<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 June 30, 1997
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 July 31, 1997
- -------------------------- ----------------------------
COMMON STOCK, PAR VALUE $1 23,140,476 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 six months ended June 30, 1997 and 1996.
(b) Exhibit 99b - Condensed Statement of Financial Position as of
June 30, 1997, December 31, 1996, and June 30, 1996.
(c) Exhibit 99c - Condensed Statement of Cash Flows for the six
months ended June 30, 1997 and 1996.
(d) Exhibit 99d - Net Sales by Market for the three months and six
months ended June 30, 1997 and 1996.
(e) Exhibit 99e - Notes to Consolidated Financial Statements.
The unaudited financial data included herein as of June 30, 1997
and 1996, and for the three and six 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 from operations for the second quarter of
1997 were an all time record of $16 million, or $.70 per share. This represents
a 23% increase over the comparable earnings per share from operations of $.57 in
the same period of 1996. Total net income for the second quarter of 1996 of
$14.4 million, or $.61 per share, included a one-time $1 million, or $.04 per
share, gain from the disposal of product lines.
Sales for the second quarter of 1997 were a record $293.2 million, a 3% increase
compared with sales of $285.7 million in the second quarter last year. A strong
8% gain in unit volume was partially offset by a 3% unfavorable effect of
currency translation rates and a 2% decrease due to the net effect of
acquisitions and divestitures.
Sales for the first six months of 1997 were flat compared to prior year at
$565.5 million. An increase in unit volume of 5% was offset by a 2% decrease due
to the net effect of acquisitions and divestitures, unfavorable effect of
currency translation rates of 2%, and price decreases averaging 1%.
<PAGE> 3
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations, continued
Earnings for the first six months of 1997 were a record $28.9 million, or $1.25
per share. This represents an 18% increase in earnings and a 21% increase in
earnings per share from operations compared with the results from operations for
the first half of 1996 of $24.6 million, or $1.03 per share. Total net income
for the six months of 1996 of $25.5 million, or $1.07 per share, included a $.04
per share gain from the disposal of product lines.
Products with a particularly strong performance in the second quarter and first
six months of 1997 include aerospace adhesive materials, electronic
encapsulation materials, and products at Life Technologies, Inc. Although
beverage can coatings serving the international markets were weaker compared to
the same periods last year, these products have demonstrated a strong trend of
improvement through the second quarter.
Consolidated gross margin of 36.1% of net sales in the second quarter of 1997
was the best quarterly gross margin since 1990. The 1.8 percentage point
improvement from 34.3% in the second quarter of 1996 was the combined result of
favorable product mix, strong volume, and productivity improvements at wholly
owned Dexter businesses as well as at Life Technologies, Inc. Gross margin on a
six-month basis was similarly improved at 35.9%, a 1.7 percentage point increase
over the same period last year.
Marketing and administrative costs and R&D expense increased in the second
quarter and first six months primarily due to increased cost at Life
Technologies, Inc.
Other income for the first six months of 1997 was $6.9 million, a 33% increase
over the same period last year. This was principally due to higher equity income
in the first quarter of 1997 from D & S Plastics International, which was
divested effective April 1, 1997, and higher royalty income at Life
Technologies, Inc.
<PAGE> 4
PART II
OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) 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 - Second Quarter 1997 Financial Statements and
Notes
(b) No reports on Form 8-K were filed during the quarter for which
this report was filed.
<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
August 1, 1997 /s/ Kathleen Burdett
Date
------------------------ ---------------------------
Kathleen Burdett
Vice President and
Chief Financial Officer
(Principal Financial Officer)
August 1, 1997 /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 Second Quarter 1997 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 July 16, 1997, on our review of the interim
financial information of The Dexter Corporation as of June 30, 1997 and 1996,
and for the three and six 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
August 1, 1997
<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>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 100,529
<SECURITIES> 0
<RECEIVABLES> 200,504
<ALLOWANCES> 5,876
<INVENTORY> 156,835
<CURRENT-ASSETS> 497,100
<PP&E> 686,772
<DEPRECIATION> 350,244
<TOTAL-ASSETS> 959,847
<CURRENT-LIABILITIES> 248,011
<BONDS> 188,807
0
0
<COMMON> 24,984
<OTHER-SE> 335,687
<TOTAL-LIABILITY-AND-EQUITY> 959,847
<SALES> 565,485
<TOTAL-REVENUES> 572,411
<CGS> 362,542
<TOTAL-COSTS> 362,542
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,298
<INCOME-PRETAX> 56,465
<INCOME-TAX> 20,328
<INCOME-CONTINUING> 28,869
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,869
<EPS-PRIMARY> 1.25
<EPS-DILUTED> 0
</TABLE>
<PAGE> 1
EXHIBIT 99A
THE DEXTER CORPORATION
CONDENSED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
In thousands of dollars ------------------------------------- ------------------------------------
(except per share amounts) 1997 1996 Change 1997 1996 Change
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Net sales $ 293,225 $ 285,701 + 3% $565,485 $562,928
Other income 2,702 3,022 - 11% 6,926 5,197 + 33%
--------- --------- -------- --------
295,927 288,723 + 2% 572,411 568,125 + 1%
EXPENSES
Cost of sales 187,240 187,756 362,542 370,281 - 2%
Marketing and administrative 58,999 56,157 + 5% 116,049 112,394 + 3%
Research and development 13,716 13,175 + 4% 27,057 26,018 + 4%
Interest 5,489 5,376 + 2% 10,298 10,742 - 4%
Gain on divestiture of product lines (2,719) (2,719)
--------- --------- -------- --------
INCOME BEFORE TAXES 30,483 28,978 + 5% 56,465 51,409 + 10%
Income taxes 10,975 10,287 + 7% 20,328 18,250 + 11%
--------- --------- -------- --------
INCOME BEFORE MINORITY INTERESTS 19,508 18,691 + 4% 36,137 33,159 + 9%
Minority interests 3,511 4,298 - 18% 7,268 7,618 - 5%
--------- --------- -------- --------
NET INCOME $ 15,997 $ 14,393 + 11% $ 28,869 $ 25,541 + 13%
========= ========= ======== ========
NET INCOME PER SHARE $ 0.70 $ 0.61 + 15% $ 1.25 $ 1.07 + 17%
DIVIDENDS DECLARED PER SHARE $ 0.24 $ 0.22 + 9% $ 0.48 $ 0.44 + 9%
AVERAGE SHARES OUTSTANDING (000) 22,924 23,657 - 3% 23,099 23,828 - 3%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE> 2
EXHIBIT 99B
THE DEXTER CORPORATION
CONDENSED STATEMENT OF FINANCIAL POSITION
<TABLE>
<CAPTION>
June 30 December 31 June 30
In thousands of dollars -----------------------------------------
(except per share amounts) 1997 1996 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and short-term securities $ 100,529 $ 103,420 $ 75,058
Accounts receivable, net 207,166 178,093 202,586
Inventories
Materials and supplies 58,394 58,290 58,761
In process and finished 117,274 110,457 111,640
LIFO reserve (18,833) (19,836) (22,502)
--------- --------- ---------
156,835 148,911 147,899
Prepaid and deferred expenses 32,570 29,987 33,035
--------- --------- ---------
Total current assets 497,100 460,411 458,578
Property, plant and equipment, at cost, net 336,528 334,266 311,878
Excess of cost over net assets of
businesses acquired 76,305 71,906 73,433
Other assets 49,914 87,221 82,416
--------- --------- ---------
$ 959,847 $ 953,804 $ 926,305
========= ========= =========
LIABILITIES & SHAREHOLDERS' EQUITY
Short-term debt $ 10,610 $ 5,111 $ 3,979
Current installments of long-term debt 26,578 12,297 17,903
Accounts payable 98,147 91,855 83,376
Accrued liabilities and taxes 105,081 101,691 99,371
Current environmental reserves 2,102 1,358 1,268
Dividends payable 5,493 5,170 5,175
--------- --------- ---------
Total current liabilities 248,011 217,482 211,072
Long-term debt 188,807 209,952 208,660
Deferred items 50,460 46,874 47,876
Long-term environmental reserves 14,220 14,978 15,361
Minority interests 97,678 90,403 83,411
Shareholders' equity
Common stock and paid-in capital 36,038 36,495 34,169
Retained earnings 393,293 375,480 362,654
Currency translation effects (15,412) (2,187) (5,206)
Treasury stock (53,248) (35,673) (31,692)
--------- --------- ---------
Total shareholders' equity 360,671 374,115 359,925
--------- --------- ---------
$ 959,847 $ 953,804 $ 926,305
========= ========= =========
EQUITY PER SHARE $ 15.75 $ 15.94 $ 15.30
- ----------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE> 3
EXHIBIT 99C
THE DEXTER CORPORATION
CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended June 30
--------------------------
In thousands of dollars 1997 1996
- -----------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net income $ 28,869 $ 25,541
Noncash items
Depreciation and amortization 22,585 22,903
Gain on divestiture of product lines (2,719)
Income taxes not due 803 10,250
Minority interests 7,268 7,618
LIFO inventory credit (1,003) (2,207)
Equity in net income of affiliates (2,997) (2,076)
Other (74) 3,367
Operating working capital increase (27,310) (12,182)
--------- --------
28,141 50,495
--------- --------
INVESTMENTS
Property, plant and equipment (27,380) (22,942)
Acquisitions (19,175) (12,332)
Divestitures 41,578 34,913
Joint ventures 1,468 3,246
Proceeds from exercise of LTI stock options 2,434 1,250
Other 2,173 (3,656)
--------- --------
1,098 479
--------- --------
FINANCING
Long-term debt (6,160) (1,344)
Short-term debt, net 5,512 (9,570)
Dividends paid (10,733) (10,607)
LTI dividends paid to minority interest shareholders (870) (709)
Purchase of treasury stock (20,517) (21,434)
Other 1,663 2,645
--------- --------
(31,105) (41,019)
--------- --------
(DECREASE) INCREASE IN CASH AND SHORT-TERM SECURITIES $ (1,866) $ 9,955
========= ========
RECONCILIATION OF (DECREASE) INCREASE IN
CASH AND SHORT-TERM SECURITIES
Cash and short-term securities at beginning of period $ 103,420 $ 65,542
Cash and short-term securities at end of period 100,529 75,058
--------- --------
(Decrease) Increase in cash and short-term securities
per Statement of Financial Position (2,891) 9,516
Currency translation effects 1,025 439
--------- --------
$ (1,866) $ 9,955
========= ========
INTEREST PAID $ 9,679 $ 10,741
TAXES PAID $ 19,525 $ 8,000
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
<PAGE> 4
EXHIBIT 99D
THE DEXTER CORPORATION
NET SALES BY MARKET
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
------------------------------- ---------------------------------
In thousands of dollars 1997 1996 Change 1997 1996 Change
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AEROSPACE $ 15,713 $ 12,506 +26% $ 29,184 $ 24,533 +19%
ELECTRONICS 54,018 48,022 +12% 103,849 97,478 + 7%
FOOD PACKAGING (1) 72,454 70,124 + 3% 137,278 137,505
MEDICAL 109,163 102,535 + 6% 214,566 201,285 + 7%
OTHER (2) 41,877 52,514 -20% 80,608 102,127 -21%
-------- -------- -------- --------
CONSOLIDATED $293,225 $285,701 + 3% $565,485 $562,928
======== ======== ======== ========
</TABLE>
- --------------------------------------------------------------------------------
(1) The effect of businesses acquired increased net sales to the Food
Packaging market by $5.1 million, or 7%, for the quarter, and $7.8
million, or 6%, year-to-date.
(2) The effect of businesses divested decreased net sales in the "Other"
category by $10.2 million, or 19%, for the quarter, and $19.3 million,
or 19%, year-to-date.
<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 material dilutive effect
would result from the inclusion of these items.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings per Share
(the "Statement"), which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method
currently used to compute earnings per share and to restate all prior
periods. The impact of the Statement on the calculation of earnings per
share amounts for the three and six month periods ended June 30, 1997
and 1996 is not expected to be material.
Note 3 - The following are included as components of Common Stock and Paid-in
Capital.
<TABLE>
<CAPTION>
COMMON STOCK & PAID-IN CAPITAL JUNE 30, DECEMBER 31, JUNE 30,
(IN THOUSANDS OF DOLLARS) 1997 1996 1996
- ------------------------------ -------- ------------ --------
<S> <C> <C> <C>
Common stock $ 24,984 $ 24,984 $ 24,984
Paid-in capital 16,142 14,669 13,761
Unrealized losses on
investments (375) (174) (490)
Unearned compensation on
restricted stock (4,509) (2,780) (3,613)
Pension liability adjustment (204) (204) (473)
-------- -------- --------
$ 36,038 $ 36,495 $ 34,169
======== ======== ========
</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 June 30, 1997 and 1996, and the related condensed
statement of income for the three and six month periods then ended, and
condensed statement of cash flows for the six month period 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, 1996, 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 4, 1997, we expressed
an opinion which included an explanatory paragraph regarding the adoption of
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of, and SFAS No. 123, Accounting for
Stock-Based Compensation on those consolidated financial statements. In our
opinion, the information set forth in the accompanying condensed statement of
financial position as of December 31, 1996, 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
July 16, 1997
