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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
[x] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the fiscal year ended DECEMBER 31, 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
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THE DEXTER CORPORATION
(Exact name of registrant as specified in its charter)
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CONNECTICUT 06-0321410
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
ONE ELM STREET
WINDSOR LOCKS, CONNECTICUT 06096
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 860-292-7675
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Securities registered pursuant to Section 12(b) of the Act:
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NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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COMMON STOCK, PAR VALUE $1 NEW YORK STOCK EXCHANGE
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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 (sec.229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
Aggregate market value of the registrant's common stock as of February 28, 1997,
held by nonaffiliates of the registrant was $690,046,300.
The number of shares of the registrant's common stock, $1 par value, outstanding
at February 28, 1997 was 23,391,400.
PORTIONS OF THE FOLLOWING DOCUMENTS ARE INCORPORATED BY REFERENCE:
The Dexter Corporation's 1996 Annual Report to Shareholders (Parts I, II and
IV).
Proxy Statement accompanying the notice, dated March 11, 1997, of the annual
meeting of The Dexter Corporation's shareholders to be held on April 24, 1997
(Parts I and III).
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TABLE OF CONTENTS
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PAGE
ITEM NUMBER
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PART I
1 . Business..................................................................... 1
2 . Properties................................................................... 3
3 . Legal Proceedings............................................................ 4
4 . Submission of Matters to a Vote of Security Holders.......................... 4
4 a. Executive Officers of the Registrant......................................... 5
PART II
5 . Market for the Registrant's Common Equity and Related Stockholder Matters.... 6
6 . Selected Financial Data...................................................... 6
7 . Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................... 6
8 . Financial Statements and Supplementary Data.................................. 7
9 . Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure................................................................... 7
PART III
10 . Directors and Executive Officers of the Registrant........................... 8
11 . Executive Compensation....................................................... 8
12 . Security Ownership of Certain Beneficial Owners and Management............... 8
13 . Certain Relationships and Related Transactions............................... 8
PART IV
14 . Exhibits, Financial Statement Schedules, and Reports on Form 8-K............. 9
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This Form 10-K is printed on recycled paper.
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PART I
As used herein, the term "Dexter" and the term "Company" shall mean The
Dexter Corporation and its consolidated subsidiaries unless the context
otherwise indicates, the term "1996 Annual Report" shall mean the Company's 1996
Annual Report to Shareholders, and the term "Proxy Statement" shall mean the
Proxy Statement accompanying Dexter's notice, dated March 11, 1997, of the
annual meeting of Dexter's shareholders to be held on April 24, 1997. The 1996
Annual Report is filed as an exhibit to this report. Portions of the 1996 Annual
Report and Proxy Statement are incorporated herein by reference as hereinafter
stated.
ITEM 1 BUSINESS
GENERAL
Founded in 1767 and incorporated in the state of Connecticut in 1914, The
Dexter Corporation is a specialty materials company principally serving the
worldwide aerospace, electronics, food packaging, and medical markets with
products based on proprietary technologies. For a description of the development
of the Company's business, reference the section entitled To Our Shareholders,
Employees and Customers on pages 5 through 7 of the 1996 Annual Report, which
are incorporated herein by reference. For an analysis of operations of the
business of Dexter, see pages 25 through 33 of the 1996 Annual Report which are
incorporated herein by reference, which include Segment Information on pages 28,
29, 30 and 31, and International Operations information on pages 32 and 33.
Also, see Acquisitions and Divestitures information and Events, Trends and
Vulnerabilities on pages 34 and 35 of the 1996 Annual Report which are
incorporated herein by reference.
The financial information in the hereinafter mentioned pages and sections
should be read in conjunction with the Financial Statements contained on pages
20 through 24, Quarterly Financial Information on page 24, Analysis of
Operations contained on pages 25 through 33, Analysis of Financial Condition and
Operations contained on pages 34 and 35, and Analysis of Financial Position
contained on pages 35 through 43 of the 1996 Annual Report.
SEGMENT INFORMATION AND PRODUCTS
For information on the Company's segment information and products, see the
sections, excluding picture captions, entitled Polymer Technology on pages 9 and
10, Nonwovens Technology on page 13, and Biotechnology on page 14, and refer to
Market Segment Data on pages 28 and 29 of the 1996 Annual Report which are
incorporated herein by reference. Information previously classified in the
Automotive market has been restated and is now included in the "Other" category.
SUPPLIERS
Dexter buys materials for its products from many suppliers and is not
dependent on any one supplier or group of suppliers for any significant raw
materials purchased.
The materials bought include natural fibers such as hemp and wood;
synthetic fibers such as glass, rayon and polyester; basic chemical materials
(many of which are derived from petroleum products) for the manufacture of
synthetic resins; resins produced by others, including polypropylene; rubber,
solvents, additives and pigments; highly purified chemicals and products
collected from natural sources for Life Technologies' products; and magnetic
materials. For further discussion of raw materials, see Events, Trends and
Vulnerabilities on pages 34 and 35 of the 1996 Annual Report which is
incorporated herein.
CUSTOMERS
In 1996, no single customer accounted for more than 5 percent of
consolidated revenues, and the ten largest customers accounted for less than 20
percent. Dexter has no single customer contract for the sale of its products
which it deems to be material to its business as a whole.
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SALES AND MARKETING
Dexter's customers for most specialty material products are principally
industrial manufacturers who convert or incorporate Dexter's products into their
own final product. Biotechnology products are marketed directly to research
laboratories, pharmaceutical and biotechnology companies, and other customers.
Most of the Company's products are sold by its own sales force of which
approximately 252 were directly engaged in field sales in 1996, 241 in 1995, and
229 in 1994. The remaining products are sold through agents or distributors. In
general, each of the Company's product lines has its own sales force. Management
believes that product research and development, close customer relations and
strong technical service are important factors in Dexter's growth over the
years.
BACKLOG
Dexter continues to maintain a backlog of orders. Such backlog was
approximately $76 million at December 31, 1996 and $73 million at December 31,
1995 and typically represents less than two months sales for businesses where
backlog is applicable. The Company expects substantially all of the December 31,
1996 backlog to be shipped in 1997. Backlog was significant in all markets
except at Life Technologies, Inc. (LTI), which is part of the medical market,
where backlog is not considered to be relevant to the business. Although backlog
orders are reasonably firm, they may be subject to cancellation or delay and
amounts are not necessarily indicative of future sales volume or profitability.
COMPETITION
No company is known to compete with Dexter in all of its major businesses,
but in each market, competition is offered by a number of companies, including
firms substantially larger and with greater financial resources than Dexter.
Dexter's management believes that Dexter is an important factor in each of
its markets. All market segments are diverse and highly competitive and
emphasize the quality of their products. The businesses of the Company are
characterized by technological innovation and the continued introduction of new
products and services.
Dexter continues to experience competition from imports in several of its
domestic markets. For further discussion on competition, see Events, Trends and
Vulnerabilities on pages 34 and 35 of the 1996 Annual Report, which is
incorporated herein by reference.
RESEARCH AND DEVELOPMENT
Dexter engages in research and development with respect to new product
development and product applications primarily for its own use, with only minor
contract services provided for others.
The total number of employees engaged in research and development and the
expenditures related thereto by market segment are set forth on page 29 of the
1996 Annual Report which is incorporated herein by reference.
ENVIRONMENTAL REGULATION
The Company is subject to federal, state and other legal requirements
regulating the discharge of materials into the environment, or otherwise
relating to the protection of the environment. The Company does not believe that
the continuing cost of complying with such regulations and other costs related
to environmental matters will have a material adverse effect on the Company's
financial position, results of operations or cash flows. Capital expenditures
for environmental control were $1 million for 1996 and are estimated to range
from $1 - $2 million for 1997. For further discussion of other current
environmental matters, see Events, Trends and Vulnerabilities on pages 34 and 35
and Environmental Liabilities footnote on page 41 of the 1996 Annual Report
which are incorporated herein. See Item 7, Management's Discussion and Analysis
of Financial Condition and Results of Operations, of this Form 10-K, on page 6,
for information on administrative proceedings arising under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980.
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EMPLOYEES
Approximately 1,700 of the Company's 4,600 employees (see page 18 of the
1996 Annual Report which is incorporated herein by reference) are employed
outside the United States. There has not been a significant work stoppage in
recent years and management believes employee relations are good.
GEOGRAPHIC INFORMATION
For information regarding geographic operations, see Geographic Data on
pages 32 and 33, Events, Trends and Vulnerabilities on pages 34 and 35, and the
Currency Exchanges Effects footnote on page 41 of the 1996 Annual Report which
are incorporated herein by reference.
ITEM 2 PROPERTIES
For certain information on properties, see the sections entitled Property,
Plant and Equipment on pages 36 and 37, the Leases footnote on page 37, and
Division and Subsidiary Headquarters on the inside back cover of the 1996 Annual
Report, all of which are incorporated herein by reference.
The executive office of Dexter, located in Windsor Locks, Connecticut, is
owned by the Company. In addition, the following general descriptions of
Dexter's properties, including the locations of principal facilities, are
presented by division. The company considers its facilities to be adequate and
suitable for their current use. The capacity utilization percentage for Dexter's
production facilities in 1996 was approximately 79%. There were no material
leases under which properties described below was held.
During 1996, the Aerospace Materials division operated three principal
facilities owned by the Company totaling approximately 354,000 square feet.
These facilities are located in Pittsburg, California; Waukegan, Illinois; and
Bassano, Italy. The Aerospace Materials division capacity utilization percentage
was approximately 71%.
The Electronic Materials division, in 1996, operated six production
facilities and laboratories in the United States, Germany and Japan, of which
four are owned (approximately 447,000 square feet) and two are leased
(approximately 62,000 square feet). These facilities of the Electronic Materials
division, which are in excess of 25,000 square feet, are located in Olean, New
York; Industry, California; Londonderry, New Hampshire; Lowell, Massachusetts;
Munich, Germany; and Yokohama-Shi, Japan. The Electronic Materials division
capacity utilization percentage in 1996 was approximately 70%.
During 1996, the Magnetic Materials division operated five principal
facilities, of which three are owned (approximately 205,000 square feet) and two
are leased (approximately 90,000 square feet). These facilities, which are in
excess of 25,000 square feet, are located in Fremont, California; Richardson,
Texas; Elk Grove Village, Illinois; Seabrook, New Hampshire; and Hicksville, New
York. The Magnetic Materials division capacity utilization percentage in 1996
was approximately 55%.
During 1996, the Packaging Products division operated five principal
production facilities and laboratories located in Birmingham, Alabama; Hayward,
California; Tournus, France; Deeside, Wales; and Gruningen, Switzerland totaling
approximately 375,000 square feet. All facilities are owned by the Company
except the Birmingham plant, which has been capitalized as a lease-purchase
financed by industrial development bonds. The Packaging Products division has
offices and a laboratory located in Waukegan, Illinois (approximately 31,000
square feet), which the Company owns. The Packaging Products division also
manages the operation of a multi-division production facility located in
Singapore of approximately 92,000 square feet. This production facility is owned
by the Company. The Packaging Products division had a capacity utilization
percentage of approximately 82% in 1996.
The Nonwovens division, in 1996, operated production facilities in Windsor
Locks, Connecticut (approximately 842,000 square feet); Chirnside, Scotland
(approximately 202,000 square feet) and Stalldalen, Sweden (approximately
452,000 square feet), which the Company owns. The Nonwovens division also leases
a production facility in Radcliffe, England totaling approximately 175,000
square feet. The Nonwovens division has a distribution facility located in
Windsor Locks, Connecticut of approximately 250,000 square feet which is leased.
The cogeneration facility located in Windsor Locks, Connecticut
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(approximately 42,000 square feet) is owned by the Company. The capacity
utilization percentage for the Nonwovens division production facilities in 1996
was approximately 86%.
Dexter S.A., located in Tournus, France operated a production facility of
approximately 162,000 square feet with a capacity utilization percentage of
approximately 55% in 1996. This facility is owned by the Company.
During 1996, Life Technologies, Inc. operated production facilities in ten
plants. Four are owned by Life Technologies, Inc. (approximately 281,000 square
feet), and six are leased facilities (approximately 140,000 square feet). Life
Technologies, Inc. has offices (approximately 45,000 square feet) and research
and development facilities (approximately 30,000 square feet) in Gaithersburg,
Maryland, which it leases. In addition, Life Technologies, Inc. leases twelve
distribution centers and warehouses which total approximately 114,000 square
feet and owns two distribution centers and warehouses which total approximately
40,000 square feet. Life Technologies, Inc. facilities in excess of 25,000
square feet are located in Gaithersburg, Maryland; Frederick, Maryland; Grand
Island, New York; Auckland, New Zealand; and Paisley, Scotland. At December 31,
1996, Life Technologies, Inc. had a capital lease in the amount of $4.7 million
for a parcel of land on which they are constructing a new corporate R&D center
and other administrative offices, including their headquarters, located in
Rockville, Maryland. The capacity utilization percentage at Life Technologies,
Inc. production facilities in 1996 was approximately 85%.
Dexter and Solvay S.A., of Belgium, operate an equally owned international
joint venture. The joint venture operates an owned production and distribution
facility in Grand Prairie, Texas (approximately 90,000 square feet). The joint
venture also operates an owned production and laboratory facility in Mansfield,
Texas (approximately 140,000 square feet). Additionally, the joint venture
operates an owned Automotive Applications Development Center facility in Auburn
Hills, Michigan (approximately 47,000 square feet). During the fourth quarter of
1995 the Company announced it intended to sell its 50% interest in D & S
Plastics International.
In the second quarter 1996, the Company sold its acoustic materials
business located in Kansas City, Missouri and its small powder coatings business
located in Birmingham, Alabama.
ITEM 3 LEGAL PROCEEDINGS
The Company is not involved in any pending or threatened legal proceedings
other than ordinary routine litigation incidental to its business. The Company
believes that none of these legal proceedings will have a material adverse
effect on the Company's financial condition, results of operations, or cash
flows. See Item 7, Management's Discussion and Analysis of Financial Condition
and Results of Operations, of this Form 10-K, on page 6, for information on
administrative proceedings arising under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the security holders during
the fourth quarter of fiscal year 1996.
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ITEM 4A EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of The Dexter Corporation, together with the offices
in The Dexter Corporation presently held by them, their other business
experience since January 1, 1992, and their ages, are as follows:
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OTHER BUSINESS EXPERIENCE
NAME TITLE SINCE 1/1/92 AGE
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K. Grahame Walker Chairman, President and Chief President and Chief Executive 59
Executive Officer (since 1993) Officer
Bruce H. Beatt Vice President, General Counsel General Counsel and Secretary 44
and Secretary (since 1992)
Ronald C. Benham Vice President; Senior Division Senior Division President, 54
President, Dexter Electronic Dexter Electronic Materials
Materials Division (since 1992) Division
Kathleen Burdett Vice President and Chief Vice President and Controller 41
Financial Officer (since 1995)
T. Daniel Clark Vice President; Senior Division Vice President, Corporate 55
President, Dexter Packaging Development
Products Division (since 1994)
George Collin Controller (since 1995) Vice President-Administration, 47
Dexter Automotive Materials
Division; Vice President-
Operations, D & S Plastics
International
R. Barry Gettins, Ph.D. Senior Vice President, Vice President; Senior Division 55
Operations Development (since President, Dexter Nonwovens
1996) Division
David G. Gordon Vice President; Senior Division President, D & S Plastics 45
President, Dexter Nonwovens International
Division (since 1996)
Lawrence D. McClure Vice President, Human Resources Vice President, Organization 48
(since 1995) Capabilities, Aetna Life &
Casualty Company; Vice
President, Human Resources,
Pratt & Whitney, a division of
United Technologies Corporation
John D. Thompson Senior Vice President, Vice President, Corporate 47
Strategic and Business Services; Vice President,
Development (since 1995) Financial Services; Vice
President and Treasurer
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The following changes in executive officers occurred during 1996:
Effective in April 1996, the following changes in executive officers
occurred: R. Barry Gettins, Ph.D., was appointed Senior Vice President,
Operations Development and David G. Gordon was appointed a Vice President of the
Company and Senior Division President of the Dexter Nonwovens Division.
Pursuant to the Bylaws of the Company, each officer holds his/her office
until death, resignation, removal from office or the election or appointment of
his/her successor. The Bylaws provide that the Board of Directors shall elect a
President and a Secretary each year at its first meeting following the annual
meeting of shareholders and may at that time elect other officers of the
Company, and it is expected that the Board of Directors will so act at its
meeting scheduled for April 24, 1997. No family relationships exist between any
of the executive officers of Dexter.
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PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
For information regarding the market for the registrant's common stock and
related stockholder matters, see Summary of Financial Data on pages 18 and 19,
Statement of Financial Position on pages 22 and 23, Statement of Changes in
Shareholders' Equity on page 24, Shareholders' Equity, Preferred Stock and Stock
Compensation Plans footnotes on page 42, Stock Plan footnote and discussion of
Stock Option Plans on pages 42 and 43, and Shareholder/Investor Information on
the inside back cover of the 1996 Annual Report which are incorporated herein by
reference.
ITEM 6 SELECTED FINANCIAL DATA
For information regarding selected financial data, see the Summary of
Financial Data on pages 18 and 19 of the 1996 Annual Report which is
incorporated herein by reference. For a discussion of this Financial Data, see
the Quarterly Financial Information on page 24, Analysis of Operations on pages
25 through 27, Market Segment Data on pages 28 and 29, Life Technologies, Inc.
on pages 30 and 31, and Analysis of Financial Condition and Operations on pages
34 and 35 of the 1996 Annual Report which are incorporated herein by reference.
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
For information required by this item, see the Management Statement on page
17 and the Summary of Financial Data on pages 18 and 19 of the 1996 Annual
Report which are incorporated herein by reference. For information concerning
results of operations, see Analysis of Operations on pages 25 through 27, Market
Segment Data on pages 28 and 29, Life Technologies, Inc. and D & S Plastics
International on pages 30 and 31, and Geographic Data on pages 32 and 33 of the
1996 Annual Report which are incorporated herein by reference. For information
on liquidity, reference the Events, Trends and Vulnerabilities and Liquidity
footnotes in Analysis of Financial Condition and Operations on pages 34 and 35,
respectively, the Working Capital discussion on page 35, the Short-term Debt,
the Property, Plant and Equipment, and the Long-term Debt footnotes on pages 36,
37, and 40, respectively, of the 1996 Annual Report which are incorporated
herein by reference. For information on capital resources, reference the
Liquidity discussion in Analysis of Financial Condition and Operations on page
35, the Short-term Debt, the Property, Plant and Equipment, the Long-term Debt,
and Shareholders' Equity footnotes on pages 36, 37, 40, and 42, respectively, of
the 1996 Annual Report which are incorporated herein by reference. For the
discussion of legal proceedings pertaining to the Company, see Item 3, Legal
Proceedings on page 4 of this Form 10-K, and page 37 of the 1996 Annual Report
which is incorporated herein by reference. For information on environmental
matters, see the Environmental Liabilities footnote on page 41 of the 1996
Annual Report which is incorporated herein by reference.
Pursuant to authority granted under the "Comprehensive Environmental
Response, Compensation and Liability Act of 1980" (CERCLA), the U.S.
Environmental Protection Agency (USEPA) has issued a National Priority List of
sites at which action is to be taken to mitigate the risk of release of
hazardous substances into the environment. The Company is engaged in continuing
negotiations with the USEPA and state authorities with regard to 19 of the over
twelve hundred sites on the National Priority List. Due to the uncertainty of
the remedial measures to be adopted at various sites and the fact that
imposition of joint and several liability is possible under CERCLA, the
liability of the Company with respect to any site at which remedial measures
have not been completed cannot be established with certainty. Nevertheless,
based upon the information available at this time, the Company believes it has
properly provided for its best estimate of the liabilities and that the outcome
of these matters will not have a material adverse effect upon its financial
condition, results of operations or cash flows in the future.
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ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the Summary of Financial Data contained on pages 18
and 19, Financial Statements contained on pages 20 through 24, Quarterly
Financial Information on page 24, Analysis of Operations contained on pages 25
through 33, Analysis of Financial Condition and Operations contained on pages 34
and 35, and Analysis of Financial Position contained on pages 35 through 43 of
the Company's 1996 Annual Report which are incorporated herein by reference.
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Within 24 months prior to the date of the most recent financial statements
referred to above in Item 8, no Form 8-K under the Securities Exchange Act of
1934, as amended, reporting a change in accountants, has been required to be
filed.
FORWARD-LOOKING STATEMENTS
With the exception of historical information, the matters discussed or
incorporated by reference in this Report on Form 10-K and in the Company's 1996
Annual Report are forward-looking statements that involve risks and
uncertainties. These forward-looking statements include, but are not limited to,
statements about (i) meeting the Company's published financial goals, (ii)
future growth in the Company's revenues and earnings and (iii) improvements in
the markets served by the Company. Actual results could differ materially from
such forward-looking statements because of, among other things, the following
factors: unit volume growth below the Company's targeted range, the impact of
competitive products and pricing, changes in the prices of raw materials,
fluctuations in foreign currency rates, changes in laws and regulations, and
other risks identified in the Company's 1996 Annual Report in the section
entitled Events, Trends and Vulnerabilities on pages 34 and 35.
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PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information regarding directors of the Company, see the section
entitled "Election of Directors" on pages 3 through 6, inclusive, of the Proxy
Statement, which is incorporated herein by reference. Information regarding
executive officers of the Company is included as Item 4a of Part I as required
by Instruction 3 of Item 401(b) of Regulation S-K. For information required by
Item 405 of Regulation S-K, see the section entitled "Certain Transactions and
Legal Matters" on page 6 of the Proxy Statement, which is incorporated herein by
reference.
ITEM 11 EXECUTIVE COMPENSATION
For information required by this item, see the section entitled
"Compensation of Executive Officers" on pages 7 through 14, inclusive, of the
Proxy Statement, which is incorporated herein by reference.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
For information regarding the beneficial ownership of shares of Common
Stock of the Company by certain persons, see the section entitled "Share
Ownership" on pages 1 and 2 of the Proxy Statement, which is incorporated herein
by reference.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information regarding certain relationships and related transactions of
directors, see the section entitled "Election of Directors" on pages 3 through
6, inclusive, of the Proxy Statement, which is incorporated herein by reference.
No other member of executive management or other individual as outlined in
Item 404 of Regulation S-K was otherwise directly or indirectly involved in
relationships or related transactions with the registrant in which the executive
officer or other individual had a material interest.
D & S Plastics International, a 50 percent owned subsidiary, borrowed up to
$4.3 million in 1996 and $4.7 million in 1995 from the Company under a revolving
line of credit to finance short-term working capital needs. The line of credit
was at current market interest rates and was repaid at December 31, 1996. At
December 31, 1995, $4.3 million was outstanding. At December 31, 1996, the
Company held $4.7 million in short-term investments at a 5.3% interest rate for
D & S Plastics International. The Company has recorded these investments in
current assets, and notes payable and interest payable to D & S Plastics
International in current liabilities.
Life Technologies, Inc., a majority-owned subsidiary, borrowed up to $3.1
million in 1994 from the Company under a revolving line of credit to finance
short-term working capital needs. The line of credit was at current market
interest rates and was repaid at December 31, 1994. During 1996 and 1995, no
borrowings occurred.
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PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
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(a) 1. Financial Statements:
The response to this item is set forth commencing on page F-1 of this report.
2. Financial Statement Schedule:
The response to this item is set forth commencing on page F-1 of this report.
3. Exhibits:
Exhibit 3A -- Restated Certificate of Incorporation of The Dexter
Corporation, filed with the Secretary of the State of
Connecticut on June 26, 1990, was filed as Exhibit 3A-2 with
the registrant's Quarterly Report on Form 10-Q (File No.
1-5542) for the quarter ended June 30, 1990, and is hereby
incorporated herein by reference.
Exhibit 3B -- Bylaws of The Dexter Corporation, as amended April 25, 1991,
were filed as Exhibit 3B with the registrant's report on Form
10-Q (File No. 1-5542) for the quarter ended March 31, 1991,
and is hereby incorporated herein by reference.
Exhibit 4A -- The Rights Agreement dated as of August 23, 1996, between the
registrant and ChaseMellon Shareholder Services, L.L.C. was
filed as Exhibit 4 to Form 8-K (File No. 1-5542), which was
filed with the Securities and Exchange Commission on September
9, 1996, and is hereby incorporated herein by reference.
Exhibit 4B -- Note Agreement, dated July 24, 1990, between the registrant and
The Prudential Insurance Company of America was filed as
Exhibit 4C with the registrant's Quarterly Report on Form 10-Q
(File No. 1-5542) for the quarter ended June 30, 1990, and is
hereby incorporated herein by reference.
Exhibit 4B(1) -- Amendment, dated November 14, 1991, to the Note Agreement,
dated July 24, 1990, was filed as Exhibit 4C(1) with the
registrant's report on Form 10-K (File No. 1-5542) for the
fiscal year ended December 31, 1991, and is hereby incorporated
herein by reference.
Exhibit 4B(2) -- Amendment, dated February 9, 1993, to the Note Agreement, dated
July 24, 1990, was filed as Exhibit 4C(2) with the registrant's
report on Form 10-K (File No. 1-5542) for the fiscal year ended
December 31, 1992, and is hereby incorporated herein by
reference.
Exhibit 4B(3) -- Amendment, dated September 30, 1993, to the Note Agreement,
dated July 24, 1990, was filed as Exhibit 4C(3) with the
registrant's report on Form 10-K (File No. 1-5542) for the
fiscal year ended December 31, 1993, and is hereby incorporated
herein by reference.
Exhibit 4C -- Note Agreement, dated November 14, 1991, between the registrant
and The Prudential Insurance Company of America, was filed as
Exhibit 4D with the registrant's report on Form 10-K (File No.
1-5542) for the fiscal year ended December 31, 1993, and is
hereby incorporated herein by reference.
Exhibit 4C(1) -- Amendment, dated February 9, 1993, to the Note Agreement, dated
November 14, 1991, was filed as Exhibit 4C(2) with the
registrant's report on Form 10-K (File No. 1-5542) for the
fiscal year ended December 31, 1992, and is hereby incorporated
herein by reference.
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<TABLE>
<S> <C> <C> <C>
Exhibit 4C(2) -- Amendment, dated September 30, 1993, to the Note Agreement,
dated November 14, 1991, was filed as Exhibit 4D(2) with the
registrant's report on Form 10-K (File No. 1-5542) for the
fiscal year ended December 31, 1993, and is hereby incorporated
herein by reference.
Exhibit 4D -- Master Shelf Agreement, dated September 30, 1993, between the
registrant and The Prudential Insurance Company of America, as
amended and restated on December 17, 1993, was filed as Exhibit
4E with the registrant's report on Form 10-K (File No. 1-5542)
for the fiscal year ended December 31, 1993, and is hereby
incorporated herein by reference.
Exhibit 10A -- The Dexter Corporation's 1979 Stock Option Plan, as amended,
was filed as Exhibit 4.3 to Post-Effective Amendment No. 4 to
the registrant's Registration Statement on Form S-8 (File No.
2-63959) dated March 29, 1983, and is hereby incorporated
herein by reference.
Exhibit 10B -- Agreement, dated December 15, 1989, between the registrant and
K. Grahame Walker was filed as Exhibit 10B with the
registrant's quarterly report on Form 10-Q (File No. 1-5542)
for the quarter ended March 31, 1991, and is hereby
incorporated herein by reference. Omitted pursuant to the
Instruction to item 601(10)(iii) of Regulation S-K and Rule
12b-31 under the Securities Exchange Act of 1934 are copies of
eight other agreements between the registrant and the following
named officers, each of which agreements is substantially
identical to Exhibit 10B in all material respects except as to
the individual party thereto and the identification of his/her
position with the registrant: Bruce H. Beatt, Kathleen Burdett,
George Collin, Horst Geldmacher, Dr. R. Barry Gettins, Lawrence
D. McClure, Dale J. Ribaudo, and John D. Thompson.
Exhibit 10C -- Agreement, dated December 20, 1991, between the registrant and
Ronald C. Benham was filed as Exhibit 10C with the registrant's
report on Form 10-K (File No. 1-5542) for the fiscal year ended
December 31, 1992, and is hereby incorporated herein by
reference. Omitted pursuant to the Instruction to Item
601(10)(iii) of Regulation S-K and Rule 12b-31 under the
Securities Exchange Act of 1934 are copies of nine other
agreements between the registrant and the following officers
and key employees, each of which agreements is substantially
identical to Exhibit 10C in all material respects except as to
the individual party thereto and the identification of his
position with the registrant: John B. Blatz, T. Daniel Clark,
David G. Gordon, Richard B. Hurley, John B. Lockwood, Jeffrey
W. McClelland, T. James Rudd, Edward J. Scannell and David
Woodhead.
Exhibit 10D -- The Dexter Corporation's Executive Supplemental Retirement
Plan, as amended and restated and effective January 1, 1989,
was filed as Exhibit 10F(1) to the registrant's report on Form
10-K (File No. 1-5542) for the fiscal year ended December 31,
1991, and is hereby incorporated herein by reference.
Exhibit 10D(1) -- Amendment, dated October 22, 1993, to The Dexter Corporation's
Executive Supplemental Retirement Plan, was filed as Exhibit
10D(2) with the registrant's quarterly report on Form 10-Q
(File No. 1-5542) for the quarter ended September 30, 1993, and
is hereby incorporated herein by reference.
</TABLE>
10
<PAGE> 13
<TABLE>
<S> <C> <C> <C>
Exhibit 10E -- The Dexter Corporation's 1987 Interim Stock Option Plan, was
filed as Exhibit 28(a) to the registrant's Registration
Statement on Form S-8 (File No. 33-27597) dated March 17, 1989,
and is hereby incorporated herein by reference.
Exhibit 10F -- The Dexter Corporation's 1988 Stock Option Plan, was filed as
Exhibit 28(d) to the registrant's Registration Statement on
Form S-8 (File No. 33-27597) dated March 17, 1989, and is
hereby incorporated herein by reference.
Exhibit 10G -- The Dexter Corporation's Executive Deferred Compensation
Benefit Plan, as amended.
Exhibit 10H -- The Dexter Corporation's Amended and Restated Retirement
Equalization Plan was filed as Exhibit 10H with the
registrant's report on Form 10-K (File No. 1-5542) for the
fiscal year ended December 31, 1993, and is hereby incorporated
herein by reference.
Exhibit 10I -- The Dexter Corporation's Transferred Executives' Supplemental
Retirement Program, as amended and restated, was filed as
Exhibit 10J with the registrant's report on Form 10-K (File No.
1-5542) for the fiscal year ended December 31, 1993, and is
hereby incorporated herein by reference.
Exhibit 10J -- The Dexter Corporation's 1994 Long-Term Incentive Plan was
filed as Exhibit 10K with the registrant's quarterly report on
Form 10-Q (File No. 1-5542) for the quarter ended March 31,
1994, and is hereby incorporated herein by reference.
Exhibit 10K -- The Dexter Corporation's 1994 Stock Plan for Outside Directors
was filed as Exhibit 10L with the registrant's quarterly report
on Form 10-Q (File No. 1-5542) for the quarter ended March 31,
1994, and is hereby incorporated herein by reference.
Exhibit 10L -- The Dexter Corporation's 1996 Non-Employee Director's Stock
Plan was filed as Exhibit 10L with the registrant's quarterly
report on Form 10-Q (File No. 1-5542) for the quarter ended
March 31, 1996, and is hereby incorporated herein by reference.
Exhibit 10M -- The Dexter Corporation's Senior Management Executive Incentive
Plan was filed as Exhibit 10M with the registrant's quarterly
report on Form 10-Q (File No. 1-5542) for the quarter ended
March 31, 1996, and is hereby incorporated herein by reference.
Exhibit 13 -- The Dexter Corporation's 1996 Annual Report to Shareholders.
Exhibit 21 -- Subsidiaries of the Registrant.
Exhibit 23 -- Consent of Certified Public Accountants.
Exhibit 27 -- Financial Data Schedule
Long-term debt of the registrant or various of its subsidiaries is outstanding under
numerous instruments. No such instrument authorizes an amount of securities
thereunder in excess of 10% of the total assets of the registrant and its
subsidiaries on a consolidated basis. The registrant agrees that it will furnish a
copy of any such instrument to the Securities and Exchange Commission upon its
request.
</TABLE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
11
<PAGE> 14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated March 11, 1997
THE DEXTER CORPORATION
(Registrant)
By: /s/ Kathleen Burdett
------------------------------------
Kathleen Burdett
Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 11, 1997:
<TABLE>
<CAPTION>
NAME CAPACITY DATE
- ----------------------------------- ------------------------------------- ---------------
<S> <C> <C>
/s/ K. Grahame Walker Chairman; Director March 11, 1997
- ----------------------------------- (principal executive officer)
K. Grahame Walker
/s/ Kathleen Burdett Vice President and March 11, 1997
- ----------------------------------- Chief Financial Officer
Kathleen Burdett (principal financial officer)
/s/ George Collin Controller March 11, 1997
- ----------------------------------- (principal accounting officer)
George Collin
/s/ Charles H. Curl Director March 11, 1997
- -----------------------------------
Charles H. Curl
/s/ Henrietta Holsman Fore Director March 11, 1997
- -----------------------------------
Henrietta Holsman Fore
/s/ Bernard M. Fox Director March 11, 1997
- -----------------------------------
Bernard M. Fox
/s/ Robert M. Furek Director March 11, 1997
- -----------------------------------
Robert M. Furek
/s/ Martha Clark Goss Director March 11, 1997
- -----------------------------------
Martha Clark Goss
/s/ Edgar G. Hotard Director March 11, 1997
- -----------------------------------
Edgar G. Hotard
/s/ Peter G. Kelly Director March 11, 1997
- -----------------------------------
Peter G. Kelly
/s/ Jean-Francois Saglio Director March 11, 1997
- -----------------------------------
Jean-Francois Saglio
/s/ Glen L. Urban Director March 11, 1997
- -----------------------------------
Glen L. Urban
/s/ George M. Whitesides Director March 11, 1997
- -----------------------------------
George M. Whitesides
</TABLE>
12
<PAGE> 15
INDEX TO
FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Report of Independent Accountants.............................................. F-2
1996 ANNUAL
FINANCIAL STATEMENTS REPORT PAGE
- ------------------------------------------------------------------------------- -----------
Summary of Financial Data.................................................... 18-19
Statement of Income.......................................................... 20
Statement of Cash Flows...................................................... 21
Statement of Financial Position.............................................. 22-23
Statement of Changes in Shareholders' Equity................................. 24
Analysis of Operations....................................................... 25-33
Analysis of Financial Condition and Operations............................... 34-35
Analysis of Financial Position............................................... 35-43
FINANCIAL STATEMENT SCHEDULE
- -------------------------
Schedule II Valuation and Qualifying Accounts............................... F-3
</TABLE>
------------------------------------------
Schedules other than those listed above are omitted for the reason
that the information required on such schedules is contained in
the Company's 1996 Annual Report to Shareholders, elsewhere in
Form 10-K or they are not required or are not applicable.
F-1
<PAGE> 16
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
The Dexter Corporation
We have audited the consolidated financial statements and the financial
statement schedule of The Dexter Corporation listed in the index on page F-1 of
this Form 10-K. These financial statements and financial statement schedule are
the responsibility of The Dexter Corporation's management. Our responsibility is
to express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of The Dexter
Corporation as of December 31, 1996, 1995 and 1994, and the consolidated results
of its operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule referred to above, when considered in relation to
the basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
In 1996, the Corporation, as more fully described in the accompanying
financial review, adopted Statement of Financial Accounting Standards (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. In 1994, the Corporation adopted SFAS No. 115, Accounting for
Certain Investments in Debt and Equity Securities.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Springfield, Massachusetts
February 4, 1997
F-2
<PAGE> 17
SCHEDULE II
THE DEXTER CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN C
COLUMN B ADDITIONS COLUMN E
---------- ---------- ----------
COLUMN A BALANCE AT CHARGED TO COLUMN D BALANCE AT
- ------------------------------------------------------- BEGINNING COSTS AND ---------- END OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD
- ------------------------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1996
Environmental Reserve.................................. $ 17,140 $ 804 $ 16,336
Restructuring Reserve.................................. 1,791 106 1,685
Allowance for Doubtful Accounts........................ 5,851 $2,360 1,591 6,620
------- ------ ------ -------
$ 24,782 $2,360 $2,501 $ 24,641
======= ====== ====== =======
1995
Environmental Reserve.................................. $ 20,292 $3,152 $ 17,140
Restructuring Reserve.................................. 6,294 4,503 1,791
Allowance for Doubtful Accounts........................ 4,994 $1,819 962 5,851
------- ------ ------ -------
$ 31,580 $1,819 $8,617 $ 24,782
======= ====== ====== =======
1994
Environmental Reserve.................................. $ 22,766 $2,474 $ 20,292
Restructuring Reserve.................................. 10,735 4,441 6,294
Allowance for Doubtful Accounts........................ 4,428 $1,482 916 4,994
------- ------ ------ -------
$ 37,929 $1,482 $7,831 $ 31,580
======= ====== ====== =======
</TABLE>
F-3
<PAGE> 1
EXHIBIT 10G
THE DEXTER CORPORATION
EXECUTIVE DEFERRED COMPENSATION BENEFIT PLAN
ARTICLE 1
INTRODUCTION
1.1 Effective Dates. This Executive Deferred Compensation Benefit Plan
(the "Plan") was originally effective as of December 27, 1985, was subsequently
amended as of December 27, 1985 and February 26, 1988, and is hereby amended and
restated as of January 1, 1996.
1.2 Purpose. The purpose of this Plan is to provide a means whereby The
Dexter Corporation may improve the financial security of a select group of
management employees of the Company who render valuable services to the Company
that constitute an important contribution towards the Company's continued growth
and success, by providing the potential for additional retirement income and
death benefits.
1.3 Rights. The rights of Employees who participate in the Plan are set
forth herein. By signing a Deferral Agreement, an Employee agrees to be bound by
the terms hereof.
ARTICLE 2
DEFINITIONS
Except as otherwise provided, the following terms have the definitions
hereinafter indicated whenever used in this Plan with initial capital letters:
Administrator. "Administrator" means the Chief Executive Officer of the
Company.
Assigned Policy. "Assigned Policy" means any policy of life insurance on
the life of a Participant or former Participant, including any certificate of
life insurance issued under a master contract, purchased and owned by the
Company as a basis to measure and recover the cost of benefits (in whole or in
part) with respect to another Participant under the Plan, a list of which
policies is maintained by the Company.
Beneficiary. "Beneficiary" means the person or persons designated by the
Employee as the recipient of a benefit, on the Beneficiary Designation Form
attached hereto as Exhibit A, in accordance with the terms of this Plan.
Company. "Company" means The Dexter Corporation, a Connecticut
corporation, all of its wholly-owned and majority-owned subsidiaries, and any
affiliated organization so designated by The Dexter Corporation whether now
existing or hereafter formed.
Deferral. "Deferral" means the Deferral Units, the receipt of which a
Participant elected to defer by signing a Deferral Agreement.
Deferral Agreement. "Deferral Agreement" means the written agreement
entered into by the Company and an Eligible Employee pursuant to which the
Eligible Employee makes a Deferral under the Plan.
Deferral Period. "Deferral Period" means (i) for Participants who are not
eligible to retire at their Normal Retirement Date within the seven consecutive
Plan Years immediately following an election to defer compensation, the four
consecutive Plan Years commencing the first day of the first Plan Year
immediately following an election to defer compensation hereunder, or (ii) for
Participants who are eligible to retire at their Normal Retirement Date within
the seven consecutive Plan Years immediately following an election to defer
compensation, the number of consecutive Plan Years, up to four, elected by the
Participant and commencing the first day of the first Plan Year immediately
following an election to defer compensation hereunder.
Deferral Unit. "Deferral Unit" means an amount of a Participant's
compensation equal to $5,000.
<PAGE> 2
Disabled. "Disabled" means a condition which qualifies a Participant to
receive long-term disability benefits under the Company's long-term disability
plan or policy then in effect.
Early Retirement. "Early Retirement" means termination of a Participant's
employment with the Company, for reasons other than death, on or after the first
day of the first month after the date the Participant attains age fifty-five
(55), but prior to the date the Participant attains age sixty-five (65).
Eligible Employee. "Eligible Employee" means a key management Employee who
is selected by the Administrator to participate in the Plan.
Employee. "Employee" means any person employed by the Company on a regular
full-time salaried basis, including officers of the Company.
Gross Cash Value. "Gross Cash Value" means the amount of money that a
Policy owner would receive as a refund if the Policy owner cancels the coverage
and surrenders the Policy to the Insurer plus the amount of any Policy loans
outstanding on the Policy.
Hardship. "Hardship" means, in the sole and absolute determination of the
Administrator, a severe financial hardship to the Participant resulting from a
sudden and unexpected illness or accident of the Participant or of a dependent
of the Participant, loss of the Participant's property due to casualty or other
similar extraordinary and unforeseeable circumstances arising as a result of
events beyond control of the Participant. In no event shall a Hardship be
considered to exist to the extent it can be relieved through reimbursement or
compensation by insurance or otherwise, by liquidation of the Participant's
assets, to the extent that such liquidation would not itself cause a Hardship,
or by the cessation of deferrals of compensation under any plan of the Company,
including the Plan, nor shall a Hardship be found to exist on account of the
need to send a Participant's child to college or the desire to purchase a home.
Individual Policy. "Individual Policy" means any policy of life insurance
on the life of a Participant, including any certificate of life insurance issued
under a master contract, purchased and owned by the Company as a basis to
measure and recover the cost of benefits with respect to that Participant under
the Plan, a list of which policies is set forth on a list maintained by the
Company.
Insurer. "Insurer" means such insurance company as the Company may from
time to time utilize to provide insurance coverage on the lives of Participants
or former Participants.
Insurer Ledger Projection. "Insurer Ledger Projection" means the Insurer's
assessment of policy values for all years of a Policy given current rate
assumptions and a specified transaction pattern.
Marginal Tax Rate. "Marginal Tax Rate" means the rate of United States
federal taxes on the Company's net income, in the year a benefit under the Plan
must be calculated, as determined
by the Administrator in its sole and absolute discretion. The Administrator may
estimate the Marginal Tax Rate in order to make a benefit distribution or for
other purposes under the Plan.
Normal Retirement. "Normal Retirement" means termination of a
Participant's employment with the Company, for reasons other than death, on or
after the first day of the first month after the date the Participant attains
age sixty-five (65).
Optional Benefit. "Optional Benefit" means the retirement benefit pursuant
to Section 5.2(b). In order to receive the Optional Benefit, a Participant must
have elected such Optional Benefit in his Deferral Agreement.
Participant. "Participant" means an Eligible Employee who has filed a
completed and executed Deferral Agreement with the Administrator prior to
December 31, 1995, and is participating in the Plan.
Plan. "Plan" means The Dexter Corporation Executive Deferred Compensation
Benefit Plan, as amended from time to time.
Plan Year. "Plan Year" means the calendar year beginning January 1 and
ending December 31.
Policy. "Policy" means any Individual Policy or Assigned Policy.
2
<PAGE> 3
Retirement. "Retirement" means Early Retirement or Normal Retirement, as
the case may be.
Termination Benefit. "Termination Benefit" means the benefit a Participant
receives if he ceases to be an Employee, for any reason other than death or
Retirement, as provided in Section 5.4.
Termination Rate. "Termination Rate" means the interest rate, for the
appropriate periods involved, as determined by the Administrator, in its sole
and absolute discretion, and shall be calculated using either (i) Moody's
Intermediate Bond Index BAA or (ii) Treasury 90-day rates.
ARTICLE 3
DETERMINATION OF BENEFITS AND CLAIMS PROCEDURE
The Administrator shall make all determinations concerning rights to
benefits under the Plan. All claims for benefits under the Plan by an Eligible
Employee shall be made in writing to the Administrator. If the Administrator
believes that the claim should be denied, the Administrator shall notify the
claimant in writing of the denial of the claim within ninety (90) days after the
Administrator's receipt thereof. Such notice shall (i) set forth the specific
reason or reasons for the denial, making reference to the pertinent provisions
of the Plan on which the denial is based; (ii) describe any additional material
or information that should be received before the claim may be acted upon
favorably and explain the reason why such material or information, if any, is
needed; and (iii) inform the claimant of his right pursuant to this Article 3 to
request review of the decision by the Administrator. A claimant who believes
that he has submitted all available and relevant information may appeal the
denial of a claim to the Administrator by submitting thereto a written request
for review within sixty (60) days after the date on which such denial is
received. Such period may be extended by the Administrator for good cause shown.
The person making the request for review may examine the Plan and the request
for review may discuss any issues relevant to the claim. The Administrator shall
decide whether or not to grant the claim within sixty (60) days after receipt of
the request for review, but this period may be extended by the Administrator for
up to an additional sixty (60) days in special circumstances. The
Administrator's decision shall be in writing, shall include specific reasons for
the decision, shall refer to pertinent provisions of the Plan on which the
decision is based, and shall be final and binding on all persons.
ARTICLE 4
PARTICIPATION
4.1 Election to Defer. An Eligible Employee may elect to participate in
the Plan, effective as of the first day of a Plan Year, by filing a completed
and fully executed Deferral Agreement with the Administrator, or a person
designated by the Administrator, prior to commencement of such Plan Year. Said
Deferral Agreement shall not be amended, modified, or revoked during the
Deferral Period to which it relates other than by termination of service
pursuant to Section 5.4 or an Emergency Benefit pursuant to Section 5.5.
Pursuant to a Deferral Agreement, an Eligible Employee shall designate
irrevocably the number of Deferral Units which shall be deferred annually over
the Deferral Period; provided, however, that such Deferral must be equal to the
initial four (4) annual premiums on a Policy and that a Participant shall not
defer any additional amounts. Notwithstanding any other provision of this
Section, an Eligible Employee may not elect to participate in the Plan, and
shall not otherwise become a Participant in the Plan, unless a completed and
fully executed Deferral Agreement has been filed by him with the Administrator,
or a person designated by the Administrator, prior to December 31, 1995.
4.2 Amount of Deferral. A Participant may elect to defer from one (1) to
five (5) Deferral Units for each Plan Year during each Deferral Period.
4.3 Reduction in Compensation. The compensation of the Participant for
each of the Plan Years in a Deferral Period shall be reduced by an amount equal
to the Deferral Units which the Participant elects to defer in the Deferral
Agreement. The Company shall automatically deduct a pro rata portion of the
amount of such reduction in compensation from each paycheck delivered to the
Participant.
3
<PAGE> 4
4.4 Deferral When Disabled. If a Participant should become Disabled during
a Deferral Period, the Company shall make such Participant's Deferrals for him
during the time he is Disabled, and such Participant shall not be required to
make any Deferrals while Disabled. The Company shall recover from any Policy on
the life of such Participant that has been purchased by the Company all amounts
paid pursuant to the preceding sentence at the beginning of the fourth year
following the end of a Deferral Period. If a Participant ceases to be Disabled
during a Deferral Period, then such Participant shall be required to commence
making Deferrals from the date he ceases to be Disabled. Such Participant shall
not, however, be required to pay any of, or reimburse the Company for, the
Deferrals made for him during the period in which he was Disabled.
4.5 Company Payments. The Company, in its sole discretion, may make one or
more Deferrals on behalf of a Participant, and such Participant shall not be
required to make such Deferrals. Except as hereinafter provided to the contrary,
a Deferral so made shall be treated as a "Deferral" for all purposes of the Plan
as if made by the Participant pursuant to an election to defer compensation. In
such case, the Deferral Agreement shall specify the Deferral Period and the
amount of Deferral paid or to be paid by the Company. Company-paid Deferrals
will be reimbursed to the Company upon payment of Deferrals pursuant to the Plan
unless the Participant is an Employee at the time of such payment or unless this
provision is waived in writing by the Administrator at the time such Deferral is
made.
ARTICLE 5
BENEFITS
5.1 Payment of Deferral. As soon as practicable after the beginning of the
fourth calendar year following the end of a Deferral Period, the Company shall
pay to the Participant in a lump sum an amount equal to all of his Deferral
Units deferred over such Deferral Period without interest. Notwithstanding the
preceding sentence, a Participant may irrevocably elect prior to the beginning
of a Deferral Period to defer payment of such lump sum amount to a specified
date later than the date on which he would receive such amount if no election
were made.
5.2 Retirement Benefit. In connection with a Participant's Retirement, the
Company shall pay to such Participant the following amounts:
(a) Individual Policies.
(i) Initial Payment. With respect to a Participant whose employment
with the Company terminates, for reasons other than death, on or after the
date the Participant attains the age of fifty-five (55) and whose
retirement benefit is measured by one or more Individual Policies, the
Company shall pay to such Participant, within twelve (12) months following
the date the Participant attains the age of sixty-five (65) (or upon the
date of the Participant's Early Retirement, if such Early Retirement is
elected by a Participant and approved by the Administrator on account of
Hardship, or such other immediate and compelling reason as the
Administrator in his sole discretion shall determine), an amount, if any,
equal to the following:
(A) the cumulative amount of the Gross Cash Value of any Individual
Policy on the life of the Participant then in effect, less
(B) the cumulative amount of all premiums paid on any such
Individual Policy, less
(C) the cumulative interest expense on all loans under any such
Individual Policy, plus
(D) the cumulative Federal tax benefit to the Company derived from
the deductibility of the interest expense on all loans under any such
Individual Policy, divided by
(E) one (1) minus the Marginal Tax Rate.
(ii) Annual Payments. Within thirty (30) days after each anniversary
of the payment to be made pursuant to Section 5.2(a)(i), the Company shall
pay to a Participant an amount, if any, equal to the following:
4
<PAGE> 5
(A) the annual increase in the Gross Cash Value of any Individual
Policy on the life of the Participant then in effect, less
(B) the annual amount of all premiums paid on any such Individual
Policy, less
(C) the annual interest expense on all loans under any such
Individual Policy, plus
(D) the annual Federal tax benefit to the Company derived from the
deductibility of the interest expense on all loans under any such
Individual Policy, divided by
(E) one (1) minus the Marginal Tax Rate.
The annual payments under this Section 5.2(a)(ii) shall automatically
terminate upon the death of any Participant who has not elected the
Optional Benefit in his Deferral Agreement.
(b) Assigned Policies.
(i) Initial Payment. With respect to a Participant whose employment
with the Company terminates, for reasons other than death, on or after the
date the Participant attains the age of fifty-five (55) and whose
retirement benefit is measured by one or more Assigned Policies, the
Company shall pay, within twelve (12) months following the date of the
Participant attains the age of sixty-five (65) (or Early Retirement, if
such Early Retirement is elected by a Participant and approved by the
Administrator on account of Hardship, or such other immediate and
compelling reason as the Administrator in his sole discretion shall
determine), an amount, if any, determined in accordance with Section
5.2(a)(i) above but substituting the term "Assigned Policies" for the term
"Individual Policies"; provided, however, that if the person whose life is
insured under any such Assigned Policy ("Covered Person") should die before
such Participant, then the amount of the benefit shall be actuarially
determined, based upon the most current Insurer Ledger Projection, as
though the Covered Person is still alive.
(ii) Annual Payments. Within thirty (30) days after each anniversary
of the payment to be made pursuant to Section 5.2(b)(i) relating to an
Assigned Policy, the Company shall pay to a Participant an amount, if any,
determined in accordance with Section 5.2(a)(ii) above but substituting the
term "Assigned Policies" for the term "Individual Policies"; provided,
however, that (A) if the Covered Person under any such Assigned Policy
should die before such Participant, then the amount of the benefit shall be
actuarially determined, based upon the most current Insurer Ledger
Projection, as though the Covered Person is still alive, and (B) if such
Participant has elected the Optional Benefit in his Deferral Agreement, he
shall receive only fourteen such annual payments. Should a Participant who
has elected the Optional Benefit in his Deferral Agreement die before
receiving all of said fourteen payments, any remaining payments shall be
made to the Beneficiary of such deceased Participant.
(c) Changes in Tax Law. Notwithstanding any other provisions of this
Section 5.2, if the tax deductibility of interest paid by the Company on Policy
loans is eliminated by change in law or regulation (or interpretation thereof),
then a Participant shall receive only a Termination Benefit pursuant to Section
5.4(c).
5.3 Death Benefit.
(a) Except as otherwise set forth in Section 5.3(b), within one hundred
eighty (180) days after the Administrator receives notice of the death of a
Participant, whether during employment or after Retirement, the Company shall
pay a death benefit to the Participant's Beneficiary in an amount, if any, equal
to the following:
(i) the death benefit provided under any Individual Policy on the life
of the Participant then in effect, less
(ii) the outstanding principal amount of any loans on any such
Individual Policy, divided by
(iii) one (1) minus the Marginal Tax Rate.
Notwithstanding the preceding sentence, the amount of the death benefit
shall not be increased by one (1) minus the Marginal Tax Rate if the
Company is required to recognize as income for Federal tax
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<PAGE> 6
purposes the receipt of the death benefit provided under the Policy. The
payment of the death benefit shall be in a lump sum, unless the Participant
has elected in his Deferral Agreement to have the Company pay his
Beneficiary in five annual installments with interest accruing on the
unpaid amount at the Termination Rate.
(b) There shall be no death benefit for any Participant who has elected the
Optional Benefit in his Deferral Agreement.
5.4 Termination Benefit.
(a) Termination of Employees with Individual Policies.
(i) If a Participant who has one or more Individual Policies on his
life shall cease to be an Employee for any reason other than death or
Retirement within seven (7) years after the commencement date of a Deferral
Period, the Company shall pay such Participant, within three (3) months
following the termination of his employment, an amount equal to the greater
of (A) the amount, if any, he would have received under Section 5.2(a)(i)
if he had retired on the date he ceases to be an Employee, or (B) such
Participant's total amount of Deferral Units plus interest at the
Termination Rate calculated in arrears.
(ii) If a Participant who has one or more Individual Policies on his
life shall cease to be an Employee for any reason other than death or
Retirement seven (7) or more years after the commencement date of a
Deferral Period, the Company shall pay to such Participant, within three
(3) months following the termination of his employment, the amount, if any,
he would have received under Section 5.2(a)(i) if he had retired on the
date he ceases to be an Employee.
(b) Termination of Employees with Assigned Policies.
(i) If a Participant who has been assigned one or more Assigned
Policies shall cease to be an Employee for any reason other than death or
Retirement within seven (7) years after the commencement date of a Deferral
Period, the Company shall pay such Participant, within three (3) months
following the termination of his employment, an amount equal to the greater
of (A) the amount, if any, he would have received under Section 5.2(b)(i)
if he had retired on the date he ceases to be an Employee or (B) such
Participant's total amount of Deferral Units plus interest at the
Termination Rate calculated in arrears.
(ii) If a Participant who has been assigned one or more Assigned
Policies shall cease to be an Employee for any reason other than death or
Retirement seven (7) or more years after the commencement date of a
Deferral Period, the Company shall pay to such Participant, within three
(3) months following the termination of his employment, the amount, if any,
he would have received under Section 5.2(b)(i) if he had retired on the
date he ceases to be an Employee.
(c) Termination due to Change in Tax Laws. If the tax deductibility of
interest paid by the Company on Policy loans is eliminated by change in law or
regulation (or interpretation thereof), then the Company shall pay, within three
(3) months of such event, (i) the amount, if any, determined in accordance with
Section 5.4(a) in respect to a Participant who has one or more Individual
Policies on his life, and (b) the amount, if any, determined in accordance with
Section 5.4(b) in respect to a Participant who been assigned has one or more
Assigned Policies.
5.5 Emergency Benefit. If the Administrator, upon written petition of the
Participant, determines, in its sole discretion, that the Participant has
suffered a Hardship, the Company shall pay to the Participant, as soon as
practicable following such determination, an amount, not in excess of such
Participant's Deferral Units, necessary to meet the Hardship. The amount of the
benefits otherwise payable under Sections 5.1, 5.2, 5.3, and 5.4 shall
thereafter be actuarially adjusted to reflect the early payment of such
emergency benefit. The finding of Hardship by the Administrator shall
immediately revoke a Participant's Deferral Agreement.
5.6 Protective Provisions. Each Participant shall cooperate with the
Company by furnishing any and all information requested by the Company in order
to facilitate the payment of benefits under the Plan, taking such physical
examination as the Company may deem necessary and taking such other reasonable
action as may be requested by the Company. If a Participant refuses to
cooperate, the Company shall have no further
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<PAGE> 7
obligation to the Participant or Beneficiary under the Plan, other than payment
to such Participant of the aggregate amount of his Deferral Units theretofore
made pursuant to the Plan. If a Participant commits suicide during the first
twenty-four (24) months after the effective date of an election to defer under
the Plan, or should the Insurer decline payment to the Company under the Policy
due to any material misstatement of information or nondisclosure of medical
history on the part of the Participant, the Administrator may, in its sole and
absolute discretion, direct the Company to pay to the Beneficiary of such
Participant, as the only Death Benefit payable under the Plan, a lump sum amount
equal to such Participant's Deferral Units plus interest at the Termination Rate
calculated in arrears, if such Deferral Units have not already been paid to the
Participant pursuant to Section 5.1 above; provided, however, that if such
Deferral Units have already been paid to the Participant pursuant to Section 5.1
above, no Death Benefit shall be payable under the Plan.
5.7 Withholding; Unemployment Taxes. To the extent required by the law in
effect at the time payments are made, the Company shall withhold from payments
made hereunder the taxes required to be withheld by the Federal or any State or
local government.
ARTICLE 6
BENEFICIARY DESIGNATION
Each Participant shall have the right, at any time, to designate any person
or persons as Beneficiary or Beneficiaries to whom payment under this Plan shall
be made in the event of the Participant's death. Each Beneficiary designation
shall become effective only when filed in writing with the Administrator during
the Participant's lifetime on a form prescribed by the Administrator.
The filing of a new Beneficiary designation form will cancel all
Beneficiary designations previously filed. The spouse of a married Participant
domiciled in a community property jurisdiction shall join in any designation of
a Beneficiary or Beneficiaries other than the spouse.
If a Participant fails to designate a Beneficiary as provided above, or if
all designated Beneficiaries predecease the Participant or die prior to complete
distribution of the Participant's benefits, then the Administrator shall direct
the distribution of such benefits to the Participant's estate.
ARTICLE 7
AMENDMENT AND TERMINATION OF PLAN
The Administrator, in its sole and absolute discretion, may at any time (i)
amend the Plan in whole or in part or (ii) terminate the Plan. If the Plan is
terminated within the seven years after the effective date of a Participant's
Deferral Agreement, such Participant shall have the right to receive a lump sum
equal to the Termination Benefit pursuant to Section 5.4(a)(i); provided,
however, that Deferrals shall not be deducted from a Participant's Compensation
on and after the effective date of termination of the Plan. If the Plan is
terminated seven or more years after the effective date of a Participant's
Deferral Agreement, such Participant shall have the right to receive a lump sum
equal to the Termination Benefit pursuant to Section 5.4(b)(ii).
ARTICLE 8
UNSECURED GENERAL CREDITOR; NONASSIGNABILITY
8.1 Unsecured General Creditor. Participants and their Beneficiaries,
heirs, and successors shall have no legal or equitable right, interest or claim
in or to any specific property or assets of the Company, nor shall they be
beneficiaries of, or have any right, interest or claim in or to any Policy or
Policies or the proceeds therefrom. Such Policies shall be and remain the
general, unpledged, unrestricted assets of the Company. Such Policies or other
assets of the Company shall not be held under any trust for the benefit of
Participants, their Beneficiaries, heirs, or successors, or held in any way as
collateral security for the fulfilling of the obligations of the Company under
this Plan; provided, however, that in order to assure payment under the Plan,
the Company may establish one or more grantor trusts so long as such trusts will
in no way result in the Plan being other than "unfunded," as that term is used
in Sections 201(2), 301(a)(3), 401(a)(1) and
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4021(a)(6) of the Employee Retirement Income Security Act of 1974 with respect
to unfunded plans maintained primarily for the purpose of providing deferred
compensation for a select group of management or highly compensated employees.
The Company's obligation under the Plan shall be merely that of an unfunded and
unsecured promise of the Company to pay money in the future. Neither this Plan
nor the making of payments under or purchases of Policies by the Company
hereunder shall be construed to create any obligation upon the Company to
continue the purchases of such Policies.
8.2 Nonassignability. Neither a Participant nor any other person shall
have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage
or otherwise encumber, hypothecate or convey in advance of actual receipt the
amounts, if any, payable hereunder, or any part thereof, or interest therein,
which are, and all rights to which are, expressly declared to be unassignable
and non-transferrable. No part of the amounts payable shall, prior to actual
payment, be subject to seizure or sequestration for the payment of any debts,
judgments, alimony, or separate maintenance owed by a Participant, or any other
person, nor be transferrable by operation of law in the event of a Participant's
or any other person's bankruptcy or insolvency.
ARTICLE 9
MISCELLANEOUS
9.1 No Contract of Employment. Nothing contained herein shall be construed
to be a contract of employment for any term of years, or as conferring upon any
Employee the right to continue in the employ of the Company in any capacity. It
is expressly understood by the parties hereto that this Agreement relates to the
deferral of compensation for the Employee's services, payable after termination
of such Employee's employment with the Company and is not intended to be an
employment contract.
9.2 Notice. Any notice, consent, or demand required or permitted to be
given under the provisions of this Plan shall be in writing, and shall be signed
by the party giving or making the same. If such notice, consent, or demand is
mailed to a party hereto, it shall be sent by United States mail, postage
prepaid, addressed to such party's last known address as shown on the records of
the Company. The date of such mailing shall be deemed the date of notice,
consent, or demand. Either party may change the address to which notice is to be
sent by giving notice of the change of address in the manner aforesaid.
9.3 Governing Law. This Plan shall be governed by and construed in
accordance with the laws of the State of Connecticut, excluding its laws
relating to conflicts of laws, to the extent the laws of the State of
Connecticut are not preempted by applicable Federal law.
9.4 Gender, Singular and Plural. All pronouns and any variations thereof
shall be deemed to refer to the masculine, feminine, or neuter, as the identity
of that person or persons may require. As the context may require, the singular
may be read as the plural and the plural as the singular.
9.5 Captions. The captions of the articles, sections, and paragraphs of
this Plan are for convenience only and shall not control or affect the meaning
or construction of any of its provisions.
9.6 Validity. In the event any provision of this Plan is held invalid,
void, or unenforceable, the same shall not affect, in any respect whatsoever,
the validity of any other provision of this Plan.
9.7 Conflicting Provisions. In the event of a conflict between the
provisions of this Plan and the provisions of any collateral assignment,
beneficiary designation or other document related to a Policy, if any, the
provisions of the Plan shall prevail as between the parties hereto. No such
party shall assert or enforce any right which it may have in a Policy, if any,
the beneficiary designation thereunder, or other document which is inconsistent
with the rights established by this Plan. Furthermore, this Plan supersedes any
and all prior agreements, whether written or unwritten, between the Company and
any Participant concerning the provision of deferred compensation other than one
or more qualified plans of the Company covering the Participant.
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IN WITNESS WHEREOF, the Company has executed this amended and restated Plan
effective as of January 1, 1996, such execution first having been duly
authorized by the Company's Compensation & Organization Committee of the Board
of Directors.
THE DEXTER CORPORATION
By: /s/ K. GRAHAME WALKER
-----------------------------------
Title: Chairman and
Chief Executive Officer
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FIRST AMENDMENT
TO
THE DEXTER CORPORATION EXECUTIVE COMPENSATION BENEFIT PLAN
EFFECTIVE NOVEMBER 1, 1996
1. The definition of "Administrator" in Article 2 of The Dexter
Corporation Executive Deferred Compensation Plan (the "Plan") is hereby amended
to read in its entirety as follows:
Administrator. "Administrator" means the Vice President, Human Resources
of the Company.
2. Article 7 of the Plan is hereby amended to replace "Administrator" with
"Chief Executive Officer of the Company" in the first sentence thereof.
THE DEXTER CORPORATION
By: /s/ K. GRAHAME WALKER
------------------------------------
Administrator of The Dexter
Corporation Executive Deferred
Compensation Benefit Plan
Date: January 1, 1997
<PAGE> 11
SECOND AMENDMENT
TO
THE DEXTER CORPORATION
EXECUTIVE DEFERRED COMPENSATION BENEFIT PLAN
EFFECTIVE JANUARY 1, 1997
1. The definition of "Marginal Tax Rate" in Article 2 of The Dexter
Corporation Executive Deferred Compensation Plan (the "Plan") is hereby amended
to read in its entirety as follows:
Marginal Tax Rate. "Marginal Tax Rate" means the rate of United States
federal taxes and applicable state taxes on the Company's net income, in
the year a benefit under the Plan must be calculated, as determined by
the Administrator in its sole and absolute discretion. The Administrator
may estimate the Marginal Tax Rate in order to make a benefit
distribution or for other purposes under the Plan.
THE DEXTER CORPORATION
By: /s/ LAWRENCE D. MCCLURE
------------------------------------
Lawrence D. McClure
Administrator of
The Dexter Corporation Executive
Deferred Compensation Benefit Plan
Date: January 1, 1997
<PAGE> 1
EXHIBIT 13
THE DEXTER CORPORATION'S
1996 ANNUAL REPORT
TO SHAREHOLDERS
<PAGE> 2
TO OUR SHAREHOLDERS,
EMPLOYEES AND CUSTOMERS
[PHOTO OF K. GRAHAME WALKER]
OVERVIEW
1996 was a good year for shareholders of The Dexter Corporation. The share price
rose by 35% while maintaining a relatively high dividend yield of almost 3%. The
strength of the corporation's business positions provides confidence for
continued growth of shareholder value.
A clear and steady commitment to the three key objectives that drive shareholder
value was maintained throughout the year. These are stated in full on page 4 and
summarized as follows:
- - CONSISTENT STRONG GROWTH OF NET INCOME AND
EARNINGS PER SHARE
In 1996 net income from operations grew by 18% to a record $47.7 million. At
$2.02 from operations, earnings per share grew by 21% and were also a
record. Owing to a $.04 per share one time only gain from a transaction by
Life Technologies, the company reported 1996 earnings per share of $2.06, a
gain of 23% over the previous year.
- - CONTINUOUS IMPROVEMENT OF THE PROPRIETARY
TECHNOLOGY BASE
The company strengthened its focus on proprietary technology for both the
short and long term. New products were created, new patents were awarded,
and several key partnerships designed to sustain growth were formed.
- - HIGHER OPERATING PROFITABILITY AND CASH FLOW
Gross margin improved by 2.7 points to 34.5% of net sales and cash flow
strengthened to $37.5 million in 1996.
In summary, the company achieved these objectives -- which remain in place and
unaltered for the future.
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EARNINGS GROWTH
Growth of earnings was certainly supported by an overall reduction in the cost
of raw materials, particularly for wood pulp which is used in certain nonwoven
materials. Nevertheless, the cost of many of the more specialty raw materials
used throughout the corporation continued to rise. While vigorously competitive
market dynamics inhibited opportunities for selling price increases, several
important increases were awarded based on the value placed by customers on
Dexter products. There were also price decreases, leveraged by certain raw
material cost declines. The net consequence of these movements benefitted
earnings.
Continued improvement in operational efficiencies throughout the corporation was
also a contributor to earnings growth. Credit must go to the extraordinary
personal effort and contribution of all employees. It was their innovation,
discipline, commitment to the customer and straightforward hard work that made
the company's strong results possible.
Although net sales of $1.1 billion in 1996 were a record, sales growth was very
modest at 1%. This was due partly to divestitures, partly to a recessionary year
for the electronics industry, and partly to an excessive worldwide inventory of
beer, beverage and food cans for which the company supplies coatings. On the
other hand the aerospace market, as expected, began to strengthen in the latter
part of the year, and the demand for several nonwoven products improved
substantially.
While divestitures masked the consolidated sales performance for Dexter's wholly
owned operating divisions, the steady growth of Life Technologies' sales was
enhanced by acquisitions. Nevertheless, the percentage earnings per share growth
from operations both with and without Life Technologies was identical at 21%.
A trend of recovery for the electronics market became evident during the fourth
quarter and 1997 is expected to be a good growth year. The excess worldwide
inventory of metal cans is expected to become balanced with demand in the early
part of 1997, and Dexter has enhanced its position by the acquisition of a
specialty can coatings manufacturer in Europe. The global aerospace market will
continue to strengthen, and new nonwoven product sales are growing. Life
Technologies confidently expects another excellent year.
Stronger sales growth is therefore anticipated in 1997 which, in combination
with improving operating margins, is expected to leverage continued good growth
of earnings.
MARKETING DEXTER'S TECHNOLOGY LEADERSHIP
Technology leadership is fundamental to the corporation's success. We believe
that technology leadership is the principal driver of earnings growth. Dexter is
consequently committed to being the technology leader in each of its served
market segments and overall spends 4.7% of net sales to maintain that position.
However, it is how that technology is marketed that will determine the ultimate
benefit to shareholders.
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Dexter has therefore increased its marketing strengths. We remain intent on
listening to our customers, and we use technology leadership positions to create
co-development programs.
IMPROVED PROFITABILITY AND CASH FLOW
Throughout 1996 the corporation exercised tight controls on discretionary
expense and capital expenditures and effectively implemented programs to
increase margins. These controls recognized the need to improve profitability
and return on investment.
All capital expenditures are evaluated for their ability to improve the return
to shareholders and are allocated for their contribution to sustained earnings
growth. Excluding Life Technologies, which is undergoing an extensive
infrastructure rebuild, capital expenditures were restricted to projects that
would drive profits in addition to pro-active investments to fulfill the
company's commitment to health, safety and the environment. Again, excluding
Life Technologies, capital expenditures were well below depreciation.
Apart from the positive effect of divestitures, operating cash flow improved
substantially as a result of improved profitability and progress in reducing
working capital. Efforts directed at improving Dexter's own process technologies
also played an important role in lowering cost. Further reduction of working
capital, expressed as a percent of net sales, will be accomplished in 1997
consequent to disciplined implementation of a corporationwide initiative.
STRUCTURED AND MANAGED FOR SUSTAINED EARNINGS GROWTH
As The Dexter Corporation looks forward to 1997 and beyond, it is from the
vantage point of a more tightly focused and effective operating company that has
a clear commitment to consistent growth in shareholder value. The company has
good businesses that are performing well under experienced management teams.
Attractive market opportunities have been identified and Dexter has built the
infrastructure, the technology and the talent to convert these opportunities
into sustained earnings growth.
That objective was underscored by the election of two new directors in 1996.
During her distinguished career, Henrietta Holsman Fore accumulated extensive
experience in Asia while building her own successful company. Edgar Hotard has
demonstrated his considerable skills in a specialty materials environment for
many years as president of Praxair, Inc. There were also two important senior
management changes in 1996. Dr. Barry Gettins was appointed senior vice
president, operations development where he is supporting all Dexter divisions in
their pursuit of operational improvements to reduce costs and improve profits.
David Gordon was appointed to Dr. Gettins' former position of senior division
president for the Dexter Nonwovens Division and was elected a vice president of
the corporation. Mr. Gordon returned to the Nonwovens Division after five years
as president of D & S Plastics International, the success of which illustrates
his leadership and marketing skills.
Dexter is a corporation that knows its strengths, knows what it needs to
improve, knows where it is going, and knows what it takes to get there.
We expect that 1997 will be another good year for shareholders.
/s/ K. Grahame Walker
K. Grahame Walker
Chairman and Chief Executive Officer
February 4, 1997
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POLYMER TECHNOLOGY
THE FORMULATION AND PROCESSING OF SPECIALTY COATINGS, ENCAPSULANTS AND ADHESIVES
PRIMARILY FOR THE ELECTRONICS, FOOD PACKAGING AND AEROSPACE MARKETS.
TECHNOLOGY LEADERSHIP
All but two of Dexter's businesses are based upon polymer chemistry. Each of
these businesses uses proprietary technology to formulate specialty compounds
creating high value solutions for customer-specific applications. Because these
solutions drive increased profitability, Dexter invests considerable resources
to establish and maintain a leadership position in the areas of polymer
chemistry that are important to its served markets.
ELECTRONICS MARKET
The continuous design trend for electronic devices to become smaller, faster and
lighter creates a continual need for new technologies that will deliver the
required performance attributes. Dexter Electronic Materials Division uses
leading edge technology to convert this challenge into opportunity. Technology
leadership generates a steady flow of high value products that create a
competitive advantage in the marketplace. It frequently positions Dexter as the
supplier of choice and establishes partnership relationships with key customers
to co-develop total packaging solutions. By being early to market with the
newest materials that deliver real value to the customer as new or high
technology applications evolve, Dexter reinforces its position as a technical
and market leader.
ELECTRONIC MATERIALS
ELECTRONIC PACKAGING PRODUCTS
Hysol(R) epoxy molding compounds and coating powders for microelectronic,
electronic and electrical market segments.
ASSEMBLY AND ADVANCED PRODUCTS
Hysol(R) liquid encapsulants and conductive materials for microelectronic,
optoelectronic and electronic/electrical device market segments.
PRINTED WIRING BOARD PRODUCTS
Process chemistries, photoimageable solder masks and electrolytically refined
solder for the fabrication of printed wiring boards.
MAGNETIC MATERIALS
Permag(R) custom-designed and fabricated permanent magnets and assemblies, and
ferrite cores.
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<PAGE> 6
POLYMER TECHNOLOGY
AEROSPACE MARKET
Dexter is well established as the global technology leader in its served market
segments -- particularly for applications involving high service temperatures,
lightweight structural components and specialty surface finishing. Products are
custom formulated and based on proprietary technology to meet demanding
engineering specifications. Dexter Aerospace Materials Division is frequently
the supplier of choice, and with superior technology, often enjoys sole source
positions. The expected upturn in commercial build rates in 1997 will provide
Dexter with increased benefits from its investments made in the aerospace
materials business.
FOOD PACKAGING MARKET
Technology change -- predominantly related to health and the environment, total
applied cost and product performance -- is a major driver of the can coating
business. Dexter Packaging Products Division adds value by helping customers
replace solvent-based coatings with water-based chemistries or solventless
powder coatings. These are two areas in which Dexter is the clear market leader.
Technology excellence is also critical for meeting the demanding cost and
performance requirements of the can-making industry. Dexter has been successful
in replacing three-coat applications with two, maintaining the rigorous product
consistency required by can lines that spray 3,000 cans per minute, and
introducing new products formulated to cope with the complexities of
sophisticated can designs.
AEROSPACE MATERIALS
Adhesives and Structural Materials
Advanced technology, high-performance
products formulated to provide more reliable and stronger joining techniques
than mechanical fastening, as well as superior structural bonding and unique
systems for composite assembly.
Aerospace Coatings
Comprehensive primer and topcoat systems for protection and
decoration on all exterior and interior applications requiring advanced,
qualified technology.
FOOD PACKAGING MATERIALS
Can Coatings
Protective coatings for the interior surface of beer, beverage and food cans;
internal and external coatings for easy-open ends; internal coatings for glass
container closure.
OTHER MATERIALS
Coatings for Other Markets
Dexter produces new generation, environmentally compliant waterborne automotive
interior coatings and several products sold into other specialty markets. These
include waterborne protective coatings for graphic art applications, coatings
for sporting goods and the wood furniture industries, and waterborne coatings
for the cosmetic and glass bottle market.
Distributor Programs
Dexter Distributor Programs services approximately 200 industrial distributors
worldwide with Hysol(R) adhesive and Frekote(R) release products for use in the
aerospace, automotive and other specialty markets.
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<PAGE> 7
NONWOVENS TECHNOLOGY
The proprietary formulation and manufacture of long-fiber, wet-formed
and hydroentangled materials primarily for the food packaging and
medical markets.
TECHNOLOGY LEADERSHIP
Dexter's proprietary technology is a combination of five technical core
competencies. These competencies are points of differentiation that can be
combined to create innovative product solutions for existing and new customers.
A history of commercializing new nonwoven structures positions Dexter Nonwovens
Division as the supplier of choice for partnering with customers on joint
development initiatives.
FOOD PACKAGING MARKET
Dexter is the global market share leader in wet-formed nonwovens for food
packaging and invests continually to maintain that leadership. The company has
demonstrated the differentiating value of proprietary technology by introducing
new processes and products. The textilization process allows consumer marketing
companies to impart its brand identity into tea bag paper. Innovation in casing
base materials allows Dexter customers to produce highly technical products for
meat packers around the world.
MEDICAL MARKET
Medical is a large, global market with a high technology content. Dexter offers
the widest range of wet-formed nonwoven medical fabrics in the world. The
materials deliver the required technology at the optimized cost critical to
health care providers. Dexter utilizes a hydroentanglement technology to
manufacture Hydraspun(R) fabrics, soft-yet-strong barrier materials for surgical
procedures. These fabrics are also absorbent and chemical-free making them ideal
for premoistened hygiene wipes.
FOOD PACKAGING MATERIALS
Infusion and Casing Products
Long-fiber products deliver critical performance characteristics for
applications such as tea bags, coffee filters and meat casings.
MEDICAL MATERIALS
Specialty Nonwovens Products
Wet-formed and hydroentangled nonwovens are used for sterilization wraps,
surgical gowns, operating room table and patient drapes, and hygiene wipes.
OTHER MATERIALS
Specialty Nonwovens Products
Dexter is a major supplier of wallcover backings for specific commercial and
high-end residential applications, materials used in automotive headliners, and
filtration media for vacuum bags.
Cogeneration
Dexter's 56 megawatt plant supplies steam and hot water to the Dexter Nonwovens
operation in Connecticut at 150% of the fuel efficiency available from
conventional power plants. Excess power is sold to local utilities.
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BIOTECHNOLOGY
The development and manufacture of precise, reproducible biological and
biochemical products for life sciences research and commercial applications.
TECHNOLOGY LEADERSHIP
Dexter is the majority owner of Life Technologies, Inc. (LTI), a leading
developer, manufacturer and supplier of consumable biological and biochemical
materials selling over 3,000 products to over 20,000 customers worldwide. The
company spends between 6 and 7% of net sales on R & D in order to generate a
steady stream of high value, new products. Earnings growth in 1996 was a result
of positioning LTI as the high technology, prime vendor worldwide and expanding
partnerships with industrial, pharmaceutical and biotechnology customers while
continuing to focus on the still rapidly growing research segment.
MEDICAL MARKET
The company's technology leadership in genetic research, the so-called
"Expression Highway," has led to a better understanding of molecular cell
biology disease processes, aging and many other critical-to-life areas. LTI
products are central to advancing the international human genome project, the
study of several diseases, and to the development of improved techniques for
rapidly developing medical areas such as bone marrow transplant.
In the commercial arena LTI supports industrial research as well as the large
scale manufacture of genetically engineered health care products. Recently the
company has begun to develop customized kits which help biotechnology companies
to produce results faster. The company's work with Genzyme Tissue Repair is an
excellent example of partnering with a customer to provide revolutionary new
solutions to important medical problems -- in this instance, a cell therapy
treatment for damaged cartilage in knee injuries.
LTI sells two main product lines, GIBCO and BRL, into two market segments.
LTI's largest market segment includes life sciences researchers such as the
National Institutes of Health and universities worldwide.
LTI's fastest growing segment is comprised of pharmaceutical and biotechnology
companies that research, develop and produce therapeutics and vaccines.
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MANAGEMENT STATEMENT
The management of The Dexter Corporation has prepared the financial statements
and review contained on pages 18 through 43 in conformity with generally
accepted accounting principles. Dexter's management is responsible for the
integrity and objectivity of this annual report, including the financial
statements, charts, tables and other supplementary information. The financial
statements and review are presented on the accrual basis of accounting and,
accordingly, include some amounts based on judgment. Information included on
these pages is an integral part of the statement of financial position and
related statements of income, cash flows and changes in shareholders' equity
which have been audited by Coopers & Lybrand L.L.P.
Dexter has a clearly stated business ethics policy and code of conduct which
require employees to maintain high standards in their conduct of company
affairs. The company's accounting and control systems are designed to provide
reasonable assurance that financial records accurately reflect the
transactions of The Dexter Corporation and that the company's assets are
protected from unauthorized use, in accordance with established policies and
procedures, as implemented by qualified personnel. We modify and improve our
systems in response to changes in business conditions and operations, the
advice of independent certified public accountants, and the recommendations of
our own internal auditors and other independent experts on procedures and
controls. There are no known significant accounting control weaknesses.
Coopers & Lybrand L.L.P., independent certified public accountants, are engaged
to perform quarterly reviews and annual audits. Their audits are conducted in
accordance with generally accepted auditing standards which include
consideration of the company's internal control structure. The Audit Committee
of the Board of Directors, made up entirely of outside directors, meets
regularly both separately and jointly with the independent certified public
accountants, internal auditors and management to review accounting policies,
adequacy of controls, quality of financial reporting, and the scope and results
of audits. Both the internal auditors and the independent accountants have
free and direct access to the Audit Committee without the presence of
management.
A company with a good reputation is not only a good supplier, customer and
citizen but a good employer. Dexter has enjoyed a reputation based on
integrity for over two centuries. We are all the guardians of that reputation,
and that responsibility requires vigilance.
<TABLE>
<CAPTION>
<S> <C> <C>
K. Grahame Walker Kathleen Burdett George Collin
Chairman and Chief Executive Officer Vice President and Controller
Chief Financial Officer Chief Accounting Officer
</TABLE>
February 4, 1997
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of The Dexter Corporation:
We have audited the accompanying consolidated statement of financial position
of The Dexter Corporation as of December 31, 1996, 1995 and 1994 and the
related consolidated statements of income, cash flows and changes in
shareholders' equity for the years then ended. These financial statements are
the responsibility of The Dexter Corporation's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above, contained on pages
18 through 43, present fairly, in all material respects, the consolidated
financial position of The Dexter Corporation as of December 31, 1996, 1995 and
1994 and the consolidated results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
In 1996, the Corporation, as more fully described in the accompanying financial
review, adopted Statement of Financial Accounting Standards (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.
In 1994, the Corporation adopted SFAS No. 115, Accounting for Certain
Investments in Debt and Equity Securities.
/s/ Coopers & Lybrand L.L.P.
Springfield, Massachusetts
February 4, 1997
17
<PAGE> 10
SUMMARY OF FINANCIAL DATA
All share and per share amounts throughout the Financial Statements and Review
have been adjusted for a 3-for-2 stock split in 1986.
<TABLE>
<CAPTION>
In thousands of dollars
(except per share amounts) 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING RESULTS
Net sales $ 1,100,185 $1,088,905 $ 974,719 $ 887,112
% increase (decrease) 1% 12% 10% (7%)
Gross profit 379,205 346,699 316,541 293,345
As % of sales 34.5% 31.8% 32.5% 33.1%
LIFO (credit) charge
included in cost of sales (4,873) 1,881 2,231 (1,290)
Marketing and administrative expenses 223,848 206,708 188,272 175,141
As % of sales 20.3% 19.0% 19.3% 19.7%
Research and development expenses 51,504 49,375 46,644 43,803
As % of sales 4.7% 4.5% 4.8% 4.9%
Interest expense 20,500 20,931 20,509 18,756
Income before taxes 98,252 79,824 73,612 66,438
As % of sales 8.9% 7.3% 7.6% 7.5%
Tax rate 35.5% 35.5% 36.0% 36.5%
Income (loss) before minority interests 63,372 51,487 47,112 42,188
As % of sales 5.8% 4.7% 4.8% 4.8%
Income (loss) from continuing operations 48,722 40,578 37,898 34,053
As % of sales 4.4% 3.7% 3.9% 3.8%
Discontinued operations (loss) gain
Cumulative effect of change in
accounting principles (9,875)
Net income (loss) $ 48,722 $ 40,578 $ 37,898 $ 24,178
As % of sales 4.4% 3.7% 3.9% 2.7%
Return on
Average shareholders' equity 13.1% 11.4% 11.5% 7.7%
Average total capital 10.6% 9.4% 9.2% 7.0%
Income (loss) per share
Continuing operations $ 2.06 $ 1.67 $ 1.56 $ 1.40
Discontinued operations
Cumulative effect of change in
accounting principles $ (.41)
Net income (loss) $ 2.06 $ 1.67 $ 1.56 $ .99
Cash dividends declared per share $ .88 $ .88 $ .88 $ .88
Rate of dividend payout* 43% 53% 56% 63%
* Before cumulative effect of 1993 change
in accounting principles
- --------------------------------------------------------------------------------------------------
FINANCIAL POSITION
Working capital $ 242,929 $ 248,623 $ 209,024 $ 199,146
Property, plant and equipment, net 334,266 325,203 328,935 309,954
Total assets 953,804 934,161 880,609 820,691
Long-term debt 209,952 215,839 225,402 227,307
Shareholders' equity $ 374,115 $ 369,615 $ 343,633 $ 313,295
Percent long-term debt to capital 35.9% 36.9% 39.6% 42.0%
Equity per share at year-end $ 15.94 $ 15.26 $ 14.11 $ 12.87
- --------------------------------------------------------------------------------------------------
OTHER DATA
Capital expenditures $ 62,277 $ 28,969 $ 45,097 $ 44,784
Depreciation and amortization $ 44,239 $ 43,727 $ 40,923 $ 36,655
Shares outstanding at year-end (000) 23,464 24,220 24,350 24,340
Average shares outstanding (000) 23,687 24,364 24,345 24,325
Market price per share -- high $ 33 5/8 $ 26 7/8 $ 26 $ 28 7/8
-- low $ 23 1/8 $ 20 3/8 $ 19 7/8 $ 20 3/8
-- close $ 31 7/8 $ 23 5/8 $ 21 3/4 $ 23 1/2
Price-earnings ratio range* 16-11 16-12 17-13 21-15
Number of shareholders at year-end 3,100 3,400 3,600 3,900
Number of employees at year-end** 4,600 4,800 4,700 4,700
% payroll and benefits to sales** 23% 24% 25% 25%
% raw material costs to sales** 41% 44% 43% 41%
* Before cumulative effect of 1993 change
in accounting principles
** From continuing operations
- --------------------------------------------------------------------------------------------------
INFLATION ADJUSTED DATA
Net sales* $ 1,100,185 $1,120,942 $1,031,578 $ 963,312
% (decrease) increase (2%) 9% 7% (9%)
Cash dividends declared per share* $ .88 $ .91 $ .93 $ .96
Market price per share - year-end** $ 31 7/8 $ 24 3/8 $ 23 $ 25 1/2
* Stated in average 1996 dollars using the Consumer Price Index.
** Stated in year-end 1996 dollars using the Consumer Price Index.
- --------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 11
<TABLE>
<CAPTION>
THE DEXTER CORPORATION
In thousands of dollars
(except per share amounts) 1992 1991 1990 1989 1988 1987 1986
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS
Net sales $ 951,439 $ 937,734 $ 907,946 $ 848,724 $ 827,266 $ 757,710 $ 623,438
% increase (decrease) 1% 3% 7% 3% 9% 22% 4%
Gross profit 314,275 309,157 314,449 284,142 269,416 263,120 228,276
As % of sales 33.0% 33.0% 34.6% 33.5% 32.6% 34.7% 36.6%
LIFO (credit) charge
included in cost of sales 1,626 (173) 1,100 (4,063) 4,193 5,961 (809)
Marketing and administrative
expenses 188,263 198,334 191,656 168,935 159,448 152,357 136,052
As % of sales 19.8% 21.2% 21.1% 19.9% 19.3% 20.1% 21.8%
Research and development expenses 42,216 42,056 39,880 37,359 32,685 28,690 27,340
As % of sales 4.4% 4.5% 4.4% 4.4% 4.0% 3.8% 4.4%
Interest expense 18,799 16,800 17,484 10,926 12,178 14,127 12,351
Income before taxes 73,132 11,192 77,407 77,643 71,923 76,858 54,271
As % of sales 7.7% 1.2% 8.5% 9.1% 8.7% 10.1% 8.7%
Tax rate 37.7% 109.5% 37.0% 38.0% 38.0% 38.0% 38.0%
Income (loss) before minority
interests 45,577 (1,059) 48,766 48,139 44,592 47,652 33,649
As % of sales 4.8% (0.1%) 5.4% 5.7% 5.4% 6.3% 5.4%
Income (loss) from continuing
operations 38,203 (7,119) 42,150 42,977 39,889 43,391 32,251
As % of sales 4.0% (0.8%) 4.6% 5.1% 4.8% 5.7% 5.2%
Discontinued operations (loss) gain (4,393) (606) 1,384
Cumulative effect of change in
accounting principles
Net income (loss) $ 38,203 $ (7,119) $ 42,150 $ 42,977 $ 35,496 $ 42,785 $ 33,635
As % of sales 4.0% (0.8%) 4.6% 5.1% 4.3% 5.6% 5.4%
Return on
Average shareholders' equity 12.1% (2.2%) 12.6% 13.6% 11.8% 15.5% 13.7%
Average total capital 10.0% 0.7% 11.0% 11.6% 10.7% 13.3% 12.2%
Income (loss) per share
Continuing operations $ 1.58 $ (.29) $ 1.74 $ 1.73 $ 1.61 $ 1.74 $ 1.30
Discontinued operations $ (.18) $ (.02) $ .05
Cumulative effect of change in
accounting principles
Net income (loss) $ 1.58 $ (.29) $ 1.74 $ 1.73 $ 1.43 $ 1.72 $ 1.35
Cash dividends declared per share $ .88 $ .88 $ .88 $ .82 $ .80 $ .60 $ .56 2/3
Rate of dividend payout* 56% -- 51% 47% 56% 35% 42%
* Before cumulative effect of 1993
change in accounting principles
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
Working capital $ 207,146 $ 193,873 $ 215,410 $ 189,006 $ 182,284 $ 181,106 $ 137,980
Property, plant and equipment, net 298,869 299,342 274,147 252,895 186,894 183,972 174,644
Total assets 782,025 784,471 762,383 694,490 626,391 612,517 570,335
Long-term debt 179,024 188,702 160,478 130,834 92,830 106,338 112,553
Shareholders' equity $ 315,614 $ 313,782 $ 343,698 $ 325,281 $ 307,226 $ 293,788 $ 258,843
Percent long-term debt to capital 36.2% 37.6% 31.8% 28.7% 23.2% 26.6% 30.3%
Equity per share at year-end $ 12.98 $ 12.99 $ 14.24 $ 13.14 $ 12.36 $ 11.84 $ 10.40
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER DATA
Capital expenditures $ 51,793 $ 61,749 $ 43,910 $ 33,119 $ 26,145 $ 23,619 $ 23,861
Depreciation and amortization $ 35,672 $ 34,095 $ 30,272 $ 26,243 $ 24,349 $ 22,775 $ 18,482
Shares outstanding at year-end (000) 24,308 24,149 24,136 24,761 24,855 24,821 24,893
Average shares outstanding (000) 24,220 24,145 24,282 24,877 24,842 24,895 24,860
Market price per share -- high $ 28 1/8 $ 26 1/8 $ 24 1/2 $ 34 3/4 $ 28 3/4 $ 32 3/8 $ 23 3/8
-- low $ 20 7/8 $ 18 1/2 $ 18 $ 20 1/8 $ 20 1/4 $ 17 $ 16 7/8
-- close $ 25 7/8 $ 21 5/8 $ 21 $ 21 7/8 $ 22 1/4 $ 23 3/8 $ 22 1/4
Price-earnings ratio range* 18-13 -- 14-10 20-12 20-14 19-10 17-13
Number of shareholders at year-end 4,000 4,300 4,400 4,500 4,400 4,500 4,500
Number of employees at year-end** 4,800 5,600 5,500 5,400 5,400 5,200 5,400
% payroll and benefits to sales** 25% 25% 24% 23% 23% 23% 25%
% raw material costs to sales** 42% 41% 42% 46% 45% 43% 42%
* Before cumulative effect of 1993
change in accounting principles
** From continuing operations
- ------------------------------------------------------------------------------------------------------------------------------------
INFLATION ADJUSTED DATA
Net sales* $ 1,063,669 $ 1,080,135 $1,090,129 $ 1,074,135 $1,097,246 $1,046,031 $ 892,063
% (decrease) increase (2%) (1%) 1% (2%) 5% 17% 2%
Cash dividends declared per share* $ .98 $ 1.01 $ 1.06 $ 1.04 $ 1.06 $ .83 $ .81
Market price per share - year-end** $ 28 7/8 $ 24 7/8 $ 24 7/8 $ 27 1/2 $ 29 1/4 $ 32 1/8 $ 31 7/8
* Stated in average 1996 dollars using the Consumer Price Index.
** Stated in year-end 1996 dollars using the Consumer Price Index.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE> 12
<TABLE>
<CAPTION>
STATEMENT OF INCOME THE DEXTER CORPORATION
Years ended December 31
In thousands of dollars --------------------------------------------
(except per share amounts) 1996 1995 1994
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Net sales $ 1,100,185 $1,088,905 $974,719
Equity in net income of affiliates 4,810 1,348 3,836
Other income 7,370 8,791 8,660
--------------------------------------------
1,112,365 1,099,044 987,215
EXPENSES
Cost of sales 720,980 742,206 658,178
Marketing and administrative 223,848 206,708 188,272
Research and development 51,504 49,375 46,644
Interest 20,500 20,931 20,509
Gain on divestiture of product lines (2,719)
--------------------------------------------
INCOME BEFORE TAXES 98,252 79,824 73,612
Income taxes 34,880 28,337 26,500
--------------------------------------------
INCOME BEFORE MINORITY INTERESTS 63,372 51,487 47,112
Minority interests 14,650 10,909 9,214
--------------------------------------------
NET INCOME $ 48,722 $ 40,578 $ 37,898
============================================
NET INCOME PER SHARE $ 2.06 $ 1.67 $ 1.56
DIVIDENDS DECLARED PER SHARE $ .88 $ .88 $ .88
</TABLE>
- --------------------------------------------------------------------------------
See accompanying financial review.
20
<PAGE> 13
STATEMENT OF CASH FLOWS THE DEXTER CORPORATION
<TABLE>
<CAPTION>
Years ended December 31
-----------------------------------------
In thousands of dollars 1996 1995 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATIONS
Net income $ 48,722 $ 40,578 $ 37,898
Noncash items
Depreciation 37,312 38,246 34,857
Amortization 6,927 5,481 6,066
Gain on divestiture of product lines (2,719)
Income taxes not due/(paid) 9,418 (5,262) 9,508
Minority interests 14,650 10,909 9,214
LIFO inventory (credit) charge (4,873) 1,881 2,231
Equity in net income of affiliates (4,810) (1,348) (3,836)
Other 4,075 (1,547) (2,538)
Operating working capital decrease (increase) 18,944 (31,512) (12,824)
-----------------------------------------
127,646 57,426 80,576
-----------------------------------------
INVESTMENTS
Property, plant and equipment (55,294) (30,235) (45,842)
Acquisitions (16,315) (525) (8,767)
Joint ventures 10,050 (3,133) 749
Divestitures 34,913
Notes receivable 200 3,150
Proceeds from sale of investments 1,070 1,048 5,658
Purchases of investments (4,970) (771) (6,082)
Proceeds from exercise of LTI stock options 1,998 2,990 308
Other (274) 850 (2,308)
-----------------------------------------
(28,622) (26,626) (56,284)
-----------------------------------------
FINANCING
New long-term debt 4,390
Repayment of long-term debt (13,762) (4,260) (4,063)
Short-term debt, net (8,371) 8,825 3,806
Dividends paid (20,967) (21,441) (21,421)
LTI dividends paid to minority interest shareholders (1,561) (1,374) (1,360)
Purchase of treasury stock (26,658) (4,205)
Proceeds from exercise of stock options 5,269 754 160
Other 131 (478) 55
-----------------------------------------
(61,529) (22,179) (22,823)
-----------------------------------------
INCREASE IN CASH AND SHORT-TERM SECURITIES $ 37,495 $ 8,621 $ 1,469
=========================================
CHANGES IN MAJOR ELEMENTS WHICH (DECREASE)
INCREASE OPERATING WORKING CAPITAL
Accounts receivable, net $ (3,827) $ 20,085 $ 16,260
Inventories at FIFO (7,912) 10,441 8,100
Prepaid and deferred expenses (3,891) 1,343 (1,699)
Accounts payable (62) (6,690) (15,259)
Accrued liabilities and expenses (3,252) 6,333 5,422
-----------------------------------------
$ (18,944) $ 31,512 $ 12,824
=========================================
RECONCILIATION OF INCREASE IN
CASH AND SHORT-TERM SECURITIES
Cash and short-term securities at beginning of year $ 65,542 $ 55,012 $ 52,746
Cash and short-term securities at end of year 103,420 65,542 55,012
-----------------------------------------
Increase in cash and short-term securities per
Statement of Financial Position 37,878 10,530 2,266
Currency translation effects (383) 225 (797)
Cash included from consolidation of a subsidiary
which became majority-owned in 1995 (2,134)
-----------------------------------------
$ 37,495 $ 8,621 $ 1,469
=========================================
INTEREST PAID $ 22,403 $ 19,113 $ 20,522
TAXES PAID $ 25,462 $ 33,599 $ 16,992
</TABLE>
This Statement of Cash Flows does not reflect the addition of $4.7 million of
property, plant and equipment and $4.7 million of debt related to a capital
lease for land acquired in 1996 by Life Technologies, Inc., as this was a
non-cash transaction.
- --------------------------------------------------------------------------------
See accompanying financial review.
21
<PAGE> 14
STATEMENT OF FINANCIAL POSITION
<TABLE>
<CAPTION>
December 31
------------------------------------------
In thousands of dollars 1996 1995 1994
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Current assets
Cash $ 11,837 $ 9,577 $ 10,854
Short-term securities 91,583 55,965 44,158
Accounts receivable, net 178,093 201,389 168,957
Inventories
Materials and supplies 58,290 60,099 58,967
In process and finished goods 110,457 121,644 106,703
LIFO reserve (19,836) (24,709) (22,828)
------------------------------------------
148,911 157,034 142,842
Current deferred tax assets 22,477 20,890 16,122
Prepaid and deferred expenses 7,510 11,866 9,720
------------------------------------------
460,411 456,721 392,653
Property, plant and equipment
Land 23,273 19,307 18,581
Buildings and improvements 158,635 153,071 143,436
Machinery and equipment 458,069 457,611 429,416
Construction in progress 37,859 12,250 16,911
------------------------------------------
677,836 642,239 608,344
Less accumulated depreciation (343,570) (317,036) (279,409)
------------------------------------------
334,266 325,203 328,935
Investments of wholly owned captive
insurance companies 9,875 5,878 7,224
Investment in unconsolidated affiliates 50,025 47,982 49,390
Patents, technology, formulas and covenants 2,313 2,857 4,233
Excess of cost over net assets of
businesses acquired 71,906 74,102 74,034
Other assets 25,008 21,418 24,140
------------------------------------------
$ 953,804 $ 934,161 $ 880,609
==========================================
- -----------------------------------------------------------------------------------------
</TABLE>
See accompanying financial review.
22
<PAGE> 15
THE DEXTER CORPORATION
<TABLE>
<CAPTION>
December 31
--------------------------------------
In thousands of dollars 1996 1995 1994
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt $ 5,111 $ 13,598 $ 3,806
Accounts payable 91,855 92,447 82,851
Dividends payable 5,170 5,351 5,357
Accrued and deferred income taxes 36,212 26,622 24,259
Accrued liabilities and expenses 65,479 55,037 60,625
Current environmental liabilities 1,358 1,395 2,660
Current installments of long-term debt 12,297 13,648 4,071
--------------------------------------
217,482 208,098 183,629
Long-term debt 209,952 215,839 225,402
Deferred items 24,642 23,693 22,316
Long-term deferred income taxes 19,481 21,486 21,517
Deferred tax credits 2,751 3,313 4,005
Long-term environmental liabilities 14,978 15,745 17,632
Minority interests - principally
Life Technologies, Inc. 90,403 76,372 62,475
Shareholders' equity
Common stock, par value $1 per share
(authorized 100,000,000 shares; issued
24,983,907 shares in 1996, 1995
and 1994) 24,984 24,984 24,984
Additional paid-in capital 14,669 12,316 11,979
Retained earnings 375,480 347,544 328,401
Currency translation effects (2,187) 1,614 (7,364)
Other equity items (3,158) (2,184) (2,433)
Treasury stock, at cost
(1,520,261 shares in 1996, 763,782
shares in 1995 and 634,403 shares in 1994) (35,673) (14,659) (11,934)
--------------------------------------
Total shareholders' equity 374,115 369,615 343,633
--------------------------------------
$ 953,804 $ 934,161 $ 880,609
======================================
</TABLE>
- --------------------------------------------------------------------------------
See accompanying financial review.
23
<PAGE> 16
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY THE DEXTER CORPORATION
<TABLE>
<CAPTION>
Add'l Currency Other Total
In thousands of dollars Common Paid-in Retained Translation Equity Treasury Shareholders'
(except per share amounts) Stock Capital Earnings Effects Items Stock Equity
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1993 $24,984 $11,966 $311,928 $ (22,137) $(13,446) $313,295
Net income 37,898 37,898
Dividends - $.88 per share (21,425) (21,425)
Currency effects 14,773 14,773
Unrealized loss on
investments $(1,468) (1,468)
Stock options (11) 192 181
Restricted stock (8) (965) 1,320 347
Pooling tax benefits 32 32
------------------------------------------------------------------------------------------------
DECEMBER 31, 1994 24,984 11,979 328,401 (7,364) (2,433) (11,934) 343,633
Net income 40,578 40,578
Dividends - $.88 per share (21,435) (21,435)
Currency effects 8,978 8,978
Stock purchases (4,205) (4,205)
Unrealized gain on
investments 1,340 1,340
Stock options (33) 854 821
Pension liability adjustment (473) (473)
Restricted stock 338 (618) 626 346
Pooling tax benefits 32 32
------------------------------------------------------------------------------------------------
DECEMBER 31, 1995 24,984 12,316 347,544 1,614 (2,184) (14,659) 369,615
Net income 48,722 48,722
Dividends - $.88 per share (20,786) (20,786)
Currency effects (3,801) (3,801)
Stock purchases (26,658) (26,658)
Unrealized loss on
investments (46) (46)
Stock options 1,065 4,704 5,769
Pension liability adjustment 269 269
Restricted stock 1,282 (1,197) 940 1,025
Pooling tax benefits 6 6
------------------------------------------------------------------------------------------------
DECEMBER 31, 1996 $24,984 $14,669 $375,480 $ (2,187) $(3,158) $(35,673) $374,115
================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
See accompanying financial review.
QUARTERLY FINANCIAL INFORMATION (unaudited)
<TABLE>
<CAPTION>
In millions of dollars Market Price
-------------------------------------- -----------------------
Net Cost Net Net Income Dividends
Quarter Sales of Sales Income per Share per Share High Low
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1994
First $ 233.5 $155.4 $ 9.3 $ .38 $.22 $25 7/8 $23 1/8
Second 247.1 165.4 11.0 .45 .22 25 3/8 22 3/4
Third 243.3 165.6 8.4 .35 .22 26 22 1/2
Fourth 250.8 171.8 9.2 .38 .22 23 1/2 19 7/8
---------------------------------------------------------------------
Year $ 974.7 $658.2 $37.9 $ 1.56 $.88 Close $21 3/4
======================================================================================================
- ----------------------------------------------------------------------------------------------------------------------------------
1995
First $ 266.8 $181.1 $10.5 $ .43 $.22 $22 7/8 $20 3/8
Second 283.0 193.1 11.9 .49 .22 25 1/8 21 5/8
Third 268.5 183.9 9.4 .39 .22 25 7/8 23
Fourth 270.6 184.1 8.8 .36 .22 26 7/8 23 1/8
---------------------------------------------------------------------
Year $ 1,088.9 $742.2 $40.6 $ 1.67 $.88 Close $23 5/8
======================================================================================================
- ----------------------------------------------------------------------------------------------------------------------------------
1996*
First $ 277.2 $182.5 $11.1 $ .46 $.22 $26 1/2 $23 1/8
Second 285.7 187.8 14.4 .61 .22 29 7/8 25 1/4
Third 269.5 177.0 11.8 .50 .22 30 1/2 26 7/8
Fourth 267.8 173.7 11.4 .49 .22 33 5/8 29 3/8
---------------------------------------------------------------------
Year $ 1,100.2 $721.0 $48.7 $ 2.06 $.88 Close $31 7/8
======================================================================================================
</TABLE>
* The second quarter pretax income included a $2.7 million gain on divestiture
of product lines, including $2.6 million due to the receipt of proceeds from
a note related to the sale of Life Technologies, Inc.'s molecular diagnostic
product line in 1990. The net effect of the sale of the company's acoustic
materials business and a small powder coatings business in the second quarter
had a slightly positive impact on earnings.
- --------------------------------------------------------------------------------
24
<PAGE> 17
ANALYSIS OF OPERATIONS
1996 COMPARED WITH 1995
Revenues: Net sales were a record $1.1 billion in 1996, an increase of $11.3
million, or 1%, over 1995 sales. The 1% increase in sales was due to unit volume
increases of 3%, selling price increases averaging 1%, a 2% decrease due to the
net effect of acquisitions and divestitures, and a 1% decrease due to the effect
of lower translation rates on international sales.
Equity in net income of affiliates increased $3.5 million to $4.8 million in
1996. This increase was due to the increase in the results of D & S Plastics
International.
Expenses: Cost of sales decreased as a percentage of sales in 1996, thereby
increasing consolidated gross margin by 2.7 percentage points to 34.5% of sales
from 31.8% in 1995. Gross margin, excluding Life Technologies, Inc. (LTI),
increased 1.6 percentage points, principally resulting from the favorable impact
of selling price increases and raw material cost decreases. The remaining
improvement was attributable to an increased gross margin on sales of fetal
bovine serum and higher gross margin on sales of product in Japan by LTI.
Marketing and administrative expenses increased $17.1 million, or 8%, in 1996
compared with 1995, principally due to increased marketing and administrative
expenses at LTI, which included the consolidation of results from the fourth
quarter 1995 acquisition of a controlling interest in their Japanese subsidiary.
Marketing and administrative expenses, excluding LTI, increased 3% in 1996
compared with 1995, due mainly to higher selling and marketing expenses.
Research and development expenses increased $2.1 million, or 4%, due to
increases at LTI.
Interest expense decreased $0.4 million, or 2%, in 1996 compared with 1995,
primarily due to lower average long-term borrowing throughout the year. The
company does not capitalize interest on facilities under construction. If
interest had been capitalized, there would have been no impact on earnings per
share in 1996 or 1995.
In 1996, there was a gain on divestiture of product lines of $2.7 million. This
gain included $2.6 million due to the receipt of proceeds from a note related to
the sale of LTI's molecular diagnostic product line in 1990 and the net effect
of the sale of the company's acoustic materials business and a small powder
coatings business in 1996.
Income Taxes: The effective tax rate was 35.5% in 1996 and 1995.
Minority Interests: Income attributed to minority interest shareholders
increased 34% from 1995 due primarily to increased profits at LTI.
Net Income: Net income for the year 1996 was $47.7 million, or $2.02 per share,
excluding the net gain from the second quarter 1996 disposal of product lines.
This represents an 18% increase in net income and a 21% increase in earnings per
share, compared with results for 1995 of $40.6 million, or $1.67 per share.
Total earnings for 1996, including the gain on divested product lines, increased
20% to $48.7 million while earnings per share gained 23% to a record $2.06 per
share. The 1996 earnings include the favorable effect of selling price increases
and lower raw material costs of approximately $.51 per share compared with 1995.
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, a less favorable product mix from wholly owned Dexter businesses,
and increased marketing and administrative costs, principally at LTI.
1995 COMPARED WITH 1994
Revenues: Net sales were $1.1 billion in 1995, an increase of $114 million, or
12%, over sales of $975 million for 1994. The 12% increase in sales was due to
unit volume increases of 7%, a 3% increase due to the effect of higher
translation rates on international sales, price increases averaging 1%, and
increased consolidated sales of 1% through acquisition of a controlling interest
in a Japanese subsidiary of LTI.
Equity in net income of affiliates decreased $2.5 million to $1.3 million in
1995. This decrease was due to a $3 million decrease in results of D & S
Plastics International partially offset by improved results at AD Aerospace
Finishes VoF of $0.5 million.
Expenses: Cost of sales increased as a percentage of sales in 1995 thereby
reducing consolidated gross margin by .7 percentage points to 31.8% of sales
from 32.5% in 1994. Substantially improved gross margin at LTI improved overall
gross margin by 1.3 percentage points. Gross margin, excluding LTI, decreased 2
percentage points and more than offset the favorable impact of LTI.
Unprecedented increases in the cost of commodity raw materials, principally wood
pulp, solvents, and polypropylene, more than accounted for the margin erosion,
excluding LTI. Somewhat offsetting these cost increases were the favorable
effects of overall selling price increase, productivity improvements and cost
containment.
Marketing and administrative expenses increased $18.4 million, or 10%, in 1995
compared with 1994 principally due to increased marketing efforts at LTI and the
third quarter consolidation of its subsidiary in Japan. Marketing and
administrative costs, excluding LTI, increased less than one-half of one percent
over 1994. Overall marketing and administrative costs continued to decrease as a
percentage of sales from 19.3% in 1994 to 19% in 1995. Research and development
expenses increased $2.7 million, or 6%, due to increases at LTI and in the can
coatings business.
25
<PAGE> 18
Interest expense increased $0.4 million, or 2%, in 1995 compared with 1994
primarily due to higher average short-term borrowing throughout the year. If
interest had been capitalized, there would have been no impact on earnings per
share in 1995 or 1994.
Income Taxes: The effective tax rate was 35.5% in 1995 compared with 36% in
1994.
Minority Interests: Income attributed to minority interest shareholders
increased 18% from 1994 due primarily to increased profits at LTI.
Net Income: Net income for the year 1995 was $40.6 million, or $1.67 per share,
a 7% increase compared with $37.9 million, or $1.56 per share, in 1994. The 1995
net income includes a decrease due to the effect of higher raw material cost,
net of selling price increases, of approximately $.43 per share. Somewhat
offsetting this negative impact was a $.07 per share increase due to favorable
currency translation rates and a $.02 per share increase due to a reduction of
the effective income tax rate from 36% in 1994 to 35.5% in 1995.
1994 COMPARED WITH 1993
Revenues: Net sales were $974.7 million in 1994, an increase of $87.6 million,
or 10%, over sales of $887.1 million for 1993. The 10% increase in sales was due
to unit volume increases. A 1% increase due to the effect of higher currency
translation rates on international sales was offset by selling price decreases
averaging 1%. Acquisitions and divestitures accounted for a net increase in
sales of $1 million.
Equity in net income of affiliates increased $1.4 million to $3.8 million in
1994. This increase is due to a $0.7 million increase in the results of D & S
Plastics International and a full year of earnings from AD Aerospace Finishes
VoF representing a $0.7 million increase in earnings.
Expenses: Cost of sales increased as a percent of sales in 1994 thereby reducing
consolidated gross margin by .6 percentage points to 32.5% of sales from 33.1%
in 1993. Excluding LTI, gross margin remained relatively constant at 27.8% for
1994 compared with 27.9% for 1993. Two-thirds of the total .6 percentage point
decrease is due to the unfavorable impact of a LIFO charge of $2.2 million in
1994 compared to $1.3 million of LIFO income in 1993. Gross margin declined in
1994 at LTI due to lower fetal bovine serum unit selling prices and increased
unit costs combined with higher royalty expense. Excluding LTI, productivity
improvements, reductions in fixed manufacturing costs as a percent of sales and
the benefit of lower gas costs for our cogeneration facility almost fully offset
the negative impact of selling price reductions on gross margin.
Marketing and administrative expenses increased $13.1 million, or 7%, in 1994
compared with 1993 due primarily to increased marketing efforts at LTI and cost
associated with 1994 Dexter acquisitions. Marketing and administrative costs
decreased as a percentage of sales from 19.7% in 1993 to 19.3% in 1994. Research
and development expenses increased $2.8 million, or 6%, due to increases in the
food packaging and electronics markets and at LTI.
Interest expense increased $1.8 million, or 9%, in 1994 compared with 1993
primarily due to higher long-term borrowings beginning in the fourth quarter of
1993. If interest had been capitalized, there would have been no impact on
earnings per share in 1994 and earnings per share would have increased by $.02
in 1993.
In 1993, there was a gain on divestiture of product lines of $13 million
partially offset by a $12.4 million charge for restructuring businesses and a $1
million provision for estimated environmental costs.
Income Taxes: The effective tax rate was 36% in 1994 compared with 36.5% in
1993.
Minority Interest: Income attributed to minority interest shareholders increased
13% from 1993 due primarily to increased profits at LTI.
Net Income: The year 1994 resulted in net income of $37.9 million, or $1.56 per
share, compared with $34.1 million, or $1.40 per share, in 1993 before deducting
the $9.9 million, or $.41 per share cumulative effect of accounting principle
changes in 1993. The 1994 net income includes a $.04 per share decrease due to
the net effect of acquisitions and divestitures, a $.02 per share increase from
the effect of changes in currency translation rates, a $.01 per share increase
due to the reduction of the effective income tax rate from 36.5% to 36% for the
year, and an unfavorable comparison of $.08 per share resulting from a LIFO
charge of $.05 per share in 1994 compared with LIFO income of $.03 per share in
1993. Also included in earnings for 1993 was a charge of $.03 per share due to
environmental costs and a net favorable impact to earnings from divestitures net
of restructuring charges of $.02 per share.
- --------------------------------------------------------------------------------
TAXES The effective income tax rate was 35.5% in 1996, 35.5% in 1995 and 36% in
1994. The tax rate is currently expected to approximate 36% in 1997. The income
tax rate differs from the statutory U.S. federal income tax rate as shown below:
<TABLE>
<CAPTION>
1996 1995 1994
-------------------------------
<S> <C> <C> <C>
U.S. federal rate 35.0% 35.0% 35.0%
State taxes, net of federal benefit 1.8 1.7 1.8
Investment and R&E tax credits (0.6) (1.0) (2.2)
International taxation differences (2.2) (0.7) (0.8)
Other 1.5 0.5 2.2
-------------------------------
Effective income tax rate 35.5% 35.5% 36.0%
===============================
</TABLE>
- --------------------------------------------------------------------------------
Investment tax credits are accounted for by the deferred method, which credits
the benefit to income over the productive lives of the related assets. Research
and experimentation (R&E) tax credits reduce income tax expense in the year
earned.
Pretax income from international operations amounted to $59.6 million in 1996,
$57.3 million in 1995 and $46.4 million in 1994. U.S. and international income
and withholding taxes have not been provided on temporary differences related to
investments in foreign subsidiaries. These differences principally include
unremitted earnings of approximately $193 million, differences between the
26
<PAGE> 19
financial reporting amount and the tax basis of investments in foreign
subsidiaries and cumulative translation adjustments. The investment in these
subsidiaries is considered to be permanent in nature. It is impracticable to
estimate the total tax liability, if any, which these differences could cause
should such investments cease to be treated as permanently reinvested.
- --------------------------------------------------------------------------------
TAXES, OTHER THAN SALES TAXES
<TABLE>
<CAPTION>
In thousands of dollars 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Income taxes
Current
United States $ 18,188 $ 5,932 $ 3,012
State 3,817 1,691 755
International 18,342 18,752 14,783
-------------------------------------
40,347 26,375 18,550
-------------------------------------
Deferred
United States (5,256) 754 5,298
State (1,069) 348 1,353
International 858 860 1,299
-------------------------------------
(5,467) 1,962 7,950
-------------------------------------
Total income taxes 34,880 28,337 26,500
Payroll taxes 19,819 20,201 18,195
Property taxes 3,841 4,082 3,576
Other taxes 635 624 454
-------------------------------------
Total taxes $ 59,175 $53,244 $48,725
=====================================
- --------------------------------------------------------------------------------
</TABLE>
DEFERRED INCOME TAXES The tax effects of temporary differences that give rise
to significant portions of the deferred tax assets and deferred tax liabilities
at December 31, 1996, 1995 and 1994 are presented below.
<TABLE>
<CAPTION>
In thousands of dollars 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax assets:
Postretirement health
benefits $ 8,972 $ 9,644 $ 9,976
Accrued expenses, not
currently deductible 6,395 5,820 6,072
Foreign loss carryforwards 6,099 6,234 5,617
Pension benefits 5,809 4,768 2,649
Inventory, principally
valuation reserves 5,685 5,039 4,466
Reserves for insurance 5,632 5,409 4,597
Environmental reserves 5,074 5,164 4,972
Alternative minimum tax
credit carryforwards 4,252 3,820 961
Other 11,213 10,953 14,173
-------------------------------------
Gross deferred tax assets $ 59,131 $ 56,851 $ 53,483
-------------------------------------
Deferred tax liabilities:
Fixed assets, principally
depreciation $(46,560) $(49,828) $(54,182)
Other (5,111) (4,839) (1,023)
-------------------------------------
Gross deferred tax
liabilities $(51,671) $(54,667) $(55,205)
-------------------------------------
Net deferred tax asset
(liability) before valuation
allowance $ 7,460 $ 2,184 $ (1,722)
Valuation allowance (3,573) (3,585) (3,121)
-------------------------------------
Net deferred tax asset
(liability) after valuation
allowance $ 3,887 $ (1,401) $ (4,843)
=====================================
- --------------------------------------------------------------------------------
</TABLE>
Valuation allowances of $3.6 million on December 31, 1996 and 1995, and of $3.1
million on December 31, 1994, reduced the deferred tax asset attributable to
foreign loss carryforwards to the amount that, based upon all available
evidence, is more likely than not to be realized. Reversal of the valuation
allowance is contingent upon the recognition of future taxable income and
capital gains in specific foreign countries or changes in circumstances which
cause the recognition of the benefits to become more likely than not.
The components of deferred taxes at December 31, 1996, 1995 and 1994 are as
follows:
<TABLE>
<CAPTION>
In thousands of dollars 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Current deferred tax assets $ 22,477 $ 20,890 $ 16,122
Long-term tax asset 2,483 930 1,965
(included in other assets)
Current deferred tax liability (1,592) (1,735) (1,413)
(included in accrued
and deferred income taxes)
Long-term deferred income
taxes (19,481) (21,486) (21,517)
-------------------------------------
Net deferred tax asset
(liability) $ 3,887 $ (1,401) $ (4,843)
=====================================
- --------------------------------------------------------------------------------
</TABLE>
NET INCOME PER SHARE Net income of $2.06 per share increased 23.4% over net
income of $1.67 per share in 1995. Excluding the net gain of $.04 per share from
the second quarter 1996 disposal of product lines, net income increased 21% to
$2.02 per share compared with 1995. Net income per share is calculated by
dividing net income by the weighted average number of shares of common stock
outstanding during the year. The decrease in the average number of shares in
1996 resulted from Dexter's purchase of 989,500 shares of its outstanding common
stock. This decrease was partially offset by the exercise of stock options. No
effect has been given to common stock equivalents related to stock options
outstanding or restricted stock, as no material dilutive effect would result
from these items.
27
<PAGE> 20
MARKET SEGMENT DATA
1996 COMPARED WITH 1995
Sales to the Aerospace market increased $4.4 million, or 10%. Sales increased
primarily due to higher sales of aerospace adhesives. Operating income increased
$2.4 million primarily due to lower operating losses from aerospace coatings.
Operating income in 1995 was reduced by costs associated with the consolidation
of the domestic aerospace coatings business and start-up costs of the new
coatings facility. Aerospace adhesives also contributed to the increase in
operating income in 1996 principally due to sales volume increases.
Sales to the Electronics market increased $3.8 million, or 2%, in spite of a
recession in the global electronics market during 1996. Operating income
decreased $0.6 million, or 3%, in 1996. Costs associated with the write-off of
assets and severance related to realigning operations in Europe more than offset
improvements in operating income due to stronger volume of magnetic materials
products and the favorable impact of cost containment activities.
Sales to the Food Packaging market decreased $12.6 million, or 4%. The effect of
acquired businesses increased sales by $2.3 million. Net of acquired businesses,
sales decreased principally due to lower sales of food and beverage can coatings
serving the international markets. Lower currency translation rates on
international sales also contributed to this decrease. Operating income
decreased $1.9 million, or 6%, in 1996 principally due to lower gross margin on
international food and beverage can coatings resulting from sales volume
decreases in Europe and selling price decreases in Japan. This decrease was
partially offset by lower raw material costs.
Sales to the Medical market increased $43.1 million, or 12%. The effect of the
consolidation of LTI's Japanese subsidiary increased sales by $9.5 million. Net
of this impact, sales increased 9% primarily due to increased sales of products
at LTI. Higher sales of medical nonwoven materials also contributed to this
increase. Partially offsetting this increase were lower currency translation
rates on international sales. Operating income increased $15 million, or 36%, in
1996. Operating income increased at LTI in 1996 primarily due to the favorable
impact of higher unit sales and increased gross margin on sales of fetal bovine
serum. LTI's operating income in 1996 also included a $2.6 million gain due to
the receipt of proceeds from a note related to the sale of its molecular
diagnostic product line in 1990. Medical nonwovens also contributed to the
increase in operating income, as higher sales combined with lower raw material
costs to improve margins.
Sales of the "Other" category decreased $27.3 million, or 13%. Net of divested
businesses, sales in 1996 increased $1.6 million, or 1%, compared with 1995
sales. Operating income increased $5.5 million, or 36%, in 1996 due to improved
results from the company's cogeneration operation in 1996. Higher sales and
lower raw material costs from nonwoven specialty materials also contributed
favorably to the increase in operating income as did improved results of the
company's specialty coatings operation in France.
1995 COMPARED WITH 1994
Sales to the Aerospace market increased $0.6 million, or 1%. Increased sales of
aerospace adhesives were mostly offset by decreased sales of aerospace coatings
in 1995. Operating losses increased $0.7 million in 1995. Lower aerospace
coatings sales volume and increased costs in 1995 due to the consolidation of
the domestic aerospace coatings business and start-up of the new coatings
facility in Waukegan, Illinois, decreased operating results. Partially
offsetting this decrease was increased operating income from aerospace adhesives
principally due to higher sales volume.
Sales to the Electronics market increased $27.1 million, or 17%. Sales of all
products were strong in 1995. Operating income increased $3.8 million, or 25%,
in 1995 primarily due to increased gross margin from higher sales volume,
partially offset by increased raw material costs as well as higher marketing and
administrative costs associated with products in the Electronics market.
Sales to the Food Packaging market increased $22.8 million, or 9%. Sales
increased primarily due to strong sales of food and beverage can coatings
serving the European market, in addition to higher currency translation rates on
international sales. Operating income decreased $0.2 million in 1995. This
decrease was primarily due to higher raw material costs in both the domestic and
European nonwovens and food and beverage can coatings businesses. Increased
marketing and research and development costs in the food and beverage can
coatings business also had an unfavorable impact on operating income. Partially
offsetting these decreases were increased gross margins on European food and
beverage can coatings primarily due to sales volume increases and higher
currency translation rates on international results.
Sales to the Medical market increased $48.7 million, or 15%. The effect of the
consolidation of LTI's Japanese subsidiary increased net sales by $4.9 million.
Net of this impact, sales increased 14%. Both LTI and medical nonwoven product
sales were strong. Higher currency translation rates on international sales also
contributed to this increase. Operating income increased $5.8 million, or 16%,
in 1995. Operating income increased at LTI in 1995 primarily due to the
favorable impact of higher unit sales, a favorable product mix, and increased
selling prices. Partially offsetting this increase was lower operating income
from medical nonwovens, which decreased slightly in 1995 compared with 1994
despite strong sales as substantially higher raw material costs, particularly in
wood pulp were not offset by selling price increases.
Sales of the "Other" category increased $15 million, or 8%, primarily due to
stronger European nonwoven wallcover and vacuum bag sales in 1995 and higher
currency translation rates on international sales. Operating income decreased
$4.2 million, or 22% in 1995. This decrease was primarily due to decreased gross
margin in the automotive acoustic materials business, which was primarily due to
high start-up costs of a new product line in acoustic materials, in addition to
increased cost of raw materials compared with 1994.
28
<PAGE> 21
MARKET SEGMENT DATA
<TABLE>
<CAPTION>
In thousands of dollars 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET SALES
Aerospace $ 49,773 $ 45,387 $ 44,769 $ 41,815 $ 45,998
Electronics 192,262 188,461 161,353 145,359 137,622
Food Packaging 269,561 282,183 259,398 232,164 225,493
Medical 407,385 364,334 315,616 284,733 288,817
Other 181,204 208,540 193,583 183,041 253,509
------------------------------------------------------------------------------------
Consolidated $1,100,185 $1,088,905 $ 974,719 $ 887,112 $ 951,439
====================================================================================
Unit Volume and Product Mix Change 3% 7% 10% 1% 3%
Field Sales Force 252 241 229 230 242
- ---------------------------------------------------------------------------------------------------------------------------------
DEPRECIATION AND AMORTIZATION
Aerospace $ 3,098 $ 3,373 $ 3,479 $ 3,414 $ 3,524
Electronics 4,958 4,719 4,627 4,466 4,057
Food Packaging 8,659 9,563 9,114 7,160 6,030
Medical 16,068 13,449 11,606 10,588 9,389
Other 11,085 12,247 11,684 10,717 12,344
General Corporate 371 376 413 310 328
------------------------------------------------------------------------------------
Consolidated $ 44,239 $ 43,727 $ 40,923 $ 36,655 $ 35,672
====================================================================================
- ---------------------------------------------------------------------------------------------------------------------------------
RESEARCH AND DEVELOPMENT
Aerospace $ 4,076 $ 3,973 $ 3,742 $ 3,474 $ 3,480
Electronics 7,089 6,878 6,547 5,496 5,128
Food Packaging 11,735 12,478 10,967 9,898 8,026
Medical 21,652 17,147 17,109 17,052 16,511
Other 6,695 8,632 7,933 7,316 9,071
General Corporate 257 267 346 567
------------------------------------------------------------------------------------
Consolidated $ 51,504 $ 49,375 $ 46,644 $ 43,803 $ 42,216
====================================================================================
Laboratory Staff 447 454 452 439 395
- ---------------------------------------------------------------------------------------------------------------------------------
DIVESTITURE, RESTRUCTURING & ENVIRONMENTAL
Credit/(Charge)
Aerospace $ (5,170) $ (1,853)
Electronics (1,864) (3,034)
Food Packaging (2,234) (1,496)
Medical $ 2,569 (2,008) (1,686)
Other 150 11,405 10,786
General Corporate (501) (712)
---------- ------------------------------
Consolidated $ 2,719 $ (372) $ 2,005
========== ==============================
- ---------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED OPERATING INCOME (LOSS)
Aerospace $ 833 $ (1,533) $ (844) $ (6,215) $ (1,469)
Electronics 18,394 19,038 15,248 10,295 8,699
Food Packaging 29,898 31,809 32,031 28,765 34,667
Medical 56,958 41,979 36,164 36,089 34,306
Other 20,649 15,193 19,407 24,783 28,411
------------------------------------------------------------------------------------
Consolidated Operating Income 126,732 106,486 102,006 93,717 104,614
Other Income, net 9,897 9,993 9,386 8,586 3,351
Interest Expense (20,500) (20,931) (20,509) (18,756) (18,799)
General Corporate Expense (17,877) (15,724) (17,271) (17,109) (16,034)
------------------------------------------------------------------------------------
Consolidated Income before Taxes $ 98,252 $ 79,824 $ 73,612 $ 66,438 $ 73,132
====================================================================================
- ---------------------------------------------------------------------------------------------------------------------------------
CAPITAL EXPENDITURES
Aerospace $ 1,254 $ 4,336 $ 8,397 $ 3,062 $ 1,315
Electronics 6,786 3,364 6,370 7,457 4,280
Food Packaging 4,403 3,986 6,239 6,771 13,512
Medical 44,885 12,643 16,536 19,081 22,138
Other 4,929 4,566 7,368 8,292 10,391
General Corporate 20 74 187 121 157
------------------------------------------------------------------------------------
Consolidated $ 62,277 $ 28,969 $ 45,097 $ 44,784 $ 51,793
====================================================================================
- ---------------------------------------------------------------------------------------------------------------------------------
ASSETS AT YEAR-END
Aerospace $ 60,910 $ 64,201 $ 60,753 $ 56,878 $ 50,613
Electronics 108,137 103,571 97,646 87,978 83,628
Food Packaging 177,010 191,107 179,927 158,884 107,669
Medical 313,812 258,084 235,191 218,129 194,197
Other 132,901 180,064 186,384 172,080 199,384
------------------------------------------------------------------------------------
Consolidated Operating Assets 792,770 797,027 759,901 693,949 635,491
General Corporate* 161,034 137,134 120,708 126,742 146,534
------------------------------------------------------------------------------------
Consolidated Assets 953,804 934,161 880,609 820,691 782,025
Consolidated Liabilities (579,689) (564,546) (536,976) (507,396) (466,411)
------------------------------------------------------------------------------------
Net Assets $ 374,115 $ 369,615 $ 343,633 $ 313,295 $ 315,614
====================================================================================
</TABLE>
* Corporate assets consist primarily of cash, securities and investments, which
include the investment in D & S Plastics International of $41,605 in 1996,
$38,709 in 1995, $39,435 in 1994, $37,110 in 1993 and $35,496 in 1992, and,
in addition, corporate assets of Life Technologies, Inc.
- --------------------------------------------------------------------------------
29
<PAGE> 22
LIFE TECHNOLOGIES, INC.
On September 1, 1983, Dexter's GIBCO subsidiary merged with Bethesda Research
Laboratories, Inc. (BRL). The resulting free-standing company was renamed Life
Technologies, Inc. (LTI) and at December 31, 1996 was owned 53% by Dexter, with
the remainder owned by the public. The common stock of LTI is publicly traded on
the over-the-counter market under the Nasdaq symbol LTEK. Since 1983, Dexter's
proportionate ownership of LTI has decreased from 64% in 1983 to 53% due
principally to the effect of the exercise of stock options and the conversion of
LTI subordinated debentures held by parties other than Dexter into LTI common
stock.
LTI is reported as part of the Medical market segment, although LTI, as a
publicly owned company, issues its own annual report including audited financial
statements. These statements are shown beginning on this page and continuing
onto the next page in condensed form.
Net sales of LTI increased $37.2 million, or 14%, in 1996. This improvement was
due to a $38.9 million, or 17%, increase in sales of product lines other than
fetal bovine serum (FBS) and higher FBS sales of $1.5 million. The impact of
consolidating the results of LTI's Japanese subsidiary beginning in September
1995 represented approximately 3% of the 14% increase in net sales for 1996.
Lower currency translation rates decreased 1996 net sales by $3.2 million
compared with 1995.
Gross margin for 1996 was 52.5% of net sales compared with 50.1% in 1995. Gross
margin improved in 1996, as FBS unit costs decreased at a rate greater than FBS
unit selling prices. The FBS cost decline in 1996 caused most of the reduction
in the LIFO reserve of $3.3 million compared with a $.3 million increase in
1995. In addition, gross margin increased in Japan, due principally to the
consolidation of LTI's Japanese subsidiary.
Marketing and administrative expenses increased 16% to $100.5 million in 1996
and represented 32.5% of net sales in 1996 compared with 31.9% of net sales in
1995. This increase is due principally to higher expenses in 1996 resulting from
the consolidation of LTI's Japanese subsidiary and increased costs for
implementing new management information systems.
Research and development expenses increased 20% to $19.1 million and represented
6.2% of net sales in 1996 compared with 5.8% in 1995. Research and development
expenses were primarily directed toward developing new products and business
solutions for LTI's customers in the life sciences research and industrial
bioprocessing areas and toward improved production processes.
LTI reported a $2.6 million gain on the disposal of its molecular diagnostics
product line which sold in 1990 for book value plus a $2.6 million note
receivable. LTI delayed recognition of the gain on this sale until the note was
collected because of reasonable doubt as to whether the note might be collected.
Pretax income increased 34%. Income taxes were provided at a rate of 36% in 1996
compared with 34.8% in 1995. Net income increased 29% to $28.7 million in 1996
from $22.3 million in 1995.
LTI declared quarterly dividends totaling $.15 1/3 per share in 1996 and
$.13 1/3 in 1995. Dividends were adjusted for a 3-for-2 stock split effected on
August 28, 1996.
After the deduction of minority interests, LTI contributed $15.4 million to
Dexter's net income, or $.65 per share, in 1996, compared with $12.1 million, or
$.50 per share, in 1995. Dexter's portion of LTI shareholders' equity, per share
of Dexter, increased to $4.16 at December 31, 1996, up from $3.42 at year-end
1995.
At year-end 1996, LTI had $15.3 million in cash and short-term securities,
$125.2 million in other current assets and $56.3 million of current liabilities.
In 1996, LTI spent $36 million on capital expenditures and was self funding.
Capital expenditures in 1997 are expected to range between $30 million and $35
million largely due to the completion of LTI's corporate R&D and administrative
office complex in Maryland. It is expected that LTI will be self funding in
1997.
- --------------------------------------------------------------------------------
CONDENSED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Years ended December 31
--------------------------
In thousands of dollars 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
REVENUES
Net sales $ 309,455 $272,232
Net royalties 884 67
--------------------------
310,339 272,299
--------------------------
EXPENSES
Cost of sales 147,018 135,784
Marketing and administrative 100,519 86,821
Research and development 19,084 15,871
Gain on product line disposal (2,569)
--------------------------
264,052 238,476
--------------------------
Other income, net 433 1,120
--------------------------
INCOME BEFORE INCOME TAXES 46,720 34,943
Income taxes 16,819 12,160
--------------------------
INCOME BEFORE MINORITY INTERESTS 29,901 22,783
Minority interests 1,201 506
--------------------------
NET INCOME $ 28,700 $ 22,277
==========================
- --------------------------------------------------------------------------------
</TABLE>
CONTRIBUTION OF LTI TO DEXTER NET INCOME
<TABLE>
<CAPTION>
In thousands of dollars Years ended December 31
-----------------------
(except per share amounts) 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Net income of LTI $28,700 $22,277
Portion attributable to minority interests 13,341 10,213
-----------------------
Dexter's portion of net income of LTI $15,359 $12,064
=======================
Net income per share of Dexter $ .65 $ .50
- --------------------------------------------------------------------------------
</TABLE>
30
<PAGE> 23
LIFE TECHNOLOGIES, INC.
- --------------------------------------------------------------------------------
CONDENSED STATEMENT OF FINANCIAL POSITION
<TABLE>
<CAPTION>
December 31
------------------------
In thousands of dollars 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and short-term securities $ 15,326 $ 23,201
Accounts receivable, net 54,566 48,722
Inventories 62,320 60,845
Other current assets 8,285 9,254
Property, plant and equipment, net 88,367 51,861
Investments and other assets 11,023 8,671
Excess of cost over net assets of
businesses acquired 14,044 6,190
------------------------
Total assets $253,931 $208,744
========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities $ 56,301 $ 45,261
Long-term debt 4,668 1,451
Other liabilities 10,043 8,107
Shareholders' equity 182,919 153,925
------------------------
Total liabilities and
shareholders' equity $253,931 $208,744
========================
- --------------------------------------------------------------------------------
</TABLE>
CONTRIBUTION OF LTI TO DEXTER BOOK VALUE
<TABLE>
<CAPTION>
December 31
In thousands of dollars ----------------------
(except per share amounts) 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
LTI shareholders' equity $182,919 $153,925
Portion attributable to minority interests 85,328 71,214
----------------------
Dexter's portion of LTI
shareholders' equity $ 97,591 $ 82,711
======================
Book value per share of Dexter stock $ 4.16 $ 3.42
</TABLE>
- --------------------------------------------------------------------------------
CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31
--------------------------
In thousands of dollars 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net income $ 28,700 $ 22,277
Noncash items
Depreciation and amortization 10,576 7,728
Gain on product line disposal (2,569)
Other (3,303) (474)
Operating working capital
decrease (increase) 6,860 (8,180)
--------------------------
40,264 21,351
--------------------------
INVESTMENTS
Property, plant and equipment (36,017) (12,279)
Acquisitions and joint ventures (11,704) (825)
Proceeds from product line disposal 2,569
Other (30) (28)
--------------------------
(45,182) (13,132)
--------------------------
FINANCING
Dividends paid (3,351) (3,007)
Exercise of stock options 1,998 2,990
Short-term borrowings 319
Long-term loan repayments (1,617)
--------------------------
(2,651) (17)
--------------------------
EFFECT OF TRANSLATION RATE CHANGES
ON CASH AND SHORT-TERM SECURITIES (306) (381)
--------------------------
(DECREASE) INCREASE IN CASH AND
SHORT-TERM SECURITIES (7,875) 7,821
Cash included from consolidation
of a subsidiary which became
majority-owned in 1995 2,134
--------------------------
TOTAL (DECREASE) INCREASE IN CASH
AND SHORT-TERM SECURITIES $ (7,875) $ 9,955
==========================
- --------------------------------------------------------------------------------
</TABLE>
D & S PLASTICS INTERNATIONAL
On March 31, 1990, Dexter and Solvay S.A., of Belgium, completed the formation
of D & S Plastics International, an equally owned joint venture based in Auburn
Hills, Michigan. D & S Plastics is the leading North American supplier of
automotive engineered polyolefin materials. These modified olefins are used for
front and rear bumper facias, ground-effects packages, air bag covers, and many
other exterior and interior automobile components.
D & S Plastics' sales have increased from $89.9 million in 1995 to $112.2
million in 1996, an increase of 25%. For the year ended December 31, 1996, D & S
Plastics reported net income of $5.8 million compared to a net loss of $1.5
million in 1995. D & S Plastics' results are not consolidated in Dexter's
financial statements. Dexter accounts for the results of D & S Plastics under
the equity method. Included in Dexter's equity in net income (loss) of
affiliates is 50% of D & S Plastics' results. During 1996, D & S Plastics had
capital expenditures of $1.6 million and was self funded.
In October 1995, the company announced its intention to sell its 50% equity
interest in D & S Plastics International.
- --------------------------------------------------------------------------------
CONDENSED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Years ended December 31
--------------------------
In thousands of dollars 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Revenues $112,218 $ 89,850
Net income (loss) $ 5,751 $ (1,452)
Amount included in Dexter's
"Equity in net income (loss) of
affiliates" $ 2,876 $ (726)
- --------------------------------------------------------------------------------
</TABLE>
CONDENSED STATEMENT OF FINANCIAL POSITION
<TABLE>
<CAPTION>
December 31
-----------------------
In thousands of dollars 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets $ 40,671 $29,580
Long-term assets 63,670 68,185
-----------------------
Total assets $104,341 $97,765
=======================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities $ 21,131 $20,346
Shareholders' equity 83,210 77,419
-----------------------
Total liabilities and shareholders'
equity $104,341 $97,765
=======================
Amount included in Dexter's
"Investment in unconsolidated
affiliates" $ 41,605 $38,709
- --------------------------------------------------------------------------------
</TABLE>
31
<PAGE> 24
GEOGRAPHIC DATA
Operations outside of North America continue to be important to Dexter, giving
geographic diversification to both sales and operating income.
1996 COMPARED WITH 1995
Net sales increased in the Pacific area but decreased in North America and
Western Europe. In North America, net sales increased in all major markets, with
strong increases in the Aerospace and Medical markets. These increases were more
than offset by decreases in the "Other" category, primarily due to divested
businesses. Sales outside of North America increased $14.5 million, or 3%,
despite lower currency translation rates which decreased net sales $12.7
million. Net sales increased in all markets in which we operate outside of North
America except in the Food Packaging market. Sales to the Food Packaging market
decreased principally due to sales volume decreases in Europe, selling price
decreases in Japan, and lower currency translation rates. Net sales in the
Pacific area increased 16%, primarily due to strong sales at LTI mainly due to
the consolidation of their Japanese subsidiary resulting from the acquisition of
a controlling interest in the third quarter of 1995. Net sales outside of North
America were 45% of consolidated net sales in 1996 and 44% in 1995. Export sales
decreased $2 million to $69 million and represent 6% of consolidated net sales
in 1996.
Operating income increased in North America and the Pacific area but decreased
in Western Europe. In North America, operating income increased $21.8 million,
or 51%. Operating income increased in all markets in North America, principally
due to sales volume increases and the favorable impact on operating income of
the combination of lower raw material costs and selling price increases.
Operating income in North America also included LTI's $2.6 million gain due to
the receipt of proceeds from a note related to a prior sale. Operating income in
Western Europe decreased $2.5 million, or 5%, principally due to decreases in
the Electronics and Food Packaging markets. Sales volume decreases in the Food
Packaging market, as well as lower currency translation rates, contributed to
this decrease. Costs associated with the write-off of assets and severance and
relocation costs also decreased operating income in Western Europe in 1996.
Operating income increased 4% in the Pacific area primarily due to increases at
LTI in the Medical market. Somewhat offsetting the increases were decreases in
the Food Packaging market primarily due to selling price decreases net of raw
material cost decreases. Operating income outside of North America was 50% of
total operating income in 1996 and 61% in 1995.
Total net assets increased 1%, or $4.5 million, in 1996. Corporate assets
increased in North America and decreased in Western Europe and the Pacific area
principally due to cash and short-term securities. Currency translation rates
decreased net assets outside of North America by $3.8 million. Net assets
outside of North America were 62% of total net assets in 1996 compared with 61%
in 1995.
1995 COMPARED WITH 1994
Net sales increased in all geographic areas. In North America, net sales
increased $23.5 million, or 4%. Strong sales increases in North America in the
Medical and Electronics markets were partially offset by decreases in the
Aerospace and Food Packaging markets, and in the "Other" category. Sales outside
of North America increased $90.7 million, or 23%. Higher currency translation
rates contributed $31 million, or approximately one-third of the increase. Net
sales increased in all markets in which we operate outside of North America.
Sales to the Food Packaging market and at LTI in the Medical market were strong
in Western Europe. The 34% increase in sales in the Pacific area was primarily
due to increases in the Electronics market and from the acquisition of a
controlling interest in a Japanese subsidiary by LTI in the Medical market. Net
sales outside of North America were 44% of consolidated net sales in 1995 and
40% in 1994. Export sales increased $3 million to $71 million and represent 7%
of consolidated net sales in 1995.
Operating income increased in Western Europe and the Pacific area and decreased
in North America. In North America, operating income decreased in all major
markets except the Electronics market. These decreases in operating income were
mainly due to lower sales volumes in all markets except the Medical market and
the unfavorable impact of higher raw material costs, net of selling price
increases. Operating income outside of North America increased $14.3 million, or
28%. The increase in Western Europe was principally due to increases in food and
beverage can coatings in the Food Packaging market and at LTI in the Medical
market. Operating income increased in the Pacific area primarily due to
increases in the Electronics market and at LTI in the Medical market. The
acquisition of a controlling interest in a subsidiary by LTI contributed to
LTI's increase in the Pacific area. Operating income outside of North America
was 61% of total operating income in 1995 and 50% in 1994.
Total net assets increased 8%, or $26 million, in 1995. Net assets increased in
all geographic areas. Net assets increased 8% in North America, 5% in Western
Europe, and 23% in the Pacific area. The increase in assets in the Pacific area
was primarily due to the consolidation of LTI's Japanese subsidiary. Currency
translation rates increased net assets outside of North America by $9 million.
Net assets outside of North America were 61% of total net assets in 1995 and
1994.
32
<PAGE> 25
GEOGRAPHIC DATA
<TABLE>
<CAPTION>
In thousands of dollars 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET SALES*
North America
Total Net Sales $ 682,859 $ 672,386 $ 634,230 $586,868 $ 633,987
Intercompany Sales 81,684 67,982 53,302 40,731 40,589
----------------------------------------------------------------
Net Sales $ 601,175 $ 604,404 $ 580,928 $546,137 $ 593,398
================================================================
Western Europe
Total Net Sales $ 390,699 $ 392,267 $ 331,397 $290,814 $ 313,970
Intercompany Sales 11,425 11,132 14,513 13,156 16,289
----------------------------------------------------------------
Net Sales $ 379,274 $ 381,135 $ 316,884 $277,658 $ 297,681
================================================================
Pacific Area
Total Net Sales $ 122,100 $ 104,719 $ 76,907 $ 63,317 $ 60,360
Intercompany Sales 2,364 1,353
----------------------------------------------------------------
Net Sales $ 119,736 $ 103,366 $ 76,907 $ 63,317 $ 60,360
================================================================
Consolidated
Total Net Sales $1,195,658 $1,169,372 $1,042,534 $940,999 $1,008,317
Intercompany Sales 95,473 80,467 67,815 53,887 56,878
----------------------------------------------------------------
Net Sales $1,100,185 $1,088,905 $ 974,719 $887,112 $ 951,439
================================================================
</TABLE>
* Intercompany sales between areas are based on estimated market prices or on
amounts computed to provide profits to each unit. Excluded from net sales is
Dexter's share of the sales of 50% or less owned joint ventures which are
accounted for under the equity or cost methods.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C>
OPERATING INCOME
North America $ 64,851 $ 43,014 $ 51,555 $ 50,863 $ 57,422
Western Europe 52,031 54,576 45,155 40,298 44,831
Pacific Area 11,300 10,881 6,013 3,080 3,266
Consolidated, net of
eliminations $ 126,732 $ 106,486 $ 102,006 $ 93,717 $ 104,614
==================================================================
- ------------------------------------------------------------------------------------------------------------------
NET ASSETS AT YEAR-END
North America
Operating Assets $ 445,744 $ 440,416 $ 450,478 $ 429,395 $ 423,419
Corporate Assets* 132,245 103,813 97,579 116,041 135,293
Liabilities (435,786) (400,622) (415,330) (411,988) (373,039)
------------------------------------------------------------------
Net Assets $ 142,203 $ 143,607 $ 132,727 $ 133,448 $ 185,673
==================================================================
Western Europe
Operating Assets $ 279,514 $ 282,277 $ 257,288 $ 224,634 $ 174,177
Corporate Assets* 26,301 30,236 22,476 10,541 10,202
Liabilities (106,824) (115,634) (92,551) (74,915) (73,059)
------------------------------------------------------------------
Net Assets $ 198,991 $ 196,879 $ 187,213 $ 160,260 $ 111,320
==================================================================
Pacific Area
Operating Assets $ 67,512 $ 74,334 $ 52,135 $ 39,920 $ 37,895
Corporate Assets* 2,488 3,085 653 160 1,039
Liabilities (37,079) (48,290) (29,095) (20,493) (20,313)
------------------------------------------------------------------
Net Assets $ 32,921 $ 29,129 $ 23,693 $ 19,587 $ 18,621
==================================================================
Consolidated
Operating Assets $ 792,770 $ 797,027 $ 759,901 $ 693,949 $ 635,491
Corporate Assets* 161,034 137,134 120,708 126,742 146,534
Liabilities (579,689) (564,546) (536,976) (507,396) (466,411)
------------------------------------------------------------------
Net Assets $ 374,115 $ 369,615 $ 343,633 $ 313,295 $ 315,614
==================================================================
</TABLE>
* Corporate assets consist primarily of cash, securities and investments, which
include the investment in D & S Plastics International of $41,605 in 1996,
$38,709 in 1995, $39,435 in 1994, $37,110 in 1993 and $35,496 in 1992, and,
in addition, corporate assets of Life Technologies, Inc.
- --------------------------------------------------------------------------------
33
<PAGE> 26
ANALYSIS OF FINANCIAL CONDITION AND OPERATIONS
PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the
accounts of all majority-owned subsidiaries. All consolidated subsidiaries are
wholly owned except Life Technologies, Inc. (LTI) (53% owned) and a few other
subsidiaries, primarily outside the United States, in which aggregate minority
interests are not significant. Intercompany accounts, transactions and profits
have been eliminated in the consolidated financial statements. Companies owned
20% to 50% are accounted for by the equity method. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. Certain amounts for prior years have been
reclassified to conform to and be consistent with the 1996 presentation.
ACQUISITIONS AND DIVESTITURES In October 1995, Dexter announced its intention
to reduce its future strategic emphasis on the automotive market. Accordingly,
the company sold its small powder coatings business located in Birmingham,
Alabama in April 1996, and its acoustic materials business located in Kansas
City, Missouri in June 1996. The net effect of these divestitures resulted in a
small gain of $0.2 million for the company in the second quarter 1996. In
addition, as announced, Dexter also holds for sale its 50% equity interest in D
& S Plastics International and expects to complete this transaction during 1997.
To further strengthen its strategic position as a global supplier to the food
packaging industry, Dexter acquired the can coating businesses of Jallut Iberica
located in Spain in April 1996 and Kolack A.G. based in Switzerland in January
1997. Both businesses will report into Dexter's wholly owned subsidiary,
Vernicolor A.G., located in Switzerland which operates as part of the Dexter
Packaging Products Division.
In January 1996, Life Technologies, Inc. acquired the remaining 75% of Custom
Primers, Inc. located in California.
In September 1996, Life Technologies, Inc. acquired an additional 29% ownership
in its Japanese joint venture, Life Technologies Oriental, K.K. This additional
purchase increased its ownership from 51% to 80%.
None of these businesses acquired, divested or to be divested, either
individually or in the aggregate, constitute a significant subsidiary of The
Dexter Corporation.
EVENTS, TRENDS AND VULNERABILITIES Dexter is subject to a multitude of events
and trends which influence its business prospects, profitability and liquidity.
Many of these events and trends are outside the control of the company. However,
the consequent effects need to be managed as part of the ongoing business
environment.
In 1996, the overall cost of raw materials was reduced from the unprecedented
levels experienced in 1995. Approximately 40% of the increase in 1995 raw
material costs was recovered in 1996. Aggressive efforts to raise prices and to
gain full value for our product offerings improved margins. However, the
heightened degree of competition throughout the world makes it increasingly
difficult to obtain price increases. Although the overall cost of raw materials
has moderated, it is possible that such costs will rise again. This appears
unlikely in the short term. However, any substantial increases in future demand
for the materials the company purchases, provided no additional production
capacity is built, will inevitably support higher levels of cost to Dexter. The
company's Life Technologies, Inc. subsidiary is subject to volatility in the
cost of fetal bovine serum which stems from a fundamental limit to supply.
Further, for less critical applications, additional competition can be expected
consequent to the development of substitute products for cell culture which do
not depend on traditional raw materials.
Unit volume growth of sales was 3% for 1996, below the company's targeted rate
of 6%-7%. To the extent that this reduced rate continues or decreases in the
future as a result of some weakness in domestic and international economies,
revenue and earnings growth may be negatively impacted. The consequences of
domestic interest rate changes and tax policy may influence total demand in our
served markets.
Since approximately 50% of Dexter's profits are derived from products sold
outside the United States, any weakening of international currencies against the
U.S. dollar could have a negative effect on the company's results. Revenues and
profits in the food packaging, electronics and medical markets are the most
sensitive to currency rate fluctuations. Geographical expansion will continue to
provide opportunities and challenges as we learn how to create profitable growth
in developing countries.
There will continue to be increasing costs incurred by the need to respond to
heightened regulatory pressures. Although we expect such increased costs might
be moderate in areas of corporate governance and securities regulation, such
increases may continue to be significant in areas of environmental, health,
social and administrative regulation. Heightened worldwide environmental
concerns have led to greater capital requirements and increased operating
expenses. While the company, based on known facts and circumstances, has
provided substantial environmental reserves as shown at year end in the
Statement of Financial Position, the ultimate cost of compliance and remediation
cannot be ascertained and, therefore, there is no assurance that such reserves
will prove to be adequate over time.
Substantial national and local deficits in several parts of the world may
dictate the need for greater tax receipts or significant reductions in
government spending. Future increases in taxes by countries, states and
localities may be the ultimate outcome of this imbalance. Lower government
spending may adversely affect Life Technologies, Inc. by reducing the overall
availability of government funding for life science research.
Other areas which will no doubt have an important impact on the future of the
company will be the increasing rate of technological change, a continued
universal move toward higher quality products, shortened product life cycles and
further globalization of our customers and competitors. Technology is the
lifeblood of the corporation. In order to remain competitive we must
successfully introduce new products that not only replace our current products
but also those of our competitors, otherwise we are potentially exposed to
reduced margins and loss of business.
34
<PAGE> 27
The general aging of the U.S. population will create challenges with respect to
the availability of employees as well as amplifying trends in increased health
care cost. Dexter's ability to hire and retain a qualified work force will be
fundamental to our growth and success. Increased training and developmental
needs will require additional resources to maintain and improve our overall
competencies.
The complexities of ever-changing worldwide events and trends including the
international political environment, the emergence of the global marketplace,
and the advancement of technology generate numerous vulnerabilities and
challenges. The company believes that it will face these challenges with
continued innovation and increased productivity.
LIQUIDITY The company's liquidity is strong and ample lines of credit are
available to the company and its subsidiaries. The current ratio (current assets
divided by current liabilities) is 2.1 to 1, and the quick ratio (cash,
short-term securities and accounts receivable divided by current liabilities) is
1.3 to 1. During 1996, the company's financing and investment needs were met
through funds provided from operations. As shown in the Statement of Cash Flows,
cash provided from operations of $127.6 million exceeded the sum of investments
of $28.6 million and financing activity of $61.5 million, thereby increasing
year-end cash and short-term securities by $37.5 million. Excluding LTI, the
current ratio is 2.0 to 1 and the quick ratio is 1.3 to 1. Excluding LTI, cash
provided from operations of $87.4 million and investments of $14.6 million
exceeded cash needed for financing activities of $58.7 million, thereby
increasing cash and short-term securities by $43.3 million. Investment
activities during 1996 included a net cash increase from acquisitions and
divestitures of $18.6 million. The nature of these transactions is described in
the acquisitions and divestitures footnote on page 34. Financing activities
during 1996 included the company's purchase of 989,500 shares of its outstanding
common stock for $26.7 million.
The company plans to meet its future working capital, capital expenditure and
share repurchase program needs with funds provided from operations, the
reduction of short-term securities and proceeds from the sale of its 50% equity
interest in D & S Plastics International, and, as needed, short-term and
long-term borrowings.
- --------------------------------------------------------------------------------
ANALYSIS OF FINANCIAL POSITION
WORKING CAPITAL
Working capital, including cash and short-term securities, decreased $5.7
million from 1995. Operating working capital decreased $50.5 million to $195.6
million at year-end 1996. The current ratio at December 31, 1996 was 2.1 to 1.
The company's target is to have a current ratio of greater than 2 to 1. The
company's liquidity is strong, and ample lines of credit are available to the
company and its subsidiaries. The sum of cash, short-term securities and
accounts receivable exceeded total current liabilities at December 31, 1996. As
of year-end 1996, the company has short-term lines of credit in excess of $100
million of which the Board has authorized borrowing only $50 million at any one
time. At year-end 1996, nothing was borrowed against these lines of credit.
Additionally, there is authorized $50 million in medium-term notes, which were
all unissued at year end. As of year-end 1996, the company has seven
multi-currency, revolving credit agreements aggregating $50 million. Nothing was
borrowed under these agreements at year-end 1996; however, the funds are
immediately available should the company so desire.
- --------------------------------------------------------------------------------
INCREASE/(DECREASE) IN OPERATING WORKING CAPITAL AND WORKING CAPITAL IN 1996
<TABLE>
<CAPTION>
Business Change in
Acquisitions Currency Consolidated
Cash and Accounting Divested Translation Account
In thousands of dollars Changes Accruals Businesses Effects Balances
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Accounts receivable, net $ (3,827) $ (8,645) $(7,722) $(3,102) $ (23,296)
Inventories at FIFO (7,912) 82 (5,364) 198 (12,996)
Prepaid and deferred
expenses (3,891) (127) (295) (43) (4,356)
Accounts payable (62) (4,349) 4,765 238 592
Accrued liabilities and
expenses (3,252) (5,579) (1,340) (234) (10,405)
--------------------------------------------------------------------------------------------
Operating working
capital (18,944) (18,618) (9,956) (2,943) (50,461)
--------------------------------------------------------------------------------------------
Cash 2,669 (409) 2,260
Short-term securities 34,826 792 35,618
LIFO reserve 4,873 4,873
Current deferred tax
assets 1,587 1,587
Short-term debt 8,371 116 8,487
Other current liabilities
and taxes (8,099) 41 (8,058)
--------------------------------------------------------------------------------------------
Working capital $ 18,823 $ (12,158) $(9,956) $(2,403) $ (5,694)
============================================================================================
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
35
<PAGE> 28
CASH AND SHORT-TERM SECURITIES Cash principally comprises in transit amounts and
uncollected funds in the United States and amounts in operating bank accounts in
other countries.
Short-term securities have maturities of less than 90 days when purchased and
represent cash awaiting use in the business, funds available for future
investment, and partial offsets of net nonlocal currency exposures relating to
current accounts payable and accounts receivable. Short-term securities are held
in interest-bearing overnight securities, time deposits, prime commercial paper
and other fixed income investments. The carrying value of short-term securities
approximates fair value because of the short maturity of these instruments. At
December 31, 1996, there were $91.6 million in short-term securities, of which
$77.4 million were directly available to Dexter and $14.2 million were
maintained separately by Life Technologies, Inc. due to its different
shareholder constituency. Of these amounts, $42.9 million for Dexter and $11.4
million for Life Technologies, Inc. were held outside the United States. Of the
$42.9 million for Dexter, $17.6 million was held by Dexter's captive insurance
companies.
ACCOUNTS RECEIVABLE Gross accounts receivable of $186.2 million at December 31,
1996 were reduced by allowances of $8.1 million. Such allowances were $7.5
million at December 31, 1995 and $6.6 million at December 31, 1994. Currency
translation effects decreased net accounts receivable by $3.1 million in 1996.
Included in accounts receivable are non-trade accounts receivable of $13.2
million in 1996 compared with $25.8 million in 1995 and $18.9 million in 1994.
These amounts principally comprise tax receivables and amounts due from
affiliates. The collection period for accounts receivable was approximately 57
days at December 31, 1996, 59 days as of December 31, 1995, and 54 days as of
December 31, 1994.
INVENTORIES Inventories are valued at the lower of cost or market. Inventories
located in the United States represented 54% of total inventories. The LIFO
(last-in, first-out) method was used for determining the cost of 55% of U.S.
inventories in 1996, 63% in 1995 and 62% in 1994. The FIFO (first-in, first-out)
method was used for determining the cost of remaining inventories in the United
States and the 46% of total inventories which were outside the United States.
The reduction in levels of LIFO valued inventories (LIFO liquidation) was not
significant in 1996, 1995 or 1994.
Inventories at December 31 were:
<TABLE>
<CAPTION>
In thousands of dollars 1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Materials and supplies $ 58,290 $ 60,099 $ 58,967
Work-in-process 17,078 17,038 11,319
Finished goods 93,379 104,606 95,384
---------------------------------------------
Total FIFO cost 168,747 181,743 165,670
LIFO reserve (19,836) (24,709) (22,828)
---------------------------------------------
$ 148,911 $ 157,034 $ 142,842
=============================================
- -------------------------------------------------------------------------------
</TABLE>
Before deducting the LIFO reserve, FIFO inventories decreased $13 million in
1996 to $168.7 million.
SHORT-TERM DEBT Short-term borrowings were denominated principally in U.S.
dollars, Singapore dollars, Italian lira, Japanese yen, French francs, Deutsche
marks, and pound sterling and had maturities of three months or less. The
company uses short-term borrowings of less than three-month maturity to
partially offset net nonlocal currency exposures relating to current accounts
receivable and accounts payable. It can be expected that short-term borrowings
will continue to be utilized for this purpose. The $5.1 million short-term
borrowings outstanding at year end included $1.3 million of short-term debt of
Life Technologies, Inc. The weighted average interest rate on short-term
borrowings outstanding was 5.4% at December 31, 1996, 6.1% at December 31, 1995,
and 5.3% at December 31, 1994.
The company had outstanding letters of credit at December 31, 1996 totaling $9.1
million for liabilities already reflected in the Statement of Financial
Position. The company has authorized up to $50 million of commercial paper, none
of which was issued during 1996 and all of which was available for issue at
December 31, 1996. Available short-term lines of bank credit are in excess of
$100 million.
ACCRUED LIABILITIES AND EXPENSES Accrued liabilities and expenses at December 31
were:
<TABLE>
<CAPTION>
In thousands of dollars 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Salaries, wages and benefits $17,047 $16,615 $15,352
Pension and profit sharing 12,349 9,082 11,192
Provision for claims and
warranties 3,806 3,194 3,872
Customer rebates and volume
discounts 3,426 3,551 3,110
Severance and relocation 2,980 593 160
Deferred purchase and
construction payments 2,800 182 341
Royalties 2,792 1,964 1,278
Taxes, other than income taxes 2,679 1,975 1,795
Professional services 2,344 1,433 1,661
Restructuring accruals 1,685 1,791 6,294
Interest 1,377 3,280 1,462
Deferred income 868 1,362 3,837
Other, principally accruals
for unbilled obligations 11,326 10,015 10,271
-----------------------------------
$65,479 $55,037 $60,625
===================================
- --------------------------------------------------------------------------------
</TABLE>
PROPERTY, PLANT AND EQUIPMENT Capital expenditures on the accrual basis were
$62.3 million in 1996, $29 million in 1995 and $45.1 million in 1994. The $62.3
million in 1996 includes a capital lease for $4.7 million at LTI for a parcel of
land. Capital expenditures in 1997 are currently estimated to range between $60
million and $70 million.
For financial reporting purposes, the company uses the straight-line method of
computing depreciation on plant and equipment. This method charges the cost to
income evenly over the useful lives of the assets, principally 20 to 45 years
for buildings, 16 years for nonwovens related machinery and equipment, and 5 to
15 years for all other machinery and equipment. For tax purposes the company
uses shorter lives and accelerated depreciation methods. Capital investment
incentive grants are recorded as a reduction of the cost of assets, which
spreads the benefits
36
<PAGE> 29
over the lives of the related assets through reduced depreciation. Management
evaluates, on an ongoing basis, the carrying value of property, plant and
equipment and makes a specific provision against the asset when impairment is
identified. Property, plant and equipment is written down when the asset has
become redundant or the remaining book value exceeds its anticipated future
productive asset value as required by SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
which was adopted by the company as of January 1, 1996. Maintenance and repairs
are charged to operations as incurred and amounted to $16.3 million in 1996, $17
million in 1995 and $15.3 million in 1994. Betterments and major renewals are
capitalized. The cost of assets sold or retired and the related amounts of
accumulated depreciation are eliminated from the accounts, and the resulting
gains or losses are included in income.
The cost and accumulated depreciation of property, plant and equipment at
December 31, were as follows:
<TABLE>
<CAPTION>
In thousands of dollars 1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Land $ 23,273 $ 19,307 $ 18,581
Buildings and improvements 158,635 153,071 143,436
Machinery and equipment 458,069 457,611 429,416
Construction in progress 37,859 12,250 16,911
---------------------------------------------
Total cost 677,836 642,239 608,344
Less accumulated
depreciation (343,570) (317,036) (279,409)
----------------------------------------------
Property, plant and
equipment, net $ 334,266 $ 325,203 $ 328,935
==============================================
- --------------------------------------------------------------------------------
</TABLE>
Changes in property, plant and equipment for the past three years were as
follows:
<TABLE>
<CAPTION>
In thousands of dollars 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
January 1 $ 325,203 $ 328,935 $ 309,954
Capital expenditures 62,277 28,969 45,097
Assets of businesses acquired 562 212 355
Assets of businesses divested (15,140)
Write-down of asset values (1,880) (359)
Depreciation (37,312) (38,246) (34,857)
Currency effects 556 5,333 8,745
---------------------------------------------
December 31 $ 334,266 $ 325,203 $ 328,935
==============================================
- --------------------------------------------------------------------------------
</TABLE>
PATENTS, TECHNOLOGY, FORMULAS AND COVENANTS Patents, technology, formulas and
covenants not to compete are stated at cost less accumulated amortization of
$18.5 million, $18.6 million and $17.2 million at December 31, 1996, 1995 and
1994, respectively. Such items which have been acquired by purchase or merger
are capitalized and amortized on a straight-line basis over periods ranging from
5 to 15 years. Research and development costs and any costs associated with
internally developed patents, formulas or other proprietary technology are
expensed in the year incurred.
EXCESS ACQUISITION COST Excess acquisition cost was $71.9 million at year-end
1996 and $74.1 million at year-end 1995. Excess acquisition cost increased $6.1
million due to the net impact of businesses acquired and divested in 1996. This
increase was offset by decreases of $4.9 million of amortization of excess
acquisition costs and $3.4 million due to currency translation effects. The
excess of cost over the net asset value of businesses acquired (goodwill) prior
to 1991 is amortized on a straight-line basis over 25 to 40 years. Excess
acquisition cost of businesses acquired after 1990 is amortized over periods not
exceeding 25 years. Accumulated amortization amounted to $18.8 million, $16.5
million and $12.9 million at December 31, 1996, 1995 and 1994, respectively.
Management evaluates, on an ongoing basis, the carrying value of excess
acquisition cost and makes a specific provision against the asset when
impairment is identified as required by SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
which was adopted by the company as of January 1, 1996. When a loss is expected
from the proposed sale of a business or product line, a diminution in the value
of the excess of cost over the net asset value of the business acquired is
identified. In the instance of an ongoing business, such a diminution is
recognized when there has been a history of the business' inability to generate
operating income after the amortization of goodwill and in management's
judgment, the business will not recover from this position in the future. There
were no impairment charges in 1996, 1995 or 1994.
LEASES The company leases facilities, vehicles, computers and other equipment
under long-term operating leases with varying terms and expiration dates. Some
leases contain renewal provisions, purchase options and escalation clauses.
At December 31, 1996, LTI had a capital lease in the amount of $4.7 million for
a parcel of land on which they are constructing a new corporate R&D center and
other administrative offices, including their headquarters. Obligations under
capital leases were not significant at December 31, 1995 or 1994.
Aggregate future minimum lease payments under noncancellable leases as of
December 31, 1996, were as follows (in thousands of dollars):
<TABLE>
<CAPTION>
For the years ending Capital Lease Operating Leases
- --------------------------------------------------------------------------------
<C> <C> <C>
1997 $ 394 $ 9,648
1998 430 5,546
1999 430 3,642
2000 430 1,994
2001 430 1,365
Later years 7,957 3,830
-------- -------
Total minimum lease payments 10,071 $26,025
Less amount representing =======
interest (5,332)
--------
Present value of net minimum
lease payments $ 4,739
========
- --------------------------------------------------------------------------------
</TABLE>
Total rent expense incurred under noncancellable leases, net of minor sublease
rentals, amounted to $10.9 million in 1996, $11.1 million in 1995, and $10.5
million in 1994. The company has no contingent rentals.
LEGAL PROCEEDINGS The company is involved in various environmental and other
lawsuits and claims, many of which are covered by insurance. At December 31,
1996, $0.2 million of current and $4.1 million of long-term receivables from
third-party insurance companies are included as assets of the company. Equal and
offsetting payables to third parties are included as liabilities of the company.
Estimated amounts for claims which are probable and are not covered by
third-party insurance are properly reflected as liabilities of the company.
While the outcome of these lawsuits and claims cannot be forecast with
certainty, management believes that such matters should not result in any
liability which would have a material adverse effect on the company's financial
position, results of operations, or cash flows.
37
<PAGE> 30
POSTRETIREMENT BENEFITS The company has pension (defined benefit) or deferred
profit sharing (defined contribution) plans for substantially all U.S.
employees. Retirement benefits for most employees of international operations
are provided by government-sponsored or insured programs and, in certain
countries, by defined benefit plans.
With respect to its qualified defined benefit pension plans, the company's
policy is to fund amounts as are necessary on an actuarial basis to provide for
benefits in accordance with the requirements of ERISA for domestic plans and in
accordance with local laws and income tax regulations for international plans.
The plans covering domestic employees of the company's Aerospace Materials,
Electronic Materials, Packaging Products divisions, certain employees of the
Magnetic Materials division, and domestic employees of Life Technologies, Inc.
provide benefits that are generally based upon the employee's highest average
compensation in any consecutive five-year period in the ten years before
retirement. In addition to the above qualified plans, the company sponsors an
unfunded nonqualified executive supplemental plan for certain key employees that
provides an annual benefit equal to 55% of their average compensation during the
highest 60 consecutive calendar months of a participant's last ten years before
retirement, which benefit is then offset by other benefits payable to the
participant.
In computing the company's year-end funded status for domestic plans, discount
rates of 7%, 6.5% and 8.5% were used in 1996, 1995, and 1994, respectively. The
discount rates used in computing the year-end funded status for international
plans ranged from 4% to 8.5% in 1996, 4% to 9% in 1995, and 5.5% to 9.75% in
1994.
In 1996, there was a net periodic pension cost of $7.8 million for all plans
combined, including international plans. Net periodic pension cost was $4.8
million for 1995 and $6.3 million for 1994.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
The funded status of the company's plans are as follows:
- -----------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1996 December 31, 1995 December 31, 1994
- -----------------------------------------------------------------------------------------------------------------------------------
Plans Where Plans Where Plans Where Plans Where Plans Where Plans Where
Assets Exceed Accumulated Assets Exceed Accumulated Assets Exceed Accumulated
Accumulated Benefits Accumulated Benefits Accumulated Benefits
In thousands of dollars Benefits Exceed Assets Benefits Exceed Assets Benefits Exceed Assets
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Actuarial present value
of benefit obligations
Vested benefit obligation $ 65,912 $ 7,731 $ 63,864 $ 7,356 $ 41,589 $ 5,512
Accumulated benefit
obligation $ 68,701 $ 8,745 $ 66,497 $ 8,768 $ 42,972 $ 6,068
Projected benefit
obligation $ 102,560 $ 10,371 $ 99,947 $ 10,743 $ 67,489 $ 7,779
Plan assets at fair value,
primarily equity securities
and insurance contracts $ 95,386 $ 1,048 $ 83,110 $ 999 $ 69,521 $ 818
---------------------------------------------------------------------------------------------
Projected benefit obligation
(in excess of) less than
plan assets $ (7,174) $ (9,323) $(16,837) $ (9,744) $ 2,032 $(6,961)
Unrecognized net loss (gain) 2,514 1,532 14,811 2,194 (3,091) 836
Unrecognized prior
service cost 2,897 1,566 3,265 1,802 3,501 781
Unamortized net (asset)
obligation (628) 213 (635) 254 (705) 284
Adjustment required to
recognize minimum liability (1,971) (2,732) (606)
---------------------------------------------------------------------------------------------
(Accrued pension liability)
Prepaid pension cost $ (2,391) $ (7,983) $ 604 $ (8,226) $ 1,737 $(5,666)
=============================================================================================
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Net periodic pension cost for 1996, 1995 and 1994 included the following
components:
<TABLE>
<CAPTION>
In thousands of dollars 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 6,405 $ 4,276 $ 5,806
Interest cost 7,440 6,429 6,016
Actual return on assets (11,271) (13,678) (152)
Net amortization and deferral 5,212 7,725 (5,343)
------------------------------------------
Net periodic pension cost $ 7,786 $ 4,752 $ 6,327
==========================================
- --------------------------------------------------------------------------------
</TABLE>
Assumptions used in the accounting for pension cost in 1996, 1995 and 1994 for
domestic plans were:
1996 1995 1994
- --------------------------------------------------------------------------------
Discount rate 6.5%* 8.5% 6.75%
Average wage increase 4 - 5% 6% 6%
Expected long-term rate
of return on plan assets 9% 9% 9%
* In June of 1996, the company recognized a $1.1 million curtailment gain
resulting from the sale of its Automotive businesses. At June 30, 1996 the
Dexter Pension Plan was remeasured using a 7.5% discount rate.
- --------------------------------------------------------------------------------
Assumptions used in the accounting for pension cost in 1996, 1995 and 1994 for
international plans were:
1996 1995 1994
- --------------------------------------------------------------------------------
Discount rate 4 - 9% 5.5 - 9.75% 5.5 - 9%
Average wage increase 3 - 7% 4.5 - 7% 4 - 7%
Expected long-term rate
of return on plan assets 2.5 - 9% 4 - 9% 4 - 9%
- --------------------------------------------------------------------------------
The discount rate is the estimated rate at which the obligation for pension
benefits could effectively be settled. The method used to develop the estimate
for year-end rates in 1996, 1995 and 1994 in the U.S. was to estimate the rate
at which AA grade industrial and utility bonds would sell over U.S. government
obligations of a duration similar to that of domestic pension plans. Similar
methods were used in other countries.
38
<PAGE> 31
The average wage increase assumption was reduced from the 6% used in 1995 and
1994 to a range of 4 - 5% in 1996 for computing pension cost for domestic plans.
Based on the last several years' experience and our current expectations, this
range is believed to be the best estimate of future compensation increases. The
average wage increase to be used in the international plans ranges from 2.5% to
7% in 1997.
The expected long-term rate of return on plan assets reflects the average rate
of earnings that the company estimates will be generated on the assets of the
plan over the long term. The rate of return on plan assets in the U.S. was 15.1%
in 1996, 22% in 1995 and -0.5% in 1994, and averaged 11.4% over the past
five-year period. The 1996 rate of return is not considered indicative of future
long-term returns and, therefore, a long-term rate adjustment was not made. We
continue to believe 9% is appropriate for a 60% equity and 40% debt securities
asset mix over the long term. Rates in other countries are based on expected
long-term rates of return attainable there.
The provisions of SFAS No. 87, Employers' Accounting for Pensions, require the
recognition of an additional minimum liability for each defined benefit plan for
which the accumulated benefit obligation exceeds plan assets. This amount has
been recorded as a long-term liability with an offsetting intangible asset.
Because the asset recognized may not exceed the amount of unrecognized prior
service cost and transition obligation on an individual plan basis, the balance,
net of tax benefits, is reported as a separate reduction of shareholders' equity
at December 31, 1996 and 1995 for certain domestic nonqualified plans as
follows:
In thousands of dollars 1996 1995
- --------------------------------------------------------------------------------
Minimum liability adjustment $1,489 $2,052
Intangible asset 1,173 1,318
------------------------
316 734
Tax benefit 112 261
------------------------
Pension liability adjustment to
shareholders' equity $ 204 $ 473
========================
- --------------------------------------------------------------------------------
The company sponsors deferred profit sharing plans for substantially all
domestic employees not covered under pension plans. Contributions and cost are
determined based on a percentage of each covered employee's pay and totaled $7.3
million in 1996, $6.6 million in 1995 and $6.5 million in 1994.
In addition to providing pension benefits, certain businesses of Dexter provide
some health care and life insurance benefits for retired employees. Such
benefits and similar benefits for active employees have been either paid
directly or are provided through insurance companies whose premiums are based on
the benefits paid during the year.
The provisions of SFAS No. 106, Employers' Accounting for Postretirement
Benefits Other Than Pensions, were implemented using the immediate recognition
transition option. SFAS No. 106 requires recognition, during employees' service
with the company, of the cost of their retiree health and life insurance
benefits. Upon adoption, $23.7 million was funded on March 31, 1993 into trusts
for the ultimate benefit of retired employees whose medical costs are covered by
those plans. The assets in the trusts established for postretirement benefits
other than pensions amounted to $33.7 million at December 31, 1996, $29.1
million at December 31, 1995 and $23.4 million at December 31, 1994 and were
invested as follows:
In thousands of dollars 1996 1995 1994
- --------------------------------------------------------------------------------
Equity funds $13,916 $10,492 $ 5,496
Indexed fund 12,675 12,031 10,683
Convertible preferred stocks 6,946 6,237 4,962
Preferred stock fund 1,814
Short-term liquid investment
funds 172 352 477
-------------------------------------
$33,709 $29,112 $23,432
=====================================
- --------------------------------------------------------------------------------
The investment objective of the indexed fund is to track the Standard & Poor's
500 and is long-term in nature. The remaining funds, with the exception of the
short-term liquid investment funds, are also long-term in nature. The combined
results of these funds, which are managed for the company by independent money
managers, are expected to achieve returns in excess of 10% over the long term.
The components of net periodic postretirement benefit income for the years ended
December 31, 1996, 1995 and 1994 are:
In thousands of dollars 1996 1995 1994
- --------------------------------------------------------------------------------
Service cost $ 889 $ 666 $ 878
Interest cost 1,541 1,447 1,488
Actual return on assets (5,386) (6,953) 566
Net amortization and deferral 1,732 4,005 (3,391)
--------------------------------------
Net periodic postretirement
benefit income $(1,224) $(835) $ (459)
======================================
- --------------------------------------------------------------------------------
The net periodic postretirement benefit income is expected to approximate $1.2
million in 1997.
The funded status of the plan at December 31, 1996, 1995 and 1994 is:
<TABLE>
<CAPTION>
In thousands of dollars 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Accumulated postretirement
benefit obligation
Retirees and dependents $ 7,668 $ 8,103 $ 7,905
Actives fully eligible 4,685 4,469 4,539
Actives not yet fully eligible 10,839 11,885 7,985
--------------------------------------
Total accumulated
postretirement benefit
obligation 23,192 24,457 20,429
Plan assets at fair value 33,709 29,112 23,432
--------------------------------------
Accumulated postretirement
benefit obligation less than
plan assets 10,517 4,655 3,003
Unrecognized net (gain) loss (4,060) (90) 1,111
Unrecognized prior service
effect from plan amendment (3,764) (4,838) (5,375)
---------------------------------------
Prepaid postretirement benefit
cost (accrued postretirement
benefit cost) $ 2,693 $ (273) $ (1,261)
=======================================
- --------------------------------------------------------------------------------
</TABLE>
The discount rates used in determining the accumulated postretirement benefit
obligation were 7% at December 31, 1996, 6.5% at December 31, 1995 and 8.5% at
December 31, 1994. In June of 1996, the company recognized a $1.6 million
curtailment gain resulting from the sale of its Automotive businesses. At June
30, 1996, the accumulated postretirement benefit obligation was remeasured using
a 7.5% discount rate. The assumed health care cost trend rate used in measuring
the accumulated postretirement benefit obligation was 9% in 1996, declining
gradually to 5% in 2007 and remaining level thereafter. If the health care cost
trend rate assumptions were increased by 1%, the accumulated postretirement
benefit obligation as of December 31, 1996 would be increased by $1 million,
while the aggregate of the service and interest cost components of the net
periodic postretirement benefit cost for 1996 would be increased by $0.1
million. As with pension benefits, the assumptions utilized in these
calculations are periodically reviewed and adjusted if deemed appropriate.
39
<PAGE> 32
LONG-TERM DEBT Long-term debt at December 31, 1996 consisted of promissory
notes, sinking fund debentures, industrial development bonds and a capitalized
lease.
In 1996, Dexter refinanced 350 million yen debt and borrowed an additional 150
million yen at an all-in-rate of 1.66%. The borrowing of 500 million yen
(equivalent to approximately $4.3 million) is scheduled to mature in 1999.
In 1996, LTI capitalized a lease for a parcel of land on which a new R&D center
and other administrative offices are being constructed. Payments commence in
February 1997 and continue for 23 years. The agreement allows LTI to lease the
property for 25 years with a 50 year renewal clause. LTI also has an option to
purchase the land.
In 1995, LTI increased its ownership in its Japanese subsidiary to 51%, and
therefore consolidated the subsidiaries' financial statements including its
long-term debt. Yen 175 million was repaid in 1996. Yen 75 million is due in
1997.
In November 1993, Dexter privately placed with The Prudential Insurance Company
of America $35 million, 20-year senior unsecured notes at a rate of 6.21% due in
2013. Required prepayments began in 1994 and are scheduled to continue with
installments of $1.75 million per year through the year 2013. In December 1993,
Dexter privately placed with The Prudential Insurance Company of America the
equivalent of $15 million, 15-year senior unsecured notes denominated in Swiss
francs at a rate of 4.86% due in 2008. Required prepayments began in 1994 and
are scheduled to continue with installments of Swiss franc 2.2 million per year
through the year 1997. The installments decrease to Swiss franc 1.5 million from
1998 through the year 2004 and decrease further to Swiss franc 0.8 million from
2005 through the year 2008.
In November 1991, Dexter privately placed with The Prudential Insurance Company
of America $50 million, 20-year senior unsecured notes at a rate of 8.96% due in
2011. Required prepayments are scheduled to begin in 1998 in installments of
$2.5 million per year through the year 2000. The installments increase to $3.5
million per year from 2001-2010, with a final lump sum payment of $7.5 million
due at maturity.
In July 1990, Dexter privately placed with The Prudential Insurance Company of
America $75 million, 20-year senior unsecured notes at a rate of 9.72% due in
2010. Required prepayments began in 1996 and are scheduled to continue with
installments of $5 million per year through maturity.
In December 1986, the company sold publicly $50 million, 9.25% sinking fund
debentures due in 2016. The sinking fund payments commence in 1997 and are
designed to retire 95% of the debt prior to maturity.
The company has $50 million of authorized and unissued medium-term notes.
Multi-currency, revolving credit agreements maintained with seven banks
aggregate another $50 million. This revolving credit is for a three-year
evergreen term and carries a commitment fee of 0.08% per annum on the unborrowed
portion. At December 31, 1996 there were no borrowings under the revolving
credit agreements.
Long-term debt represented 35.9% of total capital at December 31, 1996. The
weighted average interest rate of long-term debt outstanding at December 31,
1996 was 8.48%.
Certain long-term debt agreements include provisions that restrict the amount of
dividend increases if consolidated equity falls below $175 million. Consolidated
equity at December 31, 1996 was $374 million. There are also provisions placing
limits on the amount of additional debt the company may incur without amendment
of the agreements. At December 31, 1996 there is approximately $179 million of
additional debt allowable under these terms.
Life Technologies, Inc. has guaranteed approximately $0.3 million of bank loans
to others.
At December 31, 1996 and 1995 the fair value of net long-term debt was $218
million and $231 million, respectively, compared with the carrying value of $210
million and $216 million. The fair value of long-term debt is based on quoted
market prices for similar issues or on the current rates offered to the company
for debt of the same remaining maturities. In 1996, the fair value of long-term
debt exceeded the carrying value by $8 million due to the net reduction in
interest rates subsequent to the issuance of the long-term debt and the
consequent increase in fair value. The company is only obligated to repay the
amounts reflected in the carrying value of this debt.
- --------------------------------------------------------------------------------
DEBT OUTSTANDING
<TABLE>
<CAPTION>
December 31
-----------------------------------------
In thousands of dollars 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Promissory notes $ 166,110 $ 177,437 $ 176,773
Sinking fund debentures 50,000 50,000 50,000
Industrial development bonds 1,400 2,050 2,700
Capitalized lease 4,739
-----------------------------------------
222,249 229,487 229,473
Less:
Payments due within one year (12,297) (13,648) (4,071)
-----------------------------------------
Net long-term debt $ 209,952 $ 215,839 $ 225,402
=========================================
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
DEBT MATURITIES BY CURRENCY AND TYPE
Amounts in thousands
Multi-currency Promissory Notes
-----------------------------------------------------
Industrial Sinking Total Total Weighted
Capitalized Development Fund Swiss Japanese U.S. Dollar U.S. Dollar Average
Lease Bonds Debentures U.S. Dollar Franc Yen Equivalent Equivalent Interest Rate
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997 $ 71 $ 700 $ 2,500 $ 6,752 SF 2,180 Y 75,000 $ 9,026 $ 12,297 7.92%
1998 83 500 2,500 9,253 1,454 10,338 13,421 8.49
1999 89 200 2,500 9,250 1,454 500,000 14,650 17,439 6.85
2000 96 2,500 9,250 1,454 10,335 12,931 8.58
2001 103 2,500 10,250 1,454 11,335 13,938 8.62
2002 112 2,500 10,250 1,454 11,335 13,947 8.61
2003 120 2,500 10,250 1,454 11,335 13,955 8.61
2004 130 2,500 10,250 1,454 11,335 13,965 8.61
2005 140 2,500 10,250 727 10,793 13,433 8.76
2006 150 2,500 10,250 727 10,793 13,443 8.76
2007-2020 3,645 25,000 53,750 1,454 54,835 83,480 8.71
--------------------------------------------------------------------------------------------------------
Total $4,739 $ 1,400 $50,000 $149,755 SF15,266 Y575,000 $166,110 $222,249 8.48%
=======================================================================================================================
Rates of 5.70- 6.21- 1.66-
Interest 7.5% 6.50% 9.25% 9.72% 4.86% 3.20%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
40
<PAGE> 33
ENVIRONMENTAL LIABILITIES Environmental expenditures attributed to ongoing
operations of the company are expensed or capitalized as appropriate.
Environmental expenditures attributed to previously owned properties and third
party off-site facilities are expensed. Liabilities for expenses related to
environmental assessments, site remediation and other response activities are
expensed and recorded when incurrence of the liability is probable and the costs
can be reasonably estimated. Generally, the incurrence of such liability is
deemed probable when an environmental condition for which the company is likely
to be legally responsible is determined to exist. Probable expenses are
estimated, on an ongoing basis, as facts become available which indicate the
scope of the condition to be addressed and the likely response measures for
addressing it. Due to such factors as the wide discretion of regulatory
authorities regarding cleanup levels and uncertain allocation of liability at
multiple party sites, estimates made prior to approval of a formal plan of
action represent management's best judgment as to estimates of reasonably
foreseeable expenses based upon comparison to similar activities at other sites.
Environmental reserves at December 31, 1996, with respect to 19 sites, were
$16.3 million, including current reserves of $1.3 million, which are expected to
be spent in 1997, and long-term reserves of $15 million. Such reserves, which
are not discounted, were decreased during 1996 by expenditures of $0.7 million.
Additionally, an estimated $2.5 million in 1996, $2.7 million in 1995, and $4.7
million in 1994 of claims payable by third-party insurance companies were
included in the reserve at year end. The related receivables from insurance
companies of $2.5 million, $2.7 million, and $4.7 million were included as
assets of the company at year-end 1996, 1995 and 1994, respectively.
Environmental reserves at December 31, 1995 were $17.1 million and at year-end
1994 were $20.3 million.
Dexter Environmental Assurance, Ltd. (DEAL), a wholly owned Bermuda company, was
established in 1993. In December 1993, a portfolio of environmental reserves
totaling $5.9 million was transferred into DEAL to insure all wholly owned
domestic operations of Dexter, other than exposures at Windsor Locks,
Connecticut, against environmental liabilities arising from occurrences prior to
January 1, 1994. In November 1994, a second portfolio of environmental reserves
totaling $5 million was transferred into DEAL. With the second transfer, the
coverage period was expanded to include occurrences after December 31, 1993 and
prior to January 1, 1995 for all wholly owned domestic operations of Dexter.
This coverage period has since been expanded to extend through December 31,
1996.
MINORITY INTERESTS Minority interests increased by $14 million in 1996 to $90.4
million. At year-end 1995, minority interests were $76.4 million, an increase of
$13.9 million from 1994. The increase in 1996 was due principally to $13.3
million of net income attributable to the minority interest shareholders of Life
Technologies, Inc., Dexter's 53%-owned subsidiary, and a $1.7 million increase
due to the exercise of stock options at LTI. Somewhat offsetting these increases
were quarterly cash dividends paid by LTI to minority interest shareholders
totaling $1.6 million. The increase in 1995 was principally due to $10.2 million
of net income attributable to the minority interest shareholders of LTI and a
$2.7 million increase due to the exercise of stock options at LTI. Minority
interests also increased $1.9 million in 1995 due to an additional investment in
a Japanese subsidiary made by LTI which resulted in a controlling interest.
These increases in minority interests were somewhat offset by cash dividends
paid by LTI to minority interest shareholders of $1.4 million. Minority interest
in LTI's equity represented $85.3 million and $71.2 million at December 31, 1996
and 1995, respectively.
CURRENCY EXCHANGE EFFECTS Assets and liabilities of those operations whose
functional currency is other than the U.S. dollar are translated at end of
period currency exchange rates and fluctuations due to changes in exchange rates
are accounted for as a separate component of shareholders' equity, "Currency
translation effects". Results of operations are translated at average currency
exchange rates during the period.
Currency translation effects decreased shareholders' equity in 1996 by $3.8
million, including $3.5 million of translation effects and a $0.3 million
related tax effect. This decrease was the result of the net strengthening of the
U.S. dollar against currencies of countries in which the company operates.
Currency translation effects increased shareholders' equity by $9 million in
1995, of which $9.3 million was from translation effects offset by $0.3 million
from a related tax effect.
The company utilizes forward exchange contracts to hedge nonlocal currency
transactions and commitments. Gains and losses on forward exchange contracts
that hedge specific commitments are deferred and recognized in income in the
same period as the hedged transaction. Such deferred unrealized gains and losses
at December 31, 1996, 1995 and 1994 were not significant. Gains and losses on
forward contracts that do not hedge an identifiable commitment are included in
income as the gain or loss arises. Forward exchange contracts outstanding at
year-end 1996 were short-term in nature and related to nonlocal currency
transactions of the company's European and Asian operations. The market risk
associated with forward exchange contracts is caused by fluctuations in exchange
rates subsequent to entering into the forward exchange contracts. At December
31, 1996, 1995 and 1994, the company, excluding Life Technologies, Inc., had
forward exchange contracts outstanding for the purchase and sale of U.S.
dollars, Japanese yen, French francs, pound sterling, Italian lira, Deutsche
marks, and Spanish peseta. The equivalent U.S. dollar purchase amount was $1
million as of December 31, 1996. There were no purchase amounts outstanding as
of December 31, 1995 and 1994. The equivalent U.S. dollar sale amounts were $7.5
million, $7.4 million and $4.6 million as of December 31, 1996, 1995 and 1994,
respectively. In addition, Life Technologies, Inc. had forward exchange
contracts outstanding for the purchase and sale of U.S. dollars, Dutch guilders,
Belgian francs, Swiss francs, Deutsche marks, pound sterling and French francs.
The equivalent U.S. dollar purchase amounts were $6.2 million, $10.3 million and
$2.1 million as of December 31, 1996, 1995 and 1994. There were no sale amounts
outstanding as of December 31, 1996 and 1994. The equivalent U.S. dollar sale
amounts were $12.9 million as of December 31, 1995.
The company had short-term borrowings at December 31, 1996 of $5.1 million of
which $3.8 million related to nonlocal currency transaction exposure management.
Currency gains and losses realized on transactions were not significant in 1996,
1995 or 1994.
41
<PAGE> 34
SHAREHOLDERS' EQUITY Shareholders' equity increased by $4.5 million in 1996 to
$374.1 million representing a book value of $15.94 per share. Net income
increased shareholders' equity by $48.7 million. The exercise of stock options
along with the impact of restricted stock awards added $6.8 million to
shareholders' equity in 1996. Also increasing shareholders' equity was $0.3
million related to the recognition of prior service cost for certain of the
company's nonqualified plans. Offsetting these increases were reductions due to
the repurchases of the company's outstanding common stock of $26.7 million,
dividends declared of $20.8 million and a currency translation impact of $3.8
million resulting from the strengthening of the U.S. dollar in 1996.
In 1990, the Board of Directors authorized a repurchase of up to 1,000,000
shares of the company's outstanding common stock. In 1996, the company purchased
829,100 shares of its outstanding common stock at an average cost of $25.80 per
share under this plan and in 1995, the company purchased 170,900 shares of its
outstanding common stock at an average cost of $24.56 per share. There were no
purchases under the 1990 authorization during 1994. In 1996, the Board of
Directors authorized the repurchase of an additional 1,000,000 shares of the
company's outstanding common stock and the company purchased 160,400 shares of
its outstanding common stock at an average cost of $32.54 per share under this
plan. The net effect of these repurchases was a reduction to shareholders'
equity in 1996 of $26.7 million. At the end of 1996, there were 1,520,261 shares
held in treasury compared with 763,782 shares at the end of 1995 and 634,403
shares at the end of 1994.
PREFERRED STOCK The company has the following classes of preferred stock,
without par value, as of December 31, 1996:
CLASS AUTHORIZED AND UNISSUED
Preferred Stock 150,000 shares
Preferred Stock, Class I 500,000 shares
Preferred Stock, Class II 500,000 shares
Preferred Stock, Series A 250,000 shares
PREFERRED STOCK, SERIES A - PURCHASE RIGHTS In October, 1986, the company issued
one preferred stock purchase right for each share of common stock outstanding at
November 17, 1986 under a rights plan adopted by the company. The preferred
stock purchase right is designed to assure that shareholders receive fair and
equitable treatment and full value in the event of a takeover attempt which is
not approved by the Board of Directors of the company.
The rights expired on November 17, 1996. In anticipation of the expiration of
these rights, on August 23, 1996, the company authorized and declared a dividend
distribution of one new right for each share of common stock of the company
outstanding at the close of business on November 17, 1996 under a new rights
plan. Each new right entitles the holder to purchase one two-hundredth of a
share of Series A Preferred Stock of the company at a purchase price of $90 per
right. The rights will trade with the common stock and not be exercisable or
transferable apart from the common stock until 10 days following the
acquisition of, or tender offer for, 20% or more of the outstanding shares of
the common stock. The new rights plan also provides that if the company merges
with or into another entity or sells or otherwise transfers more than 50% of the
assets or earning power of the company, the holder of each right shall have the
right to receive, upon exercise, shares of common stock having a value equal to
two times the exercise price.
The rights, which do not have voting privileges, are redeemable under certain
circumstances at a redemption price of $.01 per right and will expire, unless
earlier redeemed, on August 31, 2006. The company has authorized 250,000 shares
of Series A Preferred Stock for issuance upon exercise of the rights.
STOCK COMPENSATION PLANS At December 31, 1996, The Dexter Corporation has four
stock-based compensation plans, which are described below. The company applies
APB Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations in accounting for its plan. Accordingly, no compensation cost
has been recognized for its fixed stock option plans. Compensation expense for
its restricted stock plan has been adjusted on a quarterly basis to reflect
changes in the market price of the stock. The compensation cost that has been
charged against income for its restricted stock plan was $1.2 million in 1996
and $0.4 million in 1995. Had compensation cost for the company's four
stock-based compensation plans been determined consistent with SFAS No. 123,
Accounting for Stock-Based Compensation, the company would have expensed $0.2
million in 1996 and $0.1 million in 1995 for its fixed stock option plans which
would have been offset by income of approximately $0.2 million in 1996 for its
restricted stock plan with no income impact in 1995 for restricted stock. As
such, the net impact of SFAS No. 123 on the company's net income and earnings
per share is immaterial.
Because the SFAS No. 123 method of accounting has not been applied to options or
restricted stock granted prior to January 1, 1995, the resulting compensation
cost may not be representative of that to be expected in future years.
The weighted average fair value at date of grant for options granted during
1996, 1995 and 1994 was $7.14, $5.34 and $6.01 per option, respectively. The
fair value of options at date of grant was estimated using the Black-Scholes
model with the following weighted average assumptions:
1996 1995 1994
- --------------------------------------------------------------------------------
Expected life (years) 6 6 6
Interest rate 6.30% 6.26% 6.12%
Volatility 22.98% 23.71% 24.74%
Dividend yield 2.70% 3.70% 3.70%
- --------------------------------------------------------------------------------
STOCK PLAN
1994 LONG-TERM INCENTIVE PLAN In 1994, Dexter established a long-term incentive
plan for certain key management personnel of the company. The aggregate number
of shares of the company's common stock that may be awarded under the 1994
Long-term Incentive Plan is 1,200,000 shares. Participants are granted
restricted stock awards at no cost to the employee. As of the grant date,
participants have the rights of shareholders, including the right to receive any
cash dividends and the right to vote the shares. These stock awards are subject
to forfeiture provisions including the lapse of time and achievement of certain
performance targets and have restrictions limiting the sale or transfer of
shares during the restriction periods defined in the Plan. The expense relating
to this Plan is amortized over the restriction period. The 1994 Plan will
terminate on April 28, 2004, after which time no additional grants may be made.
The weighted-average fair value at date of grant for restricted stock granted
during 1996, 1995 and 1994 was $27.06, $23.06 and $23.81, respectively, which in
each case was equal to the market value of the company's common stock at the
date of grant.
42
<PAGE> 35
1994 LONG-TERM INCENTIVE PLAN DATA
<TABLE>
<CAPTION>
December 31
---------------------------------------
1996 1995 1994
---------------------------------------
Number of Shares
---------------------------------------
<S> <C> <C> <C>
Outstanding at beginning of year 138,187 64,250
Awarded 75,500 76,500 64,250
Earned and distributed (1,863)
Cancelled (11,200) (700)
---------------------------------------
Outstanding at end of year 202,487 138,187 64,250
- --------------------------------------------------------------------------------
</TABLE>
STOCK OPTION PLANS
1979 STOCK OPTION PLAN AND DATA The Dexter Corporation 1979 Stock Option Plan
permitted the granting of options to purchase a total of 999,999 shares
(adjusted for stock splits) of common stock at prices not less than the fair
market value of the shares on the date of grant. Such options may be accompanied
by stock appreciation rights, which are also issued at fair market value, for up
to half the number of shares under option. Options and stock appreciation rights
generally become exercisable at the rate of 20% of the shares each year starting
two years after the date of grant. The exercise price may be satisfied by
surrendering company stock with a like market value. The Plan, as amended,
permits no future granting of options under the 1979 Stock Option Plan and
expires on May 1, 1997.
<TABLE>
<CAPTION>
December 31
----------------------------------------------------------------------------
1996 1995 1994
----------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 59,575 $22.22 81,150 $20.42 88,266 $19.97
Exercised (42,075) $21.66 (20,975) $15.23 (7,116) $14.77
Expired or cancelled (1,200) $20.83 (600) $23.75
------- ------- ------
Outstanding and exercisable at end of year 16,300 $23.75 59,575 $22.22 81,150 $20.42
The exercise price for options outstanding at December 31, 1996 was $23.75.
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1987 INTERIM STOCK OPTION PLAN AND DATA The 1987 Interim Stock Option Plan is
intended to be a continuation and extension of The Dexter Corporation 1979 Stock
Option Plan with similar terms and conditions, and, as such, stock appreciation
rights may accompany the options as in the 1979 Plan. The aggregate number of
shares of common stock permitted to be issued under the Plan was 75,000. The
1987 Stock Option Plan consists of one grant which was issued in 1987 at a
weighted-average exercise price of $23.75. The Plan, as amended, permits no
future granting of options under the 1987 Interim Stock Option Plan and will
expire on May 1, 1997.
<TABLE>
<CAPTION>
December 31
-------------------------------------
1996 1995 1994
-------------------------------------
Number of Shares
-------------------------------------
<S> <C> <C> <C>
Outstanding at beginning of year 13,350 16,000 16,000
Exercised (6,550) (1,450)
Expired or cancelled (600) (1,200)
-------------------------------------
Outstanding and exercisable at end of year 6,200 13,350 16,000
- ----------------------------------------------------------------------------------------
</TABLE>
1988 STOCK OPTION PLAN AND DATA The 1988 Stock Option Plan provides for the
granting of incentive and nonqualified stock options to purchase up to 1,000,000
shares of common stock. No stock appreciation rights may be granted. The option
price shall not be less than 100% of the fair market value on the date of grant
for incentive stock options and not less than 80% of the market value on the
date of grant for nonqualified options. Options generally become exercisable at
the rate of 33 1/3% of the shares each year starting one year after the date of
grant. Each option granted under the 1988 Plan lapses ten years after the date
it was granted, or earlier, as outlined under the provisions of the Plan. There
have been no nonqualified options issued under the Plan to date; therefore, no
charges against income have been made.
<TABLE>
<CAPTION>
December 31
---------------------------------------------------------------------
1996 1995 1994
---------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 690,522 $24.01 738,500 $24.21 630,144 $23.99
Granted 49,000 $26.63 31,500 $22.82 157,095 $25.33
Exercised (210,069) $23.17 (19,566) $21.83 (1,718) $21.11
Expired or cancelled (37,212) $26.78 (59,912) $26.54 (47,021) $25.11
-------- ------- -------
Outstanding at end of year 492,241 $24.42 690,522 $24.01 738,500 $24.21
Exercisable options at end of year 385,519 $24.12 535,584 $23.80 466,820 $23.76
Shares available for future grant 202,986 214,774 186,362
The options outstanding at December 31, 1996 had a range of exercise prices of
$20.88 - $29.06 and a weighted-average remaining contractual life of
approximately 3 1/4 years.
- -------------------------------------------------------------------------------------------------------------
</TABLE>
43
<PAGE> 36
DIVISION AND SUBSIDIARY HEADQUARTERS
DEXTER AEROSPACE MATERIALS DEXTER PACKAGING PRODUCTS
2850 Willow Pass Road East Water Street
Pittsburg, CA 94565-3299 Waukegan, IL 60085-5652
(510) 458-8000 (847) 623-4200
Jeffrey W. McClelland T. Daniel Clark
Division President Senior Division President
DEXTER ELECTRONIC MATERIALS DEXTER S.A.
15051 East Don Julian Road B.P. 51
Industry, CA 91746-3398 14 rue Chanay
(818) 968-6511 71700 Tournus, France
Ronald C. Benham 333-85-40-4545
Senior Division President Gerard R. Mazure
Directeur General
DEXTER MAGNETIC MATERIALS
48460 Kato Road LIFE TECHNOLOGIES, INC.
Fremont, CA 94538-7337 (majority owned)
(510) 656-5700 P.O. Box 6482
David Woodhead 9800 Medical Center Drive
Division President Rockville, MD 20849-6482
(301) 610-8000
DEXTER NONWOVENS J. Stark Thompson, Ph.D.
Two Elm Street President and Chief Executive
Windsor Locks, CT 06096-2335 Officer
(860) 654-8300
David G. Gordon D & S PLASTICS INTERNATIONAL
Senior Division President (equally owned joint venture with
Solvay S.A.)
1200 Harmon Road
Auburn Hills, MI 48326-1550
(810) 391-9500
Joseph D. Greulich
President
SHAREHOLDER/INVESTOR INFORMATION
THE DEXTER CORPORATION INVESTOR RELATIONS
One Elm Street Kathleen Burdett
Windsor Locks, CT 06096-2334 Vice President and
(860) 292-7675 Chief Financial Officer
(860) 292-7673 Facsimile (860) 292-7620
(860) 292-7669 Facsimile
STOCK EXCHANGE
Listing: New York Stock Exchange John D. Thompson
Stock Symbol: DEX Senior Vice President,
Strategic and
REGISTRAR Business Development
ChaseMellon Shareholder (860) 292-7640
Services, L.L.C. (860) 292-7669 Facsimile
Ridgefield Park, New Jersey
CORPORATE COMMUNICATIONS/
TRANSFER AGENT MEDIA CONTACT
ChaseMellon Shareholder Ellen C. Miles
Services, L.L.C. Corporate Communications Manager
Ridgefield Park, New Jersey and (860) 292-7686
New York, New York (860) 292-7627 Facsimile
NOTICE OF ANNUAL MEETING
You are cordially invited to attend the annual meeting of shareholders beginning
at 10:00 a.m., Thursday, April 24, 1997, at The Hartford Club, 46 Prospect
Street, Hartford, Connecticut.
NOTICE OF FORM 10-K ANNUAL REPORT
The Form 10-K Annual Report of The Dexter Corporation filed with the Securities
and Exchange Commission, as well as the Form 10-K Annual Report of Life
Technologies, Inc., are available without charge after March 31 of each year to
shareholders and prospective investors. Please contact the Corporate
Communications Department in Windsor Locks, Connecticut, at (860) 292-7615.
SHAREHOLDERS' STOCK SAVINGS PLAN/INQUIRIES
Dexter shareholders can reinvest their dividends automatically in additional
shares of Dexter common stock at the market price. Participants can also invest
up to an additional $3,000 in Dexter shares each quarter through this service.
Also, if you have any questions concerning your account as a shareholder, such
as name and address changes, inquiries regarding dividend checks, stock
certificates, or if you need tax information regarding your account, please
contact:
ChaseMellon Shareholder Services, L.L.C.
Overpeck Centre
85 Challenger Road
Ridgefield Park, NJ 07660
(800) 288-9541
TDD SERVICE AVAILABLE
Dexter shareholders with hearing or speech disabilities can get information
about their accounts through TDD services offered by ChaseMellon Shareholder
Services, L.L.C. at (800) 231-5469.
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
The following table sets forth subsidiaries of The Dexter Corporation which
are included in the consolidated financial statements.
<TABLE>
<CAPTION>
PERCENTAGE
OF JURISDICTION IN WHICH
NAME OWNERSHIP(A) INCORPORATED OR ORGANIZED
- --------------------------------------------------------- ------------ --------------------------
<S> <C> <C>
C.H. Dexter Ltd.......................................... 100%(C)(B) England
Crown Metro Aerospace Coatings, Inc...................... 100% South Carolina
DDL Sales Limited........................................ 80%(D)(B) Scotland
Dexter Asia Pacific Limited.............................. 100%(C) Hong Kong
Dexter Automotive Materials GmbH......................... 100%(E)(B) Germany
Dexter ADAF Holdings, Inc................................ 100%(F) Delaware
Dexter Environmental Assurance Ltd....................... 100% Bermuda
Dexter Europe S.A........................................ 100% Belgium
Dexter Holdings.......................................... 100% England
Dexter Hysol Aerospace, Inc.............................. 100% Delaware
Dexter Hysol Ltd......................................... 100%(C)(B) England
Dexter Hysol (Malaysia) Sdn. Bhd......................... 100%(G) Malaysia
Dexter International Corporation......................... 100% Connecticut
Dexter International (Thailand), Ltd..................... 100% Thailand
Dexter Leasing Limited................................... 100%(C)(B) England
Dexter Magnetic Materials GmbH........................... 100%(E) Germany
Dexter Mexicana S.A. de C.V.............................. 100% Mexico
Dexter Midland Coatings Limited.......................... 100%(C)(B) England
Dexter Midland Company Limited........................... 70% Japan
Dexter Miki, Inc......................................... 70%(G)(B) Japan
Dexter Nonwovens A.B..................................... 100% Sweden
Dexter Overseas Limited.................................. 100%(C)(B) England
Dexter Pacific, Inc...................................... 100% Japan
Dexter Packaging Products, S.A........................... 100% Spain
Dexter Powders, Inc...................................... 100%(B) Delaware
Dexter Products Limited.................................. 100%(C)(B) England
Dexter (RPI), Inc........................................ 100% Delaware
Dexter S.A............................................... 97% France
Dexter S.p.A............................................. 100%(F) Italy
Dexter Specialty Materials Hong Kong Limited............. 100%(G)(B) Hong Kong
Dexter Speciality Chemicals Limited...................... 100%(C)(B) England
Dexter Speciality Materials Limited...................... 100%(C) Scotland
Dexter U.K. Limited...................................... 100%(H) England
Hysol Limited............................................ 100% Japan
Kettlebrook Insurance Company, Ltd....................... 100%(I) Bermuda
Life Technologies, Inc................................... 53% Delaware
</TABLE>
<PAGE> 2
EXHIBIT 21 -- CONTINUED
<TABLE>
<CAPTION>
PERCENTAGE
OF JURISDICTION IN WHICH
NAME OWNERSHIP(A) INCORPORATED OR ORGANIZED
- --------------------------------------------------------- ------------ --------------------------
<S> <C> <C>
Permag Corp.............................................. 100% New York
Potter Paint Company of Texas, Inc....................... 100% Texas
The Dexter GmbH.......................................... 100%(C) Germany
The Mogul Corporation (U.K.) Ltd......................... 100%(C)(B) England
Vernicolor A.G........................................... 100% Switzerland
Windsor Locks Canal Company.............................. 100% Connecticut
</TABLE>
- ---------------
(A) including directors' qualifying shares
(B) inactive
(C) owned by Dexter U.K. Limited
(D) owned by Dexter Speciality Materials Limited
(E) owned by The Dexter GmbH
(F) owned by Crown Metro Aerospace Coatings, Inc.
(G) owned by Dexter Asia Pacific Limited
(H) owned by Dexter Holdings
(I) owned 67% by The Dexter Corporation
and 33% by Dexter U.K. Limited
<PAGE> 3
EXHIBIT 21 -- CONTINUED
The following table sets forth subsidiaries of Life Technologies, Inc.
(owned 53% by The Dexter Corporation) which are included in the consolidated
financial statements.
<TABLE>
<CAPTION>
PERCENTAGE
OF JURISDICTION IN WHICH
NAME OWNERSHIP INCORPORATED OR ORGANIZED
- --------------------------------------------------- ------------ ---------------------------
<S> <C> <C>
Canadian Life Technologies, Inc.................... 100% Ontario
Custom Primers, Inc................................ 100% California
Laboratory Services Ltd............................ 100% New Zealand
Life Technologies A.G.............................. 100%(B) Switzerland
Life Technologies A.S.............................. 100% Denmark
Life Technologies Asia Pacific, Inc................ 100% Delaware
Life Technologies B.V.............................. 100%(B) Netherlands
Life Technologies Foreign Sales Corporation........ 100% U.S. Virgin Islands
Life Technologies GIBCO BRL Co., Ltd............... 51% Republic of China (Taiwan)
Life Technologies GmbH............................. 100%(B) Germany
Life Technologies Holdings, Unlimited.............. 100% Scotland
Life Technologies Investment Holdings, Inc......... 100% Delaware
Life Technologies Italia S.r.1..................... 100% Italy
Life Technologies Ltd.............................. 100%(A) Scotland
Life Technologies Ltd.............................. 100% New Zealand
Life Technologies Oriental K.K..................... 80% Japan
Life Technologies Overseas Ltd..................... 100%(A) Scotland
Life Technologies (Pacific) Ltd.................... 100% Hong Kong
Life Technologies Pty. Ltd......................... 100% Australia
Life Technologies S.A.............................. 100% Spain
Life Technologies S.A.R.L.......................... 100%(B) France
Life Technologies Sweden AB........................ 100% Sweden
Life Technologies Uruguay, S.A..................... 100% Uruguay
N.V. Life Technologies S.A......................... 100%(B) Belgium
Serum Technologies Holdings, Inc................... 100% Delaware
</TABLE>
- ---------------
(A) owned by Life Technologies Holdings, Unlimited
(B) owned by Life Technologies Overseas Ltd.
<PAGE> 4
EXHIBIT 21 -- CONTINUED
The following unconsolidated companies owned in part by The Dexter
Corporation are accounted for by the equity method. Financial statements of
these companies are not required because when considered in the aggregate as a
single subsidiary, they would not constitute a significant subsidiary.
<TABLE>
<CAPTION>
PERCENTAGE
OF JURISDICTION IN WHICH
NAME OWNERSHIP INCORPORATED OR ORGANIZED
- --------------------------------------------------------- ------------ --------------------------
<S> <C> <C>
Akzo Dexter Aerospace Finishes VoF....................... 40%(A) Netherlands
D & S Plastics International............................. 50%(B) Delaware
Hysol Indael de Mexico S.A............................... 49%(C) Mexico
Lexter S.r.1............................................. 49%(C)(F) Italy
Midland-Dexter de Venezuela, S.A......................... 49%(D) Venezuela
Research Polymers International Corporation.............. 50%(E) Texas
</TABLE>
- ---------------
(A) owned by Dexter ADAF Holdings, Inc.
(B) owned 70.4% by Research Polymers International Corporation and 14.8% by
Dexter (RPI), Inc.
(C) owned by The Dexter Corporation
(D) owned 13.9% by Dexter U.K. Ltd. and 35.1% by The Dexter Corporation
(E) owned by Dexter (RPI), Inc.
(F) inactive
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the registration statements
of The Dexter Corporation on Form S-8 (File Nos. 2-63959, 33-27597, 33-53307,
33-53309, 333-02985 and 333-04081) of our report dated February 4, 1997, on our
audits of the consolidated financial statements and financial statement schedule
of The Dexter Corporation as of December 31, 1996, 1995, and 1994, and for the
years then ended, appearing on page F-2 of The Dexter Corporation's Annual
Report on Form 10-K for the year ended December 31, 1996.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Springfield, Massachusetts
March 7, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENT OF FINANCIAL POSITION AND STATEMENT OF INCOME AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 103,420
<SECURITIES> 0
<RECEIVABLES> 172,288
<ALLOWANCES> 6,620
<INVENTORY> 148,911
<CURRENT-ASSETS> 460,411
<PP&E> 677,836
<DEPRECIATION> 343,570
<TOTAL-ASSETS> 953,804
<CURRENT-LIABILITIES> 217,482
<BONDS> 209,952
0
0
<COMMON> 24,984
<OTHER-SE> 349,131
<TOTAL-LIABILITY-AND-EQUITY> 953,804
<SALES> 1,100,185
<TOTAL-REVENUES> 1,112,365
<CGS> 720,980
<TOTAL-COSTS> 720,980
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,500
<INCOME-PRETAX> 98,252
<INCOME-TAX> 34,880
<INCOME-CONTINUING> 48,722
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 48,722
<EPS-PRIMARY> 2.06
<EPS-DILUTED> 0
</TABLE>
