<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 1-5542
THE DEXTER CORPORATION
(Exact name of registrant as specified in its charter)
CONNECTICUT 06-0321410
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE ELM STREET, WINDSOR LOCKS, CONNECTICUT 06096
(Address of principal executive offices) (Zip Code)
(860) 292-7675
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last
report.)
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS Outstanding at October 31, 1996
COMMON STOCK, PAR VALUE $1 23,792,186 SHARES
<PAGE> 2
PART I
FINANCIAL INFORMATION
Item 1 - Financial Statements
Reference is made to the following consolidated financial
statements which are incorporated herein by reference:
(a) Exhibit 99a - Condensed Statement of Income for the three
months and nine months ended September 30, 1996 and 1995.
(b) Exhibit 99b - Condensed Statement of Financial Position as of
September 30, 1996, December 31, 1995, and September 30, 1995.
(c) Exhibit 99c - Condensed Statement of Cash Flows for the nine
months ended September 30, 1996 and 1995.
(d) Exhibit 99d - Net Sales by Market for the three months and
nine months ended September 30, 1996 and 1995.
(e) Exhibit 99e - Notes to Consolidated Financial Statements.
The unaudited financial data included herein as of September 30,
1996 and 1995, and for the three and nine month periods then ended,
have been reviewed by the registrant's independent public
accountants, Coopers & Lybrand L.L.P., and their report is
attached.
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
The Company reported that earnings for the third quarter of 1996
increased 25% to a record $11.7 million from earnings of $9.4
million in the third quarter of 1995. Earnings per share increased
28% to $.50 per share from $.39 per share in the third quarter of
1995 on sales which were essentially even with last year. Compared
with the third quarter of 1995, the increase in earnings per share
includes the favorable impact of approximately $.16 per share from
the net effect of lower raw material costs and selling price
increases. This was somewhat offset by a $.01 per share unfavorable
effect of currency exchange rates and $.01 per share unfavorable
effect from a higher effective tax rate compared with the third
quarter of 1995, and a less favorable sales mix.
Sales for the third quarter of 1996 were $269.5 million compared
with sales of $268.5 million in the third quarter of 1995. A 4%
increase in unit volume was offset by a 3% decrease due to net
acquisition and divestiture activity and a 1% decrease due to the
effect of lower currency translation rates on international sales.
Sales for the nine-month period ended September 30, 1996, were
$832.4 million, a 2% increase compared with sales of $818.3 million
for the same period last year. This increase includes a 3% increase
due to unit volume, selling price increases averaging 1%, a 1%
<PAGE> 3
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations, continued
decrease due to the effect of lower currency translation rates on
international sales, and a 1% decrease due to the net effect of
acquisitions and divestitures.
Earnings for the nine-month period of 1996, excluding the net gain
from the second quarter 1996 disposal of product lines, were a
record $36.4 million, or $1.53 per share. This represents a 14%
increase in earnings and 17% increase in earnings per share,
compared with results for the first nine months of 1995 of $31.8
million, or $1.31 per share. This 17% increase in earnings per
share includes the favorable net effect of selling price increases
and lower raw material costs of approximately $.34 per share
compared with the nine-month period last year. This was somewhat
offset by the effect of unfavorable currency exchange rates of $.04
per share due to the strengthening of the U.S. dollar against
international currencies and an unfavorable product mix. Total
earnings for the nine-month period, including the gain on divested
product lines of $.04 per share, were $37.3 million, or $1.57 per
share.
Products with strong sales in the third quarter and first nine
months of 1996 include aerospace materials, magnetic materials, and
products at Life Technologies, Inc. Products with weaker
performance in the third quarter and first nine months compared
with last year include electronic packaging products for the
semiconductor industry and food and beverage can coatings serving
the international markets.
Consolidated gross margin of 34.3% of net sales in the third
quarter of 1996 improved 2.8 percentage points from 31.5% in the
third quarter of 1995. Approximately three-quarters of this
improvement was from Dexter operations, primarily resulting from
lower raw material costs compared with the third quarter last year.
The remaining improvement was attributable to increased gross
margin on fetal bovine serum and higher gross margin on sales of
product in Japan at Life Technologies, Inc. On a year-to-date
basis, consolidated gross margin improved 2.5 percentage points
compared with 1995, approximately half of this improvement was from
Dexter operations resulting from the net favorable impact of
selling price increases and raw material cost decreases.
Marketing and administrative cost increased $2.8 million, or 5%,
for the third quarter of 1996 and $13.1 million, or 8%, for the
first nine months of 1996. This increase in each period was
principally due to increased marketing and administrative expenses
at Life Technologies, Inc., which included the consolidation of
results from the 1995 acquisition of a controlling interest in
their Japanese subsidiary.
Other income was $3.2 million for the third quarter of 1996, an
increase of $.9 million, or 40% from the third quarter of 1995.
This increase is primarily due to higher net equity income from
companies owned 50% or less.
<PAGE> 4
PART II
OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibit 4 - Rights Agreement dated August 23, 1996 between the
registrant and ChaseMellon Shareholders Service L.L.C. was filed as
Exhibit 4 to Form 8-K, which was filed with the Securities and
Exchange Commission on September 9, 1996, and is hereby incorporated
herein by reference.
Exhibit 15 of Part 1 - Letter to Securities and Exchange Commission
re: Incorporation of Accountants' Report
Exhibit 27 of Part 1 - Financial Data Schedule
Exhibit 99 of Part 1 - Third Quarter 1996 Financial Statements and
Notes
(b) On September 9,1996, the registrant filed a Form 8-K covering a new
rights agreement with ChaseMellon Shareholders Services L.L.C..
<PAGE> 5
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE DEXTER CORPORATION
November 12, 1996 /s/ Kathleen Burdett
Date........................... ...................................
Kathleen Burdett
Vice President and
Chief Financial Officer
(Principal Financial Officer)
November 12, 1996 /s/ George Collin
Date........................... .................................
George Collin
Controller
(Principal Accounting Officer)
<PAGE> 6
INDEX TO EXHIBITS
Exhibit No.
15 Letter to Securities and Exchange Commission re: Incorporation of
Accountants' Report
27 Financial Data Schedule
99 Third Quarter 1996 Financial Statements and Notes
<PAGE> 1
Exhibit 15
Securities and Exchange Commission
450 5th Street, N.W.
Judiciary Plaza
Washington, D.C. 20549
We are aware that our report dated October 10, 1996, on our review of the
interim financial information of The Dexter Corporation as of September 30, 1996
and 1995, and for the three and nine month periods then ended, and included in
this Form 10-Q is incorporated by reference in the company's registration
statements on Form S-8, Registration Nos. 2-63959, 33-27597, 33-53307, 33-53309,
333-02985, and 333-04081. Pursuant to Rule 436(c) under the Securities Act of
1933, this report should not be considered a part of the registration statements
prepared or certified by us within the meaning of Sections 7 and 11 of that Act.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Springfield, Massachusetts
November 7, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Statement of Financial Position and Condensed Statement of Income and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 82,356
<SECURITIES> 0
<RECEIVABLES> 189,515
<ALLOWANCES> 5,489
<INVENTORY> 143,031
<CURRENT-ASSETS> 457,815
<PP&E> 655,272
<DEPRECIATION> 333,360
<TOTAL-ASSETS> 938,107
<CURRENT-LIABILITIES> 210,197
<BONDS> 208,839
0
0
<COMMON> 24,984
<OTHER-SE> 344,793
<TOTAL-LIABILITY-AND-EQUITY> 938,107
<SALES> 832,421
<TOTAL-REVENUES> 840,800
<CGS> 547,278
<TOTAL-COSTS> 547,278
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,671
<INCOME-PRETAX> 74,933
<INCOME-TAX> 26,601
<INCOME-CONTINUING> 37,282
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37,282
<EPS-PRIMARY> 1.57
<EPS-DILUTED> 0
</TABLE>
<PAGE> 1
Exhibit 99a
CONDENSED STATEMENT OF INCOME THE DEXTER CORPORATION
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
In thousands of dollars Three Months Ended September 30 Nine Months Ended September 30
---------------------------------------- -----------------------------------
(except per share amounts) 1996 1995 Change 1996 1995 Change
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Net sales $ 269,493 $ 268,467 $ 832,421 $ 818,251 + 2%
Other income 3,182 2,272 +40% 8,379 8,210 + 2%
--------- --------- --------- ---------
272,675 270,739 +1% 840,800 826,461 + 2%
EXPENSES
Cost of sales 176,997 183,910 - 4% 547,278 558,139 - 2%
Marketing and administrative 54,755 51,950 + 5% 167,149 154,087 + 8%
Research and development 12,470 11,931 + 5% 38,488 37,286 + 3%
Interest 4,929 5,203 - 5% 15,671 15,562 + 1%
Gain on divestiture of product lines (2,719)
--------- --------- --------- ---------
INCOME BEFORE TAXES 23,524 17,745 +33% 74,933 61,387 +22%
Income taxes 8,351 6,081 +37% 26,601 21,792 +22%
--------- --------- --------- ---------
INCOME BEFORE MINORITY INTERESTS 15,173 11,664 +30% 48,332 39,595 +22%
Minority interests 3,432 2,265 +52% 11,050 7,776 +42%
--------- --------- --------- ---------
NET INCOME $ 11,741 $ 9,399 +25% $ 37,282 $ 31,819 +17%
========= ========= ========= =========
NET INCOME PER SHARE $ 0.50 $ 0.39 +28% $ 1.57 $ 1.31 +20%
DIVIDENDS DECLARED PER SHARE $ 0.22 $ 0.22 $ 0.66 $ 0.66
AVERAGE SHARES OUTSTANDING (000) 23,545 24,377 - 3% 23,733 24,369 - 3%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE> 2
EXHIBIT 99b
THE DEXTER CORPORATION
CONDENSED STATEMENT OF FINANCIAL POSITION
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
In thousands of dollars SEPTEMBER 30 December 31 September 30
(except per share amounts) ------------------------------------------------
1996 1995 1995
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and short-term securities $ 82,356 $ 65,542 $ 61,551
Accounts receivable, net 200,546 201,389 206,793
Inventories
Materials and supplies 57,085 60,099 61,722
In process and finished 107,177 121,644 120,456
LIFO reserve (21,231) (24,709) (24,669)
--------- --------- ---------
143,031 157,034 157,509
Prepaid and deferred expenses 31,882 32,756 29,955
--------- --------- ---------
Total current assets 457,815 456,721 455,808
Property, plant and equipment, at cost, net 321,912 325,203 324,751
Excess of cost over net assets of
businesses acquired 74,805 74,102 74,841
Other assets 83,575 78,135 78,525
--------- --------- ---------
$ 938,107 $ 934,161 $ 933,925
========= ========= =========
LIABILITIES & SHAREHOLDERS' EQUITY
Short-term debt $ 5,501 $ 13,598 $ 8,917
Current installments of long-term debt 12,649 13,648 9,298
Accounts payable 81,568 92,447 86,992
Accrued liabilities and taxes 104,089 81,659 90,203
Current environmental reserves 1,207 1,395 1,654
Dividends payable 5,183 5,351 5,363
--------- --------- ---------
Total current liabilities 210,197 208,098 202,427
Long-term debt 208,839 215,839 224,017
Deferred items 48,316 48,492 48,261
Long-term environmental reserves 15,219 15,745 15,798
Minority interests 85,759 76,372 73,186
Shareholders' equity
Common stock and paid-in capital 34,768 35,116 34,635
Retained earnings 369,212 347,544 344,136
Currency translation effects (3,185) 1,614 1,263
Treasury stock (31,018) (14,659) (9,798)
--------- --------- ---------
Total shareholders' equity 369,777 369,615 370,236
--------- --------- ---------
$ 938,107 $ 934,161 $ 933,925
========= ========= =========
EQUITY PER SHARE $ 15.69 $ 15.26 $ 15.19
- ---------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE> 3
EXHIBIT 99c
THE DEXTER CORPORATION
<TABLE>
<CAPTION>
CONDENSED STATEMENT OF CASH FLOWS
- ------------------------------------------------------------------------------------------
Nine Months Ended September 30
--------------------------------
In thousands of dollars 1996 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net income $ 37,282 $ 31,819
Noncash items
Depreciation and amortization 33,537 33,123
Gain on divestiture of product lines (2,719)
Income taxes not due 10,839 3,594
Minority interests 11,050 7,776
LIFO inventory (credit) charge (3,478) 1,841
Equity in net income of affiliates (3,196) (1,541)
Other 3,658 (1,230)
Operating working capital increase (2,886) (39,507)
-------- --------
84,087 35,875
-------- --------
INVESTMENTS
Property, plant and equipment (38,455) (21,199)
Acquisitions (16,198) (424)
Divestitures 34,913
Joint ventures 4,047 (2,942)
Notes receivable 200 3,150
Proceeds from exercise of LTI stock options 1,736 2,299
Other (4,053) 1,329
-------- --------
(17,810) (17,787)
-------- --------
FINANCING
Long-term debt (6,576) (656)
Short-term debt, net (8,035) 4,116
Dividends paid (15,782) (16,078)
LTI dividends paid to minority interest shareholders (1,133) (1,026)
Purchase of treasury stock (21,434)
Other 3,718 (178)
-------- --------
(49,242) (13,822)
-------- --------
INCREASE IN CASH AND SHORT-TERM SECURITIES $ 17,035 $ 4,266
======== ========
RECONCILIATION OF INCREASE IN
CASH AND SHORT-TERM SECURITIES
Cash and short-term securities at beginning of period $ 65,542 $ 55,012
Cash and short-term securities at end of period 82,356 61,551
-------- --------
Increase in cash and short-term securities
per Statement of Financial Position 16,814 6,539
Currency translation effects 221 (139)
Cash included from consolidation of a subsidiary
which became majority-owned in 1995 (2,134)
-------- --------
$ 17,035 $ 4,266
======== ========
INTEREST PAID $ 16,338 $ 12,568
======== ========
TAXES PAID $ 15,762 $ 18,198
======== ========
- ------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE> 4
EXHIBIT 99d
<TABLE>
<CAPTION>
NET SALES BY MARKET THE DEXTER CORPORATION
- ----------------------------------------------------------------------------------------------------------------------------------
Three Months Ended September 30 Nine Months Ended September 30
--------------------------------------- ---------------------------------------------
In thousands of dollars 1996 1995 Change 1996 1995 Change
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AEROSPACE $ 13,102 $ 10,776 +22% $ 37,635 $ 34,083 +10%
ELECTRONICS 47,136 47,905 - 2% 144,614 141,084 + 3%
FOOD PACKAGING (1) 68,276 69,898 - 2% 205,781 214,722 - 4%
MEDICAL (2) 102,111 90,516 +13% 303,396 272,104 +12%
OTHER (3) (4) 38,868 49,372 -21% 140,995 156,258 -10%
-------- -------- ---------- ---------
CONSOLIDATED $269,493 $268,467 $ 832,421 $818,251 + 2%
======== ======== ========== =========
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The effect of businesses acquired increased net sales to the Food
Packaging market by $0.7 million, or 1%, for the quarter, and $1.4
million, or 1%, year-to-date.
(2) The effect of businesses acquired increased net sales to the Medical
market by $2.0 million, or 2%, for the quarter, and $9.5 million, or
3%, year-to-date.
(3) The effect of businesses divested decreased net sales in the "Other"
category by $10.8 million, or 22%, for the quarter, and $17.3 million,
or 11%, year-to-date.
(4) Sales previously classified in the Automotive market are now included
in the "Other" category.
<PAGE> 5
Exhibit 99e
The Dexter Corporation
Notes to Consolidated Financial Statements
Note 1 - In the opinion of company's management, the unaudited financial
statements reflect adjustments of a normal recurring nature which
are necessary to present a fair statement of the results for the
interim periods. The notes to the consolidated financial
statements including management's discussion in Part 1, Item 2 of
this Form 10-Q are incorporated as part of these consolidated
financial statements. The year-end condensed balance sheet data
was derived from audited financial statements.
Note 2 - Net income per share figures in the consolidated Condensed
Statement of Income are based on the weighted average number of
shares outstanding as indicated for each period. No effect has
been given to stock options or restricted stock awards
outstanding as no dilutive effect would result from the inclusion
of these items.
Note 3 - The following are included as components of Common Stock and
Paid-in Capital.
<TABLE>
<CAPTION>
COMMON STOCK & PAID-IN CAPITAL SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
(IN THOUSANDS OF DOLLARS) 1996 1995 1995
- ------------------------------ ------------- ------------ -------------
<S> <C> <C> <C>
Common stock $24,984 $24,984 $24,984
Paid-in capital 13,938 12,316 12,443
Unrealized losses on
investments (350) (128) (247)
Unearned compensation on
restricted stock (3,331) (1,583) (2,545)
Pension liability adjustment (473) (473)
--------- --------- ---------
$34,768 $35,116 $34,635
======= ======= =======
</TABLE>
<PAGE> 6
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
The Dexter Corporation
We have reviewed the accompanying condensed statement of financial position of
The Dexter Corporation as of September 30, 1996 and 1995, and the related
condensed statement of income for the three and nine month periods ended
September 30, 1996 and 1995, and the condensed statement of cash flows for the
nine month periods then ended. These financial statements are the responsibility
of the company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated statement of financial position of The Dexter
Corporation as of December 31, 1995, and the related consolidated statements of
income, cash flows, and changes in shareholders' equity for the year then ended
(not presented herein); and in our report dated February 1, 1996, we expressed
an unqualified opinion on those consolidated financial statements. In our
opinion, the information set forth in the accompanying condensed statement of
financial position as of December 31, 1995, is fairly stated, in all material
respects, in relation to the consolidated statement of financial position from
which it has been derived.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Springfield, Massachusetts
October 10, 1996
