<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 September 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.
<TABLE>
<CAPTION>
CLASS Outstanding at October 31, 1997
<S> <C>
COMMON STOCK, PAR VALUE $1 23,162,255 SHARES
</TABLE>
<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, 1997 and 1996.
(b) Exhibit 99b -- Condensed Statement of Financial Position as of
September 30, 1997, December 31, 1996, and September 30, 1996.
(c) Exhibit 99c -- Condensed Statement of Cash Flows for the nine
months ended September 30, 1997 and 1996.
(d) Exhibit 99d -- Net Sales by Market for the three months and
nine months ended September 30, 1997 and 1996.
(e) Exhibit 99e -- Notes to Consolidated Financial Statements.
The unaudited financial data included herein as of September 30,
1997 and 1996, 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
Analysis of Operations
The Company reported that earnings per share increased 24% to $.62 per share
from $.50 per share in the third quarter of 1996 on a sales increase of 6%.
Earnings increased 21% to a third quarter record of $14.2 million from $11.7
million in the same period last year.
Sales of $286.9 million were a third quarter record and increased 6% compared
with sales of $269.5 million in the third quarter last year. A strong 8%
increase in unit volume and a 2% increase due to acquisitions were partially
offset by a 4% unfavorable effect of currency translation rates.
Sales for the nine-month period ended September 30, 1997, were $852.4 million, a
2% increase compared with sales of $832.4 million for the same period last year.
An increase in unit volume of 6% was partially offset by a 3% unfavorable effect
of currency translation rates and a 1% decrease due to the net effect of
acquisitions and divestitures.
<PAGE> 3
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations, continued
Earnings for the nine-month period of 1997 were a record $43.1 million, or $1.87
per share. This represents a 19% increase in earnings from operations and a 22%
increase in earnings per share from operations compared with the results from
operations for the same period last year of $36.3 million, or $1.53 per share.
Total net income for the nine months ended September 30, 1996, of $37.3 million,
or $1.57 per share, included a $.04 per share gain from the disposal of product
lines.
Products with strong performance in the third quarter and nine months ended
September 30, 1997 include aerospace adhesive materials, electronic
encapsulation materials, nonwoven materials serving the European food market,
and sales of products at Life Technologies, Inc. Products with weaker
performance for the quarter and year-to-date include food and beverage can
coatings serving international markets and medical nonwoven materials in the
domestic market.
Consolidated gross margin of 36.3% of net sales in the third quarter of 1997
improved 2.0 percentage points from 34.3% in the same period last year. This 2.0
percentage point improvement resulted from strong volume, favorable product mix,
and productivity improvements at both wholly owned Dexter businesses and at Life
Technologies, Inc. Gross margin on a year-to-date basis was 36%, a 1.7
percentage point improvement over the same period last year.
Marketing and administrative costs increased $4.9 million, or 9%, in the third
quarter, principally due to costs associated with recently acquired businesses
and increased costs at Life Technologies, Inc. On a year-to-date basis,
marketing and administrative costs increased 5%, mostly due to Life
Technologies, Inc.
Other income for the third quarter of 1997 decreased $.8 million, or 26%, due to
lower total equity income resulting from the divestiture of D & S Plastics
International, which was effective April 1, 1997.
<PAGE> 4
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations, continued
Analysis of Financial Condition
Other assets as of September 30, 1997 were $49.1 million, a decrease of $38.1
million and $34.5 million compared with December 31, 1996 and September 30,
1996, respectively. These decreases were primarily due to the divestiture of the
Company's 50% equity interest in D & S Plastics International, which was
effective April 1, 1997.
Current installments of long-term debt as of September 30, 1997 were $31.6
million, an increase of $19.3 million and $18.9 million compared with December
31, 1996 and September 30, 1996, respectively. These increases principally
relate to the Company's 9.25% sinking fund debentures and are due to a
prepayment of $15 million which will occur in November 1997 and a prepayment of
$5 million to be made in December 1997. Long-term debt of $168.5 million as of
September 30, 1997 decreased $41.5 million and $40.4 million compared with
December 31, 1996 and September 30, 1996, respectively. These decreases were
primarily due to the abovementioned reclasses to current installments of
long-term debt and a $15 million prepayment in August 1997 of the Company's
9.25% sinking fund debentures.
Treasury stock as of September 30, 1997 was $52.5 million, an increase of $16.8
million compared with $35.7 million at December 31, 1996 and an increase of
$21.5 million compared with $31 million at September 30, 1996. In 1997, the
Company purchased 671,200 shares of its outstanding common stock at an average
price of $30.54 per share. In the fourth quarter 1996, the Company purchased
160,400 shares of its outstanding common stock at an average of $32.54 per
share.
<PAGE> 5
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 -- Third 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> 6
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
(Registrant)
November 7, 1997 /s/ Kathleen Burdett
Date___________________________ ___________________________________
Kathleen Burdett
Vice President and
Chief Financial Officer
(Principal Financial Officer)
<PAGE> 7
INDEX TO EXHIBITS
Exhibit No.
15 Letter to Securities and Exchange Commission re: Incorporation
of Accountants' Report
27 Financial Data Schedule
99 Third 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 October 15, 1997, on our review of the
interim financial information of The Dexter Corporation as of September 30, 1997
and 1996, 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, 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>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 86,501
<SECURITIES> 0
<RECEIVABLES> 196,585
<ALLOWANCES> 5,966
<INVENTORY> 160,851
<CURRENT-ASSETS> 483,245
<PP&E> 701,220
<DEPRECIATION> 357,919
<TOTAL-ASSETS> 952,037
<CURRENT-LIABILITIES> 249,409
<BONDS> 168,459
0
0
<COMMON> 24,984
<OTHER-SE> 342,652
<TOTAL-LIABILITY-AND-EQUITY> 952,037
<SALES> 852,413
<TOTAL-REVENUES> 861,688
<CGS> 545,300
<TOTAL-COSTS> 545,300
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,585
<INCOME-PRETAX> 84,557
<INCOME-TAX> 30,441
<INCOME-CONTINUING> 43,112
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 43,112
<EPS-PRIMARY> 1.87
<EPS-DILUTED> 0
</TABLE>
<PAGE> 1
EXHIBIT 99a
CONDENSED STATEMENT OF INCOME THE DEXTER CORPORATION
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Three Months Ended September 30 Nine Months Ended September 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 $286,928 $269,493 + 6% $852,413 $832,421 + 2%
Other income 2,349 3,182 -26% 9,275 8,379 +11%
-------- -------- -------- --------
289,277 272,675 + 6% 861,688 840,800 + 2%
EXPENSES
Cost of sales 182,758 176,997 + 3% 545,300 547,278
Marketing and administrative 59,698 54,755 + 9% 175,747 167,149 + 5%
Research and development 13,442 12,470 + 8% 40,499 38,488 + 5%
Interest 5,287 4,929 + 7% 15,585 15,671 - 1%
Gain on divestiture of product
lines (2,719)
-------- -------- -------- --------
INCOME BEFORE TAXES 28,092 23,524 +19% 84,557 74,933 +13%
Income taxes 10,113 8,351 +21% 30,441 26,601 +14%
-------- -------- -------- --------
INCOME BEFORE MINORITY INTERESTS 17,979 15,173 +18% 54,116 48,332 +12%
Minority interests 3,736 3,432 + 9% 11,004 11,050
-------- -------- -------- --------
NET INCOME $ 14,243 $ 11,741 +21% $ 43,112 $ 37,282 +16%
======== ======== ======== ========
NET INCOME PER SHARE $0.62 $0.50 +24% $1.87 $1.57 +19%
DIVIDENDS DECLARED PER SHARE $0.24 $0.22 + 9% $0.72 $0.66 + 9%
AVERAGE SHARES OUTSTANDING (000) 22,914 23,545 - 3% 23,037 23,733 - 3%
- ---------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the consolidated financial statements.
Amounts are unaudited.
<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) -------------------------------------------
1997 1996 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and short-term securities $ 86,501 $103,420 $ 82,356
Accounts receivable, net 203,265 178,093 200,546
Inventories
Materials and supplies 59,860 58,290 57,085
In process and finished 119,622 110,457 107,177
LIFO reserve (18,631) (19,836) (21,231)
-------- -------- --------
160,851 148,911 143,031
Prepaid and deferred expenses 32,628 29,987 31,882
-------- -------- --------
Total current assets 483,245 460,411 457,815
Property, plant and equipment, at cost, net 343,301 334,266 321,912
Excess of cost over net assets of
business acquired 76,373 71,906 74,805
Other assets 49,118 87,221 83,575
-------- -------- --------
$952,037 $953,804 $938,107
======== ======== ========
LIABILITIES & SHAREHOLDERS' EQUITY
Short-term debt $ 3,705 $ 5,111 $ 5,501
Current installments of long-term debt 31,553 12,297 12,649
Accounts payable 98,045 91,855 81,568
Accrued liabilities and taxes 108,381 101,691 104,089
Current environmental reserves 2,223 1,358 1,207
Dividends payable 5,502 5,170 5,183
-------- -------- --------
Total current liabilities 249,409 217,482 210,197
Long-term debt 168,459 209,952 208,839
Deferred items 51,394 46,874 48,316
Long-term environmental reserves 14,154 14,978 15,219
Minority interests 100,985 90,403 85,759
Shareholders' equity
Common stock and paid-in capital 36,893 36,495 34,768
Retained earnings 402,034 375,480 369,212
Currency translation effects (18,767) (2,187) (3,185)
Treasury stock (52,524) (35,673) (31,018)
-------- -------- --------
Total shareholders' equity 367,636 374,115 369,777
-------- -------- --------
$952,037 $953,804 $938,107
======== ======== ========
EQUITY PER SHARE $16.04 $15.94 $15.69
- ----------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the consolidated financial statements.
Amounts as of September 30, 1997 and September 30, 1996 are unaudited.
<PAGE> 3
EXHIBIT 99c
THE DEXTER CORPORATION
<TABLE>
<CAPTION>
CONDENSED STATEMENT OF CASH FLOWS
- -----------------------------------------------------------------------------------------
Nine Months Ended September 30
------------------------------
In thousands of dollars 1997 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net income $ 43,112 $ 37,282
Noncash items
Depreciation and amortization 33,955 33,537
Gain on divestiture of product lines (2,719)
Income taxes not due 1,453 10,839
Minority interests 11,004 11,050
LIFO inventory credit (1,205) (3,478)
Equity in net income of affiliates (3,520) (3,196)
Other 674 3,658
Operating working capital increase (27,508) (2,886)
--------- --------
57,965 84,087
--------- --------
INVESTMENTS
Property, plant and equipment (45,092) (38,455)
Acquisitions (20,661) (16,198)
Divestitures 41,539 34,913
Joint ventures 2,102 4,047
Proceeds from exercise of LTI stock options 3,164 1,736
Other 3,258 (3,853)
--------- --------
(15,690) (17,810)
--------- --------
FINANCING
Long-term debt (21,197) (6,576)
Short-term debt, net (1,256) (8,035)
Dividends paid (16,226) (15,782)
LTI dividends paid to minority interest shareholders (1,307) (1,133)
Purchase of treasury stock (20,517) (21,434)
Other 3,069 3,718
--------- --------
(57,434) (49,242)
--------- --------
(DECREASE) INCREASE IN CASH AND SHORT-TERM SECURITIES $ (15,159) $ 17,035
========= ========
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 86,501 82,356
--------- --------
(Decrease) Increase in cash and short-term securities
per Statement of Financial Position (16,919) 16,814
Currency translation effects 1,760 221
--------- --------
$ (15,159) $ 17,035
========= ========
INTEREST PAID $ 14,178 $ 16,338
TAXES PAID $ 28,988 $ 15,762
- ----------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the consolidated financial statements.
Amounts are unaudited.
<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 1997 1996 Change 1997 1996 Change
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AEROSPACE $ 15,906 $ 13,102 + 21% $ 45,090 $ 37,635 + 20%
ELECTRONICS 55,577 47,136 + 18% 159,426 144,614 + 10%
FOOD PACKAGING (1) 70,522 68,276 + 3% 207,800 205,781 + 1%
MEDICAL 106,031 102,111 + 4% 320,597 303,396 + 6%
OTHER (2) 38,892 38,868 119,500 140,995 - 15%
---------- ----------- ----------- ---------
CONSOLIDATED $ 286,928 $ 269,493 + 6% $ 852,413 $ 832,421 + 2%
========== =========== =========== =========
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The effect of businesses acquired increased net sales to the Food
Packaging market by $5.1 million, or 8%, for the quarter, and $12.9
million, or 6%, year-to-date.
(2) The effect of businesses divested decreased net sales in the "Other"
category by $19.3 million, or 14%, year-to-date.
Amounts are unaudited.
<PAGE> 5
Exhibit 99e
The Dexter Corporation
Notes to Consolidated Financial Statements
Note 1 -- In the opinion of the 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 the 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.
Note 3 -- 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
nine month periods ended September 30, 1997 and 1996 is not
expected to be material.
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income and Statement of Financial Accounting
Standards No. 131, Disclosures about Segments of an Enterprise
and Related Information (the "Statements"), which become
effective for financial statements for periods beginning after
December 15, 1997. The Company is currently evaluating the impact
of these Statements on its financial reporting practices.
Note 4 -- 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) 1997 1996 1996
- ------------------------------ -------- -------- --------
<S> <C> <C> <C>
Common stock $ 24,984 $ 24,984 $ 24,984
Paid-in capital 17,111 14,669 13,938
Unrealized losses on
investments (427) (174) (350)
Unearned compensation on
restricted stock (4,571) (2,780) (3,331)
Pension liability adjustment (204) (204) (473)
-------- -------- --------
$ 36,893 $ 36,495 $ 34,768
======== ======== ========
</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, 1997 and 1996, and the related
condensed statement of income for the three and nine month periods then ended,
and 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, 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
October 15, 1997
