<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1999
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
DEXTER CORPORATION
(Exact name of registrant as specified in its charter)
CONNECTICUT 06-0321410
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE ELM STREET, WINDSOR LOCKS, CONNECTICUT 06096
(Address of principal executive offices) (Zip Code)
(860) 292-7675
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes..X..... No.......
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
CLASS Outstanding at June 30, 1999
<S> <C>
COMMON STOCK, PAR VALUE $1 23,037,976 SHARES
</TABLE>
<PAGE> 2
PART I
FINANCIAL INFORMATION
Item 1 - Financial Statements
Reference is made to the following condensed consolidated financial
statements, which are incorporated herein by reference:
(a) Exhibit 99a - Condensed Statement of Income for the three and
six-month periods ended June 30, 1999 and 1998.
(b) Exhibit 99b - Condensed Statement of Financial Position as of
June 30, 1999, December 31, 1998, and June 30, 1998.
(c) Exhibit 99c - Condensed Statement of Cash Flows for the
six-month periods ended June 30, 1999 and 1998.
(d) Exhibit 99d - Condensed Statement of Comprehensive Income for
the three and six-month periods ended June 30, 1999 and 1998.
(e) Exhibit 99e - Net Sales and Operating Income by Segment for
the three and six-month periods ended June 30, 1999 and 1998.
(f) Exhibit 99f - Notes to Condensed Consolidated Financial
Statements.
The unaudited financial data included herein as of June 30, 1999
and 1998, and for the three and six-month periods then ended, have
been reviewed by the registrant's independent public accountants,
PricewaterhouseCoopers LLP, and their report is attached.
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
ANALYSIS OF OPERATIONS
The Company reported second quarter 1999 net income of $13.7 million, or $.60
per share on a diluted basis, compared with $16.4 million, or $.70 per share
diluted, for the second quarter of 1998. Dexter's increased ownership of Life
Technologies, Inc. created noncash amortization charges which, together with the
net impact of divestitures and acquisitions, reduced second quarter 1999
earnings by $.10 per share.
Sales in the second quarter of 1999 were $256.1 million, a decrease of 15%,
compared with sales of $302.6 million in the second quarter of 1998. Volume
increases of 5% were more than offset by an 18% decrease due to the net effect
of divestitures and acquisitions, price decreases averaging 1%, and a 1%
unfavorable effect of currency translation rates.
<PAGE> 3
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations, continued
ANALYSIS OF OPERATIONS, CONTINUED
Sales for the first six months of 1999 were $536.0 million, a 10% decrease
compared with sales of $592.5 million for the same period last year. Volume
increases of 4% were more than offset by a 13% decrease due to the net effect of
divestitures and acquisitions and price decreases averaging 1%.
Earnings from operations for the first six months of 1999 were $24.1 million, or
$1.05 per share on a diluted basis, compared with $30.6 million, or $1.31 per
share diluted, for the same period last year. Dexter's increased ownership of
Life Technologies, Inc. created noncash amortization charges which, together
with the net impact of divestitures and acquisitions, reduced earnings for the
first six months of 1999 by $.23 per share. Including the gain on divestiture of
product lines of $2.53 per share, which occurred in the first quarter of 1999,
total earnings for the first six months of 1999 were $82.6 million, or $3.58 per
share diluted, compared with the $1.31 per share diluted for the same period
last year.
Sales of nonwoven medical products and electronic encapsulation materials showed
continued improvement and were stronger in the second quarter of 1999 compared
with the second quarter of 1998. Products with strong performance in the second
quarter and first six months of 1999, compared with the same periods last year,
include products at Life Technologies, Inc., nonwoven wet wipes and specialty
coatings in the specialty polymers segment.
Sales of magnetic materials and printed wiring board products serving the
electronics market had weaker performance in both the second quarter and first
six months of 1999 compared with the same periods last year. Sales of nonwoven
food packaging products had weaker sales in the second quarter of 1999 compared
to the second quarter of 1998.
Consolidated gross margin of 39.9% for the second quarter of 1999, stated as a
percentage of sales, increased 3.3 percentage points from 36.6% in the second
quarter of 1998. Excluding charges incurred in the second quarter of 1999
relating to Dexter's increased ownership in Life Technologies, Inc., which
unfavorably impacted gross margin by 0.8 percentage points, gross margin
improved 4.1 percentage points. Gross margin of 38.4% for the first six months
of 1999 increased 1.9 percentage points compared with 36.5% for the same period
last year. Excluding the charges incurred for the first six months of 1999
relating to Dexter's increased ownership in Life Technologies, Inc., which
unfavorably impacted gross margin by 1.0 percentage point, gross margin improved
2.9 percentage points. These improvements were the result of increased volume
and a favorable product mix at Life Technologies, Inc. and the divestiture of
the lower gross margin Packaging Coatings business in the first quarter of 1999.
<PAGE> 4
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations, continued
ANALYSIS OF OPERATIONS, CONTINUED
Marketing and administrative costs increased $2.5 million, or 2%, for the first
six months of 1999 compared with the first six months of 1998. The increase was
primarily due to increased costs at Life Technologies, Inc. and higher general
corporate expenses that were partially offset by reduced expense resulting from
the Packaging Coatings divestiture in the first quarter of 1999.
Research and development expense decreased $2.1 million, or 15%, in the second
quarter of 1999 and $2.3 million, or 8%, for the first six months of 1999
compared with the same periods in 1998. These decreases were primarily due to
lower expenses resulting from the divestiture in the first quarter of 1999.
Interest expense of $11.1 million for the first six months of 1999 increased
$2.4 million, or 28%, compared with the first six months of 1998. The increase
was primarily due to higher average borrowings in the first quarter of 1999
following the acquisition of an additional 22% ownership in Life Technologies,
Inc. in December 1998. These borrowings were repaid at the beginning of March
1999 with proceeds received from the divestiture of the Packaging Coatings
business.
Minority interest expense decreased $1.7 million, or 36%, in the second quarter
of 1999 compared with the same period in 1998. This decrease was principally due
to Dexter increasing its ownership of Life Technologies, Inc. to 71% effective
in December 1998.
<PAGE> 5
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations, continued
ANALYSIS OF FINANCIAL CONDITION
Accounts receivable as of June 30, 1999 were $176.2 million, a decrease of $27.7
million and $35.9 million, respectively, compared with $203.9 million at
December 31, 1998 and $212.1 million at June 30, 1998. These decreases were
primarily due to the divestiture of the Packaging Coatings business in the first
quarter of 1999 of $44.7 million partially offset by increased receivables from
continuing operations.
Prepaid and deferred expenses as of June 30, 1999 were $24.2 million, a decrease
of $4 million compared with $28.2 million at June 30, 1998. This decrease was
primarily due to the divestiture of the Packaging Coatings business.
Property, plant, and equipment as of June 30, 1999 was $331.9 million, a
decrease of $28.6 million and $24.4 million, respectively, compared with $360.5
million at December 31, 1998 and $356.3 million at June 30, 1998. These
decreases were primarily attributable to the divestiture of the Packaging
Coatings business partially offset by capital expenditures, net of depreciation.
Excess of cost over net assets of businesses acquired (excess acquisition cost)
as of June 30, 1999 was $122.8 million, an increase of $29 million, compared
with $93.8 million as of June 30, 1998. This increase was primarily due to an
increase of $63.4 million attributable to Dexter acquiring an additional 22%
ownership of LTI in December 1998, partially offset by a decrease of $30.8
million resulting from the divestiture of the Packaging Coatings business and
amortization charges of $7.8 million. Excess acquisition cost at June 30, 1999
decreased $34.2 million from $157 million at December 31, 1998 primarily due to
the divestiture of the Packaging Coatings business and amortization charges of
$4.4 million.
Patents, technology, trademarks, and covenants as of June 30, 1999 were $117.3
million, an increase of $89.1 million, compared with $28.2 million as of June
30, 1998. This increase was primarily due to an increase of $91.5 million
attributable to Dexter's increased ownership of LTI partially offset by
amortization charges of $3.9 million.
Other assets were $54.6 million as of June 30, 1999, an increase of $8.4
million, compared with $46.2 million as of June 30, 1998. This increase was
primarily due to increases in deferred tax assets, partially offset by a
decrease in investments in affiliates due to the divestiture of the Company's
40% interest in Akzo Dexter Aerospace Finishes VoF in the first quarter of 1999.
Accounts payable of $69.3 million as of June 30, 1999, decreased $22.4 million
and $29.1 million, respectively, compared with $91.7 million at December 31,
1998 and $98.4 million at June 30, 1998. These decreases were primarily due to
the divestiture of the Packaging Coatings business.
<PAGE> 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations, continued
ANALYSIS OF FINANCIAL CONDITION, CONTINUED
Accrued liabilities and taxes as of June 30, 1999 were $116.7 million, an
increase of $21.3 million and $23.6 million, respectively, compared with $95.4
million as of December 31, 1998 and $93.1 million as of June 30, 1998. These
increases were principally due to an increase in accrued taxes related to the
gain on the sale of the Packaging Coatings business. Long-term deferred income
taxes were $45.5 million as of June 30, 1999, an increase of $23.3 million,
compared with $22.2 million as of June 30, 1998. This increase was also
primarily due to increased deferred taxes related to the gain on the sale of the
Packaging Coatings business.
Long-term debt was $199.8 million as of June 30, 1999, a decrease of $182.4
million, compared with $382.2 million as of December 31, 1998. This decrease was
primarily due to the repayment of long-term borrowings, related to the increased
ownership of LTI, with proceeds received from the divestiture of the Packaging
Coatings business. Long-term debt at June 30, 1999 increased by $20 million
compared with $179.8 million as of June 30, 1998. Included in this increase was
$3 million of debt related to LTI's acquisition of a process chromatography and
research products business, combined with additional borrowings used to fund
partial payment of the taxes on the gain on the sale of the Packaging Coatings
business.
Deferred items were $40.7 million as of June 30, 1999, an increase of $4.5
million compared with $36.2 million as of December 31, 1998. This increase was
primarily due to a non-compete agreement associated with the divestiture of the
Packaging Coatings business partially offset by decreased pension and
postretirement liabilities. Deferred items at June 30, 1999 increased $7.2
million from $33.5 million at June 30, 1998 primarily due to the non-compete
agreement associated with the divestiture of the Packaging Coatings business.
Minority interests of $86.7 million as of June 30, 1999 decreased $28.1 million
compared with $114.8 million as of June 30, 1998. This decrease was primarily
due to Dexter's increased ownership of LTI. Dexter's ownership in LTI increased
to approximately 71% from approximately 52% at June 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity is strong and ample lines of credit are available to the
Company and its subsidiaries. As shown in the Condensed Statement of Cash Flows,
cash provided from operations of $5.7 million and investment activities of
$181.6 million were exceeded by the cash needed for financing activities of $208
million, thereby decreasing cash for the first six months of 1999 by $20.7
million.
Operating activities for the first six months of 1999 provided $5.7 million in
cash. Net income, after adjustments for the pretax gain on the divestiture of
the Packaging Coatings business, and the associated income taxes not due,
depreciation and amortization, and minority interests were the principal source
of cash from operations in 1999. Working capital increases were the principal
use of cash from operations.
Investment activity for the first six months of 1999 included cash received from
divestitures of $228.9 million, primarily related to the divestiture of the
Packaging Coatings business, including Dexter SAS. Also included in investment
activity during the first six months of 1999 were capital expenditures of $34.7
million and cash expenditures for acquisitions of $13.5 million, primarily
related to LTI's acquisition of a process chromatography and research products
business.
Financing activities for the first six months of 1999 included cash outflows
principally used for the repayment of long-term debt of $182.6 million, which
was primarily related to the increased ownership of LTI, the purchase of 344,500
shares of the Company's outstanding common stock for $10.1 million, and dividend
payments of $12 million.
<PAGE> 7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations, continued
LIQUIDITY AND CAPITAL RESOURCES, CONTINUED
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.
IMPACT OF THE YEAR 2000
General
The year 2000 issue is the result of computer programs being written using two
digits rather than four digits to define the applicable year. Any of the
Company's systems, equipment, or hardware that have date-sensitive software or
embedded chips may recognize a date using "00" as the year 1900 rather than the
year 2000. This could result in a system failure or miscalculations causing
disruption of operations, including, among other things, a temporary inability
to properly manufacture products, process transactions, send invoices, or engage
in similar normal business activities.
Based on its initial assessments, the Company had determined that it would be
required to modify or replace portions of its equipment, hardware, and software
so that affected systems will properly utilize dates beyond December 31, 1999.
The Company presently believes that, with modifications and replacement of
existing equipment, hardware, and software, the year 2000 issue will be
mitigated.
Project Plan & Status
The Company's plan to resolve the year 2000 issue is being implemented by each
of the Company's businesses and involves five phases: inventory; risk
assessment, prioritization, and ownership assignment; compliance research;
remediation; and testing. The inventory phase and the risk assessment,
prioritization, and ownership assignment phase, which were performed
concurrently, are complete. The compliance research phase is substantially
complete. The remediation and testing phases are well underway and are expected
to be substantially completed by September 30, 1999. Although the Company's year
2000 plan is being completed on a business by business basis, it is estimated
that the remediation phase is approximately 85% to 90% complete, and the testing
phase is approximately 50% to 60% complete.
The Company's year 2000 inventory of potentially affected items is segregated
into four categories: business applications (developed software, customized
extensions to purchased software and system interfaces), tools and platforms
(purchased commercial products, both hardware and software), intelligent devices
(manufacturing, laboratory, office, and facilities equipment), and external
business partners (suppliers, customers, and other service providers). Business
applications and tools and platforms are considered information technology
("IT") systems while intelligent devices and external business partners are
considered non-IT systems.
<PAGE> 8
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations, continued
IMPACT OF THE YEAR 2000, CONTINUED
Concerning IT systems, two of the Company's businesses have replaced the
majority of their applications with year 2000 compliant versions of new
enterprise resource planning ("ERP") software. Remaining legacy systems for
these businesses that were not replaced by the ERP systems are being made year
2000 compliant or replaced. Two businesses are in the process of "repairing"
(i.e., making year 2000 compliant) their existing core business systems and have
replaced some portions of their software with year 2000 compliant software. The
remaining business has upgraded its core business applications to a year 2000
compliant version and is testing these applications to validate year 2000
compliancy.
With respect to non-IT systems, the Company has dedicated resources to assist
its businesses with identifying potentially affected intelligent devices and is
using an outside firm that has a proprietary year 2000 compliance status
database to assist in the compliance research for these devices. Determination
of compliance status, remediation, and testing of these devices includes
reliance, in some cases, on equipment manufacturer's compliance certification.
The external business partners category includes identifying and prioritizing
critical suppliers and customers and communicating with them about their plans
and progress in addressing the year 2000 problem. The Company has established a
questionnaire to be used by the businesses for obtaining this information from
key business partners. To date, the Company is not aware of any problems that
would materially impact results of operations, liquidity, or capital resources.
However, the Company has no means of insuring that these parties will be year
2000 ready and the inability of these parties to successfully complete their
year 2000 compliance program could impact the Company. For key business
partners, the initial assessments are evaluated and, as deemed necessary,
follow-up assessments are made. We expect this process to be ongoing throughout
1999.
The Company is in the process of developing detailed contingency and business
continuation plans for each business to address potential year 2000 exposures.
Development of these plans will be ongoing throughout 1999.
Costs
The Company utilizes both internal and external resources to repair or replace,
test, and implement the software and operating equipment for year 2000
modifications. The total cost of the year 2000 project is estimated at between
$6 and $7 million and is being funded through operating cash flows. To date, the
Company has incurred approximately $4.1 million (approximately 60% expensed and
40% capitalized) related to all phases of the year 2000 project. The remaining
project costs are attributable to either repair or replacement of equipment,
hardware, and software and will be expensed as incurred or capitalized, as
appropriate.
<PAGE> 9
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations, continued
IMPACT OF THE YEAR 2000, CONTINUED
Risks
The failure to remediate a material year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations, including the ability to produce or deliver products to customers.
Such failures could materially or adversely affect the Company's results of
operations, liquidity, and financial condition. Due to the general uncertainty
inherent in the year 2000 problem, the Company is unable to determine with
certainty at this time whether the consequences of year 2000 failures will have
a material impact on the Company. The Company's year 2000 plan is expected to
significantly reduce the Company's level of uncertainty about the year 2000
problem. The Company believes that by executing its year 2000 plan in a timely
manner, the possibility of significant interruptions of normal operations should
be reduced.
The Company plans to complete the year 2000 project are based on management's
best estimates, which were derived utilizing numerous assumptions of future
events including, but not limited to, the continued availability of certain
resources and other factors. Estimates of the status of completion and the
expected completion dates are based on tasks completed to date compared to all
required tasks. However, there can be no guarantee that expected completion
dates will be met, and actual results could differ materially from those
forecasted. Specific factors that might cause such material differences include,
but are not limited to, the availability and cost of personnel trained in
certain areas, the ability to locate and correct all relevant equipment, devices
and computer codes, and similar uncertainties.
Item 3 - Quantitative and Qualitative Disclosures about Market Risk
In the first quarter of 1999, the Company sold its Packaging Coatings business,
including Dexter SAS, its French industrial coatings subsidiary. As a result,
the Company no longer has any foreign currency exposures relating to foreign
operations of the Packaging Coatings business. Therefore, in March 1999, the
Company redenominated its Swiss franc 29.9 million floating rate long-term
borrowing due in 2003 into a Euro 18.7 million floating rate long-term borrowing
with terms and conditions which exactly mirror the original Swiss franc debt.
The redenomination was effected to hedge certain of the Company's remaining net
asset investments in foreign operations. The Company also terminated the
interest rate exchange agreement applicable to the Swiss franc debt and entered
into a new interest rate swap agreement expiring in 2003 to limit exposures to
interest rate volatility on the Euro 18.7 million floating rate promissory note.
The swap resulted in a fixed annual rate of 3.975%.
The Company's currency exposures vary but, as of June 30, 1999, are primarily
concentrated in the Euro, British Pound Sterling, Swedish Krona, and Japanese
Yen.
<PAGE> 10
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations, continued
FORWARD LOOKING STATEMENTS
Statements made in this report that are not historical are forward-looking
statements, and as such, are subject to a number of risks. These risks,
including those pertaining to the year 2000 issue, and other risks and
uncertainties, are detailed in Dexter's Form 10-K, for the year ended December
31, 1998.
<PAGE> 11
PART II
OTHER INFORMATION
Item 5 - Other Information
Effective in July 1999, Mr. John B. Lockwood was appointed Vice
President, Taxes of the Company. Prior to his appointment, Mr.
Lockwood was Director of Taxes for the Company.
Effective in July 1999, Ms. Rosanne S. Potter was appointed
Treasurer of the Company. Prior to joining the Company, Ms. Potter
served as Leader of Global Facilities Integration for Hercules,
Incorporated, and as Treasurer of BetzDearborn, Inc. from 1996 until
its acquisition by Hercules in 1998.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibit 15 of Part 1 - Letter to Securities and Exchange Commission
re: Incorporation of Accountants' Report
Exhibit 27 of Part 1 - Financial Data Schedule
Exhibit 99 of Part 1 - Second Quarter 1999 Financial Statements and
Notes
(b) No reports on Form 8-K were filed during the quarter for which the
report was filed.
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DEXTER CORPORATION
(Registrant)
July 30, 1999 /s/ Kathleen Burdett
Date........................... ...................................
Kathleen Burdett
Vice President and
Chief Financial Officer
(Principal Financial Officer)
July 30, 1999 /s/ Dale J. Ribaudo
Date........................... ...................................
Dale J. Ribaudo
Vice President and Controller
(Principal Accounting Officer)
<PAGE> 13
INDEX TO EXHIBITS
Exhibit No.
15 Letter to Securities and Exchange Commission re: Incorporation
of Accountants' Report
27 Financial Data Schedule
99 Second Quarter 1999 Financial Statements and Notes
<PAGE> 1
Exhibit 15
Securities and Exchange Commission
450 5th Street, N.W.
Judiciary Plaza
Washington, D.C. 20549
We are aware that our report dated July 14, 1999 on our review of the interim
financial information of Dexter Corporation as of June 30, 1999 and 1998, and
for the three and six month periods then ended, and included in this Form 10-Q
is incorporated by reference in the company's registration statements on Form
S-8, Registration Nos. 2-63959, 33-27597, 33-53307, 33-53309, 333-02985,
333-04081, 333-42663 and 333-76873. Pursuant to Rule 436(c) under the Securities
Act of 1933, this report should not be considered a part of the registration
statements prepared or certified by us within the meaning of Sections 7 and 11
of that Act.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Springfield, Massachusetts
July 30, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED STATEMENT OF FINANCIAL POSITION AND CONDENSED STATEMENT OF INCOME AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 87,849
<SECURITIES> 0
<RECEIVABLES> 168,570
<ALLOWANCES> 4,964
<INVENTORY> 163,805
<CURRENT-ASSETS> 452,085
<PP&E> 678,841
<DEPRECIATION> 346,971
<TOTAL-ASSETS> 1,078,616
<CURRENT-LIABILITIES> 245,182
<BONDS> 199,784
0
0
<COMMON> 24,984
<OTHER-SE> 422,925
<TOTAL-LIABILITY-AND-EQUITY> 1,078,616
<SALES> 535,989
<TOTAL-REVENUES> 540,512
<CGS> 329,943
<TOTAL-COSTS> 329,943
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,086
<INCOME-PRETAX> 138,270
<INCOME-TAX> 49,308
<INCOME-CONTINUING> 82,579
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 82,579
<EPS-BASIC> 3.61
<EPS-DILUTED> 3.58
</TABLE>
<PAGE> 1
EXHIBIT 99a
DEXTER CORPORATION
CONDENSED STATEMENT OF INCOME
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Three Months Ended June 30 Six Months Ended June 30
In thousands of dollars ---------------------------- -------------------------------
(except per share amounts) 1999 1998 Change 1999 1998 Change
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Net sales $256,062 $302,613 -15% $535,989 $592,528 - 10%
Other income 2,396 2,384 + 1% 4,523 4,670 - 3%
--------- --------- --------- ---------
258,458 304,997 -15% 540,512 597,198 - 9%
EXPENSES
Cost of sales 153,794 191,813 -20% 329,943 376,377 - 12%
Marketing and administrative 62,207 61,889 + 1% 126,395 123,933 + 2%
Research and development 12,293 14,390 -15% 26,179 28,466 - 8%
Interest 4,700 4,371 + 8% 11,086 8,679 + 28%
Gain on divestiture of product lines (91,361)
--------- --------- --------- ---------
INCOME BEFORE TAXES 25,464 32,534 -22% 138,270 59,743 +131%
Income taxes 8,697 11,387 -24% 49,308 20,910 +136%
--------- --------- --------- ---------
INCOME BEFORE MINORITY INTERESTS 16,767 21,147 -21% 88,962 38,833 +129%
Minority interests 3,022 4,730 -36% 6,383 8,186 - 22%
--------- --------- --------- ---------
NET INCOME $ 13,745 $ 16,417 -16% $ 82,579 $ 30,647 +169%
========= ========= ========= =========
NET INCOME PER SHARE - BASIC $0.60 $0.71 -15% $3.61 $1.33 +171%
NET INCOME PER SHARE - DILUTED $0.60 $0.70 -14% $3.58 $1.31 +173%
DIVIDENDS DECLARED PER SHARE $0.26 $0.26 $0.52 $0.50 + 4%
AVERAGE SHARES OUTSTANDING (000) - BASIC 22,769 23,012 - 1% 22,884 22,979
AVERAGE SHARES OUTSTANDING (000) - DILUTED 22,946 23,258 - 1% 23,030 23,231 -1%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
Amounts are unaudited.
<PAGE> 2
EXHIBIT 99b
DEXTER CORPORATION
CONDENSED STATEMENT OF FINANCIAL POSITION
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
In thousands of dollars June 30 December 31 June 30
(except per share amounts) 1999 1998 1998
- -------------------------- ----------- ------------ -----------
<S> <C> <C> <C>
ASSETS
Cash and short-term securities $ 87,849 $ 111,049 $ 70,256
Accounts receivable, net 176,207 203,872 212,129
Inventories
Materials and supplies 53,397 65,180 64,160
In process and finished 125,666 129,175 121,223
LIFO reserve (15,258) (17,388) (18,329)
----------- ----------- -----------
163,805 176,967 167,054
Prepaid and deferred expenses 24,224 25,642 28,231
----------- ----------- -----------
Total current assets 452,085 517,530 477,670
Property, plant and equipment, at cost, net 331,870 360,456 356,332
Excess of cost over net assets of businesses acquired 122,753 156,989 93,818
Patents, technology, trademarks, and covenants 117,312 118,152 28,229
Other assets 54,596 55,241 46,161
----------- ----------- -----------
$ 1,078,616 $ 1,208,368 $ 1,002,210
=========== =========== ===========
LIABILITIES & SHAREHOLDERS' EQUITY
Short-term debt $ 35,943 $ 39,810 $ 34,189
Accounts payable 69,266 91,718 98,374
Dividends payable 5,926 5,989 5,989
Accrued liabilities and taxes 116,728 95,427 93,120
Current installments of long-term debt 17,319 17,230 12,914
----------- ----------- -----------
Total current liabilities 245,182 250,174 244,586
Long-term debt 199,784 382,163 179,764
Deferred items 40,675 36,160 33,504
Long-term deferred income taxes 45,484 53,481 22,186
Long-term environmental reserves 12,834 13,501 13,609
Minority interests 86,748 84,340 114,758
Shareholders' equity
Common stock and paid-in capital 40,125 40,255 37,699
Retained earnings 488,750 418,074 428,994
Treasury stock (59,167) (51,512) (49,629)
Accumulated other comprehensive income (21,799) (18,268) (23,261)
----------- ----------- -----------
Total shareholders' equity 447,909 388,549 393,803
----------- ----------- -----------
$ 1,078,616 $ 1,208,368 $ 1,002,210
=========== =========== ===========
EQUITY PER SHARE $ 19.65 $ 16.86 $ 17.10
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
Amounts as of June 30, 1999 and June 30, 1998 are unaudited.
<PAGE> 3
EXHIBIT 99c
DEXTER CORPORATION
CONDENSED STATEMENT OF CASH FLOWS
_______________________________________________________________________________
<TABLE>
<CAPTION>
Six Months Ended June 30
In thousands of dollars 1999 1998
- ----------------------- ---- ----
<S> <C> <C>
OPERATIONS
Net income $ 82,579 $ 30,647
Noncash items
Depreciation and amortization 30,321 26,035
Gain on divestiture of product lines (91,361)
Income taxes not due 19,687 6,375
Minority interests 6,383 8,186
LIFO inventory credit (61) (470)
Equity in net income of affiliates (405) (1,336)
Other (732) 417
Operating working capital increase (40,745) (30,670)
--------- ---------
5,666 39,184
--------- ---------
INVESTMENTS
Property, plant and equipment (34,678) (34,247)
Acquisitions (13,481) (1,047)
Divestitures 228,916
Proceeds from exercise of LTI stock options 1,625 3,168
Other (723) 2,033
--------- ---------
181,659 (30,093)
--------- ---------
FINANCING
Long-term debt, net (182,576) 5,193
Short-term debt, net (3,915) (1,059)
Dividends paid (11,966) (11,013)
LTI dividends paid to minority interest shareholders (990) (1,136)
Purchase of treasury stock (10,126)
Other 1,565 1,117
--------- ---------
(208,008) (6,898)
--------- ---------
(DECREASE) INCREASE IN CASH AND SHORT-TERM SECURITIES $ (20,683) $ 2,193
========= =========
RECONCILIATION OF (DECREASE) INCREASE IN CASH AND
SHORT-TERM SECURITIES
Cash and short-term securities at beginning of period $ 111,049 $ 68,306
Cash and short-term securities at end of period 87,849 70,256
--------- ---------
(Decrease) Increase in cash and short-term securities
per Statement of Financial Position (23,200) 1,950
Currency translation effects 2,517 243
--------- ---------
$ (20,683) $ 2,193
========= =========
</TABLE>
_________________________________________________________________________
See accompanying notes to the condensed consolidated financial statements.
Amounts are unaudited.
<PAGE> 4
EXHIBIT 99d
DEXTER CORPORATION
CONDENSED STATEMENT OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
______________________________________________________________________________________________________________________________
Three Months Ended June 30 Six Months Ended June 30
------------------------------------ ---------------------------------
In thousands of dollars 1999 1998 Change 1999 1998 Change
---- ---- ------ ---- ---- ------
______________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET INCOME $13,745 $16,417 - 16% $82,579 $30,647 + 169%
-------- -------- -------- --------
OTHER COMPREHENSIVE INCOME (LOSS),
NET OF TAX
Currency translation effects (3,600) (389) (3,178) (142)
Unrealized losses on investments (168) (156) + 8% (353) (194) + 82%
-------- -------- -------- --------
OTHER COMPREHENSIVE INCOME (LOSS) (3,768) (545) (3,531) (336)
-------- -------- -------- --------
COMPREHENSIVE INCOME $ 9,977 $15,872 - 37% $79,048 $30,311 + 161%
======== ======== ======== ========
______________________________________________________________________________________________________________________________
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
Amounts are unaudited.
<PAGE> 5
EXHIBIT 99e
DEXTER CORPORATION
NET SALES BY SEGMENT
<TABLE>
<CAPTION>
_________________________________________________________________________________________________________________________________
Three Months Ended June 30 Six Months Ended June 30
------------------------------------- -----------------------------------
In thousands of dollars 1999 1998 Change 1999 1998 Change
_________________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LIFE SCIENCES (a) $ 99,814 $ 91,544 + 9% $199,351 $179,899 + 11%
NONWOVENS 74,106 72,889 + 2% 143,496 139,691 + 3%
SPECIALTY POLYMERS (b) 82,142 138,180 - 41% 193,142 272,938 - 29%
--------- --------- --------- ---------
CONSOLIDATED $256,062 $302,613 - 15% $535,989 $592,528 - 10%
========= ========= ========= =========
</TABLE>
(a) The effect of businesses acquired increased net sales in the Life
Sciences segment by $.7 million, or 1% for the quarter.
(b) The effect of businesses divested decreased net sales in the Specialty
Polymers segment by $56.4 million, or 41%, for the quarter, and $74.6
million, or 27%, year-to-date.
<TABLE>
<CAPTION>
_________________________________________________________________________________________________________________________________
OPERATING INCOME BY SEGMENT
_________________________________________________________________________________________________________________________________
Three Months Ended June 30 Six Months Ended June 30
---------------------------- --------------------------
In thousands of dollars 1999 1998 Change 1999 1998 Change
_________________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LIFE SCIENCES (a) $12,893 $14,675 - 12% $ 26,718 $28,164 - 5%
NONWOVENS 9,536 10,915 - 13% 18,241 20,463 - 11%
SPECIALTY POLYMERS (b) 10,229 13,880 - 26% 110,971 25,149
-------- -------- --------- --------
CONSOLIDATED OPERATING INCOME 32,658 39,470 - 17% 155,930 73,776 + 111%
OTHER INCOME, NET 2,225 1,166 + 91% 3,161 2,635 + 20%
INTEREST EXPENSE (4,700) (4,371) + 8% (11,086) (8,679) + 28%
GENERAL CORPORATE EXPENSE (4,719) (3,731) + 26% (9,735) (7,989) + 22%
-------- -------- --------- --------
CONSOLIDATED INCOME BEFORE TAXES $25,464 $32,534 - 22% $138,270 $59,743 + 131%
======== ======== ========= ========
(a) Life Sciences operating income includes $2.0 million of amortization
charges for the quarter, and $5.5 million, year-to-date associated
with Dexter's increased ownership in LTI.
(b) The gain on the divestiture of product lines increased operating income
in the Specialty Polymers segment by $91.4 million year-to-date.
_________________________________________________________________________________________________________________________________
</TABLE>
Amounts are unaudited.
<PAGE> 6
Exhibit 99f
Dexter Corporation
Notes to Condensed Consolidated Financial Statements
Note 1 - In the opinion of the Company's management, the unaudited condensed
consolidated financial statements reflect adjustments of a normal
recurring nature which are necessary to present fairly the results for
the interim periods. The notes to the condensed consolidated financial
statements, including management's discussion in Part 1, Item 2 of this
Form 10-Q, are incorporated as part of these condensed consolidated
financial statements. The year-end condensed balance sheet data was
derived from the audited financial statements.
Note 2 - Presented below is the reconciliation between basic earnings per share
and diluted earnings per share for the three and six-month periods
ended June 30, 1999 and 1998:
<TABLE>
<CAPTION>
Amounts in thousands Three Months ended June 30 Six Months ended June 30
(except per share data) 1999 1998 1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EARNINGS PER SHARE - BASIC:
Net income $13,745 $16,417 $82,579 $30,647
Weighted average shares
outstanding 22,769 23,012 22,884 22,979
Earnings per share - basic $.60 $.71 $3.61 $1.33
EARNINGS PER SHARE -
DILUTED:
Net income $13,745 $16,417 $82,579 $30,647
Effect of subsidiary
dilutive options on net
income (19) (111) (39) (220)
------- ------- ------- -------
$13,726 $16,306 $82,540 $30,427
======= ======= ======= =======
Weighted average shares
outstanding 22,769 23,012 22,884 22,979
Weighted average effect of
common stock equivalents 177 246 146 252
------- ------- ------- -------
22,946 23,258 23,030 23,231
======= ======= ======= =======
Earnings per share diluted $.60 $.70 $3.58 $1.31
- -------------------------------------------------------------------------------
</TABLE>
<PAGE> 7
Exhibit 99f
Dexter Corporation
Notes to Condensed Consolidated Financial Statements (continued)
Note 3 - In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities. As issued, this
statement is effective for all fiscal quarters of all fiscal years
beginning after June 15, 1999. In June 1999, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards
(SFAS) No. 137, Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No.
133. This statement amends Statement No. 133 to be effective for all
fiscal quarters of all fiscal years beginning after June 15, 2000. The
Company is currently evaluating the impact of SFAS No. 133.
Note 4 - The following are included as components of Common Stock and Paid-in
Capital:
<TABLE>
<CAPTION>
COMMON STOCK & PAID-IN CAPITAL JUNE 30, DECEMBER 31, JUNE 30,
(IN THOUSANDS OF DOLLARS) 1999 1998 1998
- --------------------------------- -------- ------------ --------
<S> <C> <C> <C>
Common stock $24,984 $24,984 $24,984
Paid-in capital 18,634 17,689 16,570
Unearned compensation on
restricted stock (3,493) (2,418) (3,855)
------- ------- -------
$40,125 $40,255 $37,699
======= ======= =======
</TABLE>
Note 5 - The following are included as components of Accumulated Other
Comprehensive Income:
<TABLE>
<CAPTION>
ACCUMULATED OTHER COMPREHENSIVE JUNE 30, DECEMBER 31, JUNE 30,
INCOME (IN THOUSANDS OF DOLLARS) 1999 1998 1998
- --------------------------------- -------- ------------ --------
<S> <C> <C> <C>
Currency translation effects ($21,035) ($17,857) ($22,617)
Unrealized losses on investments (743) (390) (620)
Minimum pension liability adjustment (21) (21) (24)
--------- ------- --------
($21,799) ($18,268) ($23,261)
========= ======== ========
</TABLE>
Note 6 - Presented below is a reconciliation of currency translation effects,
included in the Statement of Comprehensive Income, for reclassification
adjustments due to divestitures:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
(IN THOUSANDS OF DOLLARS) JUNE 30, 1999 JUNE 30, 1999
- ------------------------- ------------------ ----------------
<S> <C> <C>
Currency translation effects ($3,600) ($11,752)
Plus: Reclassification adjustments
for losses included in net
income due to divestitures 8,574
------- --------
Net currency translation effects ($3,600) ($3,178)
======= ========
</TABLE>
<PAGE> 8
Exhibit 99f
Dexter Corporation
Notes to Condensed Consolidated Financial Statements (continued)
Note 7- In August 1998, the Company entered into a purchase and sale agreement
to sell certain assets and stock of its Packaging Coatings business and
Dexter SAS to The Valspar Corporation. The sale of these businesses was
subject to regulatory approval and customary closing conditions. This
transaction was completed in February 1999 with total proceeds of $225
million subject to post-closure adjustments.
In January 1999, the Company divested its 40% interest in Akzo Dexter
Aerospace Finishes VoF, a joint venture between the Company and Akzo
Nobel NV, to Akzo Nobel NV for approximately book value.
Note 8- In December 1998, Dexter acquired an additional 22% ownership of LTI.
As a result of the acquisition, Dexter owns an aggregate of
approximately 71% of the total number of issued and outstanding shares
of LTI.
The following unaudited pro forma information presents the results of
operations of the Company as if the acquisition had taken place on
January 1, 1998.
<TABLE>
<CAPTION>
In Thousands of Dollars Three Months Ended Six Months Ended
(except per share amounts) June 30, 1998 June 30, 1998
-------------------------- ------------------ ----------------
<S> <C> <C>
Net Sales $302,613 $592,528
Net Income $ 14,680 $ 26,062
Net Income Per Share-diluted $.63 $1.12
</TABLE>
These unaudited pro forma results have been prepared for comparative
purposes only and include certain adjustments, such as the charges for
acquired-in-process research and development and transaction costs,
additional amortization expense, and increased interest expense on
acquisition debt. They do not purport to be indicative of the results
of operations which actually would have resulted had the acquisition
occurred on the date indicated, or which may result in the future.
Note 9- Assets in the Specialty Polymers segment at June 30, 1999 were $261.3
million, a decrease of $156.7 million, compared with $418 million at
December 31, 1998. This decrease was primarily due to the divestiture
of the Packaging Coatings business, including Dexter SAS, in February
1999.
Assets in the Life Sciences segment at June 30, 1999 were $333.3
million, an increase of $35.8 million, compared with $297.5 million at
December 31, 1998. This increase was primarily due to the acquisition
by LTI of a process chromatography and research products business in
May 1999, and capital expenditures, net of depreciation.
<PAGE> 9
Exhibit 99f
Dexter Corporation
Notes to Condensed Consolidated Financial Statements (continued)
Note 10 - The Company and its subsidiaries are subject to potential liability
under government regulations, contractual and other matters, and
various claims and legal actions which are pending or may be asserted.
These matters arise in the ordinary course and conduct of the business
of the Company and its subsidiaries and some are expected to be
covered, at least in part, by insurance. At June 30, 1999, $0.3
million of current and $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. It is reasonably possible that some of the potential
claims and legal actions that may be asserted against LTI could be
decided unfavorably to LTI and, if so, this could have a material
adverse effect on the Company's operating results or cash flows in
future reporting periods. While the outcome of all of the pending and
potential claims and legal actions against the Company and its
subsidiaries cannot be forecast with certainty, management believes
that, with the possible exception of the potential liability of LTI
described above, 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.
<PAGE> 10
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
Dexter Corporation
We have reviewed the accompanying condensed statement of financial position of
Dexter Corporation as of June 30, 1999 and 1998, and the related condensed
statements of income and comprehensive income for the three and six month
periods then ended, and the condensed statement of cash flows for the six month
periods then ended. These financial statements are the responsibility of the
company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated statement of financial position of Dexter
Corporation as of December 31, 1998, and the related consolidated statements of
income, cash flows, and changes in shareholders' equity for the year then ended
(not presented herein); and in our report dated February 9, 1999, we expressed
an unqualified opinion on those consolidated financial statements. In our
opinion, the information set forth in the accompanying condensed statement of
financial position as of December 31, 1998 is fairly stated, in all material
respects, in relation to the consolidated statement of financial position from
which it has been derived.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Springfield, Massachusetts
July 14, 1999
