<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 March 31, 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)
<TABLE>
<S> <C>
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)
</TABLE>
(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 April 30, 1999
<S> <C>
COMMON STOCK, PAR VALUE $1 23,029,544 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
months ended March 31, 1999 and 1998.
(b) Exhibit 99b - Condensed Statement of Financial Position as of
March 31, 1999, December 31, 1998, and March 31, 1998.
(c) Exhibit 99c - Condensed Statement of Cash Flows for the three
months ended March 31, 1999 and 1998.
(d) Exhibit 99d - Condensed Statement of Comprehensive Income for
the three months ended March 31, 1999 and 1998.
(e) Exhibit 99e - Net Sales and Operating Income by Segment for
the three months ended March 31, 1999 and 1998.
(f) Exhibit 99f - Notes to Condensed Consolidated Financial
Statements.
The unaudited financial data included herein as of March 31, 1999 and
1998, and for the three-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 first quarter 1999 net income from operations of $10.4
million, or $.45 per share on a diluted basis, compared with $14.2 million, or
$.61 per share diluted, for the first quarter of 1998. Dexter's increased
ownership of Life Technologies, Inc. created noncash amortization charges which,
together with the net impact of divestitures, reduced first quarter 1999
earnings by $.13 per share. Improved operating results in the life sciences
segment only partially offset some continuing softness in the specialty polymers
segment related to the electronics market which, although improving, is still
well below the strong first quarter of 1998.
<PAGE> 3
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations, continued
ANALYSIS OF OPERATIONS, CONTINUED
During the quarter, Dexter sold its Packaging Coatings business, including
Dexter SAS, its French industrial coatings subsidiary, and its 40% interest in
Akzo Dexter Aerospace Finishes VoF. The first quarter comparison above excludes
the gain from these divestitures of $2.53 per share. Including the gain, total
earnings for the first quarter of 1999 were $68.8 million, or $2.98 per share
diluted, compared with the $.61 per share diluted in the first quarter of 1998.
Sales in the first quarter of 1999 were $279.9 million, a decrease of 3%,
compared with sales of $289.9 million in the first quarter of 1998. Volume
increases of 4% and a 1% favorable effect of currency translation rates were
more than offset by a 6% decrease due to divestitures and price decreases
averaging 2%.
Products with strong performance in the first quarter of 1999 include products
at Life Technologies, Inc., nonwoven hygiene products, and aerospace adhesives
and specialty coatings in the specialty polymers segment. In the first quarter
of last year, the electronic materials market was still very strong.
Consequently, sales of electronic encapsulation materials, printed wiring board
products, and magnetic materials had weaker performance in the first quarter of
1999 compared with the first quarter of 1998.
Consolidated gross margin of 37.1% for the first quarter of 1999, stated as a
percentage of sales, increased .8 percentage points from 36.3% in the first
quarter of 1998. This improvement was accomplished despite charges incurred in
the first quarter of 1999 relating to Dexter's increased ownership of Life
Technologies, Inc., which unfavorably impacted gross margin by 1.2 percentage
points. Excluding these charges, gross margin improved 2.0 percentage points as
a result of increased volume and a favorable product mix at Life Technologies,
Inc.
Marketing and administrative costs increased $2.1 million, or 3%, in the first
quarter of 1999, primarily due to increased costs at Life Technologies, Inc.,
which were partially offset by lower expenses resulting from the divestiture of
the Packaging Coatings business in the first quarter of 1999.
Other income of $2.1 million in the first quarter of 1999 decreased $0.2 million
from the first quarter of 1998. The decrease was primarily due to lower equity
income resulting from the divestiture of Dexter's 40% interest in Akzo Dexter
Aerospace Finishes VoF, which was effective January 15, 1999. This decrease was
partially offset by increased interest income.
Interest expense of $6.4 million for the first quarter of 1999 increased $2.1
million, or 48%, compared with the first quarter of 1998. The increase was due
to higher average borrowings in 1999 following the acquisition of an additional
22% ownership of 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.
<PAGE> 4
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations, continued
ANALYSIS OF FINANCIAL CONDITION
Accounts receivable as of March 31, 1999 was $171.5 million, a decrease of $32.4
million and $27.9 million, respectively, compared with $203.9 million at
December 31, 1998 and $199.4 million at March 31, 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.
Property, plant, and equipment as of March 31, 1999 was $321 million, a decrease
of $39.5 million, compared with $360.5 million at December 31, 1998. This
decrease was primarily attributable to the divestiture of the Packaging Coatings
business.
Excess of cost over net assets of businesses acquired (excess acquisition cost)
as of March 31, 1999 was $122.2 million, an increase of $24.4 million, compared
with $97.8 million as of March 31, 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 $7.4 million. Excess acquisition cost at March 31, 1999
decreased $34.8 million from $157 million at December 31, 1998 primarily due to
the divestiture of the Packaging Coatings business and amortization charges of
$2.3 million.
Patents, technology, trademarks, and covenants as of March 31, 1999 were $115.6
million, an increase of $86.8 million, compared with $28.8 million as of March
31, 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 $3.4 million and a decrease of $1.2 million resulting
from the divestiture of the Packaging Coatings business.
Other assets were $53.5 million as of March 31, 1999, an increase of $8.3
million, compared with $45.2 million as of March 31, 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 $77.2 million as of March 31, 1999, decreased $14.5 million
and $23.3 million, respectively, compared with $91.7 million at December 31,
1998 and $100.5 million at March 31, 1998. These decreases were primarily due to
the divestiture of the Packaging Coatings business.
Accrued liabilities and taxes as of March 31, 1999 were $130.9 million, an
increase of $37.3 million and $42 million, respectively, compared with $93.6
million as of December 31, 1998 and $88.9 million as of March 31, 1998. These
increases were principally due to an increase in accrued taxes related to the
sale of the Packaging Coatings business. Long-term deferred income taxes were
$45.4 million as of March 31, 1999, an increase of $23.2 million, compared with
$22.2 million as of March 31, 1998. This increase was also primarily due to
increased deferred taxes related to the sale of the Packaging Coatings business.
<PAGE> 5
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations, continued
ANALYSIS OF FINANCIAL CONDITION, CONTINUED
Long-term debt was $164 million as of March 31, 1999, a decrease of $218.2
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.
Minority interests of $85 million as of March 31, 1999 decreased $26.1 million
compared with $111.1 million as of March 31, 1998. This decrease was primarily
due to Dexter's increased ownership of LTI. As a result, Dexter's ownership in
LTI increased to approximately 71% from approximately 52% at March 31, 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 $3.2 million and investment activities of
$212.6 million exceeded cash needed from financing activities of $198.5 million,
thereby increasing cash for the first three months of 1999 by $17.3 million.
Investment activity for the first three months of 1999 included cash received
from divestitures of $228.7 million, primarily related to the divestiture of the
Packaging Coatings business, including Dexter SAS. Also included in investment
activity during the first quarter of 1999 were capital expenditures of $17
million.
Financing activities for the first three months of 1999 included cash outflows
principally used for the repayment of long-term debt of $216 million, which was
primarily related to the increased ownership of LTI, the purchase of 250,500
shares of the Company's outstanding common stock for $7.2 million, and dividend
payments of $6 million. Cash proceeds of $31.3 million related to new short-term
debt were included in financing activities for the first quarter of 1999.
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.
<PAGE> 6
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations, continued
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 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 substantially complete. The compliance research phase is also
substantially complete. The remediation and testing phases 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 80% to 85% complete, and the testing
phase is approximately 40% to 50% 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.
Concerning IT systems, two of the Company's businesses will replace most of
their existing applications with a year 2000 compliant version of new enterprise
resource planning ("ERP") software. Those legacy systems for these businesses
that will not be replaced by the ERP system will either be 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 will
replace some portions of their software with year 2000 compliant software. The
remaining business has upgraded their core business applications to a year
2000 compliant software version and is in the process of testing these
applications for year 2000 compliancy.
<PAGE> 7
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations, continued
IMPACT OF THE YEAR 2000, CONTINUED
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 may be more
difficult than IT systems, as some of the manufacturers of potentially affected
equipment may no longer be in business.
The external business partners category primarily includes the process of
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.
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 $3.9 million (approximately 50% expensed and
50% 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.
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.
<PAGE> 8
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations, continued
IMPACT OF THE YEAR 2000, CONTINUED
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 March 31, 1999, are primarily
concentrated in the Euro, British Pound Sterling, Swedish Krona, and Japanese
Yen.
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> 9
PART II
OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security Holders
The annual meeting of the shareholders of the Company was held on April
22, 1999, where the following actions were taken:
(a) The re-election to the Board of Directors of Mrs. Henrietta Holsman
Fore, Chairman and Chief Executive Officer of Holsman International
and Chairman and President of Stockton Products; Mr. Bernard M. Fox,
Consultant, Corporate and Energy Strategy; Mr. K. Grahame Walker,
Chairman and Chief Executive Officer of Dexter Corporation; and Mr.
George M. Whitesides, Ph.D., Professor of Chemistry at Harvard
University.
The votes for each director were as follows:
<TABLE>
<CAPTION>
Director For Against
-------- --- -------
<S> <C> <C>
Henrietta Holsman Fore 20,135,429 70,839
Bernard M. Fox 20,102,150 104,118
K. Grahame Walker 20,111,607 94,661
George M. Whitesides 20,125,878 80,390
</TABLE>
In addition, the following directors continue in office for the
terms expiring as indicated: Mr. Charles H. Curl (2000), Mr. Peter
G. Kelly (2000), Mr. Jean-Francois Saglio (2000), Mr. Robert M.
Furek (2001), Mrs. Martha Clark Goss (2001), and Mr. Edgar G. Hotard
(2001).
(b) The selection of PricewaterhouseCoopers LLP as auditors of the Company
for the year 1999 was ratified.
The votes for selection of PricewaterhouseCoopers LLP were as follows:
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C>
20,155,068 25,300 25,900
</TABLE>
(c) The proposal to adopt the Company's 1999 Long-Term Incentive Plan was
approved.
The votes for the approval of the Plan were as follows:
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C>
13,436,716 3,618,832 84,940
</TABLE>
<PAGE> 10
Item 5 - Other Information
Effective in March 1999, Mr. Dale J. Ribaudo was appointed Vice
President and Controller of the Company. Prior to his appointment,
Mr. Ribaudo was Treasurer of the Company.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibit 10M - Dexter Corporation's 1999 Long-Term Incentive Plan was
filed as Exhibit 4.1 to the registrant's registration statement on Form
S-8 (File No. 333-76873) dated April 22, 1999 and is hereby
incorporated herein by reference.
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 - First Quarter 1999 Financial Statements and
Notes
(b) On January 12, 1999, a report on Form 8-K (File No. 1-5542) was filed
for Item 2, Acquisition of Assets, pursuant to section 13 or 15 (d) of
the Securities Exchange Act of 1934.
On March 11, 1999, a report on Form 8-K/A (File No. 1-5542) was filed
as an amendment to the report on Form 8-K filed January 12, 1999, for
Item 7, Financial Statements and Exhibits, pursuant to section 13 or 15
(d) of the Securities Exchange Act of 1934.
On March 15, 1999, a report on Form 8-K (File No. 1-5542) was filed for
Item 2, Disposition of Assets, pursuant to section 13 or 15 (d) of the
Securities Exchange Act of 1934.
<PAGE> 11
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)
Date May 13, 1999 /s/ Kathleen Burdett
------------------ --------------------------------------
Kathleen Burdett
Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date May 13, 1999 /s/ Dale J. Ribaudo
------------------ --------------------------------------
Dale J. Ribaudo
Vice President and Controller
(Principal Accounting Officer)
<PAGE> 12
INDEX TO EXHIBITS
Exhibit No.
10M Dexter Corporation's 1999 Long-Term Incentive Plan was filed as
Exhibit 4.1 to the registrant's registration statement on Form S-8
(File No. 333-76873) dated April 22, 1999, and is hereby
incorporated herein by reference.
15 Letter to Securities and Exchange Commission re: Incorporation
of Accountants' Report
27 Financial Data Schedule
99 First 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 April 19, 1999 on our review of the interim
financial information of Dexter Corporation as of March 31, 1999 and 1998 and
for the three 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
May 13, 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 126,414
<SECURITIES> 0
<RECEIVABLES> 164,263
<ALLOWANCES> 5,139
<INVENTORY> 161,015
<CURRENT-ASSETS> 484,626
<PP&E> 660,500
<DEPRECIATION> 339,471
<TOTAL-ASSETS> 1,096,920
<CURRENT-LIABILITIES> 303,627
<BONDS> 163,976
0
0
<COMMON> 24,984
<OTHER-SE> 418,196
<TOTAL-LIABILITY-AND-EQUITY> 1,096,920
<SALES> 279,927
<TOTAL-REVENUES> 282,054
<CGS> 176,149
<TOTAL-COSTS> 176,149
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,386
<INCOME-PRETAX> 112,806
<INCOME-TAX> 40,611
<INCOME-CONTINUING> 68,834
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 68,834
<EPS-PRIMARY> 2.99
<EPS-DILUTED> 2.98
</TABLE>
<PAGE> 1
EXHIBIT 99A
DEXTER CORPORATION
CONDENSED STATEMENT OF INCOME
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended March 31
In thousands of dollars -------------------------------------
(except per share amounts) 1999 1998 Change
- -------------------------- --------- --------- ------
<S> <C> <C> <C>
REVENUES
Net sales $ 279,927 $289,915 -3%
Other income 2,127 2,286 -7%
--------- --------
282,054 292,201 -3%
EXPENSES
Cost of sales 176,149 184,564 -5%
Marketing and administrative 64,188 62,044 + 3%
Research and development 13,886 14,076 -1%
Interest 6,386 4,308 +48%
Gain on divestiture of product lines (91,361)
--------- --------
INCOME BEFORE TAXES 112,806 27,209
Income taxes 40,611 9,523
--------- --------
INCOME BEFORE MINORITY INTERESTS 72,195 17,686
Minority interests 3,361 3,456 -3%
--------- --------
NET INCOME $ 68,834 $ 14,230
========= ========
NET INCOME PER SHARE - BASIC $ 2.99 $ 0.62
NET INCOME PER SHARE - DILUTED $ 2.98 $ 0.61
DIVIDENDS DECLARED PER SHARE $ 0.26 $ 0.24 + 8%
AVERAGE SHARES OUTSTANDING (000) - BASIC 22,999 22,946
AVERAGE SHARES OUTSTANDING (000) - DILUTED 23,125 23,231
</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 MARCH 31 December 31 March 31
(except per share amounts) 1999 1998 1998
- -------------------------- ----------- ----------- ---------
<S> <C> <C> <C>
ASSETS
Cash and short-term securities $ 126,414 $ 111,049 $ 68,509
Accounts receivable, net 171,536 203,872 199,416
Inventories
Materials and supplies 54,828 65,180 59,875
In process and finished 121,157 129,175 128,236
LIFO reserve (14,970) (17,388) (18,645)
----------- ----------- ---------
161,015 176,967 169,466
Prepaid and deferred expenses 25,661 25,642 30,469
----------- ----------- ---------
Total current assets 484,626 517,530 467,860
Property, plant and equipment, at cost, net 321,029 360,456 350,584
Excess of cost over net assets of
businesses acquired 122,193 156,989 97,812
Patents, technology, trademarks,
and covenants 115,556 118,152 28,812
Other assets 53,516 55,241 45,206
----------- ----------- ---------
$ 1,096,920 $ 1,208,368 $ 990,274
=========== =========== =========
LIABILITIES & SHAREHOLDERS' EQUITY
Short-term debt $ 71,035 $ 39,810 $ 29,962
Current installments of long-term debt 16,966 17,230 12,924
Accounts payable 77,205 91,718 100,514
Accrued liabilities and taxes 130,928 93,612 88,851
Current environmental reserves 1,521 1,815 2,200
Dividends payable 5,972 5,989 5,508
----------- ----------- ---------
Total current liabilities 303,627 250,174 239,959
Long-term debt 163,976 382,163 185,420
Deferred items 42,334 36,160 35,287
Long-term deferred income taxes 45,427 53,481 22,207
Long-term environmental reserves 13,364 13,501 13,556
Minority interests 85,012 84,340 111,142
Shareholders' equity
Common stock and paid-in capital 40,803 40,255 38,333
Retained earnings 480,936 418,074 418,565
Treasury stock (60,528) (51,512) (51,479)
Accumulated other comprehensive
income (18,031) (18,268) (22,716)
----------- ----------- ---------
Total shareholders' equity 443,180 388,549 382,703
----------- ----------- ---------
$ 1,096,920 $ 1,208,368 $ 990,274
=========== =========== =========
EQUITY PER SHARE $ 19.48 $ 16.86 $ 16.67
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to the condensed consolidated financial statements.
Amounts as of March 31, 1999 and March 31, 1998 are unaudited.
<PAGE> 3
EXHIBIT 99C
<TABLE>
<CAPTION>
DEXTER CORPORATION
CONDENSED STATEMENT OF CASH FLOWS
- ---------------------------------------------------------------------------------------
Three Months Ended March 31
---------------------------
In thousands of dollars 1999 1998
- ---------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net income $ 68,834 $ 14,230
Noncash items
Depreciation and amortization 16,107 12,939
Gain on divestiture of product lines (91,361)
Income taxes not due 35,524 8,092
Minority interests 3,361 3,456
LIFO inventory credit (350) (154)
Equity in net income of affiliates (205) (827)
Other 32 (254)
Operating working capital increase (28,681) (24,314)
--------- --------
3,261 13,168
--------- --------
INVESTMENTS
Property, plant and equipment (17,016) (17,069)
Acquisitions (1,514) (1,047)
Divestitures 228,716
Joint ventures 1,153
Proceeds from exercise of LTI stock options 1,593 2,775
Other 794 1,757
--------- --------
212,573 (12,431)
--------- --------
FINANCING
Long-term debt, net (216,000) 10,193
Short-term debt, net 31,305 (5,423)
Dividends paid (5,989) (5,506)
LTI dividends paid to minority interest shareholders (633) (555)
Purchase of treasury stock (7,154)
Other (42) 521
--------- --------
(198,513) (770)
--------- --------
INCREASE (DECREASE) IN CASH AND SHORT-TERM SECURITIES $ 17,321 $ (33)
========= ========
RECONCILIATION OF INCREASE (DECREASE) 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 126,414 68,509
--------- --------
Increase in cash and short-term securities
per Statement of Financial Position 15,365 203
Currency translation effects 1,956 (236)
--------- --------
$ 17,321 $ (33)
========= ========
- ---------------------------------------------------------------------------------------
</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 March 31
-------------------------
In thousands of dollars 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
NET INCOME $ 68,834 $ 14,230
-------- --------
OTHER COMPREHENSIVE INCOME, NET OF TAX
Currency translation effects 422 247
Unrealized losses on investments (185) (38)
-------- --------
OTHER COMPREHENSIVE INCOME 237 209
-------- --------
COMPREHENSIVE INCOME $ 69,071 $ 14,439
======== ========
</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 March 31
-------------------------------------
In thousands of dollars 1999 1998 Change
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
LIFE SCIENCES $ 99,537 $ 88,355 +13%
NONWOVENS 69,390 66,802 + 4%
SPECIALTY POLYMERS (a) 111,000 134,758 -18%
-------- --------
CONSOLIDATED $279,927 $289,915 - 3%
======== ========
</TABLE>
(a) The effect of businesses divested decreased net sales in the Specialty
Polymers segment by $18.1 million, or 13%.
- --------------------------------------------------------------------------------
OPERATING INCOME BY SEGMENT
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
March 31
---------------------------------------
In thousands of dollars 1999 1998 Change
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
LIFE SCIENCES (a) $ 13,825 $ 13,489 + 2%
NONWOVENS 8,705 9,548 - 9%
SPECIALTY POLYMERS (b) 100,742 11,269
--------- --------
CONSOLIDATED OPERATING INCOME 123,272 34,306
OTHER INCOME, NET 936 1,469 -36%
INTEREST EXPENSE (6,386) (4,308) +48%
GENERAL CORPORATE EXPENSE (5,016) (4,258) +18%
--------- --------
CONSOLIDATED INCOME BEFORE TAXES $ 112,806 $ 27,209
========= ========
</TABLE>
(a) Life Sciences operating income includes $3.5 million of amortization
charges 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.
- --------------------------------------------------------------------------------
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-month period ended
March 31, 1999 and 1998:
<TABLE>
<CAPTION>
Three Months ended March 31
Amounts in thousands ---------------------------
(except per share data) 1999 1998
- ----------------------- -------- --------
<S> <C> <C>
EARNINGS PER SHARE - BASIC:
Net income $ 68,834 $ 14,230
Weighted average shares
outstanding 22,999 22,946
Earnings per share - basic $ 2.99 $ .62
EARNINGS PER SHARE - DILUTED:
Net income $ 68,834 $ 14,230
Effect of subsidiary dilutive
options on net income (21) (109)
-------- --------
$ 68,813 $ 14,121
======== ========
Weighted average shares
outstanding 22,999 22,946
Weighted average effect of
common stock equivalents 126 285
-------- --------
23,125 23,231
======== ========
Earnings per share - diluted $ 2.98 $ .61
</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. The statement is
effective for all fiscal quarters of fiscal years beginning after June
15, 1999. The Company is currently evaluating the impact of SFAS No.
133 on its financial reporting practices.
Note 4 - The following are included as components of Common Stock and Paid-in
Capital:
<TABLE>
<CAPTION>
COMMON STOCK & PAID-IN CAPITAL MARCH 31, DECEMBER 31, MARCH 31,
(IN THOUSANDS OF DOLLARS) 1999 1998 1998
- ------------------------------ ---------- ------------ --------
<S> <C> <C> <C>
Common stock $ 24,984 $ 24,984 $ 24,984
Paid-in capital 17,565 17,689 17,021
Unearned compensation on
restricted stock (1,746) (2,418) (3,672)
-------- -------- --------
$ 40,803 $ 40,255 $ 38,333
======== ======== ========
</TABLE>
Note 5 - The following are included as components of Accumulated Other
Comprehensive Income:
<TABLE>
<CAPTION>
ACCUMULATED OTHER COMPREHENSIVE MARCH 31, DECEMBER 31, MARCH 31,
INCOME (IN THOUSANDS OF DOLLARS) 1999 1998 1998
- -------------------------------- -------- ----------- -----------
<S> <C> <C> <C>
Currency translation effects ($17,435) ($17,857) ($22,228)
Unrealized losses on investments (575) (390) (464)
Minimum pension liability adjustment (21) (21) (24)
-------- -------- --------
($18,031) ($18,268) ($22,716)
======== ======== ========
</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>
MARCH 31,
IN THOUSANDS OF DOLLARS 1999
- ----------------------- ---------
<S> <C>
Currency translation effects ($8,152)
Plus: Reclassification adjustments
for losses included in net
income due to divestitures 8,574
--------
Net currency translation effects $ 422
========
</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
(except per share amounts) Three Months Ended March 31, 1998
-------------------------- ---------------------------------
<S> <C>
Net Sales $289,915
Net Income $ 11,382
Net Income Per Share - diluted $ .49
</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 March 31, 1999 were
$255.9 million, a decrease of $162.1 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.
<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 March 31, 1999, $0.2
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 March 31, 1999 and 1998, and the related condensed
statements of income, comprehensive income, and cash flows for the three-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
April 19, 1999
