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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 2004 or

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.  [x]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

Yes  [x]   No    [  ]

The aggregate market value of Common Stock held by non-affiliates of the registrant, based upon the closing sale price of the registrant’s Common Stock on July 3, 2004, the last business day of our most recently completed second fiscal quarter, as reported on the New York Stock Exchange, was approximately $1,661,726,502. Shares of Common Stock held by each executive officer and director and by each person known to beneficially own more than 5% of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

As of February 26, 2005, 49,842,223 shares of the registrant’s Common Stock were outstanding.

Documents Incorporated by Reference

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In this Form 10-K, unless the context otherwise requires, the terms “Millipore”, the “Company”, “we” or “us” shall mean Millipore Corporation and its subsidiaries.

PART I

Item 1. Business.

General

Millipore Corporation was incorporated under the laws of Massachusetts on May 3, 1954. Our corporate headquarters are in Billerica, Massachusetts.

Millipore is a multinational bioscience company that provides technologies, tools and services for the discovery, development and production of therapeutic drugs and for other purposes. We serve customers in the worldwide biotechnology, life science research and other bioscience markets with a variety of products and services used in the purification, separation and analysis of fluids. Our products are based on a variety of enabling technologies, including our membrane filtration and chromatography technologies.

Information About Geographic Areas and Segment

We are a multinational company with approximately 65% of our 2004 sales outside the United States and approximately 52% of our long-lived assets outside the United States at December 31, 2004. As of December 31, 2004, we had three operating segments: BioPharmaceutical, Laboratory Water and Life Sciences. These three operating segments have been aggregated into one reporting segment for financial statement purposes. In February 2005, we announced our intent to combine our Laboratory Water and Life Sciences operating segments into one operating segment. Segment and geographic information is discussed in Note 18 to our Consolidated Financial Statements.

Products, Technologies and Applications

Millipore sells over 5,000 standard products, not including spare parts, which are listed in our catalogs and are sold as standard systems or devices. We also sell custom products, primarily our process scale filtration and chromatography systems and columns. We manufacture the majority of our products in our manufacturing facilities described in Item 2 of this Form 10-K. In addition, we purchase some products from third-party manufacturers for resale.

We sell consumables, hardware and services. Our wide range of consumable products, which represent approximately 80% of our 2004 sales, include handheld laboratory sample preparation and screening devices and kits in various low and high throughput formats, specialty membranes, chromatography media and large process scale cartridges used to filter thousands of liters of fluid. Our hardware products range from small benchtop laboratory water purification systems and cartridge integrity testers to large stainless steel process scale filtration and chromatography systems and columns with selling prices that can be greater than a million dollars. Our services include field services for the maintenance of laboratory water systems and validation services offered to biopharmaceutical customers.

The principal technologies utilized by our products are based on membrane filtration and chromatography. Membranes use size exclusion to filter either the wanted or the unwanted particulate or bacterial, molecular or viral entities from fluids. Some of our membrane materials also use affinity, ion-exchange or electrical charge mechanisms to effect the desired separation. Microfiltration and ultrafiltration membranes are incorporated into devices, cartridges and modules of different configurations to address a variety of customer purification and separation needs. Chromatography media is used to purify or separate biopharmaceutical compounds or to remove contaminants from these compounds by adsorption. Our laboratory water purification products combine membrane, resin and other separations technologies. Certain of our sample preparation products use both membranes and chromatographic separation techniques.

In the past several years, we have also developed and/or 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 biotechnology and other pharmaceutical manufacturing primarily by replacing stainless steel hardware with disposable plastic products. These “disposable manufacturing” products include disposable filling systems for sterile fill and finish operations and disposable valves for connecting sterile disposable components.

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Our 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 our products to gain knowledge about a molecule, compound or microorganism by detecting, identifying and quantifying the relevant components of a fluid sample. Our laboratory water purification products are used by customers to provide ultrapure water for critical laboratory analysis and for clinical testing. In addition, products based on our proprietary size exclusion membrane technology have been introduced to improve speed, automation and cost-effectiveness of a number of separations for DNA 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 recent years, we have launched a series of kits based on these technologies that are intended for a variety of protein and genomics applications. Our disposable manufacturing products are used in a variety of applications in downstream and final fill processes of pharmaceutical manufacturing.

Customers and Markets

We sell our products to customers in the biotechnology, life science research and other bioscience markets. The biotechnology market consists of the manufacture of therapeutic products based on recombinant proteins as well as process monitoring for sterile pharmaceuticals. The life science research market consists of research activities in drug discovery and drug development. The other bioscience market principally includes the development and manufacture of non-biotechnology pharmaceuticals, clinical and analytical laboratory activities, and the processing and quality control of beverages.

A variety of our products are used in the biotechnology market by biotechnology and pharmaceutical companies in the production of therapeutic products based on recombinant proteins, including monoclonal antibodies, enzymes, coagulation factors, vaccines, cytokines, hormones, growth factors, plasma products and transgenic and gene therapy products. We play an important role in our customers’ development of new biotech drugs by offering a continuum of membrane and chromatography based products capable of being scaled-up to match customer needs at different stages during the development process through full scale drug production. Our disposable manufacturing products also enable our biotechnology customers to simplify and to reduce the time and expense of certain steps in their downstream and final fill processes for biotech drugs.

Our customers in the life science research market include life science research companies, pharmaceutical companies, private and public research and testing laboratories and regulatory agencies. Our products used in life science research applications include sample preparation devices and kits and drug screening and water purification products.

Our products are used in the other bioscience market by a wide spectrum of customers. Pharmaceutical, diagnostics and ophthalmic manufacturers use our products in clarification, concentration, purification and sterilization of their products. Hospitals and analytical laboratories use our laboratory scale filtration devices in sample preparation, sterile particulate removal and concentration of samples and to purify water. The beverage industry uses our 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 our sales, some of our individual customers do purchase significant quantities of our products.

Sales and Marketing

We sell our products to end users primarily through our own direct global sales force. Augmenting this sales and distribution methodology, we sell our products through independent distributors and our website. We sell our products in more than 30 major industrialized and developing countries.

Our marketing efforts focus on application development for existing products and on new and differentiated products for newly identified and proposed customer needs. We seek to educate customers regarding the variety of analytical, separation and purification problems that may be addressed by our products as well as to adapt our products and technologies to such problems as identified by our customers. Our technical support services are important to our marketing efforts. These services include assisting in defining a customer’s needs, evaluating alternative solutions, selecting or designing a specific system to perform the desired separation or other application, training users, and assisting the customer in compliance with relevant government regulations.

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As of December 31, 2004, our sales, marketing and service organization consisted of approximately 1,200 employees worldwide.

Research and Development

As a pioneer of membrane separations, we have traditionally placed heavy emphasis on research and development. This emphasis has resulted in our being the first company to introduce a number of major new enabling separations membranes and membrane devices, including 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, non-dewetting PTFE membrane in 1997 and composite, asymmetric, microporous PES membrane in 2002.

Our 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, we have expanded and diversified our technology base. We have focused this expansion and diversification strongly on life science research and biotechnology applications including 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 our development of 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 protein research market. We have progressed substantially in recent years in our efforts to develop a differentiated line of chromatography media products for the rapidly growing biotechnology market.

We perform most of our own research and development. We do not provide material amounts of research and development services for others. We continue to increase our total research and development spending. As a percentage of sales, research and development spending was 7.1% in 2004, 7.3% in 2003 and 7.4% in 2002.

We have followed a practice of supplementing our internal research and development efforts by acquiring or licensing new technologies 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 we believe it is in our interests to do so.

Patents, Trademarks and Licenses

We have been granted and have licensed rights under a number of patents and have other patent applications pending both in the United States and abroad. While these patents and licenses in the aggregate are viewed as valuable assets, we believe that no individual patent is critical to our ongoing operations. We also own a number of trademarks, the most significant being “Millipore”.

Competition

We face intense competition in all of our markets. We believe that our principal competitors include GE Healthcare, Pall, Qiagen, Whatman, Sartorius, Cuno, Fisher Scientific, and USFilter. Certain of our competitors are larger and have greater resources than Millipore. While price is an important factor, we compete primarily on the basis of technical expertise, product quality and responsiveness to customer needs, including service and technical support.

Environmental Matters

We are 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. We believe we are in substantial compliance with all applicable environmental requirements. We continue to invest in maintaining facilities that enable our compliance with these environmental laws. These environmental related expenditures have not had a material effect on our capital expenditures, earnings or competitive position. Because regulatory standards under environmental laws and regulations have become increasingly stringent, however, there can be no assurance that future developments will not cause us to incur material environmental liabilities or costs.

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Raw Materials

Our products are made from a wide variety of raw materials that are generally available from alternate sources of supply. For certain critical raw materials, we have qualified only a single source. We periodically purchase quantities of some of these critical raw materials in excess of current requirements, in anticipation of future manufacturing needs. With sufficient lead times, we believe we would be able to validate alternate suppliers for each of these raw materials. Several of these critical raw materials are used in a significant portion of our products and if we were unable to obtain supply of any one of them, our loss of revenues would be material.

Backlog

Generally, orders may be cancelled or rescheduled by the customer without a financial penalty. Thus, we do not have a material amount of firm commitments that serve as backlog orders.

Other Information

As of December 31, 2004, Millipore employed approximately 4,500 persons worldwide, of whom approximately 1,700 were employed in the United States and approximately 2,800 were employed outside of the United States.

The U.S. Securities and Exchange Commission (the “SEC”) maintains an Internet site at http://www.sec.gov that contains reports and proxy and information statements of the Company. All reports that the Company files with the SEC may be read and copied at the SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington, DC 20549. Information about the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330.

Millipore’s internet website address is www.millipore.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and proxy statements, and all amendments thereto, are available free of charge on our website as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the SEC. In addition, our corporate governance guidelines, the charters of each of the committees of our Board of Directors, our code of ethics (consisting of our Corporate Compliance Policy, our Employee Code of Conduct and our Rules of Conduct) and our Director Code of Conduct are available on our website and are available in print to any Millipore shareholder upon request in writing to “General Counsel, Millipore Corporation, 290 Concord Road, Billerica, MA 01821”.

The certifications of Millipore’s Chief Executive Officer and Chief Financial Officer, as required by the rules adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (“302 Certifications”), are filed as exhibits to this Form 10-K. 302 Certifications were also filed as exhibits to our Form 10-K for 2003, as filed with the Securities Exchange Commission in March 2004. Millipore’s former Chief Executive Officer, Francis J. Lunger, provided an annual certification to the New York Stock Exchange dated May 25, 2004, that he was not aware of any violations by the Company of the New York Stock Exchange corporate governance listing standards.

Executive Officers of the Registrant

The following is a list, as of March 1, 2005, of the executive officers of Millipore Corporation. All of such executive officers were elected to serve until the first Directors Meeting following our 2005 Annual Stockholders Meeting.

Dr. Madaus joined Millipore Corporation as its President and Chief Executive Officer, and as a Director, on January 1, 2005, and was appointed Chairman of the Board effective March 1, 2005. From 2000 until December 2004, Dr. Madaus served as President and Chief Executive Officer of Roche Diagnostics Corporation, heading the

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North American diagnostics business of Hoffmann-La Roche, a leading pharmaceutical and diagnostics company. Prior to that, Dr. Madaus held various management positions from 1989 to 1999 with Hoffmann-La Roche and with Boehringer Mannheim (prior to its 1998 acquisition by Hoffmann-La Roche). Dr. Madaus also serves on the Boards of Directors of AdvaMed; the Institute for Medical Technology; Central Indiana Corporate Partnership; Biocrossroads; and the Analytical & Life Science Systems Association.

Ms. Allen was elected Vice President and Chief Financial Officer of Millipore Corporation in 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 Millipore Corporation’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 Corporation in December 2001 and serves as President of the Company’s Bioscience Division, which was formed in February 2005 as a combination of the Company’s Laboratory Water and Life Sciences Divisions. Mr. Baly also serves as President of Millipore International to which he was appointed in February 2001. From February 2001 through February 2005, Mr. Baly was President of the Laboratory Water Division. 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 2001.

Dr. Goel was elected Vice President of Millipore Corporation in December 2001 and serves as head of the Company’s BioPharmaceutical Research and Development and of the Company’s new product development processes, to which he was appointed in January 2005. From 2001 to January 2005, Dr. Goel served as President of the Company’s Strategic Separations Media Group (successor to our Membrane Technology Division). From 1999 through 2001, Dr. Goel served as Vice President, Corporate Technology Operations. Prior to 1999, Dr. Goel held a number of positions since joining Millipore as a product development engineer in 1977.

Mr. Kershaw was elected Vice President, Worldwide Manufacturing Operations, of Millipore Corporation effective February 2004. Prior to joining Millipore, Mr. Kershaw served Hologic, Inc., a manufacturer of medical imaging systems, as Corporate Vice President, Manufacturing Operations (2003-2004) and Vice President and General Manager, LORAD Division (2001-2003). Prior to that, Mr. Kershaw served as President (1998-2001) and Vice President and General Manager (1996-1998) of the Medical Device Division of Bespak plc, a manufacturer of plastic injection molded components and finished medical devices.

Mr. Lary was elected Vice President of Millipore Corporation in November 1994 and has since January 2003 been responsible for the Company’s European Operations. Until February 2004, Mr. Lary was also responsible for Millipore’s device manufacturing, facilities and supply chain organizations. From May 1993 until his election as a Corporate Vice President, Mr. Lary served as Senior Vice President and General Manager of the Company’s Americas Operations.

Mr. Rudin was elected Vice President and General Counsel of Millipore Corporation in December 1996 and as Clerk (that office is now known as Secretary) of Millipore in 1999. Prior to joining Millipore, Mr. Rudin served Ciba Corning Diagnostics Corp. as Senior Vice President and General Counsel (1993-1996) and as Vice President and General Counsel (1988-1993).

Mr. Sam was elected Vice President, Quality, of Millipore Corporation in March 2003. Prior to joining Millipore, Mr. Sam served from 2001-2002 as Vice President, Quality, for the Drug Delivery Business Unit of Elan Corporation, a pharmaceutical company focused on the development, manufacturing and marketing of novel therapeutic products, and from 2000-2001 as Vice President, Quality, of Dura Pharmaceuticals (acquired by Elan Corporation in 2000), a manufacturer of prescription pharmaceutical products. From 1999 to 2000, Mr. Sam was Senior Director, Corporate QA – Quality Management, at Watson Pharmaceuticals, Inc., a specialty pharmaceutical company, and from 1996 to 1999 was Director, Qualification & Validation, Worldwide QA, for Rhone-Poulenc Rorer, a pharmaceutical company.

Ms. Stearns was elected Vice President, Human Resources, of Millipore Corporation 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 Corporation in December 2001 and serves 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).

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Mr. Wagner joined the Company in December 2002 as Director of Strategic Planning and Business Development and was elected Vice President, Strategic Planning and Business Development, of Millipore Corporation in March 2003. Prior to joining Millipore, Mr. Wagner served as a Manager (2001-2002) and Consultant (1998-2001) at Bain & Company.

Item 2. Properties.

Millipore operates 11 manufacturing sites located in the United States, France, Ireland, United Kingdom 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.

We own a total of approximately 1.5 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. None of our owned facilities are subject to any material encumbrances, except for a finance lease on a portion of the Molsheim, France property.

In addition to our owned properties, we currently lease facilities throughout the world for office, research and development, manufacturing and warehouse uses. The aggregate area of our leased space worldwide is approximately 819,000 square feet and the net rental cost of such leased space was approximately $12.2 million in 2004. The following leased facilities are the most significant:

Our Cidra, Puerto Rico facility currently operates at approximately 65% of manufacturing capacity. Our Bedford, Massachusetts facility is approximately 65% occupied in anticipation of a planned renovation beginning 2005. All of the other above listed owned and leased major facilities are at least 90% utilized.

We believe that all the facilities we own or lease are well maintained, appropriately insured, in good operating condition and suitable for their present uses with the exception of our Bedford, Massachusetts office building which will be demolished in 2005 in preparation for a new research and development center.

Item 3. Legal Proceedings.

We are not currently a party to any material legal proceeding.

Item 4. Submission of Matters to a Vote of Security Holders.

This item is not applicable.

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PART II

Item 5. Market for Registrant’s Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities.

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). On February 26, 2005, there were approximately 2,357 shareholders of record.

The Company did not declare any cash dividends during 2004 or 2003 nor does the Company currently intend to make future cash dividend declarations or payments.

I tem 6. Selected Financial Data.

The following selected consolidated financial data are derived from our Consolidated Financial Statements and notes thereto and should be read in connection with and are qualified in their entirety by our Consolidated Financial Statements and 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 Corporation (“Mykrolis”) through February 27, 2002, the date on which we distributed our ownership of Mykrolis common stock to our 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 to the 2004 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 our 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.

Basis of Presentation

Throughout this item, references will be made to “constant currencies”. Constant currency is a non-GAAP measure whereby foreign currency balances are translated, for all periods presented, at Millipore’s predetermined budgeted exchange rates for 2004, thus excluding the impact of fluctuations in the actual foreign currency exchange rates. In addition to analyzing U.S. GAAP financial results, we also analyze our results in constant currencies as we believe these measures may allow for a better understanding of the underlying business trends.

Executive Summary

Millipore’s objective is to be the partner of choice for critical tools, technologies and services used in the discovery, development and manufacture of therapeutic compounds. We will achieve this by leveraging our understanding of current and expected customer needs, our technology and manufacturing expertise and our direct global access to the markets. We believe this strategy will enable us to accelerate revenue growth over the long term, improve operating profitability and generate strong cash flows from operations.

Revenue Growth

During 2004, revenue growth was 10% comprised of 6% growth in constant currencies and 4% foreign currency impact. This compares to revenue growth in 2003 of 14% (6% growth in constant currencies and an 8% foreign currency impact). As described in Item 1, we sell our products into the biotechnology, life science research and other bioscience markets. Additional information related to sales into each one of these markets begins on page 17 of this report.

Biotechnology Market

The biotechnology market represented approximately 35% of revenue in 2004. In constant currencies, our revenues in this market grew 9% in 2004 compared to 6% in 2003. Sales of consumable products in this market grew 12% and 9% in 2004 and 2003, respectively. However, sales of hardware declined by 5% in 2004 following a 5% decline in 2003. Hardware sales in this market are impacted by customers’ decisions to add to or modify their production capacity. These orders can be very large and may result in significant variability in our period-to-period sales growth. Further, in the second half of 2003, we adopted a more selective set of sales criteria which focused on those hardware orders with higher profitability or orders where the customer indicated intent to purchase our consumables and services. This change in strategy contributed to the continued decline in hardware sales to this market.

We believe that consumables revenue growth patterns are more indicative of the longer term prospects for this business. Our revenue from the sale of consumables to a customer is dependent on a number of manufacturing variables related to the customer’s processes and the unique characteristics of the molecule being produced. These include expression levels, the cell culture system, the purity of the cell harvest, dosage form, batch size, optimization of the process, design/age of the plant and commercial success of the drug. We have particularly strong and broad product offerings for use in the production of monoclonal antibodies, a specific class of biotherapeutics. Our products are used in at least one of the manufacturing process steps in the majority of commercialized monoclonal antibodies. In the short term, our revenue growth in the biotechnology market is impacted by the purchasing patterns of our customers who are directly influenced by the timing and approval of their drugs. The sales cycle in this market is a long term process which follows the various stages of the drug approval process and may span five to seven years. We provide a number of technologies that can be used in very small scale production of a drug and reliably scale up to full size manufacturing volumes with predictable efficacy. As a result, our revenue related to a specific drug will increase over the various stages of the drug approval process; in particular, as the drug moves into clinical trials and ultimately into commercial production. We are continuously investing in new products and technologies to expand our offerings in this market.

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We believe that our long term customer relationships, our specific and differentiating technologies for this market and the number of biotechnology drugs in the drug pipeline will result in long term sustainable growth.

Life Science Research Market

The life science research market represented approximately 14% of our revenues in 2004. In constant currencies our revenues in this market grew 6% in 2004 and 5% in 2003. Our revenue growth in this market is significantly influenced by the general economic climate and funding environment at life science research centers and contract laboratories. The level of research and development spending by pharmaceutical organizations as well as funding of various private or government research institutions also impact our growth in the life science research market. Our primary market focus is drug development and protein research. We believe there will be increasing demand by customers, primarily in pharmaceutical companies, for solutions that will accelerate the identification of drug candidates. Longer term, increased levels of protein related research will add to our growth in this market. In both the drug development and protein research areas, we provide targeted products and technologies that increase the researcher’s productivity, decrease cycle time and improve the quality of leads.

Other Bioscience Market

The other bioscience market represented approximately 51% of our revenues in 2004 and grew 3% in constant currencies in 2004 and 5% in 2003. We have been supplying products to this market for many decades and are well positioned with our global distribution channels and recognized brand names to grow at rates equal to or greater than the underlying market growth. During 2004, our sales to this market benefited from strong sales to laboratories for water purification and quality control applications especially in Europe. Negatively impacting growth in 2004 were declining sales in of filtration devices to non-strategic applications.

Product Type and Geography

In addition to markets, we analyze our sales by product type and by geography. In constant currencies, approximately 79% of our revenue is from the sale of consumable products, 17% is from hardware and 4% is from services. We believe that a high mix of consumable and service revenues results in a steady revenue stream as compared to hardware sales that are subject to our customers’ capital spending cycles. These cycles may vary significantly from one period to the next. Our constant currency sales by geography for 2004 were distributed 45% in the Americas (primarily the United States), 36% in Europe and 19% in Asia/Pacific. Approximately 80% of our 2004 sales were made through our global direct sales force. Our sales force is augmented with regionally focused distributors and our on-line web store. Our worldwide direct customer access allows us to rapidly introduce new products, apply our unique technology solutions to match customer needs and provide valuable feedback for our research and development team. Our mix of revenue by type and geography has been relatively consistent for each of the last three years.

Profitability

Operating income as a percent of sales was 15.6% in 2004 compared with 15.8% in 2003. During 2004, as the dollar continued to weaken, we experienced profitability pressures as foreign denominated manufacturing, distribution, selling and administrative support expenses increased due to currency translation. However, our continued expense control and efficient operations support structure enabled us to maintain profitability levels that were approximately equal to 2003.

Our business operations are supported by shared service organizations that operate in regional centers. These support functions include finance, information technologies, customer service, distribution, human resources and technical services. The cost of these support functions is expected to grow at a slower rate than the rate of sales growth. We will continue to invest in sales, service, and application specialists in the field to drive sales growth. We expect to continue focusing our research and development programs on biotechnology and life science research applications.

We expect operating income as a percent of sales to improve slightly in the near-term as a result of the combination of modestly improving gross profit margins and leveraging our shared service infrastructure, while continuing to invest in sales, service and research and development efforts.

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Cash Flow

Cash flow from operations was $167.4 million in 2004 compared with $132.1 million in 2003. The improvement in cash flow from operations in 2004 is primarily from higher net income, improved accounts receivable collection experience, inventory reductions and an increase in current liabilities.

Critical Accounting Policies and Estimates

This discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. Our 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 disclosures of contingent assets and liabilities. We evaluate our estimates and judgments on an on-going basis. By their nature, these estimates and judgments are subject to an inherent degree of uncertainty. We base our 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. We believe the following accounting policies and estimates require us to make the most difficult judgments in the preparation of our consolidated financial statements and accordingly are the most critical.

Revenue Recognition. Revenue from the sale of products is recognized when evidence of an arrangement is in place, related prices are fixed or determinable, delivery has occurred (contractual obligations have been satisfied and title and risk of loss have been transferred to the customer) and collection of the resulting receivable is reasonably assured. When significant obligations remain, such as customer site acceptance testing, after products are delivered, revenue and related costs are deferred until such obligations are fulfilled.

Revenue from service arrangements is recognized when the services are provided. For laboratory water systems, installation and maintenance service revenues are recognized when the site service visit is completed. For validation services provided to customers, revenue is recognized when the contracted study is complete and accepted by the customer.

Revenue for certain fixed price contracts associated with our process equipment business is recognized under the percentage of completion method (“POC”). Over the past three years, approximately 3% of our 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. In the event that assumptions used in calculating POC during the construction of the process equipment, are later revised, total revenue and expenses estimated for contracts upon completion could differ from the latter estimate. If it is estimated that the project will result in a loss when completed, the entire loss is recognized at that point. 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, we would generally be able to 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. Historically, we have experienced few cancellations. During the last three years, there have been no POC contract cancellations.

Allowance for Doubtful Accounts. We regularly evaluate our 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, we reserve an amount believed to be uncollectible. At December 31, 2004, the allowance for doubtful accounts represented approximately 3% of gross receivables. During the past three years, we have provided between $1.0 – 2.0 million per year for allowances for doubtful accounts, which approximates bad debt write-offs during those years. If the financial condition of our customers were to deteriorate, resulting in their inability to make payments, additional allowances may be required. In addition, revenues attributable to a particular customer would not be recognized in the quarter that collection from that customer was deemed unlikely.

Inventory Valuation Analysis. Our product life cycle is generally a minimum of 5 years and may be in excess of 20 years. Therefore, given the stable demand for our products, we generally rely upon recent historic usage and future demand in estimating the realizable value of our inventory. Finished goods and components that are determined to be obsolete are written-off when such determination is made. In certain cases, for newly introduced products and

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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 based on reviewing manufacturing plans, future demand and market conditions. In situations where it is determined that work-in-process inventories cannot be converted into finished goods, the inventories are written down to net realizable value. Inventory at December 31, 2004 reflects cumulative net realizable value write-downs of $17.0 million. Should it be determined that write-downs are insufficient, we would be required to record additional inventory write-downs, which would have a negative impact on gross margin. Once written down, inventory valuation provisions are not subsequently reversed.

Valuation of Long-lived Assets. Long-lived assets are comprised of property, plant and equipment, intangible assets and goodwill. We periodically review our long-lived assets to determine if impairment has taken place. The review of intangible assets and 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 future cash flows, including the selection of appropriate discount rates and other assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value for these assets.

During 2002 and 2003, we invested a cumulative total of $10.5 million of a planned $38.4 million project (at the December 31, 2004 actual rate of exchange) to expand manufacturing capacity of a core consumable product line in a building adjacent to our existing manufacturing facility in Ireland. We have delayed the completion of this facility as existing manufacturing capacity supplemented with our strategic inventory supply program can meet the expected demand of this product line through 2010. We currently expect to resume construction of this facility in 2007 as there is a three year lead time before the project can be completed and consumable output validated for use in our products. This facility is now a vacant multipurpose building shell. If necessary, this facility could be used for the manufacturing of alternative products.

During 2004, we conducted an impairment review of our goodwill. The review was based on a comparison of the carrying cost of the goodwill to the fair value of the BioPharmaceutical reporting unit using current valuation multiples of peer companies. Based on our tests, goodwill was not impaired during the year ended December 31, 2004. If the fair value of our BioPharmaceutical reporting unit were substantially reduced, then we may incur charges for impairment of this goodwill.

Income Tax Provision. We recognize income taxes when transactions are recorded in our statement of operations, with deferred taxes provided for items that are recognized in different periods for financial statement and tax purposes. We record a valuation allowance to reduce the deferred tax assets to the amount that is more likely than not to be realized. In addition, we estimate our exposures relating to uncertain tax positions and establish reserves for such exposures when they become probable and reasonably estimable.

Our valuation allowance is provided to reserve against the expiration of federal and state research credit carryforwards, state investment credit carryforwards, state net operating loss carryforwards and other state deferred tax assets. At December 31, 2004, we had federal research credit (“GBC”) carryforwards of approximately $9.3 million that expire in the years 2005 through 2024. Of the $9.3 million of GBC carryforwards, approximately $4.3 million is reserved with a valuation allowance. In 2004, GBC totaling $1.5 million expired unused and were written off against the valuation allowance. At December 31, 2004, we also had $23.6 million of state research credit and net operating loss carryforwards and deferred tax assets, all of which are fully reserved with a valuation allowance. While we have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for valuation allowances, the valuation allowances may need to be increased if we are unable to generate sufficient taxable income within the statutory time period that governs general business credit utilization. Any increase in the valuation allowances could have a material adverse impact on our income tax provision and net income in the period in which such determination is made.

We are a worldwide business. Due to our size and the number of tax jurisdictions within which we conduct our business operations, we are subject to tax audits on a regular basis. As a result, we have tax reserves which are attributable to potential tax obligations around the world. We believe the reserves are necessary to adequately reflect tax obligations which may arise out of current and future audits.

We provide for U.S. income taxes on the earnings of foreign subsidiaries unless they are considered indefinitely invested outside the U.S. At December 31, 2004, the cumulative earnings upon which U.S. income taxes have not been provided are approximately $356.5 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 any repatriation of earnings. We estimate an additional $99.0 million tax provision would be required to reflect the U.S. tax on such repatriation.

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On October 22, 2004, President Bush signed into law the American Jobs Creation Act of 2004 (the “AJCA”). The AJCA contains a number of provisions which will affect the Company in the future. One provision of the AJCA establishes a special deduction for “Qualified Domestic Production Activities”. This AJCA provision will apply to Millipore because the Company is a U.S. manufacturer. The special deduction starts at 3% of “Qualified Production Income” as defined in the AJCA (“QPI”) in 2005 and will be 9% of QPI when fully phased in after 2009. The Company is studying this provision and related IRS guidance to determine its impact on the Company. A second provision of the AJCA provides a temporary incentive for a U.S. company to repatriate funds deemed to be permanently reinvested outside the U.S., at a reduced effective tax rate of approximately 5.25%. While the Company has no current plans to repatriate earnings under the AJCA, the Company is studying the provision and recent IRS guidance to determine whether it would be beneficial for the Company to make use of the temporary incentive in 2005. The AJCA imposes overall limitations on the amount taxpayers may repatriate. In the case of the Company, that limitation is $500 million. The range of possible amounts that the Company is considering for repatriation under this provision is between zero and $500 million. The related potential range of income tax is between zero and approximately $26 million. If the Company decides to repatriate under the provisions of the AJCA, a tax provision for the related taxes will be recorded in the quarter in which the repatriation plan is approved.

Employee Pension and Postretirement Medical Plans. In the United States, we sponsor a pension plan and a postretirement medical plan covering substantially all employees who meet certain eligibility requirements. For both plans, we determine several assumptions that are used in calculating the expense and liability of the plans.

For the pension plan, these key assumptions include the discount rate, expected return on plan assets and rate of future compensation increases. In selecting the expected long-term rate of return on assets, we considered the average rate of earnings expected on the funds invested or to be invested to provide for the benefits under the pension plan. This included considering the trusts’ asset allocations and the expected returns likely to be earned over the life of this plan. Our method is consistent with the prior year. The discount rate reflects the rate at which an amount that is invested in a portfolio of high-quality debt instruments would provide the future cash flows necessary to pay benefits when they come due. In addition, our actuarial consultants determine the expense and liabilities of the plan using other assumptions for future experience, such as for withdrawal and mortality assumptions. The actuarial assumptions used by us 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 us in future years. During 2004, we used a discount rate of 6.0%, an expected return on plan assets of 8.0% and rate of future compensation increases of 4.0% related to our U.S. pension plan. The most sensitive assumptions used in calculating the expense and liability of our U.S. pension plan are the discount rate and the expected rate of return on plan assets.

The following table shows the impact on expense of a 50 basis point change versus the assumptions used. Positive dollar amounts would result in improved operating income, while a negative dollar amount would reduce operating income.

U.S. Pension Plan Sensitivity Analysis—2004

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For the postretirement medical plan, we provide to our actuarial consultants key assumptions including the discount rate and the future medical cost escalation rate. In addition, our actuarial consultants also employ other assumptions for future experience, such as withdrawal and mortality. The actuarial assumptions used by us may differ materially from future actual results due to changing conditions in the growth of medical expenses or longer or shorter life spans of the participants. These differences may have a significant effect on the amount of medical cost expense recorded by us. During 2004, we used a discount rate of 6.0% and an expected medical cost escalation rate that declines gradually from 9.0% in 2004 to 5.0% in 2011. The following table shows the impact on expense of a 50 basis point change versus the assumptions used. Positive dollar amounts would result in improved operating income, while a negative dollar amount would reduce operating income.

Postretirement Medical Sensitivity Analysis—2004

In certain foreign subsidiaries, we also sponsor pension plans for our employees. Accounting and reporting for these plans requires the use of country specific assumptions for discount rates, expected returns on assets and rates of compensation increases. We apply a consistent methodology in determining the key assumptions which, in addition to future experience assumptions such as withdrawal rates and mortality rates, are used by our actuaries to determine our liabilities and expenses for each of these plans. The following table shows the impact on expense of a 50 basis point change versus the country specific assumptions included in the consolidated financial statements. Positive dollar amounts would result in improved operating income, while a negative dollar amount would reduce operating income.

Foreign Pension Plan Sensitivity Analysis—2004

Intent to Refinance Short-term Debt as Long-term Debt. Our credit agreement allows for revolving loan borrowings of up to $250.0 million. Borrowings against our credit agreement of $47.0 million were outstanding at December 31, 2004, and have been classified as long-term, because of our ability and intent to continuously refinance such borrowings. If our intent to refinance changes, it could result in a significant amount of debt being characterized as short-term debt in future financial statements.

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Results of Operations

Net Sales

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

Net Sales by Market

We sell our products into the biotechnology, life science research and other bioscience markets. Sales growth (as compared with the prior year) in constant currencies, by market, is summarized in the table below.

Biotechnology Market

The biotechnology market comprises approximately 35% of total sales. In 2004, sales to this market grew 9% at constant currencies consisting of a 12% increase in sales of consumable products and a 5% decline in sales of hardware. This compares to 2003 constant currency sales growth of 6% consisting of a 9% increase in consumable sales and a 5% decline in sales of hardware.

We sell consumable membrane filter and chromatography media products used in this market. These products represent approximately 84% of our sales within this market. The continued growth in sales of consumable products during 2004 was driven by increased manufacturing campaigns of marketed biotechnology drugs, and start-up and validation of new customer production lines and their processes.

We also sell hardware systems used in the production of biotherapeutics. Our filtration or chromatography hardware systems can range in price from twenty thousand dollars for standardized units to multi-million dollar custom designed systems and represented approximately 16% of our sales within this market. The decline in hardware sales in 2004 and 2003 was predominantly driven by two factors. In the second half of 2003, we adopted a more selective set of sales criteria which focused on those hardware orders with higher profitability or orders where the customer indicated intent to purchase our consumables and services. In addition, capital purchases made by our customers are generally used for construction of their manufacturing capacity and thus can vary significantly period to period based on their product demand or new drug processes.

Life Science Research Market

During 2004, constant currency sales to the life science research market grew 6%. Throughout 2004, we saw an increase in drug discovery and drug development spending by pharmaceutical companies especially in the United States and certain western European countries. In addition, this market is sensitive to worldwide economic conditions as well as funding for life science in both public and private institutions. The improvement of those conditions in 2004 as compared to 2003 further contributed to the positive growth.

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The 2003 sales growth of 5% in the life science research market was the net result of strong revenue growth for drug discovery, based on a relatively small level of revenue, being partially offset by a decline in sales of products used in genomics applications.

Other Bioscience Market

The 2004 constant currency sales growth of 3% in the other bioscience market resulted from strong sales of ultra pure laboratory water purification systems, consumables and related services for quality control and analytical applications, modest sales growth of small and large volume parenteral drugs and nutritional products; and declines in sales of filtration devices to non-strategic applications.

The 2003 constant currency sales growth of 5% in the other bioscience market was due to increased sales of consumable products, laboratory water purification systems and services across all geographies. Growth in the Americas was strong at 8% due to increased sales to non-biotechnology pharmaceutical customers, improved laboratory research funding and increased spending on U.S. homeland defense initiatives. However, Europe’s growth was 2% in 2003, reflecting the continued difficult economic climate.

Net Sales by Geography

Sales growth (as compared with the prior year) by geography, measured in U.S. dollars and constant currencies, is summarized in the table below.

In 2004, the Americas achieved constant currency sales growth of 9% driven by strong sales of process and laboratory scale consumables. Sales benefited from the improving economic environment, improved capital markets for life science and biotech start-ups, increased pharmaceutical and biotechnology spending on drug discovery research. The modest increase in sales, in constant currencies, to customers in Europe was due to a slowly improving European economy and increased laboratory activities by customers within the other bioscience markets that are in environmental, public health, clinical and university sectors. The increase in sales within the Asia/Pacific region was due to an improving economic conditions reduced by the impact from a change in Japanese government policies which delayed the utilization of otherwise available research grants by government and university laboratories.

During 2004, the U.S. dollar, with respect to foreign currencies, was weaker on average as compared to prior year levels. A weaker U.S. dollar will positively impact U.S. dollar sales growth. The impact of translating foreign currency

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sales to the U.S. dollar improved the reported sales growth rate by approximately 480 basis points. Since we have a higher percentage of our sales in Europe than in Asia, the impact of translating sales denominated in European currencies has a greater impact on our sales than the impact of translating sales denominated in Asian currencies. The U.S. dollar weakened against the Euro on average by approximately 9% and against the Japanese Yen by approximately 7% as compared with 2003.

During 2003, sales growth, measured in constant currencies, was relatively consistent across our geographies, ranging between 5% and 7% growth. At actual rates of exchange, the U.S. dollar weakened throughout the year against a number of foreign currencies. In 2003, the U.S. dollar weakened against the Euro on average by approximately 17% and against the Yen by approximately 7%. The impact of translating foreign currency sales, primarily the European currencies, to the U.S. dollar improved the reported sales growth rate by approximately 800 basis points in 2003.

Net Sales by Product Type

Sales growth (as compared with the prior year) by product type, measured in constant currencies, is summarized in the table below.

Sales of our consumables grew in all markets throughout 2004 as compared with 2003. Biotechnology consumable sales growth was robust in 2004, growing 12%. This is primarily due to the sales of chromatography media and filter consumables driven by increased manufacturing campaigns of marketed biotechnology drugs as well as start-up and validation of new customer production lines. The growth in the sales of services in 2004 was achieved across all markets. The increase is due to continued demand for maintenance of our installed base of laboratory water filtration systems as well as increased marketing of validation support services to our biotechnology and pharmaceutical customers.

The slight decrease in hardware sales in 2004 as compared to 2003 was due to a combination of steady sales growth of laboratory systems used in water purification offset by declining sales of large hardware systems principally to the biotechnology market. As previously mentioned, in the second half of 2003, we adopted a more selective set of sales criteria which focused on those hardware orders with higher profitability or orders where the customer indicated intent to purchase our consumables and services.

Gross Profit Margins

Gross profit margin percentages were 53.3% in 2004 and 53.8% in 2003. The decrease in our gross profit margin percentage in 2004 as compared with 2003 was primarily due to the strengthening of the Euro against the U.S. dollar which increased the average cost of products manufactured in our European plants. Had exchange rates in 2004 been similar to 2003 rates, gross margins would have been approximately flat year to year. In addition, plant start-up and product validation spending for our new membrane manufacturing facility as well as increased incentive compensation expense in 2004 offset the higher net realizable value write-downs of inventory and restructuring charges in 2003.

In 2003, gross profit margins benefited from a favorable mix of higher margin consumables but were negatively impacted by manufacturing start up costs related to new product introductions, increased depreciation and overhead

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expenses related to the improvement of production facilities as well as net realizable value write-downs of obsolete inventory. In addition, during the fourth quarter of 2003, we recorded a charge of $2.5 million related to manufacturing personnel severance and fixed asset write-offs.

Operating Expenses

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses increased $24.0 million or 9.7% in 2004 and $27.8 million or 12.7% in 2003, as compared with the prior years. The increase in 2004 was primarily due to $13.6 million of increased expense due to the U.S. dollar weakening against the Euro and the Yen; $4.4 million in CEO transition expenses; a $3.0 million write-off of intangibles and fixed assets related to the discontinuation of a research and development project; and $2.5 million of increased incentive compensation.

In the fourth quarter of 2004, following a research and development project review, we determined that the Safepass sterile transfer technology, acquired in 2001, would not achieve our new product profitability and cash flow criteria. Accordingly, we terminated the project and wrote off the $2.8 million intangible asset and $0.2 million of related fixed assets.

On April 28, 2004, Francis J. Lunger announced that he would step down as President and CEO of the Company. Mr. Lunger stepped down as President and CEO as of December 31, 2004, and as Director and Chairman of the Company’s Board of Directors as of March 1, 2005. In connection with Mr. Lunger’s separation agreement, we recorded an expense of approximately $3.0 million for severance, bonus and related benefits which was recognized through March 1, 2005. We also expect to record additional compensation expense of approximately $2.0 million to $5.0 million relating to stock options, of which approximately $2.0 million was recorded through March 1, 2005 and the remainder will be recorded 90 days thereafter. The amount of expense, within the above range relating to stock options, will depend upon the extent and timing of the exercise of his stock options. We recognized a total of $4.0 million expense in 2004 relating to this separation agreement.

The $27.8 million or 12.7% SG&A increase in 2003 was primarily due to $4.4 million of employee severance costs related to a reduction in work force, $15.5 million of increased foreign exchange translation due to the U.S. dollar weakening versus the Euro and the Yen, $6.5 million for increased facility costs and $5.1 million for salary related cost-of-living increases. These increased costs were partially offset by $4.1 million of reduced travel during 2003.

Research and Development Expenses

Research and development (“R&D”) expenses increased $4.1 million or 7.0% in 2004 and $6.0 million or 11.5% in 2003, as compared with the prior years. As a percentage of sales, R&D expenses were 7.1% in 2004 and 7.3% in 2003. Included in 2004 spending was a $1.0 million increase in incentive compensation.

The increase in R&D expense during 2003 compared with 2002 included $1.5 million of employee severance costs. Excluding this cost, R&D increased 9.8% over the prior year, and would have been 7.1% of sales.

The increases in R&D spending have been driven by an increase in programs focused on the needs of our customers for new and enhanced products for purification and separation of biological fluid streams and tools which will improve the quality of leads in the laboratory drug discovery process.

Restructuring and Other

In 2003, we completed the 2001 restructuring program. Upon completion of this restructuring program and final cash disbursements in the second quarter of 2003, we reversed $0.4 million for previously estimated lease and severance payments, as these amounts were no longer required. We also recognized a $0.2 million benefit for assets that had been previously written-off. Also in 2003, we received proceeds of $1.3 million and realized a gain of $0.8 million in connection with a sale of real estate. During 2002, we settled a lawsuit that resulted in us paying $1.1 million in damages and license fees.

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Net Interest Expense

Net interest expense decreased $7.1 million in 2004 as compared with 2003 and decreased $3.2 million in 2003 as compared with 2002. The decreases in net interest expense in 2004 and 2003 were a result of decreased amount of average debt outstanding as well as increased cash balances due to strong operating cash flow. On March 4, 2004, we repaid our $75.0 million, 7.23% note payable.

Provision for Income Taxes

Our effective tax rates on net income for 2004, 2003 and 2002 were 19.1%, 10.1% and 22.0%, respectively. These tax rates represent a blended tax rate primarily as a result of profits across different tax jurisdictions and specific items such as changes in valuation allowances and reserves.

The higher tax rate in 2004 when compared to 2003 was primarily a result of the reversal in 2003 of a tax valuation allowance, partially offset by an increase in tax reserves as well as the geographic distribution of profits.

During the fourth quarter of 2003, we capitalized certain historical R&D costs for tax returns on a retroactive basis, thereby utilizing net operating losses. Because of this capitalization and other tax planning strategies relating to the use of foreign tax credits, the $22.0 million valuation allowance related to the foreign tax credits was released. Also in the fourth quarter of 2003, we estimated and recorded additional tax reserves of $10.0 million related to exposures previously mitigated by the reserved foreign tax credits. The net impact of this activity resulted in a $12.0 million tax benefit.

Market Risk

We are exposed to market risks, which include changes in foreign currency exchange rates and credit risk. We manage these market risks through our normal financing and operating activities and, when appropriate, through the use of derivative financial instruments.

Foreign Currency Exchange Rate Risk

We are 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 us, as approximately 65% of our business is conducted outside of the United States, generally in foreign currencies. Our risk management strategy currently uses forward contracts 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. We held forward foreign exchange contracts with U.S. equivalent notional amounts totaling $93.7 million at December 31, 2004. The fair value of these contracts was a gain of $0.8 million at December 31, 2004. We do not enter into derivatives for trading or other speculative purposes, nor do we use leveraged financial instruments.

Although we attempt to manage our foreign currency exchange risk through the above activities, when the U.S. dollar weakens against other currencies in which we transact our business, generally sales and net income will be positively but not proportionately impacted.

Credit Risk

We are 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 $167.4 million in 2004, $132.1 million in 2003 and $107.6 million in 2002. The increase in cash flow from operations in 2004 compared with 2003 was primarily the result of increased net income, continued strong accounts receivable collection performance, improved inventory control and higher accrued expenses.

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Despite higher sales volume, accounts receivable declined approximately $1.6 million in 2004 compared with 2003 due to improved cash collections. The decrease in accounts receivable resulted in days sales outstanding (“DSO”) improving from 71 days at December 31, 2003 to 70 days at December 31, 2004, as measured in constant currencies. The improvement resulted from a higher mix of receivables in the United States where we benefit from a shorter customer payment cycle and continued strong collection performance. We believe that our DSO will continue at about the current level.

Inventory decreased approximately $1.5 million from December 31, 2003 to December 31, 2004. The decrease resulted from manufacturing and supply chain management programs put in place during the second half of the year that are aimed at better matching material acquisition and production to product demand.

Accrued liabilities increased $8.8 million from December 31, 2003 to December 31, 2004. Approximately $5.3 million was related to various employee compensation accruals related to improved business performance. In addition, at December 31, 2004, approximately $2.3 million was accrued for severance costs related to the departure of Francis J. Lunger, former CEO and President of Millipore.

The increase in cash flow from operations in 2003 compared with 2002 was primarily the result of increased net income, strong accounts receivable collection performance, higher accrued expenses offset by increased purchases and production of inventory. Accounts receivable declined approximately $3.5 million in 2003 compared with 2002 due to improved cash collections. The decrease in accounts receivable resulted in days sales outstanding improving from 77 days at December 31, 2002 to 71 days at December 31, 2003, as measured in constant currencies. The improvement occurred primarily in the United States and Europe. Inventory increased approximately $11.1 million from December 31, 2002 to December 31, 2003. This increase was primarily a result of planned stockpiling initiatives for key raw materials in anticipation of 2004 and 2005 sales. Accrued liabilities increased $4.7 million from December 31, 2002 to December 31, 2003. Approximately $6.3 million of the total $7.3 million of severance remained in accrued liabilities at December 31, 2003 as we reduced our global workforce by 78 employees during the fourth quarter of 2003. These accrued severance payments were made during 2004.

The cash flow that we generated from operations during 2004 was used for the purchase of property, plant and equipment and repayment of debt. During 2004, we purchased $63.7 million of property, plant and equipment as compared to $71.9 million of property, plant and equipment purchases in 2003. The 2004 and 2003 additions were driven principally by our continued need to upgrade and add manufacturing capacity. We completed the construction of our new, state-of-the-art filtration membrane manufacturing facility in Jaffrey, New Hampshire and substantially completed our new administrative facility in France. During 2005, we expect to spend in the range of $85 to $90 million on capital expenditures.

There were various capital programs in progress at December 31, 2004 which we anticipate substantially completing during 2005. An exception is a manufacturing facility in Ireland. During 2002 and 2003, we invested a cumulative total of $10.5 million of a planned $38.4 million project (at the December 31, 2004 actual rate of exchange) to expand manufacturing capacity of a core consumable product line in a building adjacent to our existing manufacturing facility in Ireland. We have delayed the completion of this facility as existing manufacturing capacity supplemented with our strategic inventory supply program can meet the expected demand of this product line through 2010. We currently expect to resume construction of this facility in 2007 as there is a three year lead time before the project can be completed and consumable output validated for use in our products. This facility is now a vacant multipurpose building shell. If necessary, this facility could be used for the manufacturing of alternative products.

During 2004 and 2003, we received $30.3 million and $13.7 million, respectively, from employees exercising stock options and purchasing shares of our common stock in accordance with our Employees’ Stock Purchase Plan (“ESPP”). Effective February 2005, we discontinued the ESPP.

Operating cash flows were also used to repay debt. In 2004, we repaid the $75.0 million 7.23% note that became due in March 2004 and repaid $69.0 million of borrowings under our revolving line of credit. In 2003, we reduced borrowings under our revolving line of credit by $44.5 million. We expect to continue using cash flows from operations to invest in capital projects, to reduce debt and/or to fund possible acquisitions.

We have 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 our ability and intent to continuously refinance such borrowings under our revolving credit agreement, short-term borrowings expected to be refinanced, including $47.0 million of amounts outstanding at December 31, 2004, have been classified as long-term. Interest is payable on outstanding borrowings at a floating rate defined in the

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agreement as Eurocurrency rate plus a margin. The weighted average interest rate on outstanding borrowings was 3.1% as of December 31, 2004. 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 our debt rating. During the fourth quarter of 2003, a leading debt rating agency upgraded our rating. In the first quarter of 2004, another leading agency reaffirmed their rating with a positive outlook. The credit agreement calls for us to maintain certain financial covenants in the areas of leverage ratios and interest coverage. We are compliant with all required covenants.

We maintain various pension and postretirement plans for the benefit of our employees. At December 31, 2004, our U.S. pension plan and postretirement benefit plans were under-funded relative to their accumulated benefit obligations by $7.0 million and $11.3 million, respectively. We anticipate funding for these plans will be approximately $1.8 million over the next twelve months. At December 31, 2004, our international retirement plans were under-funded by $16.0 million. We anticipate funding for these plans will be approximately $0.7 million in 2005. Fluctuations in the fair market value of assets related to these plans will affect pension expense in future years.

We believe that our balances of cash and cash equivalents, our ready access to capital markets for competitively priced instruments and cash flows expected to be generated by future operating activities will be sufficient to meet our operating cash requirements over the next twelve to twenty-four months.

The following table summarizes our minimum future payments under our contractual obligations at December 31, 2004: