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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, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from ____________ to ____________
Commission file number 1-5542
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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 27, 1998,
held by nonaffiliates of the registrant was $941,671,128.
The number of shares of the registrant's common stock, $1 par value, outstanding
at February 27, 1998 was 23,179,597.
PORTIONS OF THE FOLLOWING DOCUMENTS ARE INCORPORATED BY REFERENCE:
The Dexter Corporation's 1997 Annual Report to Shareholders (Parts I, II and
IV).
Proxy Statement accompanying the notice, dated March 10, 1998, of the annual
meeting of The Dexter Corporation's shareholders to be held on April 23, 1998
(Parts I and III).
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TABLE OF CONTENTS
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NUMBER
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PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 3
Item 3. Legal Proceedings........................................... 4
Item 4. Submission of Matters to a Vote of Security Holders......... 4
Item 4a. Executive Officers of the Registrant........................ 5
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters......................................... 6
Item 6. Selected Financial Data..................................... 6
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 6
Item 8. Financial Statements and Supplementary Data................. 7
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 7
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 8
Item 11. Executive Compensation...................................... 8
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 8
Item 13. Certain Relationships and Related Transactions.............. 8
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 9
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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 "1997 Annual Report" shall mean the Company's 1997
Annual Report to Shareholders, and the term "Proxy Statement" shall mean the
Proxy Statement accompanying Dexter's notice, dated March 10, 1998, of the
annual meeting of Dexter's shareholders to be held on April 23, 1998. The 1997
Annual Report is filed as an exhibit to this report. Portions of the 1997 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 2 and 3 of the 1997 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 1997 Annual Report which are
incorporated herein by reference, which include Segment Information on pages 28,
29, 32 and 33 and International Operations information on pages 30 and 31. Also,
see Events, Trends and Vulnerabilities and Acquisitions and Divestitures
information on pages 34 and 35, respectively, of the 1997 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 33 through 35, and Analysis of Financial Position
contained on pages 35 through 43 of the 1997 Annual Report.
SEGMENT INFORMATION AND PRODUCTS
For information on the Company's segment information and products, see the
section, excluding pictures, entitled Business Structure on pages 6 and 7, and
refer to Market Segment Data on pages 28 and 29 of the 1997 Annual Report which
are incorporated herein by reference.
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; 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
page 34 of the 1997 Annual Report which is incorporated herein by reference.
CUSTOMERS
In 1997, 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 275 were directly engaged in field sales in 1997, 252 in 1996, and
241 in 1995. 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. For further information on sales and marketing, see the section entitled
Marketing on page 10 of the 1997 Annual Report which is incorporated herein by
reference.
BACKLOG
Dexter continues to maintain a backlog of orders. Such backlog was
approximately $77 million at December 31, 1997 and $76 million at December 31,
1996 and typically represents less than two months sales for businesses where
backlog is applicable. The Company expects substantially all of the December 31,
1997 backlog to be shipped in 1998. 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 page 34 of the 1997 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. For further information on research and
development, see the sections entitled Technology and Events, Trends and
Vulnerabilities on pages 8 and 34, respectively, of the 1997 Annual Report which
are incorporated herein by reference.
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
1997 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 projects were $1 million for 1997 and are estimated to range
from $2-$3 million for 1998. For further discussion of other current
environmental matters,
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see Events, Trends and Vulnerabilities on page 34 and the Environmental
Liabilities footnote on page 41 of the 1997 Annual Report, both of which are
incorporated herein by reference. 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.
EMPLOYEES
Approximately 1,700 of the Company's 4,800 employees (see page 18 of the
1997 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 30 and 31, Events, Trends and Vulnerabilities on page 34, and the Currency
Exchange Effects footnote on page 41 of the 1997 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 1997 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 1997 was approximately 80%. There were no material
leases under which properties described below were held.
During 1997, 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 77%.
The Electronic Materials division, in 1997, 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 1997 was approximately 73%.
During 1997, 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 1997
was approximately 61%.
During 1997, 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 1997.
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The Nonwovens division, in 1997, operated production facilities in Windsor
Locks, Connecticut (approximately 842,000 square feet); Chirnside, Scotland
(approximately 203,000 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 (approximately
42,000 square feet) is owned by the Company. The capacity utilization percentage
for the Nonwovens division production facilities in 1997 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 59% in 1997. This facility is owned by the Company.
During 1997, Life Technologies, Inc. operated four principal production
facilities of which three are owned (approximately 276,000 square feet), and one
is leased (approximately 63,000 square feet). Life Technologies, Inc.'s
production facilities in excess of 25,000 square feet are located in Grand
Island, New York; Auckland, New Zealand; and Inchinnan, Scotland, which it owns,
and Frederick, Maryland, which it leases. Life Technologies, Inc. has
administrative offices in Gaithersburg, Maryland (approximately 45,000 square
feet), which it leases and in Rockville, Maryland (approximately 41,000 square
feet), which it owns. In addition, Life Technologies, Inc. leases a distribution
center located in Frederick, Maryland of approximately 70,000 square feet and
owns a distribution center of approximately 35,000 square feet located in
Inchinnan, Scotland. During 1997, the construction of the new corporate R&D
facility (approximately 137,000 square feet), located in Rockville, Maryland,
was completed. In 1998, the construction of the company's corporate
administrative facility, which adjoins the R&D facility, will be completed. The
capacity utilization percentage at Life Technologies, Inc. production facilities
in 1997 was approximately 84%.
In April 1997, Dexter completed the divestiture of its 50% interest of
D & S Plastics International, an equally owned joint venture, based in Auburn
Hills, Michigan, between The Dexter Corporation and the Solvay Group.
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 1997.
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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, 1993, and their ages, are as follows:
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OTHER BUSINESS EXPERIENCE
NAME TITLE SINCE 1/1/93 AGE
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K. Grahame Walker Chairman, President and Chief President and Chief Executive 60
Executive Officer (since 1993) Officer
Bruce H. Beatt Vice President, General Counsel 45
and Secretary (since 1992)
Ronald C. Benham Vice President; Senior Division 55
President, Dexter Electronic
Materials Division (since 1992)
Kathleen Burdett Vice President and Chief Vice President and Controller 42
Financial Officer (since 1995)
T. Daniel Clark Vice President; Senior Division Vice President, Corporate 56
President, Dexter Packaging Development
Products Division (since 1994)
R. Barry Gettins, Ph.D. Senior Vice President, Senior Vice President, 56
Operations and Technology Operations Development; Vice
Development (since 1997) President; Senior Division
President, Dexter Nonwovens
Division
David G. Gordon Vice President; Senior Division President, D & S Plastics 46
President, Dexter Nonwovens International
Division (since 1996)
Lawrence D. McClure Vice President, Human Resources Vice President, Organization 49
(since 1995) Capabilities, Aetna Life &
Casualty Company; Vice
President, Human Resources,
Pratt & Whitney, a division of
United Technologies Corporation
Dale J. Ribaudo Treasurer (since 1992) 40
John D. Thompson Senior Vice President, Vice President, Corporate 48
Strategic and Business Services; Vice President,
Development (since 1995) Financial Services
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The following changes in executive officers occurred during 1997:
Effective in August 1997, George Collin, former Controller of the company,
accepted a position as Senior Vice President, Finance and Administration of the
Dexter Electronic Materials Division.
Effective in November 1997, R. Barry Gettins, Ph.D., was appointed Senior
Vice President, Operations and Technology Development.
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 23, 1998. 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 1997 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 1997 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 32 and 33, and Analysis of Financial Condition and Operations on pages
33 through 35 of the 1997 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
16 and the Summary of Financial Data on pages 18 and 19 of the 1997 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, Geographic Data on pages 30 and 31 and Life
Technologies, Inc. on pages 32 and 33 of the 1997 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 footnote on page 36, the
Property, Plant and Equipment footnote on pages 36 and 37, and the Long-term
Debt footnote on page 40 of the 1997 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 footnote on page 36, the Property, Plant and Equipment footnote
on pages 36 and 37, and the Long-term Debt and Shareholders' Equity footnotes on
pages 40 and 42, respectively, of the 1997 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 1997 Annual Report which is incorporated herein by reference. For
information on environmental matters, see Events, Trends and Vulnerabilities and
the Environmental Liabilities footnotes on pages 34 and 41, respectively, of the
1997 Annual Report which are 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 18 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 33
through 35, and Analysis of Financial Position contained on pages 35 through 43
of the Company's 1997 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 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, earnings and dividends; 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 substantially different from 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 1997 Annual Report in the section
entitled Events, Trends and Vulnerabilities on page 34 which is incorporated
herein by reference.
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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 15, 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.
In April 1997, the Company completed the divestiture of its 50% interest of
D & S Plastics International. D & S Plastics International 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 recorded those investments in current assets
and notes payable and interest payable to D & S Plastics International in
current liabilities. At the completion of the divestiture, there were no
short-term investments recorded by the Company for D & S Plastics International.
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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 -- 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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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 -- 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 seven 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, Horst Geldmacher, Dr. R.
Barry Gettins, Lawrence D. McClure, Dale J. Ribaudo, and
John D. Thompson.
Exhibit 10B -- 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 10C -- 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 10C(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.
Exhibit 10D -- 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.
</TABLE>
10
<PAGE> 13
<TABLE>
<C> <S> <C> <C>
Exhibit 10E -- The Dexter Corporation's Executive Deferred Compensation
Benefit Plan, as amended, was filed as Exhibit 10G to the
registrant's report on Form 10-K (File No. 1-5542) for the
fiscal year ended December 31, 1996, and is hereby
incorporated herein by reference.
Exhibit 10F -- The Dexter Corporation's Amended and Restated Retirement
Equalization Plan.
Exhibit 10G -- 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 10H -- 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 10I -- 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 10J -- 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 10J(1) -- Amendment, dated April 24, 1997, to the Dexter Corporation's
1996 Non-Employee Director's Stock Plan.
Exhibit 10K -- 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 1997 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 10, 1998
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 10, 1998:
<TABLE>
<CAPTION>
NAME CAPACITY DATE
---- -------- ----
<S> <C> <C>
/s/ K. Grahame Walker Chairman; Director March 10, 1998
- ------------------------------------------ (principal executive officer)
K. Grahame Walker
/s/ Kathleen Burdett Vice President and March 10, 1998
- ------------------------------------------ Chief Financial Officer
Kathleen Burdett (principal financial officer)
(principal accounting officer)
/s/ Charles H. Curl Director March 10, 1998
- ------------------------------------------
Charles H. Curl
/s/ Henrietta Holsman Fore Director March 10, 1998
- ------------------------------------------
Henrietta Holsman Fore
/s/ Bernard M. Fox Director March 10, 1998
- ------------------------------------------
Bernard M. Fox
/s/ Robert M. Furek Director March 10, 1998
- ------------------------------------------
Robert M. Furek
/s/ Martha Clark Goss Director March 10, 1998
- ------------------------------------------
Martha Clark Goss
/s/ Edgar G. Hotard Director March 10, 1998
- ------------------------------------------
Edgar G. Hotard
/s/ Peter G. Kelly Director March 10, 1998
- ------------------------------------------
Peter G. Kelly
/s/ Jean-Francois Saglio Director March 10, 1998
- ------------------------------------------
Jean-Francois Saglio
Director March 10, 1998
- ------------------------------------------
Glen L. Urban
/s/ George M. Whitesides Director March 10, 1998
- ------------------------------------------
George M. Whitesides
</TABLE>
12
<PAGE> 15
INDEX TO
FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Report of Independent Accountants.............................................. F-2
1997 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............................... 33-35
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 1997 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, 1997, 1996 and 1995, 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.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Springfield, Massachusetts
February 3, 1998
F-2
<PAGE> 17
SCHEDULE II
THE DEXTER CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN C
COLUMN A COLUMN B ADDITIONS COLUMN D COLUMN E
- ------------------------------------------ ---------- ------------------------ ---------- ----------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1997
Environmental Reserve..................... $16,336 $ 511 $15,825
Restructuring Reserve..................... 1,685 969 716
Allowance for Doubtful Accounts........... 6,620 $2,240 $123(a) 1,320 7,663
------- ------ ---- ------ -------
$24,641 $2,240 $123 $2,800 $24,204
======= ====== ==== ====== =======
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
======= ====== ====== =======
</TABLE>
- ---------------
(a) Due to acquisitions.
F-3
<PAGE> 1
Exhibit 10F
THE DEXTER CORPORATION
RETIREMENT EQUALIZATION PLAN
(Amended and Restated as of December 19, 1997)
<PAGE> 2
Exhibit 10F continued
Article 1
Definitions
1.01 Account. The separate account maintained for each Participant on the
books of the Corporation to which amounts representing contributions
shall be credited and from which amounts representing benefit
distributions shall be made.
1.02 Beneficiary. Any person or persons designated by the Participant, or
otherwise entitled, to receive any benefit hereunder not received by
the Participant.
1.03 Board. The Board of Directors of the Corporation.
1.04 Code. The Internal Revenue Code of 1986, as amended, or as it may be
amended from time to time.
1.05 Corporation. The Dexter Corporation and any person, firm or corporation
into which it may be merged or consolidated or by which it may be
succeeded and which may adopt the Plan.
1.06 Covered Plans. The following plans: (a) The Dexter ESPRIT Plan
("ESPRIT") and (b) The Dexter MERIT Plan ("MERIT").
1.07 Disability. A physical or mental disability about which a physician
acceptable to the Corporation certifies to the Corporation that such
disability (i) prohibits the person so disabled from performing his
duties as an employee; and (ii) is likely to be permanent.
1.08 Effective Date. October 28, 1988. The effective date of this
restatement is December 19, 1997.
1.09 Eligible Employee. An employee of the Corporation or a subsidiary of
the Corporation who is a participant in a Covered Plan.
1.10 Participant. Any Eligible Employee who has been designated in writing
by the Plan Administrator to participate in the Plan and who has
accepted its terms and conditions by executing the form of plan
agreement attached hereto as Exhibit A (the "Agreement").
1.11 Plan. The Dexter Corporation Retirement Equalization Plan as herein set
forth and as may be amended from time to time.
1.12 Plan Administrator. The Corporation as provided in Article 5.
1.13 Plan Year. The calendar year.
<PAGE> 3
Exhibit 10F continued
1.14 Valuation Date. The last day of each quarter of each Plan Year.
Article 2
Purpose of Plan
2.01 Purpose. The Plan is designed to provide retirement benefits that
otherwise would be provided under a Covered Plan except for application
of the limits on benefits and contributions under the Code applicable
to such plans. The retirement benefits under the Plan shall be payable
out of the general assets of the Corporation as provided in Article 4.
Article 3
Eligibility
3.01 Eligibility to Participate. An Eligible Employee shall be eligible to
become a Participant in the Plan when designated by the Plan
Administrator and upon the execution of the Agreement.
3.02 Termination of Participation. An individual shall cease to be a
Participant upon his or her ceasing to be an Eligible Employee.
Article 4
Benefits
4.01 Annual Benefit. A Participant's annual benefit for a given Plan Year
shall be calculated in accordance with the provisions of Exhibit B
hereto.
4.02 Payment or Credit of Annual Benefit. Each Participant shall elect in
writing, before the first day of each Plan Year, to have his annual
benefit for such Plan Year either:
(1) credited to the Participant's Account; or
(2) paid to the Participant as soon as practicable
after the last day of the Plan Year.
A Participant's failure to make a written election before the first day
of a Plan Year shall constitute an election to have the annual benefit
for such Plan Year credited to his Account. If a Participant elects to
be paid his annual benefit, only the vested portion of his annual
benefit shall be paid to him, and the remainder of the annual benefit,
if any, shall be paid to him when vested.
2
<PAGE> 4
Exhibit 10F continued
4.03 Determination of Account Value. On each Valuation Date, the value of
each Participant's Account shall be adjusted for any annual benefit
credited to the Participant's Account since the last Valuation Date and
shall be credited with interest on the Account's outstanding balance,
at the rate quoted for five-year Treasury Notes on the first business
day of the Plan Year.
4.04 Vesting. Benefits due to each Participant under the Plan shall vest in
accordance with the vesting provisions of the applicable Covered Plan.
4.05 Payment of Account Balance. The balance of a Participant's Account
shall be paid to the Participant in a single lump sum as soon as
practicable after the Valuation Date immediately following the earliest
of:
(1) The Participant's attainment of age 65;
(2) The Participant's termination of employment with the
Corporation or one of its subsidiaries;
(3) The Participant's Disability;
(4) The Participant's death; or
(5) A decision of the Board, in its sole discretion, to
make payment prior to any of the events described in
(1) through (4) above.
4.06 Death Benefits. If a Participant who is entitled to receive a benefit
under the Plan dies before receiving the full amount credited to his
Account, the balance in the Participant's Account shall be paid to the
person or persons (including his estate) who are recognized under the
applicable Covered Plan as the beneficiary of the Participant's benefit
under such Covered Plan. The benefit hereunder shall be paid to the
beneficiary as soon as practicable following the Participant's death.
Article 5
Administration
5.01 Responsibilities of the Corporation as Plan Administrator. The
Corporation shall be the Plan Administrator of the Plan. The
Corporation shall have the following powers and responsibilities as
Plan Administrator of the Plan:
(1) to determine benefit rights;
(2) to make such rules and regulations as it may deem
necessary to carry out the provisions of the Plan;
3
<PAGE> 5
Exhibit 10F continued
(3) to employ actuaries, attorneys, accountants and such
other individuals as it shall deem necessary or
desirable in the administration of the Plan, and to
delegate to such individuals such powers and
responsibilities as it shall determine.
(4) to determine, in accordance with uniform standards,
any question arising in the administration,
interpretation and application of the Plan, such
determination to be conclusive and binding to the
extent the same shall not be plainly inconsistent
with the terms of the Plan or any applicable law;
(5) to decide any disputes which may arise;
(6) to designate, consistent with sound standards, the
actuarial bases to be used for all actuarial
calculations;
(7) to keep a record of all delegations of duties in
accordance with the provisions of this Article. The
Corporation may delegate some or all of its powers
and responsibilities as Plan Administrator, as
enumerated above, to such individuals, committees of
individuals, firms or corporations as it shall
determine; and
(8) to designate Participants in the Plan.
Article 6
Amendment and Termination
6.01 Right to Amend and Terminate. The Corporation hopes and expects to
continue the Plan and the payment of contributions hereunder
indefinitely. In order to protect the Corporation against unforeseen
contingencies, the Corporation expressly reserves the right, by action
of the Board, to amend the Plan, and the Corporation expressly reserves
the right, by action of the Board to terminate the Plan.
Article 7
Miscellaneous
7.01 Unfunded Benefits. Any benefits payable under the Plan shall be paid by
the Corporation out of its general assets and shall not be funded in
any manner, provided, however, that in order to assure payment under
the Plan, the
4
<PAGE> 6
Exhibit 10F continued
Corporation may establish one or more trusts; and further, that any
assets transferred to a trust pursuant to this sentence would remain
subject to the claims of the general creditors of the Corporation.
7.02 Liability of the Company and Board. The Corporation shall not be
required to segregate assets to provide payments under the Plan
although it may do so. Neither the Corporation nor the Board shall be
deemed to be a Trustee of any amounts to be paid under the Plan.
7.03 Assignment of Benefits. No benefit payable under the Plan shall be
subject in any manner to alienation, sale, transfer, assignment,
anticipation, pledge, encumbrance, or charge; any attempt to
anticipate, alienate, sell, transfer, assign, pledge, encumber, or
charge such benefits shall be void; and no such benefit or interest
therein shall be liable for or subject to the debts, contracts,
liabilities or torts of any Participant or Beneficiary. If any
Participant or Beneficiary becomes bankrupt or attempts to anticipate,
alienate, sell, transfer, assign, pledge, encumber, or charge any
benefit under the Plan, the Plan Administrator may direct that such
benefit be terminated and that all future payments to which such person
otherwise would be entitled be held and applied for the benefit of such
person, his or her children or other dependents, or any of them, in
such manner and in such proportions as the Plan Administrator may deem
proper.
7.04 Incapacity of Employee or Beneficiary. If the Corporation determines
that any person to whom any payment is payable under the Plan is unable
to care for his or her affairs or is a minor and a legal representative
has not been appointed for such person, the Corporation may (but shall
not be required to) direct that any benefits payable hereunder shall be
paid to a spouse, child, parent, or other blood relative of such
person, or to anyone found by the Corporation to have properly incurred
expense for the support and maintenance of such Participant or
Beneficiary, so long as such payment is permitted under applicable law
and discharges completely all liability of the Corporation under the
Plan.
7.05 Withholding. The Corporation shall have the right to deduct from the
amount of any payment to a Participant (or to a Beneficiary or to the
executors, administrators, legatees, or distributees of the
Participant's or Beneficiary's estate) any Federal, state or local
taxes required by law to be withheld from such amount.
7.06 No Right to Employment. Nothing in the Plan (including the designation
of an individual as a Participant) shall be construed as giving a
Participant any right to be retained in the employ of the Corporation
or any right to any payment except for any benefits that may be due
under the terms of the Plan. The Corporation expressly reserves the
right to dismiss any Participant at any time without regard to the
effect that such dismissal may have with respect to such benefits.
5
<PAGE> 7
Exhibit 10F continued
7.07 Necessary Information. A Participant eligible to receive benefits under
the Plan shall furnish to the Plan Administrator any information or
evidence requested by the Plan Administrator and reasonably required
for the proper administration of the Plan. Failure on the part of any
person to comply with any such request within a reasonable period of
time shall be sufficient grounds for delay in payment of any benefits
that may be due under the Plan until such information or evidence is
received by the Plan Administrator. If any person claiming benefits
under the Plan makes a false statement which is material to the claim
for benefits, the Plan Administrator may offset against future payments
any amount paid to such person to which he or she was not entitled
under the provision of the Plan.
7.08 Binding Effect. The provisions of the Plan shall be binding upon and
inure to the benefit of the Corporation, its successors and assigns and
to the Participant, his/her heirs, executors, administrators and legal
representative.
7.09 Governing Law. The provisions of the Plan shall be construed in
accordance with and governed by the laws of the State of Connecticut.
6
<PAGE> 8
Exhibit 10F continued
EXHIBIT A
AGREEMENT
THIS AGREEMENT ("Agreement") dated by and between
The Dexter Corporation, a Connecticut corporation (the "Corporation"), and
(the "Employee").
WITNESSETH THAT:
WHEREAS, the Employee is a participant in [The Dexter ESPRIT Plan
("ESPRIT") OR The Dexter MERIT Plan ("MERIT")];
WHEREAS, the Corporation desires to provide retirement benefits that
otherwise would be provided to the Employee under [ESPRIT or
MERIT] except for application of the limits on benefits and
contributions under the Internal Revenue Code of 1986, as
amended, applicable to such plans;
WHEREAS, the Corporation adopted the Retirement Equalization Plan (the
"Plan") on October 28, 1988, a copy of which Plan, as amended
and restated, is attached hereto.
WHEREAS, Employee has been designated a Participant in the Plan in
accordance with its terms and Employee desires to participate
in the Plan.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein contained, the Corporation and Employee hereby agree as follows:
1. The Corporation agrees to provide retirement benefits
to Employee pursuant to the terms and conditions of the
Plan.
2. Employee agrees to receive such retirement benefits
provided by the Corporation pursuant to the terms and
conditions of the Plan.
3. Employee agrees to be bound by the terms and conditions
of the Plan.
IN WITNESS WHEREOF, this Agreement has been executed as of the date first
written above.
Employee THE DEXTER CORPORATION
____________________________ By______________________________
7
<PAGE> 9
Exhibit 10F continued
EXHIBIT B
CALCULATION OF ANNUAL BENEFIT UNDER SECTION 4.01
A Participant's annual benefit for a given Plan Year shall be equal to (a) the
Adjusted Covered Plan Contribution (as defined below) less (b) the amounts of
the contributions and forfeitures actually credited to the Participant's
accounts under the applicable Covered Plan for such Plan Year. For the purposes
hereof, the term "Adjusted Covered Plan Contribution" shall mean the sum of the
total contributions and forfeitures which could have been credited to such
Participant under the applicable Covered Plan for a given Plan Year determined
(i) before applying any provision of such Covered Plan that would reduce the
amount of such contributions or forfeitures because of the limitations imposed
by Section 415 of the Code or because of the limitations imposed by Section
401(a)(17) of the Code on the amount of the Participant's compensation that may
be taken into account for the Plan Year, (ii) by treating the amount of the
Participant's voluntary after-tax contributions and elective deferrals for the
Plan Year (if any) as if such amount were zero, (iii) by treating the amount of
any executive incentive compensation payments accrued but not received by the
Participant during such Plan Year under the Corporation's Senior Management
Executive Incentive Plan as if such amount were paid during such Plan Year; and
(iv) by treating the amount of any executive incentive compensation payments
received by the Participant during such Plan Year under the Corporation's Senior
Management Executive Incentive Plan that were accrued and payable in respect of
a prior Plan Year as if such amount were zero.
8
<PAGE> 1
Exhibit 10J(1)
THE DEXTER CORPORATION
AMENDMENT TO THE 1996 NON-EMPLOYEE DIRECTORS' STOCK PLAN
Article I
1.1 This Amendment to the 1996 Non-Employee Directors' Stock Plan (the "Plan")
of The Dexter Corporation (the "Company") is made pursuant to Article 8 of the
Plan and shall be effective as of April 1, 1997.
Article II
2.1 Section 2(g) of the Plan is amended to read as follows:
(g) "Fair Market Value" means the closing price of Common
Stock reported for the New York Stock Exchange on the tenth trading day
preceding the relevant payment date.
2.2 Section 5 of the Plan is amended to read as follows:
5. Common Stock.
Commencing on April 24, 1997, fifty percent (50%) of the
Retainer shall be paid to each Non-Employee Director in the form of
shares of Common Stock. In addition, each Non-Employee Director shall
have the right to elect, on forms provided by the Company, to receive
all or a portion of the remaining balance of the Retainer in the form
of shares of Common Stock. Such election shall be made annually for the
following calendar year, shall be irrevocable, and must be received by
the Committee at least six months prior to the date on which the Common
Stock is to be issued. Any part of the Retainer paid in shares of
Common Stock under this Section 5 shall be payable in one installment
on the date of the Company's annual meeting of shareholders. Except as
otherwise provided in Section 6 hereof, shares of Common Stock issued
under this Section 5 shall be unrestricted and freely transferable.
2.3 In all other respects, the Plan as hereby amended is ratified and
confirmed.
IN WITNESS WHEREOF, the Company has executed this Amendment as of the date set
forth in Article 1.1, such execution having been duly authorized by the
Company's Board of Directors.
THE DEXTER CORPORATION
By:/s/ Bruce H. Beatt
---------------------------------
Bruce H. Beatt
Vice President, General Counsel
& Secretary
<PAGE> 1
TO OUR SHAREHOLDERS, EMPLOYEES AND CUSTOMERS
[PHOTO OF K. GRAHAME WALKER]
K. Grahame Walker
DEXTER CONTINUES TO BUILD SHAREHOLDER VALUE
1997 was another good year for the shareholders of The Dexter Corporation. The
share price rose by 35%, driven by continued and consistent earnings growth. The
dividend was increased by 9%.
Net income from operations for the year grew by 18% to a record $56.4 million.
Similarly, at $2.45, 1997 basic earnings per share were also a record. Once
again, the company delivered basic earnings per share growth from operations of
21%.
Sales volume growth for the year was 7%. Changes, compared to the prior year, in
the relative values of overseas currencies eroded net sales growth in US dollars
by 3%. Reported net sales for 1997 therefore grew by 4% over the previous year.
However, sales volume growth for ongoing businesses remains strong.
Management has confidence in the corporation's strategic direction,
technological strengths, marketing skills and operational disciplines. From a
solid base of business strengths and an emerging track record of sustained
success, Dexter is a company that knows how to perform -- for customers and
shareholders alike.
"DRIVEN BY THE IMPERATIVE FOR CONSISTENT GROWTH OF EARNINGS, AND THEREFORE OF
SHAREHOLDER VALUE, DEXTER REQUIRES ITS BUSINESSES TO BE GROWTH-MOTIVATED,
TECHNOLOGY LEADERS THAT FOCUS FIRST EXTERNALLY ON THE CUSTOMER AND INTERNALLY ON
PROFITABILITY."
DEXTER IS RENEWED AND CONFIDENT
As a direct result of strategic restructuring and investment in technology
renewal, The Dexter Corporation has profoundly changed. Despite pride in its
heritage as the oldest company listed on the New York Stock Exchange, Dexter is
a new and vigorous global corporation with clear objectives, strategies and
defined opportunities for continued profitable growth.
A confident attitude runs throughout the corporation. We believe that we can,
and will, continue to succeed. The company recognizes and values the commitment
of so many employee teams -- a commitment and a determination that have built
the new culture of confidence.
DEXTER'S MODERATE BUT JUDICIOUS DIVERSITY DELIVERS SUSTAINABLE PERFORMANCE
STRENGTH
As a specialty materials company, we are organized around three operating legs:
Specialty Polymers, Nonwovens and Life Technologies.
The Specialty Polymers businesses, which serve the aerospace, electronics and
food packaging markets, developed with strength during 1997. The
commercialization of new technologies was rewarding
2 the dexter corporation
<PAGE> 2
and forms the foundation for continued growth in 1998 and beyond.
"FROM A SOLID BASE OF BUSINESS STRENGTHS AND AN EMERGING TRACK RECORD OF
SUSTAINED SUCCESS, DEXTER IS A COMPANY THAT KNOWS HOW TO PERFORM -- FOR
CUSTOMERS AND SHAREHOLDERS ALIKE."
Nonwovens expanded its overseas capacity for the successful range of
Hydraspun(R) materials. The business also completed the first phase of
strengthening its domestic manufacturing capabilities. New composite fabrics for
new applications prepare the path for continued growth.
Life Technologies continued its pattern of consistent global growth. The
business made excellent progress in the modernization and development of its
worldwide infrastructure scheduled for completion in 1998.
Each Dexter business is based on a strategy of technology leadership that
provides the opportunity for penetration of new markets. Each Dexter business
ended the year in a strengthened market position. Each Dexter business seriously
and continually pursues productivity improvements and cost reduction. Each
Dexter business knows that only the best will win.
DEXTER IS DRIVEN BY THE IMPERATIVE FOR PROFITABLE GROWTH
Driven by the imperative for consistent growth of earnings, and therefore of
shareholder value, Dexter requires its businesses to be growth-motivated,
technology leaders that focus first externally on the customer and internally on
profitability.
As a specialty materials manufacturer, Dexter's competitive strength depends on
the technological value its products provide to its customers. We believe that
technology is the principal driver of earnings growth. Funding of technology
places the corporation at the top end of its peer group. In 1997 Dexter
augmented internal research and development by the acquisition of technology
developed overseas.
In addition to development of ongoing businesses, strategic acquisitions remain
an important factor for future growth. During 1997 Dexter made four
strategically important acquisitions.
Our Packaging Products business made three of those acquisitions: Kolack A.G. in
Switzerland to strengthen our position in specialty coatings for tube and
aerosol packaging; Herberts' can coating business in Austria to create a leading
presence in the growing East European market for specialty food can coatings;
and the former Akzo Nobel business in Brazil for interior coatings of beer and
beverage cans.
Our Electronic Materials business acquired Quantum Materials, Inc. of
California, a market leader in the semiconductor industry for high performance
die attach materials.
In addition, the Packaging Products business formed a strategic joint venture
with Plascon (Pty) Ltd. in South Africa to participate more fully in that
growing market for specialty can coatings.
Every Dexter business has identified new opportunities to deliver profitable
growth. Consequently, we are confident that 1998 will be another good year for
shareholders.
DEXTER SALUTES GLEN URBAN
After many years of support and contribution to Dexter's strategic renewal, Dr.
Glen Urban has determined that the demands of his future activities require that
he not seek re-election for a further term as a director of the corporation. We
thank Glen for his years of service and wish him all good fortune in his future
endeavors.
/s/ K. Grahame Walker
- ---------------------
K. Grahame Walker
Chairman
and Chief Executive Officer
February 3, 1998
the dexter corporation 3
<PAGE> 3
BUSINESS STRUCTURE
DEXTER IS ORGANIZED AROUND THREE OPERATING LEGS:
SPECIALTY POLYMERS
AEROSPACE MARKET
ADHESIVES AND STRUCTURAL MATERIALS
structural paste and film
adhesives
corrosion-inhibiting primers
matrix resins
syntactic films
expandable syntactic films
composite surfacing films
COATINGS
high solids decorative topcoats
teflon coatings
interior passenger compartment
coatings
UV curable coatings
VOC compliant primers
integral fuel tank primers
ELECTRONICS MARKET
ELECTRONIC PACKAGING PRODUCTS
semiconductor molding powders
electrical/electronic molding
compounds
electrical/electronic coating
powders
ASSEMBLY AND ADVANCED PRODUCTS
microelectronic liquid
encapsulants
electrical/electronic liquid
encapsulants
optoelectronic materials
conductive adhesives
electronic films
PRINTED WIRING BOARD PRODUCTS
advanced process materials
imaging products
plating technologies
electrolytic solder
QUANTUM MATERIALS
conductive adhesives
MAGNETIC MATERIALS
permanent magnets and
assemblies
ferrite cores
FOOD PACKAGING MARKET
BEER AND BEVERAGE COATINGS
inside spray
easy-open ends
closures
FOOD AND SPECIALTY COATINGS
two-piece food
three-piece food
aerosol and tubes
general line
OTHER
waterborne automotive coatings
waterborne protective coatings
for graphic arts
recreational coatings
wood furniture coatings
coatings for glass and cosmetic
bottles
industrial equipment coatings
polymer release systems
6 the dexter corporation
<PAGE> 4
NONWOVENS
FOOD PACKAGING MARKET
LONG-FIBER PRODUCTS
tea and coffee filter media
fibrous-base materials for
meat casings
food wrap
MEDICAL MARKET
WET-FORMED AND HYDROENTANGLED
NONWOVENS
barrier fabrics for surgical drapes
and gowns
sterilization wraps
personal care and baby wiping
materials
OTHER
SPECIALTY PAPERS AND NONWOVENS
liners for automotive interior trim
commercial residential wallcover
substrates
vacuum bag filter media
industrial and food service wiping
materials
LIFE TECHNOLOGIES
MEDICAL MARKET
GIBCO BRL PRODUCTS
cell culture
cell biology/immunology
molecular biology
<TABLE>
<CAPTION>
CONTRIBUTION TO SALES
<S> <C>
Nonwovens 25%
Life Technologies 29%
Specialty Polymers 46%
</TABLE>
$1.15 BILLION TOTAL SALES
the dexter corporation 7
<PAGE> 5
TECHNOLOGY
Technology is the principal driver of earnings growth.
Everyone at Dexter can tell you what technology means to the corporation -
Technology is the lifeblood of the business. The reasons behind that statement
became even more obvious in 1997 than they had been in previous years.
During the past year, technology leadership was directly tied to several of
Dexter's most impressive growth businesses: electronic and aerospace materials,
nonwoven medical wipes and Life Technologies. Additional technologies being
commercialized will contribute to the future profitability of food packaging and
magnetic materials.
Since sales derived from new technology developments tend to generate more
attractive profitability levels than older technologies, the corporation
continually tracks the percentage of total sales represented by products
developed over the last five years. That percentage has been steadily increasing
and was at an all-time high in 1997. New product sales increases have also been
driven by improved commercialization processes. Once customer needs have been
clearly identified, the commercialization process is led by a cross-functional
team to optimize the pace of market acceptance and penetration.
Throughout 1997 and throughout the corporation, continual improvement of
Dexter's proprietary technology base was achieved. In addition to new
technologies developed by the corporation's considerable internal resources,
important new technology platforms were secured through business acquisition,
licensing and outright purchase.
Investment in R&D places Dexter in the top quartile of its peer group.
Plans will continue that aggregate level of funding to support continued
improvement of profitability and earnings growth.
8 the dexter corporation
<PAGE> 6
MARKETING
We are building the necessary resources throughout Dexter to raise our
marketing skills to new levels of performance.
As a specialty materials manufacturer, Dexter is a highly market-focused
company. We deeply segment our markets to determine those areas where we can
make a significant difference -- market niches that we can identify, occupy and
defend with products that deliver tangible additional and differentiated
value to the customer.
Every new product developed at Dexter is entirely market driven. New
products must incorporate the performance attributes, the optimum technology,
the manufacturing cost and the commercialization timetable that add real value
to the customer's business.
Throughout the corporation, Dexter is investing in skilled marketing
resources and effective processes to ensure that new technologies will be
brought to market more quickly, thereby enhancing growth and profitability.
Success also relies upon the ability of the marketing function to position the
superior value of a new product with the customer and to lead the
cross-functional development and commercialization team.
Marketing also plays a critical role in identifying and meeting future
customer requirements. Dexter listens to the customers and partners with them to
research future needs for materials with enhanced performance or environmental
benefits.
Dexter has focused on certain specific markets that it knows and understands
well. In the future, the corporation will additionally market its technologies
in forms that capture new applications in new markets with growth potential.
Dexter will continue to leverage its marketing strength to create competitive
strategies that will drive ongoing global growth.
10 the dexter corporation
<PAGE> 7
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 controls. 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.
/s/ K. Grahame Walker /s/ Kathleen Burdett
- --------------------- --------------------
K. Grahame Walker Kathleen Burdett
Chairman Vice President
and Chief Executive Officer and Chief Financial Officer
February 3, 1998
16 the dexter corporation
<PAGE> 8
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, 1997, 1996 and 1995 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, 1997, 1996 and
1995 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.
/s/ Coopers & Lybrand L.L.P.
- ----------------------------
Springfield, Massachusetts
February 3, 1998
the dexter corporation 17
<PAGE> 9
SUMMARY OF FINANCIAL DATA THE DEXTER CORPORATION
<TABLE>
<CAPTION>
In thousands of dollars
(except per share amounts) 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING RESULTS
Net sales $1,147,055 $1,100,185 $1,088,905 $974,719
% increase (decrease) 4% 1% 12% 10%
Gross profit 411,688 379,205 346,699 316,541
As % of sales 35.9% 34.5% 31.8% 32.5%
LIFO (credit) charge
included in cost of sales (1,067) (4,873) 1,881 2,231
Marketing and administrative expenses 238,401 223,848 206,708 188,272
As % of sales 20.8% 20.3% 19.0% 19.3%
Research and development expenses 54,021 51,504 49,375 46,644
As % of sales 4.7% 4.7% 4.5% 4.8%
Interest expense 20,192 20,500 20,931 20,509
Income before taxes 111,085 98,252 79,824 73,612
As % of sales 9.7% 8.9% 7.3% 7.6%
Tax rate 36.0% 35.5% 35.5% 36.0%
Income (loss) before minority interests 71,094 63,372 51,487 47,112
As % of sales 6.2% 5.8% 4.7% 4.8%
Income (loss) from continuing operations 56,427 48,722 40,578 37,898
As % of sales 4.9% 4.4% 3.7% 3.9%
Discontinued operations loss
Cumulative effect of change in
accounting principles
Net income (loss) $56,427 $48,722 $40,578 $37,898
As % of sales 4.9% 4.4% 3.7% 3.9%
Return on
Average shareholders' equity 15.1% 13.1% 11.4% 11.5%
Average total capital 12.2% 10.6% 9.4% 9.2%
Income (loss) per share - basic
Continuing operations $2.45 $2.06 $1.67 $1.56
Discontinued operations
Cumulative effect of change in
accounting principles
Net income (loss) - basic $2.45 $2.06 $1.67 $1.56
Income (loss) per share - diluted
Continuing operations $2.41 $2.03 $1.66 $1.55
Discontinued operations
Cumulative effect of change in
accounting principles
Net income (loss) - diluted $2.41 $2.03 $1.66 $1.55
Cash dividends declared per share $.96 $.88 $.88 $.88
Rate of dividend payout* 39% 43% 53% 56%
</TABLE>
* Before cumulative effect of 1993 change in accounting principles
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
<S> <C> <C> <C> <C>
Working capital $203,916 $242,929 $248,623 $209,024
Property, plant and equipment, net 348,172 334,266 325,203 328,935
Total assets 961,776 953,804 934,161 880,609
Long-term debt 180,030 209,952 215,839 225,402
Shareholders' equity $372,861 $374,115 $369,615 $343,633
Percent long-term debt to capital 32.6% 35.9% 36.9% 39.6%
Equity per share at year end $16.26 $15.94 $15.26 $14.11
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
OTHER DATA
<S> <C> <C> <C> <C>
Capital expenditures $59,087 $62,277 $28,969 $45,097
Depreciation and amortization $45,441 $44,239 $43,727 $40,923
Shares outstanding at year end (000) 22,938 23,464 24,220 24,350
Average shares outstanding (000) 23,010 23,687 24,364 24,345
Market price per share-- high $43 15/16 $33 5/8 $26 7/8 $ 26
-- low $28 3/4 $23 1/8 $20 3/8 $19 7/8
-- close $43 3/16 $31 7/8 $23 5/8 $21 3/4
Price-earnings ratio range* 18-12 16-11 16-12 17-13
Number of shareholders at year end 3,000 3,100 3,400 3,600
Number of employees at year end** 4,800 4,600 4,800 4,700
% payroll and benefits to sales** 24% 23% 24% 25%
% raw material costs to sales** 41% 41% 44% 43%
</TABLE>
* Before cumulative effect of 1993 change in accounting principles
** From continuing operations
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
INFLATION ADJUSTED DATA
<S> <C> <C> <C> <C>
Net sales* $1,147,055 $ 1,125,705 $1,146,944 $1,055,507
% increase (decrease) 2% (2%) 9% 7%
Cash dividends declared per share* $ .96 $ .90 $ .93 $ .95
Market price per share - year end** $43 3/16 $32 3/8 $24 7/8 $23 1/2
</TABLE>
* Stated in average 1997 dollars using the Consumer Price Index.
** Stated in year-end 1997 dollars using the Consumer Price Index.
- ------------------------------------------------------------------------------
18 the dexter corporation
<PAGE> 10
SUMMARY OF FINANCIAL DATA THE DEXTER CORPORATION
<TABLE>
<CAPTION>
In thousands of dollars
(except per share amounts) 1993 1992 1991 1990 1989
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Net sales $887,112 $951,439 $937,734 $907,946 $848,724
% increase (decrease) (7%) 1% 3% 7% 3%
Gross profit 293,345 314,275 309,157 314,449 284,142
As % of sales 33.1% 33.0% 33.0% 34.6% 33.5%
LIFO (credit) charge
included in cost of sales (1,290) 1,626 (173) 1,100 (4,063)
Marketing and administrative expenses 175,141 188,263 198,334 191,656 168,935
As % of sales 19.7% 19.8% 21.2% 21.1% 19.9%
Research and development expenses 43,803 42,216 42,056 39,880 37,359
As % of sales 4.9% 4.4% 4.5% 4.4% 4.4%
Interest expense 18,756 18,799 16,800 17,484 10,926
Income before taxes 66,438 73,132 11,192 77,407 77,643
As % of sales 7.5% 7.7% 1.2% 8.5% 9.1%
Tax rate 36.5% 37.7% 109.5% 37.0% 38.0%
Income (loss) before minority interests 42,188 45,577 (1,059) 48,766 48,139
As % of sales 4.8% 4.8% (0.1%) 5.4% 5.7%
Income (loss) from continuing operations 34,053 38,203 (7,119) 42,150 42,977
As % of sales 3.8% 4.0% (0.8%) 4.6% 5.1%
Discontinued operations loss
Cumulative effect of change in
accounting principles (9,875)
Net income (loss) $24,178 $38,203 $(7,119) $42,150 $42,977
As % of sales 2.7% 4.0% (0.8%) 4.6% 5.1%
Return on
Average shareholders' equity 7.7% 12.1% (2.2%) 12.6% 13.6%
Average total capital 7.0% 10.0% 0.7% 11.0% 11.6%
Income (loss) per share - basic
Continuing operations $1.40 $1.58 $(.29) $1.74 $1.73
Discontinued operations
Cumulative effect of change in
accounting principles $(.41)
Net income (loss) - basic $.99 $1.58 $(.29) $1.74 $1.73
Income (loss) per share - diluted
Continuing operations $1.39 $1.57 $(.30) $1.71 $1.70
Discontinued operations
Cumulative effect of change in
accounting principles $(.40)
Net income (loss) - diluted $.99 $1.57 $(.30) $1.71 $1.70
Cash dividends declared per share $.88 $.88 $.88 $.88 $.82
Rate of dividend payout* 63% 56% -- 51% 47%
</TABLE>
* Before cumulative effect of 1993 change in accounting principles
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
<S> <C> <C> <C> <C> <C>
Working capital $199,146 $207,146 $193,873 $215,410 $189,006
Property, plant and equipment, net 309,954 298,869 299,342 274,147 252,895
Total assets 820,691 782,025 784,471 762,383 694,490
Long-term debt 227,307 179,024 188,702 160,478 130,834
Shareholders' equity $313,295 $315,614 $313,782 $343,698 $325,281
Percent long-term debt to capital 42.0% 36.2% 37.6% 31.8% 28.7%
Equity per share at year end $12.87 $12.98 $12.99 $14.24 $13.14
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
OTHER DATA
<S> <C> <C> <C> <C> <C>
Capital expenditures $44,784 $51,793 $61,749 $43,910 $33,119
Depreciation and amortization $36,655 $35,672 $34,095 $30,272 $26,243
Shares outstanding at year end (000) 24,340 24,308 24,149 24,136 24,761
Average shares outstanding (000) 24,325 24,220 24,145 24,282 24,877
Market price per share-- high $28 7/8 $28 1/8 $26 1/8 $24 1/2 $34 3/4
-- low $20 3/8 $20 7/8 $18 1/2 $ 18 $20 1/8
-- close $23 1/2 $25 7/8 $21 5/8 $ 21 $21 7/8
Price-earnings ratio range* 21-15 18-13 -- 14-10 20-12
Number of shareholders at year end 3,900 4,000 4,300 4,400 4,500
Number of employees at year end** 4,700 4,800 5,600 5,500 5,400
% payroll and benefits to sales** 25% 25% 25% 24% 23%
% raw material costs to sales** 41% 42% 41% 42% 46%
</TABLE>
* Before cumulative effect of 1993 change in accounting principles
** From continuing operations
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
INFLATION ADJUSTED DATA
<S> <C> <C> <C> <C> <C>
Net sales* $ 985,657 $ 1,088,342 $ 1,105,191 $1,115,416 $ 1,099,051
% increase (decrease) (9%) (2%) (1%) 1% (2%)
Cash dividends declared per share* $ .98 $ 1.01 $ 1.04 $ 1.08 $ 1.06
Market price per share - year end** $ 26 $29 3/8 $25 1/4 $25 1/4 $ 28
* Stated in average 1997 dollars using the Consumer Price Index.
** Stated in year-end 1997 dollars using the Consumer Price Index.
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
19 the dexter corporation
<PAGE> 11
SUMMARY OF FINANCIAL DATA THE DEXTER CORPORATION
<TABLE>
<CAPTION>
In thousands of dollars
(except per share amounts) 1988 1987
- ----------------------------------------------------------------------------
<S> <C> <C>
OPERATING RESULTS
Net sales $827,266 $757,710
% increase (decrease) 9% 22%
Gross profit 269,416 263,120
As % of sales 32.6% 34.7%
LIFO (credit) charge
included in cost of sales 4,193 5,961
Marketing and administrative expenses 159,448 152,357
As % of sales 19.3% 20.1%
Research and development expenses 32,685 28,690
As % of sales 4.0% 3.8%
Interest expense 12,178 14,127
Income before taxes 71,923 76,858
As % of sales 8.7% 10.1%
Tax rate 38.0% 38.0%
Income (loss) before minority interests 44,592 47,652
As % of sales 5.4% 6.3%
Income (loss) from continuing operations 39,889 43,391
As % of sales 4.8% 5.7%
Discontinued operations loss (4,393) (606)
Cumulative effect of change in
accounting principles
Net income (loss) $35,496 $42,785
As % of sales 4.3% 5.6%
Return on
Average shareholders' equity 11.8% 15.5%
Average total capital 10.7% 13.3%
Income (loss) per share - basic
Continuing operations $1.61 $1.74
Discontinued operations $(.18) $(.02)
Cumulative effect of change in
accounting principles
Net income (loss) - basic $1.43 $1.72
Income (loss) per share - diluted
Continuing operations $1.58 $1.71
Discontinued operations $(.17) $(.02)
Cumulative effect of change in
accounting principles
Net income (loss) - diluted $1.41 $1.69
Cash dividends declared per share $.80 $.60
Rate of dividend payout* 56% 35%
</TABLE>
* Before cumulative effect of 1993 change in accounting principles
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
FINANCIAL POSITION
<S> <C> <C>
Working capital $182,284 $181,106
Property, plant and equipment, net 186,894 183,972
Total assets 626,391 612,517
Long-term debt 92,830 106,338
Shareholders' equity $307,226 $293,788
Percent long-term debt to capital 23.2% 26.6%
Equity per share at year end $12.36 $11.84
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
OTHER DATA
<S> <C> <C>
Capital expenditures $26,145 $23,619
Depreciation and amortization $24,349 $22,775
Shares outstanding at year end (000) 24,855 24,821
Average shares outstanding (000) 24,842 24,895
Market price per share-- high $28 3/4 $32 3/8
-- low $20 1/4 $ 17
-- close $22 1/4 $23 3/8
Price-earnings ratio range* 20-14 19-10
Number of shareholders at year end 4,400 4,500
Number of employees at year end** 5,400 5,200
% payroll and benefits to sales** 23% 23%
% raw material costs to sales** 45% 43%
</TABLE>
* Before cumulative effect of 1993 change in accounting principles
** From continuing operations
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
INFLATION ADJUSTED DATA
<S> <C> <C>
Net sales* $1,122,698 $1,070,295
% increase (decrease) 5% 17%
Cash dividends declared per share* 1.09 $ .85
Market price per share - year end** $29 3/4 $32 5/8
</TABLE>
* Stated in average 1997 dollars using the Consumer Price Index.
** Stated in year-end 1997 dollars using the Consumer Price Index.
- ---------------------------------------------------------------------------
19 the dexter corporation
<PAGE> 12
STATEMENT OF INCOME THE DEXTER CORPORATION
<TABLE>
<CAPTION>
Years ended December 31
In thousands of dollars ------------------------------------------
(except per share amounts) 1997 1996 1995
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Net sales $ 1,147,055 $1,100,185 $1,088,905
Equity in net income of affiliates 4,461 4,810 1,348
Other income 7,550 7,370 8,791
------------------------------------------
1,159,066 1,112,365 1,099,044
EXPENSES
Cost of sales 735,367 720,980 742,206
Marketing and administrative 238,401 223,848 206,708
Research and development 54,021 51,504 49,375
Interest 20,192 20,500 20,931
Gain on divestiture of product lines (2,719)
------------------------------------------
INCOME BEFORE TAXES 111,085 98,252 79,824
Income taxes 39,991 34,880 28,337
------------------------------------------
INCOME BEFORE MINORITY INTERESTS 71,094 63,372 51,487
Minority interests 14,667 14,650 10,909
------------------------------------------
NET INCOME $ 56,427 $ 48,722 $ 40,578
==========================================
NET INCOME PER SHARE - BASIC $ 2.45 $ 2.06 $ 1.67
NET INCOME PER SHARE - DILUTED $ 2.41 $ 2.03 $ 1.66
DIVIDENDS DECLARED PER SHARE $ .96 $ .88 $ .88
- -----------------------------------------------------------------------------------
See accompanying financial review.
</TABLE>
20 the dexter corporation
<PAGE> 13
STATEMENT OF CASH FLOWS THE DEXTER CORPORATION
<TABLE>
<CAPTION>
Years ended December 31
--------------------------------------
In thousands of dollars 1997 1996 1995
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATIONS
Net income $ 56,427 $ 48,722 $ 40,578
Noncash items
Depreciation 37,453 37,312 38,246
Amortization 7,988 6,927 5,481
Gain on divestiture of product lines (2,719)
Income taxes (paid) not due (5,660) 9,418 (5,262)
Minority interests 14,667 14,650 10,909
LIFO inventory (credit) charge (1,037) (4,873) 1,881
Equity in net income of affiliates (4,461) (4,810) (1,348)
Other (978) 4,075 (1,547)
Operating working capital (increase) decrease (19,778) 18,944 (31,512)
--------------------------------------
84,621 127,646 57,426
--------------------------------------
INVESTMENTS
Property, plant and equipment (62,989) (55,294) (30,235)
Acquisitions (68,517) (16,315) (525)
Divestitures 41,539 34,913
Joint ventures 2,643 10,050 (3,133)
Notes receivable 750 200 3,150
Proceeds from sale of investments 838 1,070 1,048
Purchases of investments (4,970) (771)
Proceeds from exercise of LTI stock options 4,052 1,998 2,990
Other 1,061 (274) 850
--------------------------------------
(80,623) (28,622) (26,626)
--------------------------------------
FINANCING
New long-term debt 20,000 4,390
Repayment of long-term debt (47,185) (13,762) (4,260)
Short-term debt, net 30,611 (8,371) 8,825
Dividends paid (21,728) (20,967) (21,441)
LTI dividends paid to minority interest shareholders (1,859) (1,561) (1,374)
Purchase of treasury stock (20,517) (26,658) (4,205)
Proceeds from exercise of stock options 4,315 5,269 754
Other (359) 131 (478)
--------------------------------------
(36,722) (61,529) (22,179)
--------------------------------------
(DECREASE) INCREASE IN CASH AND SHORT-TERM SECURITIES $ (32,724) $ 37,495 $ 8,621
======================================
CHANGES IN MAJOR ELEMENTS WHICH INCREASE
(DECREASE) OPERATING WORKING CAPITAL
Accounts receivable, net $ 13,713 $ (3,827) $ 20,085
Inventories at FIFO 14,857 (7,912) 10,441
Prepaid and deferred expenses 2,908 (3,891) 1,343
Accounts payable (6,448) (62) (6,690)
Accrued liabilities and expenses (5,252) (3,252) 6,333
--------------------------------------
$ 19,778 $ (18,944) $ 31,512
======================================
RECONCILIATION OF (DECREASE) INCREASE IN
CASH AND SHORT-TERM SECURITIES
Cash and short-term securities at beginning of year $ 103,420 $ 65,542 $ 55,012
Cash and short-term securities at end of year 68,306 103,420 65,542
--------------------------------------
(Decrease) Increase in cash and short-term securities per
Statement of Financial Position (35,114) 37,878 10,530
Currency translation effects 2,390 (383) 225
Cash included from consolidation of a subsidiary
which became majority-owned in 1995 (2,134)
--------------------------------------
$ (32,724) $ 37,495 $ 8,621
======================================
INTEREST PAID $ 20,407 $ 22,403 $ 19,113
TAXES PAID $ 45,651 $ 25,462 $ 33,599
</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.
the dexter corporation 21
<PAGE> 14
THE DEXTER CORPORATION
STATEMENT OF FINANCIAL POSITION
<TABLE>
<CAPTION>
December 31
---------------------------------------
In thousands of dollars 1997 1996 1995
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Current assets
Cash $ 11,273 $ 11,837 $ 9,577
Short-term securities 57,033 91,583 55,965
Accounts receivable, net 185,257 178,093 201,389
Inventories
Materials and supplies 61,233 58,290 60,099
In process and finished goods 117,467 110,457 121,644
LIFO reserve (18,799) (19,836) (24,709)
---------------------------------------
159,901 148,911 157,034
Current deferred tax assets 17,107 22,477 20,890
Prepaid and deferred expenses 9,881 7,510 11,866
---------------------------------------
440,452 460,411 456,721
Property, plant and equipment
Land 28,501 23,273 19,307
Buildings and improvements 184,388 158,635 153,071
Machinery and equipment 474,079 458,069 457,611
Construction in progress 25,157 37,859 12,250
---------------------------------------
712,125 677,836 642,239
Less accumulated depreciation (363,953) (343,570) (317,036)
---------------------------------------
348,172 334,266 325,203
Investments of wholly owned captive
insurance companies 9,056 9,875 5,878
Investment in unconsolidated affiliates 8,704 50,025 47,982
Patents, technology, formulas and covenants 29,489 2,313 2,857
Excess of cost over net assets of
businesses acquired 97,507 71,906 74,102
Other assets 28,396 25,008 21,418
---------------------------------------
$ 961,776 $ 953,804 $ 934,161
=======================================
- ---------------------------------------------------------------------------------------
See accompanying financial review.
</TABLE>
22 the dexter corporation
<PAGE> 15
THE DEXTER CORPORATION
<TABLE>
<CAPTION>
December 31
---------------------------------------
In thousands of dollars 1997 1996 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt $ 35,361 $ 5,111 $ 13,598
Accounts payable 91,155 91,855 92,447
Dividends payable 5,505 5,170 5,351
Accrued and deferred income taxes 21,153 36,212 26,622
Accrued liabilities and expenses 67,923 65,479 55,037
Current environmental liabilities 2,099 1,358 1,395
Current installments of long-term debt 13,340 12,297 13,648
---------------------------------------
236,536 217,482 208,098
Long-term debt 180,030 209,952 215,839
Deferred items 29,652 24,642 23,693
Long-term deferred income taxes 22,284 19,481 21,486
Deferred tax credits 2,261 2,751 3,313
Long-term environmental liabilities 13,726 14,978 15,745
Minority interests - principally
Life Technologies, Inc. 104,426 90,403 76,372
Shareholders' equity
Common stock, par value $1 per share
(authorized 100,000,000 shares; issued
24,983,907 shares in 1997, 1996
and 1995) 24,984 24,984 24,984
Additional paid-in capital 17,482 14,669 12,316
Retained earnings 409,844 375,480 347,544
Currency translation effects (22,475) (2,187) 1,614
Other equity items (4,758) (3,158) (2,184)
Treasury stock, at cost
(1,814,035 shares in 1997, 1,520,261
shares in 1996 and 763,782 shares in 1995) (52,216) (35,673) (14,659)
---------------------------------------
Total shareholders' equity 372,861 374,115 369,615
---------------------------------------
$ 961,776 $ 953,804 $ 934,161
=======================================
- ------------------------------------------------------------------------------------------
See accompanying financial review.
</TABLE>
the dexter corporation 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, 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
Net income 56,427 56,427
Dividends - $.96 per share (22,063) (22,063)
Currency effects (20,288) (20,288)
Stock purchases (20,517) (20,517)
Unrealized loss on
investments (252) (252)
Stock options 892 2,490 3,382
Pension liability adjustment 180 180
Restricted stock 1,920 (1,528) 1,484 1,876
Pooling tax benefits 1 1
-----------------------------------------------------------------------------------------------
DECEMBER 31, 1997 $24,984 $17,482 $409,844 $(22,475) $(4,758) $(52,216) $372,861
===============================================================================================
- ----------------------------------------------------------------------------------------------------------------------------------
See accompanying financial review.
</TABLE>
QUARTERLY FINANCIAL INFORMATION (unaudited)
<TABLE>
<CAPTION>
In millions of dollars Market Price
--------------------------------------- ------------------------
Net Income Net Income
Net Cost Net per Share - per Share - Dividends
Quarter Sales of Sales Income Basic Diluted per Share High Low
- ----------------------------------------------------------------------------------------------------------------------------------
1995
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First $ 266.8 $181.1 $10.5 $ .43 $ .43 $.22 $ 22 7/8 $20 3/8
Second 283.0 193.1 11.9 .49 .49 .22 25 1/8 21 5/8
Third 268.5 183.9 9.4 .39 .38 .22 25 7/8 23
Fourth 270.6 184.1 8.8 .36 .36 .22 26 7/8 23 1/8
--------------------------------------------------------------------------------
Year $1,088.9 $742.2 $40.6 $1.67 $1.66 $.88 Close $23 5/8
=============================================================================================================
- ----------------------------------------------------------------------------------------------------------------------------------
1996*
First $ 277.2 $182.5 $11.1 $ .46 $ .46 $.22 $ 26 1/2 $ 23 1/8
Second 285.7 187.8 14.4 .61 .60 .22 29 7/8 25 1/4
Third 269.5 177.0 11.8 .50 .49 .22 30 1/2 26 7/8
Fourth 267.8 173.7 11.4 .49 .48 .22 33 5/8 29 3/8
--------------------------------------------------------------------------------
Year $1,100.2 $721.0 $48.7 $2.06 $2.03 $.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.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
1997
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First $ 272.3 $175.3 $12.9 $ .55 $ .54 $.24 $ 32 1/8 $ 28 3/4
Second 293.2 187.2 16.0 .70 .69 .24 33 1/2 29 1/8
Third 286.9 182.8 14.2 .62 .61 .24 40 3/16 31 1/2
Fourth 294.7 190.1 13.3 .58 .57 .24 43 15/16 38 15/16
--------------------------------------------------------------------------------
Year $1,147.1 $735.4 $56.4 $2.45 $2.41 $.96 Close $43 3/16
=============================================================================================================
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
24 the dexter corporation
<PAGE> 17
ANALYSIS OF OPERATIONS
1997 COMPARED WITH 1996
Revenues: Net sales were a record $1.15 billion in 1997, an increase of $46.9
million, or 4% over 1996 sales. The 4% increase in sales was due to unit volume
increases of 7% partially offset by a 3% decrease due to the effect of lower
translation rates on international sales. Selling prices remained largely
unchanged versus 1996. The net effect of acquisitions and divestitures in 1996
and 1997 accounted for an increase in sales of $3.7 million in 1997.
Equity in net income of affiliates decreased $0.3 million to $4.5 million in
1997. This decrease was primarily due to lower equity earnings resulting from
the divestiture of D & S Plastics International, which was effective April 1,
1997.
Expenses: Cost of sales decreased as a percentage of sales in 1997, thereby
increasing consolidated gross margins by 1.4 percentage points to 35.9% of sales
from 34.5% in 1996. Gross margin, excluding Life Technologies, Inc. (LTI),
increased 1.2 percentage points, primarily due to strong volume increases,
favorable product mix and productivity improvements. The remaining improvement
was attributable to LTI.
Marketing and administrative expenses increased $14.6 million, or 7%, in 1997
compared to 1996, principally due to costs associated with acquired Dexter
businesses in 1997 and increased marketing and administrative expenses at LTI.
Research and development expenses increased $2.5 million, or 5%, primarily due
to increases at LTI.
Interest expense decreased $0.3 million, or 2%, in 1997 compared with 1996,
primarily due to lower average long-term borrowings throughout the year. The
company does not capitalize interest on facilities under construction. If
interest had been capitalized, earnings per share would have increased by $.02
per share in 1997 and there would have been no impact on earnings per share in
1996.
In 1996, there was a gain on divestiture of product lines of $2.7 million. This
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 36% in 1997 compared with 35.5% in
1996.
Minority Interest: Income attributed to minority interest shareholders remained
largely unchanged in 1997 compared with 1996. Higher minority interest expense
attributed to increased profits at LTI in 1997 was principally offset by lower
minority interest expense resulting from other majority owned entities.
Net Income: Net income for the year 1997 was a record $56.4 million, or $2.45
per share. This represents an 18% increase in net income and a 21% increase in
basic earnings per share, compared with results for 1996 of $47.7 million, or
$2.02 per share, excluding the net gain from the 1996 disposal of product lines.
Including the $.04 per share gain on divested product lines, the 1996 earnings
were $48.7 million, or $2.06 per share. Comparing the total amounts for 1996,
the increases for 1997 in earnings and basic earnings per share were 16% and
19%, respectively. On a diluted basis, the company's earnings were $2.41 per
share in 1997, a 19% increase over diluted earnings of $2.03 per share in 1996
and a 21% increase over diluted earnings from operations of $1.99 per share in
1996.
1996 COMPARED WITH 1995
Revenues: Net sales were $1.10 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 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 third
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. 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.
the dexter corporation 25
<PAGE> 18
Net Income: Net income for the year 1996 was $47.7 million, or $2.02 per share,
excluding the $.04 per share net gain from the second quarter 1996 disposal of
product lines. This represents an 18% increase in net income and a 21% increase
in basic 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 basic earnings per share gained 23%
to $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
expenses, principally at LTI. On a diluted basis, earnings were $2.03 per share
in 1996, a 22% increase over diluted earnings of $1.66 in 1995. Diluted earnings
from operations of $1.99 per share in 1996 increased 20% compared with 1995.
1995 COMPARED WITH 1994
Revenues: Net sales were $1.09 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 principally due to a decrease in the results of D & S Plastics
International.
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 increases, 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 expenses, excluding LTI, increased less than one-half of one
percent over 1994. Overall marketing and administrative expenses 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.
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. On a diluted
basis, earnings were $1.66 per share in 1995, a 7% increase over diluted
earnings of $1.55 in 1994.
- --------------------------------------------------------------------------------
TAXES The effective income tax rate was 36% in 1997, and 35.5% in 1996 and 1995.
The tax rate is currently expected to approximate 35% in 1998. The income tax
rate differs from the statutory U.S. federal income tax rate as shown below.
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------
<S> <C> <C> <C>
U.S. federal rate 35.0% 35.0% 35.0%
State taxes, net of federal benefit 1.7 1.8 1.7
International taxation differences (3.1) (2.2) (0.7)
Other 2.4 0.9 (0.5)
------------------------------
Effective income tax rate 36.0% 35.5% 35.5%
==============================
</TABLE>
- --------------------------------------------------------------------------------
Pretax income from international operations amounted to $54.6 million in 1997,
$59.6 million in 1996 and $57.3 million in 1995. 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 $194 million, differences between the
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.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TAXES, OTHER THAN SALES TAXES
In thousands of dollars 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Income taxes
Current
United States $ 22,527 $ 18,188 $ 5,932
State 2,235 3,817 1,691
International 12,673 18,342 18,752
-----------------------------------------
37,435 40,347 26,375
-----------------------------------------
Deferred
United States 1,514 (5,256) 754
State 206 (1,069) 348
International 836 858 860
-----------------------------------------
2,556 (5,467) 1,962
-----------------------------------------
Total income taxes 39,991 34,880 28,337
Payroll taxes 20,420 19,819 20,201
Property taxes 4,313 3,841 4,082
Other taxes 662 635 624
-----------------------------------------
Total taxes $ 65,386 $ 59,175 $53,244
=========================================
</TABLE>
- --------------------------------------------------------------------------------
26 the dexter corporation
<PAGE> 19
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, 1997, 1996 and 1995 are presented below.
<TABLE>
<CAPTION>
In thousands of dollars 1997 1996 1995
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax assets:
Postretirement health
benefits $ 8,852 $ 8,972 $ 9,644
Accrued expenses, not
currently deductible 6,509 6,395 5,820
Loss carryforwards 4,944 6,099 6,234
Pension benefits 5,670 5,809 4,768
Inventory, principally
valuation reserves 5,450 5,685 5,039
Reserves for insurance 6,028 5,632 5,409
Environmental reserves 4,865 5,074 5,164
Alternative minimum tax
credit carryforwards 4,252 3,820
Other 10,924 11,213 10,953
------------------------------------------
Gross deferred tax assets $ 53,242 $ 59,131 $ 56,851
------------------------------------------
Deferred tax liabilities:
Fixed assets, principally
depreciation $(46,274) $(46,560) $(49,828)
Other (7,557) (5,111) (4,839)
------------------------------------------
Gross deferred tax
liabilities $(53,831) $(51,671) $(54,667)
------------------------------------------
Net deferred tax (liability)
asset before valuation
allowance $ (589) $ 7,460 $ 2,184
Valuation allowance (2,277) (3,573) (3,585)
------------------------------------------
Net deferred tax (liability)
asset after valuation
allowance $ (2,866) $ 3,887 $ (1,401)
==========================================
- ---------------------------------------------------------------------------------------
</TABLE>
Valuation allowances of $2.3 million at December 31, 1997 and of $3.6 million at
December 31, 1996 and 1995, 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
decrease of $1.3 million in the valuation allowance during 1997 was due
principally to the utilization of foreign loss carryforwards.
The components of deferred taxes at December 31, 1997, 1996 and 1995 are as
follows:
<TABLE>
<CAPTION>
In thousands of dollars 1997 1996 1995
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current deferred tax assets $ 17,107 $ 22,477 $ 20,890
Long-term deferred tax assets 3,856 2,483 930
(included in other assets)
Current deferred tax liabilities (1,545) (1,592) (1,735)
(included in accrued
and deferred income taxes)
Long-term deferred income
taxes (22,284) (19,481) (21,486)
------------------------------------------
Net deferred tax (liability)
asset $ (2,866) $ 3,887 $ (1,401)
==========================================
- -----------------------------------------------------------------------------------------
</TABLE>
EARNINGS PER SHARE In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per
Share, which requires companies to compute and disclose basic earnings per share
and diluted earnings per share, and to present a reconciliation between the two.
The new standard was required to be adopted by all public companies for
reporting periods ending after December 15, 1997.
Earnings in 1997 of $2.45 per share represented an 18.9% increase in basic
earnings per share, compared with earnings of $2.06 per share in 1996. Excluding
the net gain of $.04 per share from the 1996 disposal of product lines, 1997
basic earnings increased 21.3% over earnings from operations of $2.02 per share
in 1996. Basic earnings 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 1997 resulted from Dexter's
purchase of 671,200 shares of its outstanding common stock which was partially
offset by the exercise of stock options.
On a diluted basis, earnings of $2.41 per share in 1997 increased 18.7% over
diluted earnings of $2.03 per share in 1996, and increased 21.1% over diluted
earnings from operations of $1.99 per share in 1996. The reconciliation between
basic earnings per share and diluted earnings per share is presented below.
<TABLE>
<CAPTION>
Years ended December 31
Amounts in thousands ------------------------------------------
(except per share data) 1997 1996 1995
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Earnings per share - basic:
Net Income $ 56,427 $ 48,722 $ 40,578
Weighted average shares
outstanding 23,010 23,687 24,364
Earnings per share - basic $ 2.45 $ 2.06 $ 1.67
Earnings per share - diluted:
Net Income $ 56,427 $ 48,722 $ 40,578
Effect of subsidiary dilutive
options on net income (546) (406) (171)
------------------------------------------
$ 55,881 $ 48,316 $ 40,407
==========================================
Weighted average shares
outstanding 23,010 23,687 24,364
Weighted average effect of
common stock equivalents 217 129 49
------------------------------------------
23,227 23,816 24,413
==========================================
Earnings per share - diluted $ 2.41 $ 2.03 $ 1.66
</TABLE>
At December 31, 1997, 10,000 options were outstanding at an exercise price of
$41.22 that were not included in the computation of diluted earnings per share
because the options' exercise price was greater than the average market price of
the company's common stock for the year. At December 31, 1996, 24,644 options
were outstanding at an exercise price of $29.06 and at December 31, 1995,
513,821 options were outstanding at a weighted-average exercise price of $25.11
that were not included in the computation of diluted earnings per share.
- --------------------------------------------------------------------------------
the dexter corporation 27
<PAGE> 20
MARKET SEGMENT DATA
1997 COMPARED WITH 1996
Sales to the Aerospace market increased $11.1 million, or 22%. Sales increased
due to higher sales of both aerospace adhesives and aerospace coatings.
Operating income increased $7 million in 1997 primarily due to lower operating
losses from aerospace coatings resulting from higher sales volume attributable
to growth in the airline manufacturing industry, and productivity improvements
at the coatings facility in Waukegan, Illinois. Aerospace adhesives also
contributed to the increase in operating income in 1997 principally due to
increased sales volume.
Sales to the Electronics market increased $26.3 million, or 14%. The effect of
acquired businesses increased sales by $2.5 million. Net of acquired businesses,
sales increased 12% principally due to strong sales of electronic encapsulation
materials and magnetic materials. Operating income increased $9 million, or 49%,
in 1997 primarily due to increased gross margin of electronic encapsulation
materials resulting from higher sales volume and favorable product mix.
Sales to the Food Packaging market increased $8.2 million, or 3%. The effect of
acquired businesses increased sales by $20.5 million. Net of acquired
businesses, sales decreased 5% 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 $3.6 million, or 12%, in 1997 principally due to
lower gross margin on international food and beverage can coatings resulting
from sales volume decreases. Lower currency translation rates on international
results also unfavorably impacted operating income in 1997.
Sales to the Medical market increased $22.8 million, or 6%. Sales increased
primarily due to increased sales of products at LTI. Partially offsetting this
increase were lower currency translation rates on international sales. Operating
income increased $5.6 million, or 10%, in 1997. Operating income increased at
LTI in 1997 primarily due to the favorable impact of higher unit sales and
increased gross margin on sales of fetal bovine serum partially offset by the
effect of lower currency translation rates on international results. Operating
income in 1996 included a $2.6 million gain due to the receipt of proceeds from
a note related to the sale of LTI's molecular diagnostic product line in 1990.
Sales of the "Other" category decreased $21.5 million, or 12%. Net of divested
businesses, sales in 1997 decreased $2.2 million, or 1%, compared with 1996
sales. Unfavorable currency translation rates more than offset sales volume
increases. Operating income increased $0.9 million, or 4%, in 1997 primarily due
to higher sales volume and lower operating losses from domestic specialty
coatings.
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.
- --------------------------------------------------------------------------------
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 131, Disclosures about Segments of an
Enterprise and Related Information, which becomes effective for financial
statements for periods beginning after December 15, 1997. In the first year of
implementation, SFAS No. 131 is not required to be applied in interim period
financial statements. The company will begin making the disclosures required by
SFAS No. 131 with financial statements for the period ending December 31, 1998.
28 the dexter corporation
<PAGE> 21
<TABLE>
<CAPTION>
MARKET SEGMENT DATA
In thousands of dollars 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
NET SALES
<S> <C> <C> <C> <C> <C>
Aerospace $ 60,884 $ 49,773 $ 45,387 $ 44,769 $ 41,815
Electronics 218,524 192,262 188,461 161,353 145,359
Food Packaging 277,794 269,561 282,183 259,398 232,164
Medical 430,168 407,385 364,334 315,616 284,733
Other 159,685 181,204 208,540 193,583 183,041
---------------------------------------------------------------------------------
Consolidated $1,147,055 $ 1,100,185 $ 1,088,905 $ 974,719 $ 887,112
=================================================================================
Unit Volume and Product Mix Change 7% 3% 7% 10% 1%
Field Sales Force 275 252 241 229 230
- ----------------------------------------------------------------------------------------------------------------------------------
DEPRECIATION AND AMORTIZATION
Aerospace $ 2,847 $ 3,098 $ 3,373 $ 3,479 $ 3,414
Electronics 5,444 4,958 4,719 4,627 4,466
Food Packaging 9,484 8,659 9,563 9,114 7,160
Medical 17,388 16,068 13,449 11,606 10,588
Other 9,766 11,085 12,247 11,684 10,717
General Corporate 512 371 376 413 310
---------------------------------------------------------------------------------
Consolidated $ 45,441 $ 44,239 $ 43,727 $ 40,923 $ 36,655
=================================================================================
- ----------------------------------------------------------------------------------------------------------------------------------
RESEARCH AND DEVELOPMENT
Aerospace $ 4,467 $ 4,076 $ 3,973 $ 3,742 $ 3,474
Electronics 8,037 7,089 6,878 6,547 5,496
Food Packaging 11,883 11,735 12,478 10,967 9,898
Medical 23,334 21,652 17,147 17,109 17,052
Other 6,037 6,695 8,632 7,933 7,316
General Corporate 263 257 267 346 567
---------------------------------------------------------------------------------
Consolidated $ 54,021 $ 51,504 $ 49,375 $ 46,644 $ 43,803
=================================================================================
Laboratory Staff 465 447 454 452 439
- ----------------------------------------------------------------------------------------------------------------------------------
DIVESTITURE, RESTRUCTURING & ENVIRONMENTAL
Credit (Charge)
Aerospace $ (5,170)
Electronics (1,864)
Food Packaging (2,234)
Medical $ 2,569 (2,008)
Other 150 11,405
General Corporate (501)
----------- ---------
Consolidated $ 2,719 $ (372)
=========== =========
- ----------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED OPERATING INCOME (LOSS)
Aerospace $ 7,814 $ 833 $ (1,533) $ (844) $ (6,215)
Electronics 27,355 18,394 19,038 15,248 10,295
Food Packaging 26,293 29,898 31,809 32,031 28,765
Medical 62,554 56,958 41,979 36,164 36,089
Other 21,509 20,649 15,193 19,407 24,783
---------------------------------------------------------------------------------
Consolidated Operating Income 145,525 126,732 106,486 102,006 93,717
Other Income, net 6,014 9,897 9,993 9,386 8,586
Interest Expense (20,192) (20,500) (20,931) (20,509) (18,756)
General Corporate Expense (20,262) (17,877) (15,724) (17,271) (17,109)
---------------------------------------------------------------------------------
Consolidated Income before Taxes $ 111,085 $ 98,252 $ 79,824 $ 73,612 $ 66,438
=================================================================================
- ----------------------------------------------------------------------------------------------------------------------------------
CAPITAL EXPENDITURES
Aerospace $ 850 $ 1,254 $ 4,336 $ 8,397 $ 3,062
Electronics 11,320 6,786 3,364 6,370 7,457
Food Packaging 12,642 4,403 3,986 6,239 6,771
Medical 29,994 44,885 12,643 16,536 19,081
Other 4,232 4,929 4,566 7,368 8,292
General Corporate 49 20 74 187 121
---------------------------------------------------------------------------------
Consolidated $ 59,087 $ 62,277 $ 28,969 $ 45,097 $ 44,784
=================================================================================
- ----------------------------------------------------------------------------------------------------------------------------------
ASSETS AT YEAR END
Aerospace $ 54,701 $ 60,910 $ 64,201 $ 60,753 $ 56,878
Electronics 170,996 108,137 103,571 97,646 87,978
Food Packaging 190,990 177,010 191,107 179,927 158,884
Medical 336,873 313,812 258,084 235,191 218,129
Other 130,642 132,901 180,064 186,384 172,080
---------------------------------------------------------------------------------
Consolidated Operating Assets 884,202 792,770 797,027 759,901 693,949
General Corporate* 77,574 161,034 137,134 120,708 126,742
---------------------------------------------------------------------------------
Consolidated Assets 961,776 953,804 934,161 880,609 820,691
Consolidated Liabilities (588,915) (579,689) (564,546) (536,976) (507,396)
---------------------------------------------------------------------------------
Net Assets $ 372,861 $ 374,115 $ 369,615 $ 343,633 $ 313,295
=================================================================================
* 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, and $37,110 in 1993, and, in
addition, corporate assets of Life Technologies, Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
the dexter corporation 29
<PAGE> 22
GEOGRAPHIC DATA
Operations outside of North America continue to be important to Dexter, giving
geographic diversification to both sales and operating income.
1997 COMPARED WITH 1996
Net sales increased in all geographic areas. In North America, net sales
increased $31.3 million, or 5%. Net sales increased in all major markets in
North America, with strong increases in the Aerospace and Electronics markets
and at LTI in the Medical market. Sales decreased in the "Other" category
primarily due to businesses divested in 1996. Sales outside of North America
increased $15.6 million, or 3%, despite lower currency translation rates which
decreased net sales $34.4 million. In Western Europe, sales to the Food
Packaging market increased due to acquired businesses. Lower sales volume of
food and beverage can coatings and lower currency translation rates somewhat
offset this increase. In the Pacific area, sales to the Electronics and Medical
markets were strong. Net sales outside of North America were 45% of consolidated
net sales in 1997 and 1996. Export sales increased $11 million to $80 million
and represented 7% of consolidated net sales in 1997.
Operating income increased in all geographic areas. In North America, operating
income increased $13.7 million, or 21%. This increase was principally due to
sales volume increases in the Aerospace and Electronics markets and at LTI in
the Medical market. Productivity improvements in the aerospace coatings
operation also contributed to this increase. Somewhat offsetting these increases
was a decrease in the Food Packaging market primarily due to product mix and
lower selling prices. Operating income outside of North America increased $5.1
million, or 8%. In Western Europe, operating income increased in all markets
except the Medical market. The decrease in the Medical market was primarily due
to unfavorable currency translation and transaction effects. Operating income
increased 34% in the Pacific area, primarily due to increases in the Electronics
market and at LTI in the Medical market. Somewhat offsetting these increases was
a decrease in the Food Packaging market primarily due to lower selling prices
and higher raw material costs. Lower currency translation rates also had a
negative impact on operating income in this region. Operating income outside of
North America was 47% of total operating income in 1997 and 50% in 1996.
Total net assets decreased $1.3 million in 1997. Operating assets increased in
North America principally due to an acquisition and net additions to property,
plant and equipment. Corporate assets decreased principally due to a decrease in
cash and short-term securities and the divestiture of the investment in D & S
Plastics International. Liabilities increased in North America and decreased in
Western Europe primarily due to intercompany activity arising from the movement
of cash from Western Europe to North America. Currency translation rates
decreased net assets outside of North America by $20.3 million.
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 represented 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.
30 the dexter corporation
<PAGE> 23
GEOGRAPHIC DATA
<TABLE>
<CAPTION>
In thousands of dollars 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------
NET SALES*
North America
<S> <C> <C> <C> <C> <C>
Total Net Sales $ 718,425 $ 671,544 $ 666,581 $ 634,230 $ 586,868
Intercompany Sales 85,951 70,369 62,177 53,302 40,731
-------------------------------------------------------------------------------------
Net Sales $ 632,474 $ 601,175 $ 604,404 $ 580,928 $ 546,137
=====================================================================================
Western Europe
Total Net Sales $ 395,901 $ 390,699 $ 392,267 $ 331,397 $ 290,814
Intercompany Sales 10,021 11,425 11,132 14,513 13,156
-------------------------------------------------------------------------------------
Net Sales $ 385,880 $ 379,274 $ 381,135 $ 316,884 $ 277,658
=====================================================================================
Pacific Area
Total Net Sales $ 128,805 $ 122,100 $ 104,719 $ 76,907 $ 63,317
Intercompany Sales 104 2,364 1,353
-------------------------------------------------------------------------------------
Net Sales $ 128,701 $ 119,736 $ 103,366 $ 76,907 $ 63,317
=====================================================================================
Consolidated
Total Net Sales $ 1,243,131 $ 1,184,343 $ 1,163,567 $ 1,042,534 $ 940,999
Intercompany Sales 96,076 84,158 74,662 67,815 53,887
-------------------------------------------------------------------------------------
Net Sales $ 1,147,055 $ 1,100,185 $ 1,088,905 $ 974,719 $ 887,112
=====================================================================================
* 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
- -------------------------------------------------------------------------------------------------------------------
OPERATING INCOME
North America $ 78,523 $ 64,851 $ 43,014 $ 51,555 $ 50,863
Western Europe 53,321 52,031 54,576 45,155 40,298
Pacific Area 15,117 11,300 10,881 6,013 3,080
Consolidated, net of
eliminations $ 145,525 $ 126,732 $ 106,486 $ 102,006 $ 93,717
=====================================================================================
- -------------------------------------------------------------------------------------------------------------------
NET ASSETS AT YEAR END
North America
Operating Assets $ 548,205 $ 457,005 $ 452,721 $ 459,481 $ 437,257
Corporate Assets* 54,893 132,245 103,813 97,579 116,041
Liabilities (518,404) (433,199) (399,093) (414,521) (411,108)
-------------------------------------------------------------------------------------
Net Assets $ 84,694 $ 156,051 $ 157,441 $ 142,539 $ 142,190
=====================================================================================
Western Europe
Operating Assets $ 269,192 $ 269,817 $ 271,866 $ 248,217 $ 216,800
Corporate Assets* 20,827 26,301 30,236 22,476 10,541
Liabilities (34,030) (107,434) (115,673) (93,049) (75,795)
-------------------------------------------------------------------------------------
Net Assets $ 255,989 $ 188,684 $ 186,429 $ 177,644 $ 151,546
=====================================================================================
Pacific Area
Operating Assets $ 66,805 $ 65,948 $ 72,440 $ 52,203 $ 39,892
Corporate Assets* 1,854 2,488 3,085 653 160
Liabilities (36,481) (39,056) (49,780) (29,406) (20,493)
-------------------------------------------------------------------------------------
Net Assets $ 32,178 $ 29,380 $ 25,745 $ 23,450 $ 19,559
=====================================================================================
Consolidated
Operating Assets $ 884,202 $ 792,770 $ 797,027 $ 759,901 $ 693,949
Corporate Assets* 77,574 161,034 137,134 120,708 126,742
Liabilities (588,915) (579,689) (564,546) (536,976) (507,396)
-------------------------------------------------------------------------------------
Net Assets $ 372,861 $ 374,115 $ 369,615 $ 343,633 $ 313,295
=====================================================================================
</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, and $37,110 in 1993, and, in addition,
corporate assets of Life Technologies, Inc.
- -------------------------------------------------------------------------------
the dexter corporation 31
<PAGE> 24
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, 1997 was owned 52% 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 52% 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 below in condensed form.
Net sales of LTI increased $21.5 million, or 7%, in 1997. This improvement was
due to a $35.5 million, or 13%, increase in sales of products other than fetal
bovine serum (FBS), partially offset by lower FBS sales of $1.3 million and
lower currency translation rates of $12.7 million.
Gross margin for 1997 was 53.9% of net sales compared with 52.5% in 1996. Gross
margin on products other than FBS increased in 1997 due to production
efficiencies and lower scrap costs which more than offset unfavorable currency
movements and price erosion on some products. FBS gross margin improved in 1997,
principally due to lower unit costs. The FBS cost decline in 1997 caused most of
the $1.4 million reduction in the LIFO reserve compared with a $3.3 million
reduction in 1996.
Marketing and administrative expenses increased 7% to $108 million in 1997 and
represented 32.6% of net sales in 1997 and 1996.
Research and development expenses increased 12% to $21.3 million and represented
6.4% of net sales in 1997 compared with 6.2% in 1996. 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.
In 1996, LTI reported a $2.6 million gain related to the disposition of a
product line in 1990.
Pretax income increased 10%. Income taxes were provided at a rate of 36% in 1997
and 1996. Net income increased 12% to $32.2 million in 1997 from $28.7 million
in 1996.
LTI declared quarterly dividends totaling $.18 per share in 1997 and $.15 1/3 in
1996. Dividends in 1996 were adjusted for a 3-for-2 stock split effected on
August 28, 1996.
After the deduction of minority interests, LTI contributed $17 million to
Dexter's net income, or $.71 per share on a diluted basis, in 1997, compared
with $15.4 million, or $.63 per share, in 1996. Dexter's portion of LTI
shareholders' equity, per share of Dexter, increased to $4.77 at December 31,
1997, from $4.16 at year-end 1996.
At year-end 1997, LTI had $19.1 million in cash and short-term securities,
$136.4 million in other current assets and $54.5 million of current liabilities.
In 1997, LTI spent $27.3 million on capital expenditures and was self funding.
Capital expenditures in 1998 are expected to range between $20 and $25 million.
It is expected that LTI will be self funding in 1998.
- ------------------------------------------------------------------------------
CONDENSED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Years ended December 31
------------------------
In thousands of dollars 1997 1996
- --------------------------------------------------------------------------
REVENUES
<S> <C> <C>
Net sales $330,967 $309,455
Net royalties 1,841 884
------------------------
332,808 310,339
------------------------
EXPENSES
Cost of sales 152,547 146,926
Marketing and administrative 108,046 100,797
Research and development 21,281 19,084
Gain on product line disposal (2,569)
------------------------
281,874 264,238
------------------------
Other income, net 404 619
------------------------
INCOME BEFORE INCOME TAXES 51,338 46,720
Income taxes 18,481 16,819
------------------------
INCOME BEFORE MINORITY INTERESTS 32,857 29,901
Minority interests 622 1,201
------------------------
NET INCOME $ 32,235 $ 28,700
========================
</TABLE>
- --------------------------------------------------------------------------
CONTRIBUTION OF LTI TO DEXTER NET INCOME
<TABLE>
<CAPTION>
Years ended December 31
In thousands of dollars -------------------------
(except per share amounts) 1997 1996
- --------------------------------------------------------------------------
<S> <C> <C>
Net income of LTI $ 32,235 $ 28,700
Portion attributable to minority interests 15,212 13,341
-------------------------
Dexter's portion of net income of LTI $ 17,023 $ 15,359
=========================
Net income per share - basic of Dexter $ .74 $ .65
Net income per share - diluted of Dexter $ .71 $ .63
- --------------------------------------------------------------------------
</TABLE>
32 the dexter corporation
<PAGE> 25
LIFE TECHNOLOGIES, INC.
- ------------------------------------------------------------------
CONDENSED STATEMENT OF FINANCIAL POSITION
<TABLE>
<CAPTION>
December 31
--------------------------
In thousands of dollars 1997 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and short-term securities $ 19,076 $ 15,326
Accounts receivable, net 58,096 54,566
Inventories 68,063 62,320
Other current assets 10,223 8,285
Property, plant and equipment, net 100,098 88,367
Investments and other assets 12,353 11,023
Excess of cost over net assets of
businesses acquired 12,365 14,044
--------------------------
Total assets $ 280,274 $ 253,931
==========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities $ 54,531 $ 56,301
Long-term debt 4,564 4,668
Other liabilities 12,455 10,043
Shareholders' equity 208,724 182,919
--------------------------
Total liabilities and
shareholders' equity $ 280,274 $ 253,931
==========================
- ----------------------------------------------------------------------------------------------
CONTRIBUTION OF LTI TO DEXTER BOOK VALUE
December 31
In thousands of dollars --------------------------
(except per share amounts) 1997 1996
- ----------------------------------------------------------------------------------------------
LTI shareholders' equity $ 208,724 $ 182,919
Portion attributable to minority interests 99,257 85,328
--------------------------
Dexter's portion of LTI
shareholders' equity $ 109,467 $ 97,591
==========================
Book value per share of Dexter stock $ 4.77 $ 4.16
</TABLE>
- ------------------------------------------------------------------
CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31
-----------------------
In thousands of dollars 1997 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net income $ 32,235 $ 28,700
Noncash items
Depreciation and amortization 12,717 10,576
Gain on product line disposal (2,569)
Other (2,429) (3,535)
Operating working capital
(increase) decrease (10,913) 7,092
--------------------------
31,610 40,264
--------------------------
INVESTMENTS
Property, plant and equipment (27,300) (36,017)
Acquisitions and joint ventures (914) (11,704)
Proceeds from product line disposal 2,569
Other (127) (30)
--------------------------
(28,341) (45,182)
--------------------------
FINANCING
Dividends paid (3,929) (3,351)
Exercise of stock options 4,052 1,998
Short-term borrowings 1,896 319
Long-term loan repayments (713) (1,617)
--------------------------
1,306 (2,651)
--------------------------
EFFECT OF TRANSLATION RATE CHANGES
ON CASH AND SHORT-TERM SECURITIES (825) (306)
--------------------------
TOTAL INCREASE (DECREASE) IN CASH
AND SHORT-TERM SECURITIES $ 3,750 $ (7,875)
==========================
</TABLE>
- --------------------------------------------------------------------------------
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) (52% 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 1997 presentation.
FORWARD-LOOKING STATEMENTS Some of the matters discussed in this 1997 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, earnings and dividends; 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 substantially different from 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 on page 34 in the section entitled
Events, Trends and Vulnerabilities.
the dexter corporation 33
<PAGE> 26
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 1997, there was overall relative stability of raw material costs and selling
prices for the company's products. Aggressive efforts to raise prices and to
gain full value for our product offerings will continue. However, the heightened
degree of competition throughout the world makes it increasingly difficult to
obtain selling 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 of 7% supported gross margin expansion in 1997. To
the extent that the unit volume growth rate decreases in the future as a result
of some weakness in domestic or international economies, revenue and earnings
growth may be negatively impacted. The current Asian economic environment is not
expected to have a material negative impact on the results of the company.
However, decreases in demand for the company's products or the inability of
customers to remain viable in this region may reduce the growth potential in
this area over the short- to medium-term. The consequences of domestic interest
rate changes and tax policy may also 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. The
continuing strength of the pound sterling against other European currencies
could also have a negative effect on the company's results. Additionally, the
volatility of several Asian currencies could create exposures and losses for the
company. 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 endeavor
to create profitable growth in developing countries.
There will continue to be increasing costs incurred by the need to respond to
heightened regulatory pressures. Such increases may 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 as well as current economic issues 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 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 and
rapidly, 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.
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 costs. Dexter's ability to hire and retain a qualified workforce around the
world 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 company recognizes potential software failures arising from processing the
Year 2000 date as a known risk. The company is addressing this risk by
developing and implementing procedures that identify systems and equipment that
are not Year 2000 compliant and executing appropriate solutions to modify or
replace them in order to become compliant. The company believes that the cost
associated with becoming Year 2000 compliant will not have a material negative
effect on its results. The company is currently working with its customers and
suppliers to identify external issues associated with the Year 2000. There can
be no assurance, however, that the company will be able to identify and correct
all aspects of the Year 2000 problems of customers and suppliers that affect the
company's business.
The complexities of ever-changing worldwide events and trends including the
international political environment, 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.
34 the dexter corporation
<PAGE> 27
ACQUISITIONS AND DIVESTITURES To pursue strategic growth opportunities as a
global supplier to the food packaging industry, Dexter acquired the can coatings
businesses of Kolack A.G. based in Switzerland in January 1997; Stolllack, a
business unit of Herberts Austria GmbH, based in Austria in March 1997; and Akzo
Nobel Tintas Metalgraficas Ltda., a subsidiary of Akzo Nobel Coatings
International B.V., based in Brazil in April 1997. In addition, Dexter formed a
joint venture marketing company based in South Africa, effective October 1997.
The company will do business as Dexter South Africa (Pty) Ltd. and is owned 60%
by Dexter and 40% by Plascon (Pty) Ltd. These businesses will operate as part of
the Dexter Packaging Products Division.
To further enhance its strategic position as a global supplier to the
electronics industry, Dexter acquired Quantum Materials, Inc. of San Diego,
California, in October 1997. This business will operate as a part of the Dexter
Electronic Materials Division.
In April 1997, Dexter completed the divestiture of its 50% interest of D & S
Plastics International, an equally owned joint venture based in Auburn Hills,
Michigan, between The Dexter Corporation and the Solvay Group to Solvay America,
Inc. There was no net gain or loss on the sale of Dexter's 50% interest. This
transaction completed the program announced in 1995 to reduce Dexter's future
strategic emphasis on the automotive market.
None of these businesses acquired or divested, either individually or in the
aggregate, constitute a significant subsidiary of The Dexter Corporation.
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 1.9 to 1, and the quick ratio (cash,
short-term securities and accounts receivable divided by current liabilities) is
1.1 to 1. As shown in the Statement of Cash Flows, cash provided from operations
of $84.6 million exceeded cash needed for investments in 1997 by $4 million.
Investment activity during 1997 included capital expenditures of $63 million in
addition to cash outflows for acquisitions of $68.5 million which were funded,
in part, by cash proceeds from divestitures of $41.5 million. The nature of
these transactions is described in the acquisitions and divestitures footnote on
this page. Financing activities also used funds of $36.7 million in 1997
principally due to dividend payments of $21.7 million and the purchase of
671,200 shares of the company's outstanding common stock for $20.5 million. In
1997, there was a reduction of cash and short-term securities of $32.7 million.
Excluding LTI, the current ratio is 1.6 to 1 and the quick ratio is 1 to 1.
Excluding LTI, cash needed for investments exceeded cash provided from
operations by $3.3 million. Financing activities, excluding LTI, also used funds
of $36.1 million resulting in a reduction of cash and short-term securities of
$39.4 million in 1997.
The company plans to meet its future working capital and capital expenditure
needs with funds provided from operations, the reduction of short-term
securities and, as needed, short-term and long-term borrowings.
- --------------------------------------------------------------------------------
ANALYSIS OF FINANCIAL POSITION
WORKING CAPITAL Working capital, including cash and short-term securities,
decreased $39 million from 1996. Operating working capital increased $17 million
to $212.7 million at year-end 1997. The current ratio at December 31, 1997 was
1.9 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, 1997. As of year-end 1997, 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 1997, $35.4
million 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 1997, the company has eight multi-currency, revolving credit
agreements aggregating $100 million. At year-end 1997, $19.7 million has been
borrowed under these agreements, and the remaining funds are immediately
available should the company so desire.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN OPERATING WORKING CAPITAL AND WORKING CAPITAL IN 1997
Business Change in
Acquisitions Currency Consolidated
Cash and Accounting Translation Account
In thousands of dollars Changes Accruals Effects Balances
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Accounts receivable, net $ 13,713 $3,834 $(10,383) $ 7,164
Inventories at FIFO 14,857 2,814 (7,718) 9,953
Prepaid and deferred expenses 2,908 234 (771) 2,371
Accounts payable (6,448) 2,214 4,934 700
Accrued liabilities and expenses (5,252) (216) 2,283 (3,185)
----------------------------------------------------------------------------------
Operating working capital 19,778 8,880 (11,655) 17,003
----------------------------------------------------------------------------------
Cash (4,799) 4,957 (722) (564)
Short-term securities (32,906) 24 (1,668) (34,550)
LIFO reserve 1,037 1,037
Current deferred tax assets (5,370) (5,370)
Short-term debt (30,611) 361 (30,250)
Other current liabilities and taxes 13,585 (624) 720 13,681
----------------------------------------------------------------------------------
Working capital $(33,916) $7,867 $(12,964) $(39,013)
==================================================================================
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
the dexter corporation 35
<PAGE> 28
CASH AND SHORT-TERM SECURITIES Cash principally comprises in-transit,
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, 1997, there were $57 million in short-term securities, of which
$39.9 million were directly available to Dexter and $17.1 million were
maintained separately by Life Technologies, Inc. due to its different
shareholder constituency. Of these amounts, $25.8 million for Dexter and $9.7
million for Life Technologies, Inc. were held outside the United States. Of the
$39.9 million for Dexter, $19.5 million was held by Dexter's captive insurance
companies.
ACCOUNTS RECEIVABLE Gross accounts receivable of $195.7 million at December 31,
1997 were reduced by allowances of $10.4 million. Such allowances were $8.1
million at December 31, 1996 and $7.5 million at December 31, 1995. Currency
translation effects decreased net accounts receivable by $10.4 million in 1997.
Included in accounts receivable are non-trade accounts receivable of $11 million
in 1997 compared with $13.2 million in 1996 and $25.8 million in 1995. These
amounts principally comprise tax receivables and amounts due from affiliates.
The collection period for accounts receivable improved to approximately 53 days
at December 31, 1997, compared with 57 days at December 31, 1996 and 59 days at
December 31, 1995.
INVENTORIES Inventories are valued at the lower of cost or market. Inventories
located in the United States represented 52% of total inventories. The LIFO
(last-in, first-out) method was used for determining the cost of 58% of U.S.
inventories in 1997 and 1996, and 63% in 1995. The FIFO (first-in, first-out)
method was used for determining the cost of remaining inventories in the United
States and the 48% of total inventories which were outside the United States.
The reduction in levels of LIFO valued inventories (LIFO liquidation) was not
significant in 1997, 1996 or 1995.
Inventories at December 31 were:
<TABLE>
<CAPTION>
In thousands of dollars 1997 1996 1995
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Materials and supplies $ 61,233 $ 58,290 $ 60,099
Work-in-process 17,664 17,078 17,038
Finished goods 99,803 93,379 104,606
---------------------------------------------
Total FIFO cost 178,700 168,747 181,743
LIFO reserve (18,799) (19,836) (24,709)
---------------------------------------------
$ 159,901 $ 148,911 $ 157,034
=============================================
</TABLE>
- --------------------------------------------------------------------------------
Before deducting the LIFO reserve, FIFO inventories increased $10 million in
1997 to $178.7 million primarily due to increased FIFO inventories at LTI of
$4.4 million and $2.8 million of FIFO inventories related to businesses acquired
by Dexter in 1997.
SHORT-TERM DEBT Short-term borrowings were denominated principally in U.S.
dollars, Japanese yen, pound sterling and French francs, 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
$35.4 million short-term borrowings outstanding at year end included $2.9
million of short-term debt of Life Technologies, Inc. The weighted average
interest rate on short-term borrowings outstanding was 6.1% at December 31,
1997, 5.4% at December 31, 1996, and 6.1% at December 31, 1995.
The company had outstanding letters of credit at December 31, 1997 totaling $9.9
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 1997 and all of which was available for issue at
December 31, 1997. 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 1997 1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Salaries, wages and benefits $17,381 $17,047 $16,615
Pension and profit sharing 13,265 12,349 9,082
Provision for claims and
warranties 5,106 3,806 3,194
Professional services 4,351 2,344 1,433
Taxes, other than income taxes 3,529 2,679 1,975
Royalties 3,482 2,792 1,964
Customer rebates and volume
discounts 2,482 3,426 3,551
Deferred purchase and
construction payments 1,580 2,800 182
Commissions 1,455 1,111 1,052
Severance and relocation 1,313 2,980 593
Interest 1,162 1,377 3,280
Other, principally accruals
for unbilled obligations 12,817 12,768 12,116
-------------------------------------
$67,923 $65,479 $55,037
=====================================
</TABLE>
- --------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT Capital expenditures on the accrual basis were
$59.1 million in 1997, $62.3 million in 1996 and $29 million in 1995. The $62.3
million in 1996 includes a capital lease for $4.7 million at LTI for a parcel of
land. Capital expenditures in 1998 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 3 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 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
36 the dexter corporation
<PAGE> 29
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 $18.3 million in 1997, $16.3 million in 1996 and $17
million in 1995. 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 1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Land $ 28,501 $ 23,273 $ 19,307
Buildings and improvements 184,388 158,635 153,071
Machinery and equipment 474,079 458,069 457,611
Construction in progress 25,157 37,859 12,250
---------------------------------------------
Total cost 712,125 677,836 642,239
Less accumulated
depreciation (363,953) (343,570) (317,036)
Property, plant and ---------------------------------------------
equipment, net $ 348,172 $ 334,266 $ 325,203
=============================================
</TABLE>
- --------------------------------------------------------------------------------
Changes in property, plant and equipment for the past three years were as
follows:
<TABLE>
<CAPTION>
In thousands of dollars 1997 1996 1995
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
January 1 $ 334,266 $ 325,203 $ 328,935
Capital expenditures 59,087 62,277 28,969
Assets of businesses acquired 4,271 562 212
Assets of businesses divested (893) (15,140)
Write-down of asset values (470) (1,880)
Depreciation (37,453) (37,312) (38,246)
Currency effects (10,636) 556 5,333
---------------------------------------------
December 31 $ 348,172 $ 334,266 $ 325,203
=============================================
</TABLE>
- --------------------------------------------------------------------------------
PATENTS, TECHNOLOGY, FORMULAS AND COVENANTS Patents, technology, formulas and
covenants not to compete are stated at cost less accumulated amortization of
$19.9 million, $18.5 million and $18.6 million at December 31, 1997, 1996 and
1995, 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 17 years. Businesses acquired in 1997 increased patents, technology,
formulas and covenants by $28.6 million. 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 $97.5 million at year-end
1997, and $71.9 million at year-end 1996. Excess acquisition cost increased
$34.5 million in 1997 due to businesses acquired. This increase was somewhat
offset by $5.6 million of amortization costs and $3.3 million due to currency
translation effects. Excess acquisition cost increased $6.1 million in 1996 due
to the net impact of businesses acquired and divested. This increase was offset
by $4.9 million of amortization 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 $23.8 million, $18.8 million and $16.5 million at December 31, 1997, 1996 and
1995, 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.
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 judgement, the business will not recover from this position in the
future. There were no impairment charges in 1997, 1996 or 1995.
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, 1997 and 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.
Aggregate future minimum lease payments under noncancelable leases as of
December 31, 1997, were as follows:
<TABLE>
<CAPTION>
For the years ending
(in thousands of dollars) Capital Lease Operating Leases
- ------------------------------------------------------------------------
<S> <C> <C>
1998 $ 440 $ 9,495
1999 440 6,364
2000 440 4,189
2001 440 2,642
2002 440 2,208
Later years 7,085 11,628
------ ------
Total minimum lease payments 9,285 $36,526
Less amount representing interest (4,627) =======
------
Present value of net minimum
lease payments $4,658
======
</TABLE>
- -------------------------------------------------------------------------------
Total rent expense incurred under noncancelable leases, net of minor sublease
rentals, amounted to $11.5 million in 1997, $10.9 million in 1996, and $11.1
million in 1995. 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,
1997, $0.4 million of current and $4.5 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.
the dexter corporation 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 the majority of domestic employees of the company and of Life
Technologies, Inc. provide benefits that are generally based upon the employee's
average compensation before retirement. The company also sponsors an unfunded
nonqualified executive supplemental plan for certain key employees that provides
benefits based on average compensation before retirement, offset by other
benefits payable to the participant.
In computing the company's year-end funded status for domestic plans, discount
rates of 6.75% and 7% were used in 1997 and 7% and 6.5% were used in 1996 and
1995, respectively. The discount rates used in computing the year-end funded
status for international plans ranged from 4% to 7.5% in 1997, 4% to 8.5% in
1996, and 4% to 9% in 1995.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
The funded status of the company's plans were as follows:
DECEMBER 31, 1997 December 31, 1996 December 31, 1995
- --------------------------------------------------------------------------------------------------------------------------------
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 $ 82,074 $ 7,634 $ 65,912 $ 7,731 $ 63,864 $ 7,356
Accumulated benefit
obligation $ 84,252 $ 9,191 $ 68,701 $ 8,745 $ 66,497 $ 8,768
Projected benefit
obligation $ 119,083 $ 11,448 $ 102,560 $ 10,371 $ 99,947 $ 10,743
Plan assets at fair value,
primarily equity securities
and insurance contracts $ 113,351 $ 784 $ 95,386 $ 1,048 $ 83,110 $ 999
----------------------------------------------------------------------------------------------
Projected benefit obligation
in excess of plan assets $ (5,732) $(10,664) $ (7,174) $ (9,323) $(16,837) $ (9,744)
Unrecognized net loss 189 1,608 2,514 1,532 14,811 2,194
Unrecognized prior
service cost 2,466 2,163 2,897 1,566 3,265 1,802
Unamortized net (asset)
obligation (534) 174 (628) 213 (635) 254
Adjustment required to
recognize minimum liability (1,923) (1,971) (2,732)
----------------------------------------------------------------------------------------------
(Accrued pension liability)
Prepaid pension cost $ (3,611) $ (8,642) $ (2,391) $ (7,983) $ 604 $ (8,226)
==============================================================================================
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
In 1997, there was a combined net periodic pension cost of $5.6 million for all
plans. Net periodic pension cost was $7.8 million for 1996 and $4.8 million for
1995.
Net periodic pension cost for 1997, 1996 and 1995 included the following
components:
<TABLE>
<CAPTION>
In thousands of dollars 1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 5,877 $ 6,405 $ 4,276
Interest cost 7,719 7,440 6,429
Actual return on assets (19,125) (11,271) (13,678)
Net amortization and deferral 11,153 5,212 7,725
------------------------------------------
Net periodic pension cost $ 5,624 $ 7,786 $ 4,752
==========================================
</TABLE>
- --------------------------------------------------------------------------------
Assumptions used in the accounting for pension cost in 1997, 1996 and 1995 for
domestic plans were:
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 7% 6.5%* 8.5%
Average wage increase 4 - 5% 4 - 5% 6%
Expected long-term rate
of return on plan assets 9% 9% 9%
</TABLE>
* 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.
- --------------------------------------------------------------------------------
38 the dexter corporation
<PAGE> 31
Assumptions used in the accounting for pension cost in 1997, 1996 and 1995 for
international plans were:
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 4 - 8.5% 4 - 9% 5.5 - 9.75%
Average wage increase 2.5 - 6% 3 - 7% 4.5 - 7%
Expected long-term rate
of return on plan assets 2.5 - 9% 2.5 - 9% 4 - 9%
</TABLE>
- -------------------------------------------------------------------------
The discount rate is the estimated rate at which the obligation for pension
benefits could effectively be settled.
The average wage increase assumption was reduced from the 6% used in 1995 to a
range of 4 - 5% in 1997 and 1996 for computing pension cost for domestic plans.
The average wage increase to be used in the international plans ranges from 2.5%
to 6% in 1998.
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 21%
in 1997, 15.1% in 1996, and 22% in 1995.
Certain defined benefit plans' accumulated benefit obligation exceeded plan
assets. The minimum liability adjustment, intangible asset and reduction to
shareholders' equity at December 31, 1997, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
In thousands of dollars 1997 1996 1995
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Minimum liability adjustment $1,261 $1,489 $2,052
Intangible asset 1,223 1,173 1,318
----------------------------------
38 316 734
Tax benefit 14 112 261
----------------------------------
Pension liability adjustment to
shareholders' equity $ 24 $ 204 $ 473
==================================
</TABLE>
- -------------------------------------------------------------------------
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 $8.1
million in 1997, $7.3 million in 1996 and $6.6 million in 1995.
In addition to providing pension benefits, certain businesses of Dexter provide
some health care and life insurance benefits for retired employees. Dexter has
funded trusts for future payment of such benefits.
The assets in the trusts amounted to $41.2 million, $33.7 million and $29.1
million at December 31, 1997, 1996 and 1995, respectively, and were invested as
follows:
<TABLE>
<CAPTION>
In thousands of dollars 1997 1996 1995
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Equity funds $15,899 $13,916 $10,492
Indexed fund 15,574 12,675 12,031
Convertible preferred stocks 9,466 6,946 6,237
Short-term liquid investment
funds 270 172 352
-------------------------------------
$41,209 $33,709 $29,112
=====================================
</TABLE>
- -------------------------------------------------------------------------
The combined results of these funds 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, 1997, 1996 and 1995 were:
<TABLE>
<CAPTION>
In thousands of dollars 1997 1996 1995
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 828 $ 889 $ 666
Interest cost 1,596 1,541 1,447
Actual return on assets (8,413) (5,386) (6,953)
Net amortization and deferral 4,378 1,732 4,005
---------------------------------------
Net periodic postretirement
benefit income $(1,611) $(1,224) $ (835)
=======================================
</TABLE>
- --------------------------------------------------------------------------------
The funded status of the plan at December 31, 1997, 1996 and 1995 was:
<TABLE>
<CAPTION>
In thousands of dollars 1997 1996 1995
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Accumulated postretirement
benefit obligation
Retirees and dependents $ 9,500 $ 7,668 $ 8,103
Actives fully eligible 4,432 4,685 4,469
Actives not yet fully eligible 13,222 10,839 11,885
------------------------------------------
Total accumulated
postretirement benefit
obligation 27,154 23,192 24,457
Plan assets at fair value 41,209 33,709 29,112
------------------------------------------
Accumulated postretirement
benefit obligation less than
plan assets 14,055 10,517 4,655
Unrecognized net gain (7,746) (4,060) (90)
Unrecognized prior service
effect from plan amendment (1,826) (3,764) (4,838)
------------------------------------------
Prepaid postretirement benefit
cost (accrued postretirement
benefit cost) $ 4,483 $ 2,693 $ (273)
==========================================
- -----------------------------------------------------------------------------------
</TABLE>
The discount rates used in determining the accumulated postretirement benefit
obligation were 6.75% at December 31, 1997, 7% at December 31, 1996, and 6.5% at
December 31, 1995. 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 10% in 1997, 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, 1997 would be increased by $1 million,
while the aggregate of the service and interest cost components of the net
periodic postretirement benefit cost for 1997 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.
the dexter corporation 39
<PAGE> 32
LONG-TERM DEBT Long-term debt at December 31, 1997 consisted of promissory
notes, revolving credit borrowings, sinking fund debentures, industrial
development bonds and a capitalized lease.
In December 1986, the company sold publicly $50 million, 9.25% sinking fund
debentures due in 2016. The sinking fund payments commenced in 1997 and were
designed to retire 95% of the debt prior to maturity. During 1997, Dexter
redeemed $30 million of the 9.25% sinking fund debentures in advance of their
maturities at a redemption price of 104.625%. Also, in December 1997, Dexter
made an optional sinking fund payment of $5 million on these debentures in
addition to the scheduled, mandatory sinking fund payment of $2.5 million. The
redemption price of the optional and mandatory sinking fund payments was 100%.
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 $3.8 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 were being constructed. Payments began in
February 1997 and continue for 22 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 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
continued 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.
The company has $50 million of authorized and unissued medium-term notes.
Multi-currency, revolving credit agreements maintained with eight banks
aggregate another $100 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. On December 31, 1997, Swiss franc 28.8 million (equivalent to
approximately $19.7 million) was borrowed under the revolving credit agreements
at a rate of 1.76% and is scheduled to mature in the year 2000.
Long-term debt represented 32.6% of total capital at December 31, 1997. The
weighted average interest rate of long-term debt outstanding at December 31,
1997 was 7.58%.
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, 1997 was $373 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, 1997 there was approximately $207 million of
additional debt allowable under these terms.
Life Technologies, Inc. has guaranteed approximately $0.2 million of bank loans
to others. Dexter has guaranteed approximately $0.4 million of bank loans to
others.
At December 31, 1997 and 1996 the fair value of net long-term debt was $188
million and $218 million, respectively, compared with the carrying value of $180
million and $210 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 1997, 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 1997 1996 1995
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Promissory notes $ 155,792 $ 166,110 $ 177,437
Revolving credit borrowings 19,720
Sinking fund debentures 12,500 50,000 50,000
Capitalized lease 4,658 4,739
Industrial development bonds 700 1,400 2,050
---------------------------------------------
193,370 222,249 229,487
Less:
Payments due within one year (13,340) (12,297) (13,648)
---------------------------------------------
Net long-term debt $ 180,030 $ 209,952 $ 215,839
=============================================
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
DEBT MATURITIES BY CURRENCY AND TYPE
Amounts in thousands
<TABLE>
<CAPTION>
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
----------- ----------- ---------- ----------- -------- --------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998 $ 94 $500 $ 2,500 $ 9,251 SF 1,454 $ 10,246 $ 13,340 8.28%
1999 102 200 2,500 9,251 1,454 Y500,000 14,079 16,881 6.83
2000 109 2,500 9,250 30,264 29,965 32,574 4.37
2001 118 2,500 10,250 1,454 11,245 13,863 8.42
2002 127 2,500 10,250 1,454 11,245 13,872 8.42
2003 137 10,250 1,454 11,245 11,382 8.23
2004 148 10,250 1,454 11,245 11,393 8.23
2005 159 10,250 727 10,748 10,907 8.53
2006 171 10,250 727 10,748 10,919 8.53
2007 185 10,250 727 10,748 10,933 8.52
2008-2020 3,308 43,500 727 43,998 47,306 8.42
---------------------------------------------------------------------------------------------------
Total $4,658 $700 $12,500 $143,002 SF41,896 Y500,000 $175,512 $193,370 7.58%
=================================================================================================================
Rates of 5.70- 6.21- 1.76-
Interest 7.50% 6.50% 9.25% 9.72% 4.86% 1.66%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
40 the dexter corporation
<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, 1997, with respect to 18 sites, were
$15.8 million, including current reserves of $2.1 million, which are expected to
be spent in 1998, and long-term reserves of $13.7 million. Such reserves, which
are not discounted, were decreased during 1997 by expenditures of $0.6 million.
Additionally, an estimated $2.7 million in 1997, $2.5 million in 1996, and $2.7
million in 1995 of claims payable by third-party insurance companies were
included in the reserve at year end. The related receivables from insurance
companies of $2.7 million, $2.5 million, and $2.7 million were included as
assets of the company at year-end 1997, 1996 and 1995, respectively.
Environmental reserves at December 31, 1996 were $16.3 million and at year-end
1995 were $17.1 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 U.S.
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 U.S. operations of Dexter. This coverage period has
since been expanded to extend through December 31, 1997. In December 1997, a
third portfolio of environmental reserves totaling $0.4 million was transferred
into DEAL. With this transfer, the coverage was expanded to insure all wholly
owned non-U.S. operations of Dexter against environmental liabilities arising
from occurrences prior to January 1, 1998.
MINORITY INTERESTS Minority interests increased by $14 million in 1997 to $104.4
million. At year-end 1996, minority interests were $90.4 million, an increase of
$14 million from 1995. The increase in 1997 was principally due to $15.2 million
of net income attributable to the minority interest shareholders of Life
Technologies, Inc., Dexter's 52%-owned subsidiary, and a $4.7 million increase
due to the exercise of stock options at LTI. Somewhat offsetting these increases
were currency translation effects of $4.1 million and quarterly cash dividends
paid by LTI to minority interest shareholders totaling $1.9 million. The
increase in 1996 was principally due to $13.3 million of net income attributable
to the minority interest shareholders of LTI and a $1.7 million increase due to
the exercise of stock options at LTI. These increases in minority interests were
somewhat offset by cash dividends paid by LTI to minority interest shareholders
of $1.6 million. Minority interest in LTI's equity represented $99.3 million and
$85.3 million at December 31, 1997 and 1996, 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 1997 by $20.3
million, including $20.1 million of translation effects and a $0.2 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 decreased shareholders' equity by $3.8 million in
1996, including $3.5 million of translation effects and a $0.3 million related
tax effect.
Many of the company's operations conduct a portion of their business in nonlocal
currencies. These transactions give rise to nonlocal currency receivables or
payables. Changes in the exchange rates between the functional currency and the
nonlocal currency in which the transaction is denominated result in currency
transaction gains and losses that are included in the determination of income.
Currency gains and losses realized on these nonlocal currency transactions were
not significant in 1997, 1996 or 1995.
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, 1997, 1996 and 1995 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 1997 were short-term in nature and related to nonlocal currency
transactions of the company's European and Asian operations. For the company,
excluding LTI, the equivalent U.S. dollar purchase amounts of its forward
contracts outstanding were $0.8 million and $1 million as of December 31, 1997
and 1996, respectively. There were no purchase amounts outstanding as of
December 31, 1995. The equivalent U.S. dollar sale amounts of its forward
contracts outstanding were $9.6 million, $7.5 million and $7.4 million as of
December 31, 1997, 1996 and 1995, respectively. For LTI, the equivalent U.S.
dollar purchase amounts of its forward contracts were $2.9 million, $6.2 million
and $10.3 million as of December 31, 1997, 1996 and 1995, respectively. The
equivalent U.S. dollar sale amount was $12.9 million as of December 31, 1995.
There were no sale amounts outstanding as of December 31, 1997 and 1996 for LTI.
The market risk associated with forward exchange contracts is caused by
fluctuations in exchange rates subsequent to entering into the forward exchange
contracts. Credit risk associated with forward exchange contracts is caused by
nonperformance by the counterparties to these financial instruments. The company
does not believe there is significant risk of nonperformance by the
counterparties to these financial instruments.
The company had short-term borrowings at December 31, 1997 of $35.4 million of
which $2.4 million related to nonlocal currency transaction exposure management.
the dexter corporation 41
<PAGE> 34
SHAREHOLDERS' EQUITY Shareholders' equity decreased by $1.3 million in 1997 to
$372.9 million representing a book value of $16.26 per share. Net income
increased shareholders' equity by $56.4 million. The exercise of stock options
along with the impact of restricted stock awards added $5.3 million to
shareholders' equity in 1997. Offsetting these increases were reductions due to
dividends declared of $22.1 million, the repurchases of the company's
outstanding common stock of $20.5 million, and a currency translation impact of
$20.3 million resulting from the strengthening of the U.S. dollar in 1997.
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. 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 in 1996. In 1997, the company purchased 671,200 shares of its
outstanding common stock at an average cost of $30.57 per share under this plan.
At the end of 1997, there were 1,814,035 shares held in treasury compared with
1,520,261 shares at the end of 1996 and 763,782 shares at the end of 1995.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income,
which becomes effective for financial statements for periods beginning after
December 15, 1997. SFAS No. 130 requires a company to (a) classify items of
other comprehensive income by their nature in a financial statement and, (b)
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of a
statement of financial position. The company is currently evaluating the impact
of SFAS No. 130 on its reporting practices.
PREFERRED STOCK The company has the following classes of preferred stock,
without par value, as of December 31, 1997:
<TABLE>
<CAPTION>
CLASS AUTHORIZED AND UNISSUED
<S> <C>
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
</TABLE>
PREFERRED STOCK, SERIES A - PURCHASE RIGHTS In August 1996, the company
authorized and declared a dividend distribution of one right for each share of
common stock of the company outstanding at the close of business on November 17,
1996, and authorized the issuance of one right for each share of common stock of
the company issued between November 17, 1996 and the distribution date. Each
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 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 The company applies APB Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations in accounting for its
stock-based compensation plans described below. 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 $2.1 million in 1997,
$1.2 million in 1996 and $0.4 million in 1995. Had compensation cost for the
company's stock-based compensation plans been determined consistent with SFAS
No. 123, Accounting for Stock-Based Compensation, the company would have
expensed $0.6 million in 1997, $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 $0.7 million in 1997 and $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 was
not significant.
The SFAS No. 123 method of accounting has not been applied to options or
restricted stock granted prior to January 1, 1995. As a result, 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
1997, 1996 and 1995 was $6.90, $7.14 and $5.34 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:
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------------
<S> <C> <C> <C>
Expected life (years) 6 6 6
Interest rate 5.7% 6.3% 6.3%
Volatility 18% 23% 24%
Dividend yield 2.4% 2.7% 3.7%
</TABLE>
- ------------------------------------------------------------------
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 1997, 1996 and 1995 was $29.94, $27.06 and $23.06, respectively, which in
each case was equal to the market value of the company's common stock at the
date of grant.
42 the dexter corporation
<PAGE> 35
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
1994 Long-term Incentive Plan Data
December 31
-------------------------------------------------------
1997 1996 1995
-------------------------------------------------------
Number of Shares
-------------------------------------------------------
<S> <C> <C> <C>
Outstanding at beginning of year 202,487 138,187 64,250
Awarded 74,800 75,500 76,500
Earned and distributed (20,154) (1,863)
Cancelled (25,375) (11,200) (700)
-------------------------------------------------------
Outstanding at end of year 231,758 202,487 138,187
- --------------------------------------------------------------------------------------------------------------------------------
</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 could have been
accompanied by stock appreciation rights, which were also issued at fair market
value, for up to half the number of shares under option. Options and stock
appreciation rights generally became exercisable at the rate of 20% of the
shares each year starting two years after the date of grant. The exercise price
could have been satisfied by surrendering company stock with a like market
value. The Plan, as amended, permitted no future granting of options under the
1979 Stock Option Plan and expired on May 1, 1997.
<TABLE>
<CAPTION>
December 31
---------------------------------------------------------------------------
1997 1996 1995
---------------------------------------------------------------------------
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 16,300 $23.75 59,575 $22.22 81,150 $20.42
Exercised (16,300) $23.75 (42,075) $21.66 (20,975) $15.23
Expired or cancelled (1,200) $20.83 (600) $23.75
------- ------- -------
Outstanding and exercisable at end of year 0 16,300 $23.75 59,575 $22.22
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1987 INTERIM STOCK OPTION PLAN AND DATA The 1987 Interim Stock Option Plan was
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 could 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 consisted of one grant which was issued in 1987 at an
exercise price of $23.75. The Plan, as amended, permitted no future granting of
options under the 1987 Interim Stock Option Plan and expired on May 1, 1997.
<TABLE>
<CAPTION>
December 31
------------------------------------------------------
1997 1996 1995
------------------------------------------------------
Number of Shares
------------------------------------------------------
<S> <C> <C> <C>
Outstanding at beginning of year 6,200 13,350 16,000
Exercised (5,800) (6,550) (1,450)
Expired or cancelled (400) (600) (1,200)
------------------------------------------------------
Outstanding and exercisable at end of year 0 6,200 13,350
- --------------------------------------------------------------------------------------------------------------------------------
</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 at less than fair market
value; therefore, no charges against income have been made.
<TABLE>
<CAPTION>
December 31
-----------------------------------------------------------------------------
1997 1996 1995
-----------------------------------------------------------------------------
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 492,241 $24.42 690,522 $24.01 738,500 $24.21
Granted 202,700 $30.49 49,000 $26.63 31,500 $22.82
Exercised (125,265) $24.26 (210,069) $23.17 (19,566) $21.83
Expired or cancelled (9,073) $27.49 (37,212) $26.78 (59,912) $26.54
-------- -------- -------
Outstanding at end of year 560,603 $26.60 492,241 $24.42 690,522 $24.01
Exercisable options at end of year 322,531 $24.25 385,519 $24.12 535,584 $23.80
Shares available for future grant 9,359 202,986 214,774
At December 31, 1997, 550,603 options were outstanding with a range of exercise
prices of $20.88 - $29.94 and a weighted-average remaining contractual life of
approximately 4 years. The remaining 10,000 options outstanding had an exercise
price of $41.22 and a weighted-average contractual life of approximately 7
years.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
the dexter corporation 43
<PAGE> 36
DIVISION AND SUBSIDIARY HEADQUARTERS
<TABLE>
<CAPTION>
<S> <C> <C>
DEXTER AEROSPACE MATERIALS DEXTER NONWOVENS LIFE TECHNOLOGIES, INC.
2850 Willow Pass Road Two Elm Street (majority owned)
Bay Point, CA 94565-3299 Windsor Locks, CT 06096-2335 9800 Medical Center Drive
(925) 458-8000 (860) 654-8300 Rockville, MD 20850
Jeffrey W. McClelland David G. Gordon (301) 610-8000
Division President Senior Division President J. Stark Thompson, Ph.D.
President and
DEXTER ELECTRONIC MATERIALS DEXTER PACKAGING PRODUCTS Chief Executive Officer
15051 East Don Julian Road East Water Street
Industry, CA 91746-3398 Waukegan, IL 60085-5652
(626) 968-6511 (847) 623-4200
Ronald C. Benham T. Daniel Clark
Senior Division President Senior Division President
DEXTER MAGNETIC MATERIALS DEXTER S.A.
48460 Kato Road B.P. 51
Fremont, CA 94538-7337 14 rue Chanay
(510) 656-5700 71700 Tournus, France
David Woodhead 33-385-40-4545
Division President Gerard R. Mazure
Directeur General
</TABLE>
SHAREHOLDER/INVESTOR INFORMATION
<TABLE>
<CAPTION>
<S> <C>
THE DEXTER CORPORATION NOTICE OF ANNUAL MEETING
One Elm Street You are cordially invited to attend the annual meeting of shareholders
Windsor Locks, CT 06096-2334 beginning at 10:00 a.m., Thursday, April 23, 1998, at The Hartford Club,
(860) 292-7675 46 Prospect Street, Hartford, Connecticut.
(860) 292-7673 Facsimile
NOTICE OF FORM 10-K ANNUAL REPORT
STOCK EXCHANGE The Form 10-K Annual Report of The Dexter Corporation filed with the Securities
Listing: New York Stock Exchange and Exchange Commission, as well as the Form 10-K Annual Report of Life
Stock Symbol: DEX Technologies, Inc., are available without charge after March 31 of each year to
shareholders and prospective investors. Please contact the Corporate
REGISTRAR Communications Department in Windsor Locks, Connecticut, at (860) 292-7615.
ChaseMellon Shareholder Services, L.L.C.
Ridgefield Park, NJ SHAREHOLDERS' STOCK SAVINGS PLAN/INQUIRIES
Dexter shareholders can reinvest their dividends automatically in additional
TRANSFER AGENT shares of Dexter common stock at the market price. Participants can also invest
ChaseMellon Shareholder Services, L.L.C. up to an additional $3,000 in Dexter shares each quarter through this service.
Ridgefield Park, NJ, and New York, NY
Also, if you have any questions concerning your account as a shareholder, such
INVESTOR RELATIONS as name and address changes, inquiries regarding dividend checks, stock
Kathleen Burdett certificates, or if you need tax information regarding your account, please
Vice President and Chief Financial Officer contact:
(860) 292-7620
(860) 292-7669 Facsimile ChaseMellon Shareholder Services, L.L.C.
Overpeck Centre
John D. Thompson 85 Challenger Road
Senior Vice President, Ridgefield Park, NJ 07660
Strategic and Business Development (800) 288-9541
(860) 292-7640 www.chasemellon.com
(860) 292-7669 Facsimile
CORPORATE COMMUNICATIONS/ TDD SERVICE AVAILABLE
MEDIA CONTACT Dexter shareholders with hearing or speech disabilities can get information
Ellen C. Miles about their accounts through TDD services offered by ChaseMellon Shareholder
Corporate Communications Manager Services, L.L.C. at (800) 231-5469.
(860) 292-7686
(860) 292-7627 Facsimile
</TABLE>
<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>
Canstoll GmbH............................................ 100% Austria
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 do Brasil Ltda. .................................. 100% Brazil
Dexter Electronic Materials (M) Sdn. Bhd................. 100% Malaysia
Dexter Environmental Assurance Ltd. ..................... 100% Bermuda
Dexter Europe S.A. ...................................... 100% Belgium
Dexter Holdings.......................................... 100% England
Dexter Hysol Aerospace, Inc. ............................ 100% Delaware
Dexter Hysol (Malaysia) Sdn. Bhd. ....................... 100%(G) Malaysia
Dexter International Corporation......................... 100% Connecticut
Dexter International (Thailand), Ltd. ................... 100% Thailand
Dexter Magnetic Materials GmbH........................... 100%(E) Germany
Dexter Mexicana S.A. de C.V. ............................ 100% Mexico
Dexter Midland Company Limited........................... 70% 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 Philippines, Inc. ................................ 100% Philippines
Dexter Powders, Inc. .................................... 100%(B) Delaware
Dexter (RPI), Inc. ...................................... 100%(B) Delaware
Dexter S.A. ............................................. 97% France
Dexter S.p.A. ........................................... 100%(F) Italy
Dexter Speciality Chemicals Limited...................... 100%(C)(B) England
Dexter Speciality Materials Limited...................... 100%(C) Scotland
Dexter South Africa (Pty) Ltd. .......................... 60% South Africa
Dexter U.K. Limited...................................... 100%(H) England
Hysol Limited............................................ 100% Japan
Kettlebrook Insurance Company, Ltd. ..................... 100%(I) Bermuda
Kolack A.G. ............................................. 100% Switzerland
Life Technologies, Inc. ................................. 52% Delaware
Permag Corp. ............................................ 100% New York
</TABLE>
<PAGE> 2
EXHIBIT 21 -- CONTINUED
<TABLE>
<CAPTION>
PERCENTAGE OF JURISDICTION IN WHICH
NAME OWNERSHIP(A) INCORPORATED OR ORGANIZED
---- ---------------- -------------------------
<S> <C> <C>
Potter Paint Company of Texas, Inc. ..................... 100% Texas
QMI Asia Pte. Ltd. ...................................... 100% Singapore
The Dexter GmbH.......................................... 100%(C) Germany
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 52% 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 do Brasil Ltda. ................. 100% Brazil
Life Technologies Foreign Sales Corporation........ 100% Barbados
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 Mauritius Ltd. .................. 100% Mauritius
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
Serum Tech (unincorporated joint venture).......... 40%(C) Maryland
</TABLE>
- ---------------
(A) owned by Life Technologies Holdings, Unlimited
(B) owned by Life Technologies Overseas Ltd.
(C) owned by Serum Technologies Holdings, Inc.
<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
Hysol Indael de Mexico S.A. ............................. 49%(B) Mexico
Lexter S.r.1. ........................................... 49%(B)(D) Italy
Midland-Dexter de Venezuela, S.A. ....................... 49%(C) Venezuela
</TABLE>
- ---------------
(A) owned by Dexter ADAF Holdings, Inc.
(B) owned by The Dexter Corporation
(C) owned 13.9% by Dexter U.K. Ltd. and 35.1% by The Dexter Corporation
(D) 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, 333-04081 and 333-42663) of our report dated February 3,
1998, on our audits of the consolidated financial statements and financial
statement schedule of The Dexter Corporation as of December 31, 1997, 1996, and
1995, 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, 1997.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Springfield, Massachusetts
March 10, 1998
<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-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 68,306
<SECURITIES> 0
<RECEIVABLES> 184,744
<ALLOWANCES> 7,663
<INVENTORY> 159,901
<CURRENT-ASSETS> 440,452
<PP&E> 712,125
<DEPRECIATION> 363,953
<TOTAL-ASSETS> 961,776
<CURRENT-LIABILITIES> 236,536
<BONDS> 180,030
0
0
<COMMON> 24,984
<OTHER-SE> 347,877
<TOTAL-LIABILITY-AND-EQUITY> 961,776
<SALES> 1,147,055
<TOTAL-REVENUES> 1,159,066
<CGS> 735,367
<TOTAL-COSTS> 735,367
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,192
<INCOME-PRETAX> 111,085
<INCOME-TAX> 39,991
<INCOME-CONTINUING> 56,427
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 56,427
<EPS-PRIMARY> 2.45
<EPS-DILUTED> 2.41
</TABLE>
