is unable to generate sufficient taxable income within the statutory limitations to utilize its net operating loss and foreign tax

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credit carryforwards. Any increase in the valuation allowance could have a material adverse impact on the Company’s income tax provision and net income in the period in which such determination is made.

The Company provides for U.S. income taxes on the earnings of foreign subsidiaries unless they are considered indefinitely invested outside the U.S. At December 31, 2002, the cumulative earnings upon which U. S. income taxes have not been provided are approximately $272 million. If these earnings were repatriated to the U. S., they would generate an additional tax provision to reflect the U.S. tax rate impact. Foreign tax credits would also be generated that would partially reduce the U.S. tax liability associated with the foreign dividend. The Company estimates an additional $75 million tax provision would be required to reflect the U.S. tax on such repatriation.

Employee Retirement Plans.    The Company sponsors retirement plans covering substantially all U.S. employees who meet eligibility requirements. Several estimates are used in calculating the expense and liability related to the plans. These estimates include the discount rate, expected return on plan assets and rate of future compensation increases as determined by the Company. In addition, the Company’s actuarial consultants also use other estimates, such as withdrawal and mortality rates, to estimate pension expense. The estimates used by the Company may differ materially from actual results due to changing market and economic conditions, higher or lower withdrawal rates or longer or shorter life spans of the participants. These differences may have a significant effect on the amount of pension expense recorded by the Company. During 2002, the Company used a discount rate of 6.5%, an expected return on plan assets of 8.0% and rate of future compensation increases of 4.0% related to its U.S. retirement plan and a 7.25% discount rate related to its post-retirement medical and life insurance plans. The most sensitive estimate used in calculating the expense and liability related to the Company’s U.S. retirement is the discount rate. If the discount rate were to change by 25 basis points (0.25%), the retirement plan liability would be impacted by $0.2 million.

Intent to Refinance Short-term Debt as Long-term Debt.    The Company’s credit agreement allows for revolving loan borrowings of up to $250 million. Borrowings against the Company’s credit agreement of $159 million were outstanding at December 31, 2002, and have been classified as long-term, because of the Company’s ability and intent to continuously refinance such borrowings. If the Company’s intent to refinance changes, a significant amount of debt could be characterized as short-term debt in future financial statements.

Results of Operations

Reported Earnings and Summary of Pro forma Items

The Company reported diluted earnings per share, including discontinued operations, of $1.73, $0.65 and $2.53 for 2002, 2001 and 2000, respectively. The Company reported diluted earnings per share from continuing operations of $1.67, $1.32 and $1.40 for 2002, 2001 and 2000, respectively. The items listed below reflect the pro forma items affecting diluted earnings per share from continuing operations. This pro forma presentation is not in accordance with generally accepted accounting principles (“GAAP”), but reflects the manner in which the Company’s management evaluates its financial performance and therefore provides the reader with a better understanding of the business and future outlook. Excluding pro forma items, the Company would have reported diluted earnings per share from continuing operations of $1.72, $1.56 and $1.32 for 2002, 2001 and 2000, respectively.

Refer to the discussions in Restructuring and Other Charges and (Loss) Gain on Investments for additional information related to these items.

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Summary of Pro forma Items

Basis of Presentation

The following discussion of the Results of Operations includes reference to “local currencies”. Local currency results represent the foreign currency balances translated, in all periods presented, at Millipore’s predetermined budgeted exchange rates for 2002, thus excluding the impact of fluctuations in the actual foreign currency rates. The Company’s management uses this presentation for internal evaluation of the financial performance of the Company because it believes that the local currency results provide a clearer presentation of underlying business trends. The U.S. dollar results represent the foreign currency balances translated at actual exchange rates.

Net Sales

The following discussion of net sales summarizes sales growth by the geographies in which the Company’s products were sold, the markets in which the Company’s products were used and by major product types.

Net Sales by Geography

Sales growth by geography, measured in U.S. dollars and local currencies, is summarized in the table below.

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Net sales, measured in U.S. dollars, increased 7% in 2002 compared with 9% growth in 2001. Local currency sales growth was 6% in 2002 and 13% in 2001. The impact of translating sales denominated in currencies other than the U.S. dollar, primarily the European currencies, improved the reported sales growth rate by approximately 100 basis points in 2002 and reduced the reported sales growth rate by approximately 400 basis points in 2001. Since the Company has a higher percentage of sales in Europe than Asia, weakening or strengthening of the dollar against the European currencies will have a larger impact on sales. In 2002, the U.S. dollar weakened against the Euro on average by approximately 6% but strengthened against the Yen by approximately 3%. During 2001, as compared with 2000, the U.S. dollar strengthened against the Yen by approximately 12% and strengthened against the Euro by approximately 4%. In general, a weaker U.S. dollar will positively impact sales growth.

By geography, local currency sales in the Americas grew 4% in 2002 as compared with 2001 and 11% in 2001 versus 2000. The 2002 growth of 4% reflected a combination of 5% growth in North America, which comprises over 90% of the total Americas, partially offset by a 1% decline in sales in Latin America. In comparison, local currency sales in the Americas grew 11% in 2001 versus 2000 which included North American sales growth of 12% and Latin American sales growth of 6%. Sales growth of 11% in North America for 2001 was the result of strong sales in the U.S. biotech market reflecting sales of hardware and consumables to three customers that were completing and validating new manufacturing facilities. The lower sales growth of 4% in 2002 as compared with 2001 was a result of the aforementioned sales in 2001 combined with reduced sales of instrumentation and consumables to life science laboratories in 2002. The Latin America sales decline in 2002 was predominantly due to the uncertain political environment and weak economies, which negatively impacted demand for products.

Local currency sales growth in Europe was 11% in 2002 compared with 2001 and 14% in 2001 compared with 2000. The strong European sales growth in both 2002 and 2001 was reflective of an expanding biotechnology business with both U.S. multinational customers and European customers as well as increased sales of instrumentation and consumables to life science laboratories.

Local currency sales in the Asia/Pacific region declined 1% in 2002 compared with 2001, as compared with a 16% sales growth in 2001 compared with 2000. The decline in the Asia/Pacific region began in the second quarter of 2002. This decline was due to the Japanese market which has been hampered in 2002 by continued deflationary economic conditions, delayed capital equipment expansions, cost cutting efforts and consolidations within the Company’s customer base and reduced sales to beverage customers. The process improvements made by some Japanese beverage customers enable a delay in consumable change outs.

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Net Sales by Market

The Company sells its products into three markets: biotechnology, life science research and other bioscience. The biotechnology market consists of the development and manufacturing of biotherapeutics. The life science research market consists of research activities in drug discovery, proteomics and genomics within private and publicly funded organizations. The other bioscience market principally includes the development and manufacture of classical pharmaceuticals, clinical and analytical laboratory activities, and processing and quality control of beverage production. Sales growth by market, in local currency, is summarized in the table below.

By market, local currency sales growth in 2002 was strongest for products used in the biotechnology market with 13% growth for 2002 as compared with 2001. Sales of products used in the life science research market grew 5% in local currency during 2002 as compared with 2001. The combination of sales to these two markets comprised about 48% of sales in 2002, an increase from approximately 46% in 2001. Product sales in the other bioscience markets grew 2% in local currency during 2002 as compared with 2001.

The 2002 growth of 13% in the biotechnology market reflects the combination of double digit sales growth in both consumables and hardware sales. The 21% growth in 2001 was the result of significant sales of hardware and consumables to three customers that were completing and validating new manufacturing facilities in the U.S. European sales growth in both 2002 and 2001 was reflective of an expanding biotechnology business with both U.S. multinational customers and European customers.

The life science research growth rate for 2002 as compared with the 2001 growth rate has declined. Sales of products used in genomics applications declined in 2002, particularly sales to ultra-high throughput sequencing laboratories, following the completion of the human genome as well as those of other model organisms. The difficult economic and funding environment in the latter half of 2002 resulted in reduced spending at a number of life science research centers and contract labs. In addition, there was a reduction in research spending by start-ups in the Americas and Europe, because of cash flow or funding restraints. The declines in spending have also affected the growth in proteomics as pharmaceutical companies and research institutions proceed cautiously in this extremely complex and challenging area. Revenue growth for drug discovery was strong in 2002, from a small revenue base.

In the other bioscience markets, revenue growth of 2% was reported for 2002 as compared with a revenue growth rate of 9% in 2001. The European and U.S. markets showed positive growth despite a significant

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reduction in the build out of new laboratories which adversely impacted the sales growth rate of laboratory water hardware. The growth in the European and U.S. markets was partially offset by continued deflationary conditions, government funding delays and pricing pressures in Japan and declines in Latin America due to the uncertain political economy. Revenues from classical pharmaceutical sales and laboratory applications continued to be strong in all geographies, but were offset in part by significant reductions in beverage processing sales.

Net sales by Major Products

Sales growth by product, measured in U.S. dollars and local currencies, is summarized in the table below.

The growth rate of consumables declined from 13% in 2001, as compared with 2000, to 5% in 2002, as compared with 2001. With the exception of consumables sold to purify water in analytical and life science laboratories, the growth rate of consumables for all other applications declined particularly in the life science and beverage markets. The increase in laboratory consumables for water purification was due to a larger installed base achieved by the significant hardware growth in 2001.

The growth rate of hardware declined from 10% in 2001, as compared with 2000, to 6% in 2002, as compared with 2001. The primary factor driving hardware growth in 2001 was the strong increase in construction of life science laboratories requiring water purification equipment during that year. In 2002, growth subsided in the laboratory water hardware applications but was partially offset by strengthening in process scale hardware applications in the biotechnology market.

The growth rate of services remained strong at 18% in 2002 as compared with 2001 but was below the 29% growth rate in 2001, as compared with 2000. The decline in the growth rate of laboratory water purification systems resulted in a slowing of service contracts that are sold to maintain customers’ equipment.

Gross Profit Margins

Gross profit margin percentages were 56.2% in 2002, 55.7% 2001 and 55.6% in 2000. The gross profit margin percentage for 2002 as compared with 2001 was positively impacted by favorable exchange rates, a favorable mix of sales in high margin consumables, which account for 77% of sales, and increased sales in higher margin geographies, offset by lower initial margins and start-up costs associated with the introduction of new products and increased inventory reserves for obsoleted products. The gross profit margin percentage for 2001 as compared with 2000 was consistent as a favorable mix in higher margin consumables products was offset by a stronger U.S. dollar.

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Operating Expenses

Selling, general and administrative (“SG&A”) expenses increased 9% in 2002 and 5% in 2001, as compared with the prior years. The increase in 2002 was primarily due to increased spending on additional headcount, targeted severance arrangements and $5.6 million of unfavorable foreign exchange translation. 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 remained at approximately 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 14% in 2002 and 13% in 2001, as compared with the prior years. As a percentage of sales, R&D expenses increased from 6.8% in 2000 to 7.0% in 2001 and to 7.4% in 2002. The Company has pursued a strategy of increased R&D spending on new product development opportunities including membrane- and chromatography-based biotechnology and life science research applications as well as “disposable manufacturing” initiatives.

Restructuring and Other Charges

During 2002, the Company settled a lawsuit that resulted in the Company paying $1.1 million in damages and license fees.

During 2001, the Company initiated a restructuring program. Key initiatives of the program included:

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. For employees temporarily continuing in their existing positions, related salary costs were charged to operations as incurred. Through December 31, 2002, approximately 185 employees have left the Company and $12.8 million of severance benefits were paid. The Company paid severance and associated benefits through 2002 and will pay the remaining $0.6 million during the first quarter of 2003.

In 2000, the Company reversed $1.2 million in restructuring reserves that had been previously recorded, as actual proceeds from the sale of facilities were greater than originally estimated. Also in 2000, the Company recorded a charge of $1.5 million for past royalties as part of the settlement of a patent lawsuit.

(Loss) Gain on Investments

In the third quarter of 2002, the Company recorded a $2.3 million loss on investments which consisted primarily of the write-down of the Company’s investment in PurePulse Technologies, Inc. (“PurePulse”). In the first quarter of 2002, Millipore made a $2.2 million equity investment in PurePulse in conjunction with a transaction whereby the Company acquired rights to sell virus inactivation products utilizing PurePulse’s intense, pulsed light technology. However, PurePulse was unable to secure additional equity investors and, during the third quarter, announced that it would suspend operations. The Company and PurePulse have renegotiated their technology transaction in light of PurePulse’s suspension of operations. The new arrangement replaces the

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original development and product supply transaction with a royalty-bearing license under which Millipore has exclusive rights, within its fields of use, to develop, manufacture and sell virus inactivation products using the PurePulse technology.

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 $5.1 million in 2002 compared with 2001 and decreased $0.7 million in 2001 as compared with 2000. The lower net interest expense during 2002 as compared with 2001 was achieved by decreased average interest rates and lower average borrowings, which were partially offset by lower rates on interest income from cash and cash equivalents. The Company replaced $25.0 million of debt at an interest rate of 7.20% in the fourth quarter of 2001 and $100.0 million of debt at an interest rate of 7.23% in the second quarter of 2002 with available borrowing capacity under its revolving credit facility which had an average rate of approximately 3.0% throughout 2002. The lower net interest expense in 2001, as compared with 2000, was achieved by the decreased average debt balance and the benefit from the reduction in interest rates, which were offset in part by the termination of the Company’s Yen debt swap agreement.

Provision for Income Taxes

The Company’s effective tax rate on net income for 2002, 2001 and 2000 was 22.0%, 19.0% and 23.3%, respectively. These tax rates represent a blended tax rate as a result of sales across different tax jurisdictions and specific items, such as restructuring charges and sales of equity securities.

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 on March 31, 2001.

Following the date that the Company’s management and its Board of Directors approved the plan of disposition for Mykrolis, 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, (the “Distribution Date”) to shareholders of record as of the close of business on February 13, 2002. 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 $42.0 million at December 31, 2001.

The $24.4 million estimated loss on disposal of discontinued operations recorded in 2001 was reduced by $2.9 million, during 2002, to reflect the actual net loss of Mykrolis through the Distribution Date.

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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 was $53.1 million. Net income from discontinued operations was positively impacted during 2000 as sales growth continued within the semiconductor industry. During 2001, a decline in the semiconductor industry adversely affected sales for Mykrolis.

The 2001 loss on disposal of discontinued operations of $24.4 million ($35.1 million, pretax) included estimated future operating losses of $20.6 million for Mykrolis from the adoption of the plan of disposition through the planned disposition date in the first quarter of 2002 and disposition expenses of $3.8 million.

Extraordinary Loss on Early Extinguishment of Debt

The Company recorded an extraordinary loss of $1.2 million after taxes ($1.9 million, pre-tax) in 2001 related to a $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 2002, 2001 and 2000. Also refer to the Reported Earnings and Summary of Pro Forma Items above for additional information. In addition, in 2001, earnings per share reflect the extraordinary loss as described above.

Acquisition

On July 31, 2002, the Company acquired substantially all of the net assets of CPG for $11.7 million in cash. The transaction was accounted for under the provisions of SFAS No. 141 “Business Combinations”. CPG had been a supplier of the Company for several years, providing a base material for some of its chromatography media products. The acquisition included the intellectual property and physical assets. The purchase price has been allocated to identifiable net tangible assets of approximately $1.2 million, and intangible assets of $0.9 million, based on estimated fair market values of those assets, with the remaining $9.6 million allocated to goodwill.

Market Risk

The Company is exposed to market risks, which include changes in foreign currency exchange rates as measured both against the U.S. dollar and each other and credit risk. 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 potential change in foreign currency exchange rates offers a substantial risk to the Company, as approximately 55% of its business is conducted outside of the United States, generally in foreign currencies. The Company’s risk management strategy currently uses forward contracts and in prior years also used swaps to hedge certain foreign currency exposures. The intent is to offset gains and losses that occur on the underlying exposures, with gains and losses resulting from the forward contracts that hedge these exposures. Principal hedged currencies include the Euro, Japanese Yen and British Pound. The periods of these forward contracts typically span less than three months. The Company held forward foreign exchange contracts with U.S. equivalent notional amounts totaling $35.7 million at December 31, 2002. The fair value of these contracts was $0.7 million at December 31, 2002. Additionally, the Company is

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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 or other speculative purposes, nor does the Company use leveraged financial instruments.

Although the Company attempts to manage its foreign currency exchange risk through the above activities, when the U.S. dollar strengthens against 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 established customers and their dispersion across different geographies.

Capital Resources and Liquidity

Cash flow provided from operations was $107.6 million in 2002, $61.9 million in 2001 and $85.3 million in 2000. Reported cash flow from operations was reduced by $4.7 million in 2002, $8.3 million in 2001 and $2.4 million in 2000 for payments associated with the 2001 and 1998 restructuring programs.

The increase in cash flow from operations in 2002 compared with 2001 was primarily the result of higher net income, strong accounts receivable collection performance and reduced foreign income tax disbursements being partially offset by increased purchases of inventory.

Accounts receivable declined approximately $9.0 million in 2002 compared with 2001 due to improved cash collections. The decrease in accounts receivable resulted in days sales outstanding improving from 85 days at December 31, 2001 to 77 days at December 31, 2002, as measured in local currency. Improvement was achieved in all geographies, particularly in the Americas and Asia. Inventory increased approximately $19.9 million from December 31, 2001 to December 31, 2002 primarily as a result of planned stockpiling initiatives for raw materials and the purchase of long lead time production items that were required in anticipation of 2003 sales. The higher inventory balance resulted in a use of cash from operations.

The decrease in cash flow from operations in 2001 from 2000 was primarily the result of increased accounts receivable and payment of foreign income taxes partially offset by improved operating income excluding the $11.7 million (net of tax) restructuring charge. The increase in accounts receivable was attributable to increased sales volume primarily in the United States and Europe. The Company experienced a slight slowdown in accounts receivable collections 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. The increase in accounts receivable resulted in days sales outstanding slowing from 83 days at December 31, 2000 to 85 days at December 31, 2001. Accrued income taxes decreased for payments made in foreign tax jurisdictions. Inventory levels increased $5.6 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.

Operating cash flow generated by the Company during 2002 was used in investing activities that included the purchase of property, plant and equipment, the acquisition of CPG and investment in intangible and other assets. The Company purchased $79.3 million of property, plant and equipment during 2002 and expects to purchase in the range of $75 - 80 million during 2003. The 2002 additions and the 2003 planned additions are driven principally by the continued need to add manufacturing capacity and research and development facilities. The Company had various capital programs in progress at December 31, 2002 which it anticipates substantially

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completing during 2003. One of the capital programs in progress at December 31, 2002 is not expected to be completed during 2003. During 2002, the Company invested $8 million in this capital program as part of a planned $30 million project to expand manufacturing capacity adjacent to its existing manufacturing facility in Ireland. The Company has delayed completion of this facility as existing manufacturing capacity can meet the expected demand of its core consumable product through 2006. The Company does not expect to complete the construction of this facility prior to 2006. This facility is currently a multipurpose building shell that is expected to increase manufacturing capacity for its core consumable product. If necessary, this facility could be used for the manufacturing of alternative products. The Company paid $11.7 million for the acquisition of the assets of CPG.

Cash flows from financing activities, during 2002, were principally a result of receiving $15.7 million from employees exercising stock options and increased bank borrowings of $113.5 million partially offset by the repayment of a $100.0 million Note and $5.3 million payment of a dividend declared in 2001 and paid in 2002. Beginning in 2002, the Company discontinued dividend payments and instead will focus on investing in R&D and building productive capacity.

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 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.

During 2002, the Company funded Mykrolis $3.5 million to support Mykrolis’ operations, prior to its spin-off. During 2001, 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 in 2001.

In October 2001, the Company entered into a five year unsecured revolving credit agreement that allows for revolving loan borrowings of up to $250.0 million. The terms for interest rates on individual borrowings are established for periods 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 $159.1 million of amounts outstanding at December 31, 2002, 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 April 1, 2002, the Company used available borrowing capacity under the credit agreement to satisfy the $100.0 million 7.2% unsecured note due at that time. In 2004, the Company’s $75.0 million 7.23% note will be due and the Company believes it has the ability to obtain new debt at prevailing market rates.

The Company maintains various retirement plans for the benefit of its U.S. employees. At December 31, 2002, the Company’s U.S. retirement plan was underfunded relative to its accumulated benefit obligation by $8.7 million. This resulted in the Company recording an additional liability of $5.7 million, net of taxes to reflect the required minimum pension liability amount. The amount is recorded, net of the related tax effect, as a component of accumulated other comprehensive income. The Company anticipates funding these plans less than $1.0 million during the next twelve to twenty-four months. Fluctuations in the fair market value of assets related to these plans will affect pension expense in future years.

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.

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The following summarizes the Company’s contractual obligations at December 31, 2002 and the maturity periods, and the effect such obligations are expected to have on its liquidity and cash flow in future periods.