-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JSXZNuPbnHU/w+u8b2K5BKAXqoGKjSNor8o2Hfs5WZojO4blas19Vf/Qh45+KNG7 6alOSqR9YquaTD2NsEa9ow== 0000914039-98-000062.txt : 19980311 0000914039-98-000062.hdr.sgml : 19980311 ACCESSION NUMBER: 0000914039-98-000062 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980310 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DEXTER CORP CENTRAL INDEX KEY: 0000028582 STANDARD INDUSTRIAL CLASSIFICATION: PAINTS, VARNISHES, LACQUERS, ENAMELS & ALLIED PRODUCTS [2851] IRS NUMBER: 060321410 STATE OF INCORPORATION: CT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-05542 FILM NUMBER: 98560764 BUSINESS ADDRESS: STREET 1: ONE ELM ST CITY: WINDSOR LOCKS STATE: CT ZIP: 06096 BUSINESS PHONE: 2036279051 MAIL ADDRESS: STREET 1: ONE ELM ST CITY: WINDSOR LOCKS STATE: CT ZIP: 06096 10-K 1 FORM 10-K 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K [x] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended DECEMBER 31, 1997 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ____________ to ____________ Commission file number 1-5542 - -------------------------------------------------------------------------------- THE DEXTER CORPORATION (Exact name of registrant as specified in its charter) CONNECTICUT 06-0321410 -------------------------------- ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) ONE ELM STREET WINDSOR LOCKS, CONNECTICUT 06096 ------------------------------------------ ----------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 860-292-7675
Securities registered pursuant to Section 12(b) of the Act: NAME OF EACH EXCHANGE ON TITLE OF EACH CLASS WHICH REGISTERED - -------------------------- ----------------------- COMMON STOCK, PAR VALUE $1 NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X. No __. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (sec.229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Aggregate market value of the registrant's common stock as of February 27, 1998, held by nonaffiliates of the registrant was $941,671,128. The number of shares of the registrant's common stock, $1 par value, outstanding at February 27, 1998 was 23,179,597. PORTIONS OF THE FOLLOWING DOCUMENTS ARE INCORPORATED BY REFERENCE: The Dexter Corporation's 1997 Annual Report to Shareholders (Parts I, II and IV). Proxy Statement accompanying the notice, dated March 10, 1998, of the annual meeting of The Dexter Corporation's shareholders to be held on April 23, 1998 (Parts I and III). ================================================================================ 2 TABLE OF CONTENTS
PAGE NUMBER ------ PART I Item 1. Business.................................................... 1 Item 2. Properties.................................................. 3 Item 3. Legal Proceedings........................................... 4 Item 4. Submission of Matters to a Vote of Security Holders......... 4 Item 4a. Executive Officers of the Registrant........................ 5 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters......................................... 6 Item 6. Selected Financial Data..................................... 6 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 6 Item 8. Financial Statements and Supplementary Data................. 7 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................... 7 PART III Item 10. Directors and Executive Officers of the Registrant.......... 8 Item 11. Executive Compensation...................................... 8 Item 12. Security Ownership of Certain Beneficial Owners and Management.................................................. 8 Item 13. Certain Relationships and Related Transactions.............. 8 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K......................................................... 9
3 PART I As used herein, the term "Dexter" and the term "Company" shall mean The Dexter Corporation and its consolidated subsidiaries unless the context otherwise indicates, the term "1997 Annual Report" shall mean the Company's 1997 Annual Report to Shareholders, and the term "Proxy Statement" shall mean the Proxy Statement accompanying Dexter's notice, dated March 10, 1998, of the annual meeting of Dexter's shareholders to be held on April 23, 1998. The 1997 Annual Report is filed as an exhibit to this report. Portions of the 1997 Annual Report and Proxy Statement are incorporated herein by reference as hereinafter stated. ITEM 1 BUSINESS GENERAL Founded in 1767 and incorporated in the state of Connecticut in 1914, The Dexter Corporation is a specialty materials company principally serving the worldwide aerospace, electronics, food packaging, and medical markets with products based on proprietary technologies. For a description of the development of the Company's business, reference the section entitled To Our Shareholders, Employees and Customers on pages 2 and 3 of the 1997 Annual Report, which are incorporated herein by reference. For an analysis of operations of the business of Dexter, see pages 25 through 33 of the 1997 Annual Report which are incorporated herein by reference, which include Segment Information on pages 28, 29, 32 and 33 and International Operations information on pages 30 and 31. Also, see Events, Trends and Vulnerabilities and Acquisitions and Divestitures information on pages 34 and 35, respectively, of the 1997 Annual Report, which are incorporated herein by reference. The financial information in the hereinafter mentioned pages and sections should be read in conjunction with the Financial Statements contained on pages 20 through 24, Quarterly Financial Information on page 24, Analysis of Operations contained on pages 25 through 33, Analysis of Financial Condition and Operations contained on pages 33 through 35, and Analysis of Financial Position contained on pages 35 through 43 of the 1997 Annual Report. SEGMENT INFORMATION AND PRODUCTS For information on the Company's segment information and products, see the section, excluding pictures, entitled Business Structure on pages 6 and 7, and refer to Market Segment Data on pages 28 and 29 of the 1997 Annual Report which are incorporated herein by reference. SUPPLIERS Dexter buys materials for its products from many suppliers and is not dependent on any one supplier or group of suppliers for any significant raw materials purchased. The materials bought include natural fibers such as hemp and wood; synthetic fibers such as glass, rayon and polyester; basic chemical materials (many of which are derived from petroleum products) for the manufacture of synthetic resins; resins produced by others, including polypropylene; solvents, additives and pigments; highly purified chemicals and products collected from natural sources for Life Technologies' products; and magnetic materials. For further discussion of raw materials, see Events, Trends and Vulnerabilities on page 34 of the 1997 Annual Report which is incorporated herein by reference. CUSTOMERS In 1997, no single customer accounted for more than 5 percent of consolidated revenues, and the ten largest customers accounted for less than 20 percent. Dexter has no single customer contract for the sale of its products which it deems to be material to its business as a whole. 1 4 SALES AND MARKETING Dexter's customers for most specialty material products are principally industrial manufacturers who convert or incorporate Dexter's products into their own final product. Biotechnology products are marketed directly to research laboratories, pharmaceutical and biotechnology companies, and other customers. Most of the Company's products are sold by its own sales force of which approximately 275 were directly engaged in field sales in 1997, 252 in 1996, and 241 in 1995. The remaining products are sold through agents or distributors. In general, each of the Company's product lines has its own sales force. Management believes that product research and development, close customer relations and strong technical service are important factors in Dexter's growth over the years. For further information on sales and marketing, see the section entitled Marketing on page 10 of the 1997 Annual Report which is incorporated herein by reference. BACKLOG Dexter continues to maintain a backlog of orders. Such backlog was approximately $77 million at December 31, 1997 and $76 million at December 31, 1996 and typically represents less than two months sales for businesses where backlog is applicable. The Company expects substantially all of the December 31, 1997 backlog to be shipped in 1998. Backlog was significant in all markets except at Life Technologies, Inc. (LTI), which is part of the medical market, where backlog is not considered to be relevant to the business. Although backlog orders are reasonably firm, they may be subject to cancellation or delay and amounts are not necessarily indicative of future sales volume or profitability. COMPETITION No company is known to compete with Dexter in all of its major businesses, but in each market, competition is offered by a number of companies, including firms substantially larger and with greater financial resources than Dexter. Dexter's management believes that Dexter is an important factor in each of its markets. All market segments are diverse and highly competitive and emphasize the quality of their products. The businesses of the Company are characterized by technological innovation and the continued introduction of new products and services. Dexter continues to experience competition from imports in several of its domestic markets. For further discussion on competition, see Events, Trends and Vulnerabilities on page 34 of the 1997 Annual Report which is incorporated herein by reference. RESEARCH AND DEVELOPMENT Dexter engages in research and development with respect to new product development and product applications primarily for its own use, with only minor contract services provided for others. For further information on research and development, see the sections entitled Technology and Events, Trends and Vulnerabilities on pages 8 and 34, respectively, of the 1997 Annual Report which are incorporated herein by reference. The total number of employees engaged in research and development and the expenditures related thereto by market segment are set forth on page 29 of the 1997 Annual Report which is incorporated herein by reference. ENVIRONMENTAL REGULATION The Company is subject to federal, state and other legal requirements regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment. The Company does not believe that the continuing cost of complying with such regulations and other costs related to environmental matters will have a material adverse effect on the Company's financial position, results of operations or cash flows. Capital expenditures for environmental projects were $1 million for 1997 and are estimated to range from $2-$3 million for 1998. For further discussion of other current environmental matters, 2 5 see Events, Trends and Vulnerabilities on page 34 and the Environmental Liabilities footnote on page 41 of the 1997 Annual Report, both of which are incorporated herein by reference. See Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, of this Form 10-K, on page 6, for information on administrative proceedings arising under the Comprehensive Environmental Response, Compensation and Liability Act of 1980. EMPLOYEES Approximately 1,700 of the Company's 4,800 employees (see page 18 of the 1997 Annual Report which is incorporated herein by reference) are employed outside the United States. There has not been a significant work stoppage in recent years and management believes employee relations are good. GEOGRAPHIC INFORMATION For information regarding geographic operations, see Geographic Data on pages 30 and 31, Events, Trends and Vulnerabilities on page 34, and the Currency Exchange Effects footnote on page 41 of the 1997 Annual Report which are incorporated herein by reference. ITEM 2 PROPERTIES For certain information on properties, see the sections entitled Property, Plant and Equipment on pages 36 and 37, the Leases footnote on page 37, and Division and Subsidiary Headquarters on the inside back cover of the 1997 Annual Report, all of which are incorporated herein by reference. The executive office of Dexter, located in Windsor Locks, Connecticut, is owned by the Company. In addition, the following general descriptions of Dexter's properties, including the locations of principal facilities, are presented by division. The company considers its facilities to be adequate and suitable for their current use. The capacity utilization percentage for Dexter's production facilities in 1997 was approximately 80%. There were no material leases under which properties described below were held. During 1997, the Aerospace Materials division operated three principal facilities owned by the Company totaling approximately 354,000 square feet. These facilities are located in Pittsburg, California; Waukegan, Illinois; and Bassano, Italy. The Aerospace Materials division capacity utilization percentage was approximately 77%. The Electronic Materials division, in 1997, operated six production facilities and laboratories in the United States, Germany and Japan, of which four are owned (approximately 447,000 square feet) and two are leased (approximately 62,000 square feet). These facilities of the Electronic Materials division, which are in excess of 25,000 square feet, are located in Olean, New York; Industry, California; Londonderry, New Hampshire; Lowell, Massachusetts; Munich, Germany; and Yokohama-Shi, Japan. The Electronic Materials division capacity utilization percentage in 1997 was approximately 73%. During 1997, the Magnetic Materials division operated five principal facilities, of which three are owned (approximately 205,000 square feet) and two are leased (approximately 90,000 square feet). These facilities, which are in excess of 25,000 square feet, are located in Fremont, California; Richardson, Texas; Elk Grove Village, Illinois; Seabrook, New Hampshire; and Hicksville, New York. The Magnetic Materials division capacity utilization percentage in 1997 was approximately 61%. During 1997, the Packaging Products division operated five principal production facilities and laboratories located in Birmingham, Alabama; Hayward, California; Tournus, France; Deeside, Wales; and Gruningen, Switzerland totaling approximately 375,000 square feet. All facilities are owned by the Company except the Birmingham plant, which has been capitalized as a lease-purchase financed by industrial development bonds. The Packaging Products division has offices and a laboratory located in Waukegan, Illinois (approximately 31,000 square feet), which the Company owns. The Packaging Products division also manages the operation of a multi-division production facility located in Singapore of approximately 92,000 square feet. This production facility is owned by the Company. The Packaging Products division had a capacity utilization percentage of approximately 82% in 1997. 3 6 The Nonwovens division, in 1997, operated production facilities in Windsor Locks, Connecticut (approximately 842,000 square feet); Chirnside, Scotland (approximately 203,000 square feet) and Stalldalen, Sweden (approximately 452,000 square feet), which the Company owns. The Nonwovens division also leases a production facility in Radcliffe, England totaling approximately 175,000 square feet. The Nonwovens division has a distribution facility located in Windsor Locks, Connecticut of approximately 250,000 square feet which is leased. The cogeneration facility located in Windsor Locks, Connecticut (approximately 42,000 square feet) is owned by the Company. The capacity utilization percentage for the Nonwovens division production facilities in 1997 was approximately 86%. Dexter S.A., located in Tournus, France operated a production facility of approximately 162,000 square feet with a capacity utilization percentage of approximately 59% in 1997. This facility is owned by the Company. During 1997, Life Technologies, Inc. operated four principal production facilities of which three are owned (approximately 276,000 square feet), and one is leased (approximately 63,000 square feet). Life Technologies, Inc.'s production facilities in excess of 25,000 square feet are located in Grand Island, New York; Auckland, New Zealand; and Inchinnan, Scotland, which it owns, and Frederick, Maryland, which it leases. Life Technologies, Inc. has administrative offices in Gaithersburg, Maryland (approximately 45,000 square feet), which it leases and in Rockville, Maryland (approximately 41,000 square feet), which it owns. In addition, Life Technologies, Inc. leases a distribution center located in Frederick, Maryland of approximately 70,000 square feet and owns a distribution center of approximately 35,000 square feet located in Inchinnan, Scotland. During 1997, the construction of the new corporate R&D facility (approximately 137,000 square feet), located in Rockville, Maryland, was completed. In 1998, the construction of the company's corporate administrative facility, which adjoins the R&D facility, will be completed. The capacity utilization percentage at Life Technologies, Inc. production facilities in 1997 was approximately 84%. In April 1997, Dexter completed the divestiture of its 50% interest of D & S Plastics International, an equally owned joint venture, based in Auburn Hills, Michigan, between The Dexter Corporation and the Solvay Group. ITEM 3 LEGAL PROCEEDINGS The Company is not involved in any pending or threatened legal proceedings other than ordinary routine litigation incidental to its business. The Company believes that none of these legal proceedings will have a material adverse effect on the Company's financial condition, results of operations, or cash flows. See Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, of this Form 10-K, on page 6, for information on administrative proceedings arising under the Comprehensive Environmental Response, Compensation and Liability Act of 1980. ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of the security holders during the fourth quarter of fiscal year 1997. 4 7 ITEM 4A EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of The Dexter Corporation, together with the offices in The Dexter Corporation presently held by them, their other business experience since January 1, 1993, and their ages, are as follows:
OTHER BUSINESS EXPERIENCE NAME TITLE SINCE 1/1/93 AGE ---- ----- ------------------------- --- K. Grahame Walker Chairman, President and Chief President and Chief Executive 60 Executive Officer (since 1993) Officer Bruce H. Beatt Vice President, General Counsel 45 and Secretary (since 1992) Ronald C. Benham Vice President; Senior Division 55 President, Dexter Electronic Materials Division (since 1992) Kathleen Burdett Vice President and Chief Vice President and Controller 42 Financial Officer (since 1995) T. Daniel Clark Vice President; Senior Division Vice President, Corporate 56 President, Dexter Packaging Development Products Division (since 1994) R. Barry Gettins, Ph.D. Senior Vice President, Senior Vice President, 56 Operations and Technology Operations Development; Vice Development (since 1997) President; Senior Division President, Dexter Nonwovens Division David G. Gordon Vice President; Senior Division President, D & S Plastics 46 President, Dexter Nonwovens International Division (since 1996) Lawrence D. McClure Vice President, Human Resources Vice President, Organization 49 (since 1995) Capabilities, Aetna Life & Casualty Company; Vice President, Human Resources, Pratt & Whitney, a division of United Technologies Corporation Dale J. Ribaudo Treasurer (since 1992) 40 John D. Thompson Senior Vice President, Vice President, Corporate 48 Strategic and Business Services; Vice President, Development (since 1995) Financial Services
The following changes in executive officers occurred during 1997: Effective in August 1997, George Collin, former Controller of the company, accepted a position as Senior Vice President, Finance and Administration of the Dexter Electronic Materials Division. Effective in November 1997, R. Barry Gettins, Ph.D., was appointed Senior Vice President, Operations and Technology Development. Pursuant to the Bylaws of the Company, each officer holds his/her office until death, resignation, removal from office or the election or appointment of his/her successor. The Bylaws provide that the Board of Directors shall elect a President and a Secretary each year at its first meeting following the annual meeting of shareholders and may at that time elect other officers of the Company, and it is expected that the Board of Directors will so act at its meeting scheduled for April 23, 1998. No family relationships exist between any of the executive officers of Dexter. 5 8 PART II ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS For information regarding the market for the registrant's common stock and related stockholder matters, see Summary of Financial Data on pages 18 and 19, Statement of Financial Position on pages 22 and 23, Statement of Changes in Shareholders' Equity on page 24, Shareholders' Equity, Preferred Stock and Stock Compensation Plans footnotes on page 42, Stock Plan footnote and discussion of Stock Option Plans on pages 42 and 43, and Shareholder/Investor Information on the inside back cover of the 1997 Annual Report which are incorporated herein by reference. ITEM 6 SELECTED FINANCIAL DATA For information regarding selected financial data, see the Summary of Financial Data on pages 18 and 19 of the 1997 Annual Report which is incorporated herein by reference. For a discussion of this Financial Data, see the Quarterly Financial Information on page 24, Analysis of Operations on pages 25 through 27, Market Segment Data on pages 28 and 29, Life Technologies, Inc. on pages 32 and 33, and Analysis of Financial Condition and Operations on pages 33 through 35 of the 1997 Annual Report which are incorporated herein by reference. ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS For information required by this item, see the Management Statement on page 16 and the Summary of Financial Data on pages 18 and 19 of the 1997 Annual Report which are incorporated herein by reference. For information concerning results of operations, see Analysis of Operations on pages 25 through 27, Market Segment Data on pages 28 and 29, Geographic Data on pages 30 and 31 and Life Technologies, Inc. on pages 32 and 33 of the 1997 Annual Report which are incorporated herein by reference. For information on liquidity, reference the Events, Trends and Vulnerabilities and Liquidity footnotes in Analysis of Financial Condition and Operations on pages 34 and 35, respectively, the Working Capital discussion on page 35, the Short-term Debt footnote on page 36, the Property, Plant and Equipment footnote on pages 36 and 37, and the Long-term Debt footnote on page 40 of the 1997 Annual Report which are incorporated herein by reference. For information on capital resources, reference the Liquidity discussion in Analysis of Financial Condition and Operations on page 35, the Short-term Debt footnote on page 36, the Property, Plant and Equipment footnote on pages 36 and 37, and the Long-term Debt and Shareholders' Equity footnotes on pages 40 and 42, respectively, of the 1997 Annual Report which are incorporated herein by reference. For the discussion of legal proceedings pertaining to the Company, see Item 3, Legal Proceedings on page 4 of this Form 10-K, and page 37 of the 1997 Annual Report which is incorporated herein by reference. For information on environmental matters, see Events, Trends and Vulnerabilities and the Environmental Liabilities footnotes on pages 34 and 41, respectively, of the 1997 Annual Report which are incorporated herein by reference. Pursuant to authority granted under the "Comprehensive Environmental Response, Compensation and Liability Act of 1980" (CERCLA), the U.S. Environmental Protection Agency (USEPA) has issued a National Priority List of sites at which action is to be taken to mitigate the risk of release of hazardous substances into the environment. The Company is engaged in continuing negotiations with the USEPA and state authorities with regard to 18 of the over twelve hundred sites on the National Priority List. Due to the uncertainty of the remedial measures to be adopted at various sites and the fact that imposition of joint and several liability is possible under CERCLA, the liability of the Company with respect to any site at which remedial measures have not been completed cannot be established with certainty. Nevertheless, based upon the information available at this time, the Company believes it has properly provided for its best estimate of the liabilities and that the outcome of these matters will not have a material adverse effect upon its financial condition, results of operations or cash flows in the future. 6 9 ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Reference is made to the Summary of Financial Data contained on pages 18 and 19, Financial Statements contained on pages 20 through 24, Quarterly Financial Information on page 24, Analysis of Operations contained on pages 25 through 33, Analysis of Financial Condition and Operations contained on pages 33 through 35, and Analysis of Financial Position contained on pages 35 through 43 of the Company's 1997 Annual Report which are incorporated herein by reference. ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Within 24 months prior to the date of the most recent financial statements referred to above in Item 8, no Form 8-K under the Securities Exchange Act of 1934, as amended, reporting a change in accountants, has been required to be filed. FORWARD-LOOKING STATEMENTS With the exception of historical information, the matters discussed or incorporated by reference in this Report on Form 10-K are forward-looking statements that involve risks and uncertainties. These forward-looking statements include, but are not limited to, statements about (i) meeting the Company's published financial goals, (ii) future growth in the Company's revenues, earnings and dividends; and (iii) improvements in the markets served by the Company. Actual results could differ materially from such forward-looking statements because of, among other things, the following factors: unit volume growth substantially different from the Company's targeted range, the impact of competitive products and pricing, changes in the prices of raw materials, fluctuations in foreign currency rates, changes in laws and regulations, and other risks identified in the Company's 1997 Annual Report in the section entitled Events, Trends and Vulnerabilities on page 34 which is incorporated herein by reference. 7 10 PART III ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT For information regarding directors of the Company, see the section entitled "Election of Directors" on pages 3 through 6, inclusive, of the Proxy Statement, which is incorporated herein by reference. Information regarding executive officers of the Company is included as Item 4a of Part I as required by Instruction 3 of Item 401(b) of Regulation S-K. For information required by Item 405 of Regulation S-K, see the section entitled "Certain Transactions and Legal Matters" on page 6 of the Proxy Statement, which is incorporated herein by reference. ITEM 11 EXECUTIVE COMPENSATION For information required by this item, see the section entitled "Compensation of Executive Officers" on pages 7 through 15, inclusive, of the Proxy Statement, which is incorporated herein by reference. ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT For information regarding the beneficial ownership of shares of Common Stock of the Company by certain persons, see the section entitled "Share Ownership" on pages 1 and 2 of the Proxy Statement, which is incorporated herein by reference. ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS For information regarding certain relationships and related transactions of directors, see the section entitled "Election of Directors" on pages 3 through 6, inclusive, of the Proxy Statement, which is incorporated herein by reference. No other member of executive management or other individual as outlined in Item 404 of Regulation S-K was otherwise directly or indirectly involved in relationships or related transactions with the registrant in which the executive officer or other individual had a material interest. In April 1997, the Company completed the divestiture of its 50% interest of D & S Plastics International. D & S Plastics International borrowed up to $4.3 million in 1996 and $4.7 million in 1995 from the Company under a revolving line of credit to finance short-term working capital needs. The line of credit was at current market interest rates and was repaid at December 31, 1996. At December 31, 1995, $4.3 million was outstanding. At December 31, 1996, the Company held $4.7 million in short-term investments at a 5.3% interest rate for D & S Plastics International. The Company recorded those investments in current assets and notes payable and interest payable to D & S Plastics International in current liabilities. At the completion of the divestiture, there were no short-term investments recorded by the Company for D & S Plastics International. 8 11 PART IV ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. Financial Statements: The response to this item is set forth commencing on page F-1 of this report. 2. Financial Statement Schedule: The response to this item is set forth commencing on page F-1 of this report. 3. Exhibits: Exhibit 3A -- Restated Certificate of Incorporation of The Dexter Corporation, filed with the Secretary of the State of Connecticut on June 26, 1990, was filed as Exhibit 3A-2 with the registrant's Quarterly Report on Form 10-Q (File No. 1-5542) for the quarter ended June 30, 1990, and is hereby incorporated herein by reference. Exhibit 3B -- Bylaws of The Dexter Corporation, as amended April 25, 1991, were filed as Exhibit 3B with the registrant's report on Form 10-Q (File No. 1-5542) for the quarter ended March 31, 1991, and is hereby incorporated herein by reference. Exhibit 4A -- Rights Agreement dated as of August 23, 1996, between the registrant and ChaseMellon Shareholder Services, L.L.C. was filed as Exhibit 4 to Form 8-K (File No. 1-5542), which was filed with the Securities and Exchange Commission on September 9, 1996, and is hereby incorporated herein by reference. Exhibit 4B -- Note Agreement, dated July 24, 1990, between the registrant and The Prudential Insurance Company of America was filed as Exhibit 4C with the registrant's Quarterly Report on Form 10-Q (File No. 1-5542) for the quarter ended June 30, 1990, and is hereby incorporated herein by reference. Exhibit 4B(1) -- Amendment, dated November 14, 1991, to the Note Agreement, dated July 24, 1990, was filed as Exhibit 4C(1) with the registrant's report on Form 10-K (File No. 1-5542) for the fiscal year ended December 31, 1991, and is hereby incorporated herein by reference. Exhibit 4B(2) -- Amendment, dated February 9, 1993, to the Note Agreement, dated July 24, 1990, was filed as Exhibit 4C(2) with the registrant's report on Form 10-K (File No. 1-5542) for the fiscal year ended December 31, 1992, and is hereby incorporated herein by reference. Exhibit 4B(3) -- Amendment, dated September 30, 1993, to the Note Agreement, dated July 24, 1990, was filed as Exhibit 4C(3) with the registrant's report on Form 10-K (File No. 1-5542) for the fiscal year ended December 31, 1993, and is hereby incorporated herein by reference. Exhibit 4C -- Note Agreement, dated November 14, 1991, between the registrant and The Prudential Insurance Company of America, was filed as Exhibit 4D with the registrant's report on Form 10-K (File No. 1-5542) for the fiscal year ended December 31, 1993, and is hereby incorporated herein by reference. Exhibit 4C(1) -- Amendment, dated February 9, 1993, to the Note Agreement, dated November 14, 1991, was filed as Exhibit 4C(2) with the registrant's report on Form 10-K (File No. 1-5542) for the fiscal year ended December 31, 1992, and is hereby incorporated herein by reference.
9 12 Exhibit 4C(2) -- Amendment, dated September 30, 1993, to the Note Agreement, dated November 14, 1991, was filed as Exhibit 4D(2) with the registrant's report on Form 10-K (File No. 1-5542) for the fiscal year ended December 31, 1993, and is hereby incorporated herein by reference. Exhibit 4D -- Master Shelf Agreement, dated September 30, 1993, between the registrant and The Prudential Insurance Company of America, as amended and restated on December 17, 1993, was filed as Exhibit 4E with the registrant's report on Form 10-K (File No. 1-5542) for the fiscal year ended December 31, 1993, and is hereby incorporated herein by reference. Exhibit 10A -- Agreement, dated December 15, 1989, between the registrant and K. Grahame Walker was filed as Exhibit 10B with the registrant's quarterly report on Form 10-Q (File No. 1-5542) for the quarter ended March 31, 1991, and is hereby incorporated herein by reference. Omitted pursuant to the Instruction to item 601(10)(iii) of Regulation S-K and Rule 12b-31 under the Securities Exchange Act of 1934 are copies of seven other agreements between the registrant and the following named officers, each of which agreements is substantially identical to Exhibit 10B in all material respects except as to the individual party thereto and the identification of his/her position with the registrant: Bruce H. Beatt, Kathleen Burdett, Horst Geldmacher, Dr. R. Barry Gettins, Lawrence D. McClure, Dale J. Ribaudo, and John D. Thompson. Exhibit 10B -- Agreement, dated December 20, 1991, between the registrant and Ronald C. Benham was filed as Exhibit 10C with the registrant's report on Form 10-K (File No. 1-5542) for the fiscal year ended December 31, 1992, and is hereby incorporated herein by reference. Omitted pursuant to the Instruction to Item 601(10)(iii) of Regulation S-K and Rule 12b-31 under the Securities Exchange Act of 1934 are copies of nine other agreements between the registrant and the following officers and key employees, each of which agreements is substantially identical to Exhibit 10C in all material respects except as to the individual party thereto and the identification of his position with the registrant: John B. Blatz, T. Daniel Clark, David G. Gordon, Richard B. Hurley, John B. Lockwood, Jeffrey W. McClelland, T. James Rudd, Edward J. Scannell and David Woodhead. Exhibit 10C -- The Dexter Corporation's Executive Supplemental Retirement Plan, as amended and restated and effective January 1, 1989, was filed as Exhibit 10F(1) to the registrant's report on Form 10-K (File No. 1-5542) for the fiscal year ended December 31, 1991, and is hereby incorporated herein by reference. Exhibit 10C(1) -- Amendment, dated October 22, 1993, to The Dexter Corporation's Executive Supplemental Retirement Plan, was filed as Exhibit 10D(2) with the registrant's quarterly report on Form 10-Q (File No. 1-5542) for the quarter ended September 30, 1993, and is hereby incorporated herein by reference. Exhibit 10D -- The Dexter Corporation's 1988 Stock Option Plan, was filed as Exhibit 28(d) to the registrant's Registration Statement on Form S-8 (File No. 33-27597) dated March 17, 1989, and is hereby incorporated herein by reference.
10 13 Exhibit 10E -- The Dexter Corporation's Executive Deferred Compensation Benefit Plan, as amended, was filed as Exhibit 10G to the registrant's report on Form 10-K (File No. 1-5542) for the fiscal year ended December 31, 1996, and is hereby incorporated herein by reference. Exhibit 10F -- The Dexter Corporation's Amended and Restated Retirement Equalization Plan. Exhibit 10G -- The Dexter Corporation's Transferred Executives' Supplemental Retirement Program, as amended and restated, was filed as Exhibit 10J with the registrant's report on Form 10-K (File No. 1-5542) for the fiscal year ended December 31, 1993, and is hereby incorporated herein by reference. Exhibit 10H -- The Dexter Corporation's 1994 Long-Term Incentive Plan was filed as Exhibit 10K with the registrant's quarterly report on Form 10-Q (File No. 1-5542) for the quarter ended March 31, 1994, and is hereby incorporated herein by reference. Exhibit 10I -- The Dexter Corporation's 1994 Stock Plan for Outside Directors was filed as Exhibit 10L with the registrant's quarterly report on Form 10-Q (File No. 1-5542) for the quarter ended March 31, 1994, and is hereby incorporated herein by reference. Exhibit 10J -- The Dexter Corporation's 1996 Non-Employee Director's Stock Plan was filed as Exhibit 10L with the registrant's quarterly report on Form 10-Q (File No. 1-5542) for the quarter ended March 31, 1996, and is hereby incorporated herein by reference. Exhibit 10J(1) -- Amendment, dated April 24, 1997, to the Dexter Corporation's 1996 Non-Employee Director's Stock Plan. Exhibit 10K -- The Dexter Corporation's Senior Management Executive Incentive Plan was filed as Exhibit 10M with the registrant's quarterly report on Form 10-Q (File No. 1-5542) for the quarter ended March 31, 1996, and is hereby incorporated herein by reference. Exhibit 13 -- The Dexter Corporation's 1997 Annual Report to Shareholders. Exhibit 21 -- Subsidiaries of the Registrant. Exhibit 23 -- Consent of Certified Public Accountants. Exhibit 27 -- Financial Data Schedule. Long-term debt of the registrant or various of its subsidiaries is outstanding under numerous instruments. No such instrument authorizes an amount of securities thereunder in excess of 10% of the total assets of the registrant and its subsidiaries on a consolidated basis. The registrant agrees that it will furnish a copy of any such instrument to the Securities and Exchange Commission upon its request.
(b) Reports on Form 8-K No reports on Form 8-K were filed during the last quarter of the period covered by this report. 11 14 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated March 10, 1998 THE DEXTER CORPORATION (Registrant) By: /s/ Kathleen Burdett ------------------------------------ Kathleen Burdett Vice President and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on March 10, 1998:
NAME CAPACITY DATE ---- -------- ---- /s/ K. Grahame Walker Chairman; Director March 10, 1998 - ------------------------------------------ (principal executive officer) K. Grahame Walker /s/ Kathleen Burdett Vice President and March 10, 1998 - ------------------------------------------ Chief Financial Officer Kathleen Burdett (principal financial officer) (principal accounting officer) /s/ Charles H. Curl Director March 10, 1998 - ------------------------------------------ Charles H. Curl /s/ Henrietta Holsman Fore Director March 10, 1998 - ------------------------------------------ Henrietta Holsman Fore /s/ Bernard M. Fox Director March 10, 1998 - ------------------------------------------ Bernard M. Fox /s/ Robert M. Furek Director March 10, 1998 - ------------------------------------------ Robert M. Furek /s/ Martha Clark Goss Director March 10, 1998 - ------------------------------------------ Martha Clark Goss /s/ Edgar G. Hotard Director March 10, 1998 - ------------------------------------------ Edgar G. Hotard /s/ Peter G. Kelly Director March 10, 1998 - ------------------------------------------ Peter G. Kelly /s/ Jean-Francois Saglio Director March 10, 1998 - ------------------------------------------ Jean-Francois Saglio Director March 10, 1998 - ------------------------------------------ Glen L. Urban /s/ George M. Whitesides Director March 10, 1998 - ------------------------------------------ George M. Whitesides
12 15 INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
PAGE ----------- Report of Independent Accountants.............................................. F-2 1997 ANNUAL FINANCIAL STATEMENTS REPORT PAGE - ------------------------------------------------------------------------------- ----------- Summary of Financial Data.................................................... 18-19 Statement of Income.......................................................... 20 Statement of Cash Flows...................................................... 21 Statement of Financial Position.............................................. 22-23 Statement of Changes in Shareholders' Equity................................. 24 Analysis of Operations....................................................... 25-33 Analysis of Financial Condition and Operations............................... 33-35 Analysis of Financial Position............................................... 35-43 FINANCIAL STATEMENT SCHEDULE - ------------------------- Schedule II Valuation and Qualifying Accounts............................... F-3
------------------------------------------ Schedules other than those listed above are omitted for the reason that the information required on such schedules is contained in the Company's 1997 Annual Report to Shareholders, elsewhere in Form 10-K or they are not required or are not applicable. F-1 16 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Board of Directors of The Dexter Corporation We have audited the consolidated financial statements and the financial statement schedule of The Dexter Corporation listed in the index on page F-1 of this Form 10-K. These financial statements and financial statement schedule are the responsibility of The Dexter Corporation's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Dexter Corporation as of December 31, 1997, 1996 and 1995, and the consolidated results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. In 1996, the Corporation, as more fully described in the accompanying financial review, adopted Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and SFAS No. 123, Accounting for Stock-Based Compensation. /s/ Coopers & Lybrand L.L.P. COOPERS & LYBRAND L.L.P. Springfield, Massachusetts February 3, 1998 F-2 17 SCHEDULE II THE DEXTER CORPORATION VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (IN THOUSANDS)
COLUMN C COLUMN A COLUMN B ADDITIONS COLUMN D COLUMN E - ------------------------------------------ ---------- ------------------------ ---------- ---------- BALANCE AT CHARGED TO CHARGED TO BALANCE AT BEGINNING COSTS AND OTHER END OF DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD ----------- ---------- ---------- ---------- ---------- ---------- 1997 Environmental Reserve..................... $16,336 $ 511 $15,825 Restructuring Reserve..................... 1,685 969 716 Allowance for Doubtful Accounts........... 6,620 $2,240 $123(a) 1,320 7,663 ------- ------ ---- ------ ------- $24,641 $2,240 $123 $2,800 $24,204 ======= ====== ==== ====== ======= 1996 Environmental Reserve..................... $17,140 $ 804 $16,336 Restructuring Reserve..................... 1,791 106 1,685 Allowance for Doubtful Accounts........... 5,851 $2,360 1,591 6,620 ------- ------ ------ ------- $24,782 $2,360 $2,501 $24,641 ======= ====== ====== ======= 1995 Environmental Reserve..................... $20,292 $3,152 $17,140 Restructuring Reserve..................... 6,294 4,503 1,791 Allowance for Doubtful Accounts........... 4,994 $1,819 962 5,851 ------- ------ ------ ------- $31,580 $1,819 $8,617 $24,782 ======= ====== ====== =======
- --------------- (a) Due to acquisitions. F-3 EX-10.F 2 EXHIBIT 10.F 1 Exhibit 10F THE DEXTER CORPORATION RETIREMENT EQUALIZATION PLAN (Amended and Restated as of December 19, 1997) 2 Exhibit 10F continued Article 1 Definitions 1.01 Account. The separate account maintained for each Participant on the books of the Corporation to which amounts representing contributions shall be credited and from which amounts representing benefit distributions shall be made. 1.02 Beneficiary. Any person or persons designated by the Participant, or otherwise entitled, to receive any benefit hereunder not received by the Participant. 1.03 Board. The Board of Directors of the Corporation. 1.04 Code. The Internal Revenue Code of 1986, as amended, or as it may be amended from time to time. 1.05 Corporation. The Dexter Corporation and any person, firm or corporation into which it may be merged or consolidated or by which it may be succeeded and which may adopt the Plan. 1.06 Covered Plans. The following plans: (a) The Dexter ESPRIT Plan ("ESPRIT") and (b) The Dexter MERIT Plan ("MERIT"). 1.07 Disability. A physical or mental disability about which a physician acceptable to the Corporation certifies to the Corporation that such disability (i) prohibits the person so disabled from performing his duties as an employee; and (ii) is likely to be permanent. 1.08 Effective Date. October 28, 1988. The effective date of this restatement is December 19, 1997. 1.09 Eligible Employee. An employee of the Corporation or a subsidiary of the Corporation who is a participant in a Covered Plan. 1.10 Participant. Any Eligible Employee who has been designated in writing by the Plan Administrator to participate in the Plan and who has accepted its terms and conditions by executing the form of plan agreement attached hereto as Exhibit A (the "Agreement"). 1.11 Plan. The Dexter Corporation Retirement Equalization Plan as herein set forth and as may be amended from time to time. 1.12 Plan Administrator. The Corporation as provided in Article 5. 1.13 Plan Year. The calendar year. 3 Exhibit 10F continued 1.14 Valuation Date. The last day of each quarter of each Plan Year. Article 2 Purpose of Plan 2.01 Purpose. The Plan is designed to provide retirement benefits that otherwise would be provided under a Covered Plan except for application of the limits on benefits and contributions under the Code applicable to such plans. The retirement benefits under the Plan shall be payable out of the general assets of the Corporation as provided in Article 4. Article 3 Eligibility 3.01 Eligibility to Participate. An Eligible Employee shall be eligible to become a Participant in the Plan when designated by the Plan Administrator and upon the execution of the Agreement. 3.02 Termination of Participation. An individual shall cease to be a Participant upon his or her ceasing to be an Eligible Employee. Article 4 Benefits 4.01 Annual Benefit. A Participant's annual benefit for a given Plan Year shall be calculated in accordance with the provisions of Exhibit B hereto. 4.02 Payment or Credit of Annual Benefit. Each Participant shall elect in writing, before the first day of each Plan Year, to have his annual benefit for such Plan Year either: (1) credited to the Participant's Account; or (2) paid to the Participant as soon as practicable after the last day of the Plan Year. A Participant's failure to make a written election before the first day of a Plan Year shall constitute an election to have the annual benefit for such Plan Year credited to his Account. If a Participant elects to be paid his annual benefit, only the vested portion of his annual benefit shall be paid to him, and the remainder of the annual benefit, if any, shall be paid to him when vested. 2 4 Exhibit 10F continued 4.03 Determination of Account Value. On each Valuation Date, the value of each Participant's Account shall be adjusted for any annual benefit credited to the Participant's Account since the last Valuation Date and shall be credited with interest on the Account's outstanding balance, at the rate quoted for five-year Treasury Notes on the first business day of the Plan Year. 4.04 Vesting. Benefits due to each Participant under the Plan shall vest in accordance with the vesting provisions of the applicable Covered Plan. 4.05 Payment of Account Balance. The balance of a Participant's Account shall be paid to the Participant in a single lump sum as soon as practicable after the Valuation Date immediately following the earliest of: (1) The Participant's attainment of age 65; (2) The Participant's termination of employment with the Corporation or one of its subsidiaries; (3) The Participant's Disability; (4) The Participant's death; or (5) A decision of the Board, in its sole discretion, to make payment prior to any of the events described in (1) through (4) above. 4.06 Death Benefits. If a Participant who is entitled to receive a benefit under the Plan dies before receiving the full amount credited to his Account, the balance in the Participant's Account shall be paid to the person or persons (including his estate) who are recognized under the applicable Covered Plan as the beneficiary of the Participant's benefit under such Covered Plan. The benefit hereunder shall be paid to the beneficiary as soon as practicable following the Participant's death. Article 5 Administration 5.01 Responsibilities of the Corporation as Plan Administrator. The Corporation shall be the Plan Administrator of the Plan. The Corporation shall have the following powers and responsibilities as Plan Administrator of the Plan: (1) to determine benefit rights; (2) to make such rules and regulations as it may deem necessary to carry out the provisions of the Plan; 3 5 Exhibit 10F continued (3) to employ actuaries, attorneys, accountants and such other individuals as it shall deem necessary or desirable in the administration of the Plan, and to delegate to such individuals such powers and responsibilities as it shall determine. (4) to determine, in accordance with uniform standards, any question arising in the administration, interpretation and application of the Plan, such determination to be conclusive and binding to the extent the same shall not be plainly inconsistent with the terms of the Plan or any applicable law; (5) to decide any disputes which may arise; (6) to designate, consistent with sound standards, the actuarial bases to be used for all actuarial calculations; (7) to keep a record of all delegations of duties in accordance with the provisions of this Article. The Corporation may delegate some or all of its powers and responsibilities as Plan Administrator, as enumerated above, to such individuals, committees of individuals, firms or corporations as it shall determine; and (8) to designate Participants in the Plan. Article 6 Amendment and Termination 6.01 Right to Amend and Terminate. The Corporation hopes and expects to continue the Plan and the payment of contributions hereunder indefinitely. In order to protect the Corporation against unforeseen contingencies, the Corporation expressly reserves the right, by action of the Board, to amend the Plan, and the Corporation expressly reserves the right, by action of the Board to terminate the Plan. Article 7 Miscellaneous 7.01 Unfunded Benefits. Any benefits payable under the Plan shall be paid by the Corporation out of its general assets and shall not be funded in any manner, provided, however, that in order to assure payment under the Plan, the 4 6 Exhibit 10F continued Corporation may establish one or more trusts; and further, that any assets transferred to a trust pursuant to this sentence would remain subject to the claims of the general creditors of the Corporation. 7.02 Liability of the Company and Board. The Corporation shall not be required to segregate assets to provide payments under the Plan although it may do so. Neither the Corporation nor the Board shall be deemed to be a Trustee of any amounts to be paid under the Plan. 7.03 Assignment of Benefits. No benefit payable under the Plan shall be subject in any manner to alienation, sale, transfer, assignment, anticipation, pledge, encumbrance, or charge; any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, or charge such benefits shall be void; and no such benefit or interest therein shall be liable for or subject to the debts, contracts, liabilities or torts of any Participant or Beneficiary. If any Participant or Beneficiary becomes bankrupt or attempts to anticipate, alienate, sell, transfer, assign, pledge, encumber, or charge any benefit under the Plan, the Plan Administrator may direct that such benefit be terminated and that all future payments to which such person otherwise would be entitled be held and applied for the benefit of such person, his or her children or other dependents, or any of them, in such manner and in such proportions as the Plan Administrator may deem proper. 7.04 Incapacity of Employee or Beneficiary. If the Corporation determines that any person to whom any payment is payable under the Plan is unable to care for his or her affairs or is a minor and a legal representative has not been appointed for such person, the Corporation may (but shall not be required to) direct that any benefits payable hereunder shall be paid to a spouse, child, parent, or other blood relative of such person, or to anyone found by the Corporation to have properly incurred expense for the support and maintenance of such Participant or Beneficiary, so long as such payment is permitted under applicable law and discharges completely all liability of the Corporation under the Plan. 7.05 Withholding. The Corporation shall have the right to deduct from the amount of any payment to a Participant (or to a Beneficiary or to the executors, administrators, legatees, or distributees of the Participant's or Beneficiary's estate) any Federal, state or local taxes required by law to be withheld from such amount. 7.06 No Right to Employment. Nothing in the Plan (including the designation of an individual as a Participant) shall be construed as giving a Participant any right to be retained in the employ of the Corporation or any right to any payment except for any benefits that may be due under the terms of the Plan. The Corporation expressly reserves the right to dismiss any Participant at any time without regard to the effect that such dismissal may have with respect to such benefits. 5 7 Exhibit 10F continued 7.07 Necessary Information. A Participant eligible to receive benefits under the Plan shall furnish to the Plan Administrator any information or evidence requested by the Plan Administrator and reasonably required for the proper administration of the Plan. Failure on the part of any person to comply with any such request within a reasonable period of time shall be sufficient grounds for delay in payment of any benefits that may be due under the Plan until such information or evidence is received by the Plan Administrator. If any person claiming benefits under the Plan makes a false statement which is material to the claim for benefits, the Plan Administrator may offset against future payments any amount paid to such person to which he or she was not entitled under the provision of the Plan. 7.08 Binding Effect. The provisions of the Plan shall be binding upon and inure to the benefit of the Corporation, its successors and assigns and to the Participant, his/her heirs, executors, administrators and legal representative. 7.09 Governing Law. The provisions of the Plan shall be construed in accordance with and governed by the laws of the State of Connecticut. 6 8 Exhibit 10F continued EXHIBIT A AGREEMENT THIS AGREEMENT ("Agreement") dated by and between The Dexter Corporation, a Connecticut corporation (the "Corporation"), and (the "Employee"). WITNESSETH THAT: WHEREAS, the Employee is a participant in [The Dexter ESPRIT Plan ("ESPRIT") OR The Dexter MERIT Plan ("MERIT")]; WHEREAS, the Corporation desires to provide retirement benefits that otherwise would be provided to the Employee under [ESPRIT or MERIT] except for application of the limits on benefits and contributions under the Internal Revenue Code of 1986, as amended, applicable to such plans; WHEREAS, the Corporation adopted the Retirement Equalization Plan (the "Plan") on October 28, 1988, a copy of which Plan, as amended and restated, is attached hereto. WHEREAS, Employee has been designated a Participant in the Plan in accordance with its terms and Employee desires to participate in the Plan. NOW, THEREFORE, in consideration of the premises and the mutual agreements herein contained, the Corporation and Employee hereby agree as follows: 1. The Corporation agrees to provide retirement benefits to Employee pursuant to the terms and conditions of the Plan. 2. Employee agrees to receive such retirement benefits provided by the Corporation pursuant to the terms and conditions of the Plan. 3. Employee agrees to be bound by the terms and conditions of the Plan. IN WITNESS WHEREOF, this Agreement has been executed as of the date first written above. Employee THE DEXTER CORPORATION ____________________________ By______________________________ 7 9 Exhibit 10F continued EXHIBIT B CALCULATION OF ANNUAL BENEFIT UNDER SECTION 4.01 A Participant's annual benefit for a given Plan Year shall be equal to (a) the Adjusted Covered Plan Contribution (as defined below) less (b) the amounts of the contributions and forfeitures actually credited to the Participant's accounts under the applicable Covered Plan for such Plan Year. For the purposes hereof, the term "Adjusted Covered Plan Contribution" shall mean the sum of the total contributions and forfeitures which could have been credited to such Participant under the applicable Covered Plan for a given Plan Year determined (i) before applying any provision of such Covered Plan that would reduce the amount of such contributions or forfeitures because of the limitations imposed by Section 415 of the Code or because of the limitations imposed by Section 401(a)(17) of the Code on the amount of the Participant's compensation that may be taken into account for the Plan Year, (ii) by treating the amount of the Participant's voluntary after-tax contributions and elective deferrals for the Plan Year (if any) as if such amount were zero, (iii) by treating the amount of any executive incentive compensation payments accrued but not received by the Participant during such Plan Year under the Corporation's Senior Management Executive Incentive Plan as if such amount were paid during such Plan Year; and (iv) by treating the amount of any executive incentive compensation payments received by the Participant during such Plan Year under the Corporation's Senior Management Executive Incentive Plan that were accrued and payable in respect of a prior Plan Year as if such amount were zero. 8 EX-10.J.1 3 EXHIBIT 10.J(1) 1 Exhibit 10J(1) THE DEXTER CORPORATION AMENDMENT TO THE 1996 NON-EMPLOYEE DIRECTORS' STOCK PLAN Article I 1.1 This Amendment to the 1996 Non-Employee Directors' Stock Plan (the "Plan") of The Dexter Corporation (the "Company") is made pursuant to Article 8 of the Plan and shall be effective as of April 1, 1997. Article II 2.1 Section 2(g) of the Plan is amended to read as follows: (g) "Fair Market Value" means the closing price of Common Stock reported for the New York Stock Exchange on the tenth trading day preceding the relevant payment date. 2.2 Section 5 of the Plan is amended to read as follows: 5. Common Stock. Commencing on April 24, 1997, fifty percent (50%) of the Retainer shall be paid to each Non-Employee Director in the form of shares of Common Stock. In addition, each Non-Employee Director shall have the right to elect, on forms provided by the Company, to receive all or a portion of the remaining balance of the Retainer in the form of shares of Common Stock. Such election shall be made annually for the following calendar year, shall be irrevocable, and must be received by the Committee at least six months prior to the date on which the Common Stock is to be issued. Any part of the Retainer paid in shares of Common Stock under this Section 5 shall be payable in one installment on the date of the Company's annual meeting of shareholders. Except as otherwise provided in Section 6 hereof, shares of Common Stock issued under this Section 5 shall be unrestricted and freely transferable. 2.3 In all other respects, the Plan as hereby amended is ratified and confirmed. IN WITNESS WHEREOF, the Company has executed this Amendment as of the date set forth in Article 1.1, such execution having been duly authorized by the Company's Board of Directors. THE DEXTER CORPORATION By:/s/ Bruce H. Beatt --------------------------------- Bruce H. Beatt Vice President, General Counsel & Secretary EX-13 4 EXHIBIT 13 1 TO OUR SHAREHOLDERS, EMPLOYEES AND CUSTOMERS [PHOTO OF K. GRAHAME WALKER] K. Grahame Walker DEXTER CONTINUES TO BUILD SHAREHOLDER VALUE 1997 was another good year for the shareholders of The Dexter Corporation. The share price rose by 35%, driven by continued and consistent earnings growth. The dividend was increased by 9%. Net income from operations for the year grew by 18% to a record $56.4 million. Similarly, at $2.45, 1997 basic earnings per share were also a record. Once again, the company delivered basic earnings per share growth from operations of 21%. Sales volume growth for the year was 7%. Changes, compared to the prior year, in the relative values of overseas currencies eroded net sales growth in US dollars by 3%. Reported net sales for 1997 therefore grew by 4% over the previous year. However, sales volume growth for ongoing businesses remains strong. Management has confidence in the corporation's strategic direction, technological strengths, marketing skills and operational disciplines. From a solid base of business strengths and an emerging track record of sustained success, Dexter is a company that knows how to perform -- for customers and shareholders alike. "DRIVEN BY THE IMPERATIVE FOR CONSISTENT GROWTH OF EARNINGS, AND THEREFORE OF SHAREHOLDER VALUE, DEXTER REQUIRES ITS BUSINESSES TO BE GROWTH-MOTIVATED, TECHNOLOGY LEADERS THAT FOCUS FIRST EXTERNALLY ON THE CUSTOMER AND INTERNALLY ON PROFITABILITY." DEXTER IS RENEWED AND CONFIDENT As a direct result of strategic restructuring and investment in technology renewal, The Dexter Corporation has profoundly changed. Despite pride in its heritage as the oldest company listed on the New York Stock Exchange, Dexter is a new and vigorous global corporation with clear objectives, strategies and defined opportunities for continued profitable growth. A confident attitude runs throughout the corporation. We believe that we can, and will, continue to succeed. The company recognizes and values the commitment of so many employee teams -- a commitment and a determination that have built the new culture of confidence. DEXTER'S MODERATE BUT JUDICIOUS DIVERSITY DELIVERS SUSTAINABLE PERFORMANCE STRENGTH As a specialty materials company, we are organized around three operating legs: Specialty Polymers, Nonwovens and Life Technologies. The Specialty Polymers businesses, which serve the aerospace, electronics and food packaging markets, developed with strength during 1997. The commercialization of new technologies was rewarding 2 the dexter corporation 2 and forms the foundation for continued growth in 1998 and beyond. "FROM A SOLID BASE OF BUSINESS STRENGTHS AND AN EMERGING TRACK RECORD OF SUSTAINED SUCCESS, DEXTER IS A COMPANY THAT KNOWS HOW TO PERFORM -- FOR CUSTOMERS AND SHAREHOLDERS ALIKE." Nonwovens expanded its overseas capacity for the successful range of Hydraspun(R) materials. The business also completed the first phase of strengthening its domestic manufacturing capabilities. New composite fabrics for new applications prepare the path for continued growth. Life Technologies continued its pattern of consistent global growth. The business made excellent progress in the modernization and development of its worldwide infrastructure scheduled for completion in 1998. Each Dexter business is based on a strategy of technology leadership that provides the opportunity for penetration of new markets. Each Dexter business ended the year in a strengthened market position. Each Dexter business seriously and continually pursues productivity improvements and cost reduction. Each Dexter business knows that only the best will win. DEXTER IS DRIVEN BY THE IMPERATIVE FOR PROFITABLE GROWTH Driven by the imperative for consistent growth of earnings, and therefore of shareholder value, Dexter requires its businesses to be growth-motivated, technology leaders that focus first externally on the customer and internally on profitability. As a specialty materials manufacturer, Dexter's competitive strength depends on the technological value its products provide to its customers. We believe that technology is the principal driver of earnings growth. Funding of technology places the corporation at the top end of its peer group. In 1997 Dexter augmented internal research and development by the acquisition of technology developed overseas. In addition to development of ongoing businesses, strategic acquisitions remain an important factor for future growth. During 1997 Dexter made four strategically important acquisitions. Our Packaging Products business made three of those acquisitions: Kolack A.G. in Switzerland to strengthen our position in specialty coatings for tube and aerosol packaging; Herberts' can coating business in Austria to create a leading presence in the growing East European market for specialty food can coatings; and the former Akzo Nobel business in Brazil for interior coatings of beer and beverage cans. Our Electronic Materials business acquired Quantum Materials, Inc. of California, a market leader in the semiconductor industry for high performance die attach materials. In addition, the Packaging Products business formed a strategic joint venture with Plascon (Pty) Ltd. in South Africa to participate more fully in that growing market for specialty can coatings. Every Dexter business has identified new opportunities to deliver profitable growth. Consequently, we are confident that 1998 will be another good year for shareholders. DEXTER SALUTES GLEN URBAN After many years of support and contribution to Dexter's strategic renewal, Dr. Glen Urban has determined that the demands of his future activities require that he not seek re-election for a further term as a director of the corporation. We thank Glen for his years of service and wish him all good fortune in his future endeavors. /s/ K. Grahame Walker - --------------------- K. Grahame Walker Chairman and Chief Executive Officer February 3, 1998 the dexter corporation 3 3 BUSINESS STRUCTURE DEXTER IS ORGANIZED AROUND THREE OPERATING LEGS: SPECIALTY POLYMERS AEROSPACE MARKET ADHESIVES AND STRUCTURAL MATERIALS structural paste and film adhesives corrosion-inhibiting primers matrix resins syntactic films expandable syntactic films composite surfacing films COATINGS high solids decorative topcoats teflon coatings interior passenger compartment coatings UV curable coatings VOC compliant primers integral fuel tank primers ELECTRONICS MARKET ELECTRONIC PACKAGING PRODUCTS semiconductor molding powders electrical/electronic molding compounds electrical/electronic coating powders ASSEMBLY AND ADVANCED PRODUCTS microelectronic liquid encapsulants electrical/electronic liquid encapsulants optoelectronic materials conductive adhesives electronic films PRINTED WIRING BOARD PRODUCTS advanced process materials imaging products plating technologies electrolytic solder QUANTUM MATERIALS conductive adhesives MAGNETIC MATERIALS permanent magnets and assemblies ferrite cores FOOD PACKAGING MARKET BEER AND BEVERAGE COATINGS inside spray easy-open ends closures FOOD AND SPECIALTY COATINGS two-piece food three-piece food aerosol and tubes general line OTHER waterborne automotive coatings waterborne protective coatings for graphic arts recreational coatings wood furniture coatings coatings for glass and cosmetic bottles industrial equipment coatings polymer release systems 6 the dexter corporation 4 NONWOVENS FOOD PACKAGING MARKET LONG-FIBER PRODUCTS tea and coffee filter media fibrous-base materials for meat casings food wrap MEDICAL MARKET WET-FORMED AND HYDROENTANGLED NONWOVENS barrier fabrics for surgical drapes and gowns sterilization wraps personal care and baby wiping materials OTHER SPECIALTY PAPERS AND NONWOVENS liners for automotive interior trim commercial residential wallcover substrates vacuum bag filter media industrial and food service wiping materials LIFE TECHNOLOGIES MEDICAL MARKET GIBCO BRL PRODUCTS cell culture cell biology/immunology molecular biology
CONTRIBUTION TO SALES Nonwovens 25% Life Technologies 29% Specialty Polymers 46%
$1.15 BILLION TOTAL SALES the dexter corporation 7 5 TECHNOLOGY Technology is the principal driver of earnings growth. Everyone at Dexter can tell you what technology means to the corporation - Technology is the lifeblood of the business. The reasons behind that statement became even more obvious in 1997 than they had been in previous years. During the past year, technology leadership was directly tied to several of Dexter's most impressive growth businesses: electronic and aerospace materials, nonwoven medical wipes and Life Technologies. Additional technologies being commercialized will contribute to the future profitability of food packaging and magnetic materials. Since sales derived from new technology developments tend to generate more attractive profitability levels than older technologies, the corporation continually tracks the percentage of total sales represented by products developed over the last five years. That percentage has been steadily increasing and was at an all-time high in 1997. New product sales increases have also been driven by improved commercialization processes. Once customer needs have been clearly identified, the commercialization process is led by a cross-functional team to optimize the pace of market acceptance and penetration. Throughout 1997 and throughout the corporation, continual improvement of Dexter's proprietary technology base was achieved. In addition to new technologies developed by the corporation's considerable internal resources, important new technology platforms were secured through business acquisition, licensing and outright purchase. Investment in R&D places Dexter in the top quartile of its peer group. Plans will continue that aggregate level of funding to support continued improvement of profitability and earnings growth. 8 the dexter corporation 6 MARKETING We are building the necessary resources throughout Dexter to raise our marketing skills to new levels of performance. As a specialty materials manufacturer, Dexter is a highly market-focused company. We deeply segment our markets to determine those areas where we can make a significant difference -- market niches that we can identify, occupy and defend with products that deliver tangible additional and differentiated value to the customer. Every new product developed at Dexter is entirely market driven. New products must incorporate the performance attributes, the optimum technology, the manufacturing cost and the commercialization timetable that add real value to the customer's business. Throughout the corporation, Dexter is investing in skilled marketing resources and effective processes to ensure that new technologies will be brought to market more quickly, thereby enhancing growth and profitability. Success also relies upon the ability of the marketing function to position the superior value of a new product with the customer and to lead the cross-functional development and commercialization team. Marketing also plays a critical role in identifying and meeting future customer requirements. Dexter listens to the customers and partners with them to research future needs for materials with enhanced performance or environmental benefits. Dexter has focused on certain specific markets that it knows and understands well. In the future, the corporation will additionally market its technologies in forms that capture new applications in new markets with growth potential. Dexter will continue to leverage its marketing strength to create competitive strategies that will drive ongoing global growth. 10 the dexter corporation 7 MANAGEMENT STATEMENT The management of The Dexter Corporation has prepared the financial statements and review contained on pages 18 through 43 in conformity with generally accepted accounting principles. Dexter's management is responsible for the integrity and objectivity of this annual report, including the financial statements, charts, tables and other supplementary information. The financial statements and review are presented on the accrual basis of accounting and, accordingly, include some amounts based on judgment. Information included on these pages is an integral part of the statement of financial position and related statements of income, cash flows and changes in shareholders' equity which have been audited by Coopers & Lybrand L.L.P. Dexter has a clearly stated business ethics policy and code of conduct which require employees to maintain high standards in their conduct of company affairs. The company's accounting and control systems are designed to provide reasonable assurance that financial records accurately reflect the transactions of The Dexter Corporation and that the company's assets are protected from unauthorized use, in accordance with established policies and procedures, as implemented by qualified personnel. We modify and improve our systems in response to changes in business conditions and operations, the advice of independent certified public accountants, and the recommendations of our own internal auditors and other independent experts on procedures and controls. There are no known significant accounting control weaknesses. Coopers & Lybrand L.L.P., independent certified public accountants, are engaged to perform quarterly reviews and annual audits. Their audits are conducted in accordance with generally accepted auditing standards which include consideration of the company's internal controls. The Audit Committee of the Board of Directors, made up entirely of outside directors, meets regularly both separately and jointly with the independent certified public accountants, internal auditors and management to review accounting policies, adequacy of controls, quality of financial reporting, and the scope and results of audits. Both the internal auditors and the independent accountants have free and direct access to the Audit Committee without the presence of management. A company with a good reputation is not only a good supplier, customer and citizen but a good employer. Dexter has enjoyed a reputation based on integrity for over two centuries. We are all the guardians of that reputation, and that responsibility requires vigilance. /s/ K. Grahame Walker /s/ Kathleen Burdett - --------------------- -------------------- K. Grahame Walker Kathleen Burdett Chairman Vice President and Chief Executive Officer and Chief Financial Officer February 3, 1998 16 the dexter corporation 8 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Board of Directors of The Dexter Corporation: We have audited the accompanying consolidated statement of financial position of The Dexter Corporation as of December 31, 1997, 1996 and 1995 and the related consolidated statements of income, cash flows and changes in shareholders' equity for the years then ended. These financial statements are the responsibility of The Dexter Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above, contained on pages 18 through 43, present fairly, in all material respects, the consolidated financial position of The Dexter Corporation as of December 31, 1997, 1996 and 1995 and the consolidated results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. In 1996, the Corporation, as more fully described in the accompanying financial review, adopted Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of and SFAS No. 123, Accounting for Stock-Based Compensation. /s/ Coopers & Lybrand L.L.P. - ---------------------------- Springfield, Massachusetts February 3, 1998 the dexter corporation 17 9 SUMMARY OF FINANCIAL DATA THE DEXTER CORPORATION
In thousands of dollars (except per share amounts) 1997 1996 1995 1994 - ----------------------------------------------------------------------------------------------------------------- OPERATING RESULTS Net sales $1,147,055 $1,100,185 $1,088,905 $974,719 % increase (decrease) 4% 1% 12% 10% Gross profit 411,688 379,205 346,699 316,541 As % of sales 35.9% 34.5% 31.8% 32.5% LIFO (credit) charge included in cost of sales (1,067) (4,873) 1,881 2,231 Marketing and administrative expenses 238,401 223,848 206,708 188,272 As % of sales 20.8% 20.3% 19.0% 19.3% Research and development expenses 54,021 51,504 49,375 46,644 As % of sales 4.7% 4.7% 4.5% 4.8% Interest expense 20,192 20,500 20,931 20,509 Income before taxes 111,085 98,252 79,824 73,612 As % of sales 9.7% 8.9% 7.3% 7.6% Tax rate 36.0% 35.5% 35.5% 36.0% Income (loss) before minority interests 71,094 63,372 51,487 47,112 As % of sales 6.2% 5.8% 4.7% 4.8% Income (loss) from continuing operations 56,427 48,722 40,578 37,898 As % of sales 4.9% 4.4% 3.7% 3.9% Discontinued operations loss Cumulative effect of change in accounting principles Net income (loss) $56,427 $48,722 $40,578 $37,898 As % of sales 4.9% 4.4% 3.7% 3.9% Return on Average shareholders' equity 15.1% 13.1% 11.4% 11.5% Average total capital 12.2% 10.6% 9.4% 9.2% Income (loss) per share - basic Continuing operations $2.45 $2.06 $1.67 $1.56 Discontinued operations Cumulative effect of change in accounting principles Net income (loss) - basic $2.45 $2.06 $1.67 $1.56 Income (loss) per share - diluted Continuing operations $2.41 $2.03 $1.66 $1.55 Discontinued operations Cumulative effect of change in accounting principles Net income (loss) - diluted $2.41 $2.03 $1.66 $1.55 Cash dividends declared per share $.96 $.88 $.88 $.88 Rate of dividend payout* 39% 43% 53% 56%
* Before cumulative effect of 1993 change in accounting principles
- ----------------------------------------------------------------------------------------------------------------- FINANCIAL POSITION Working capital $203,916 $242,929 $248,623 $209,024 Property, plant and equipment, net 348,172 334,266 325,203 328,935 Total assets 961,776 953,804 934,161 880,609 Long-term debt 180,030 209,952 215,839 225,402 Shareholders' equity $372,861 $374,115 $369,615 $343,633 Percent long-term debt to capital 32.6% 35.9% 36.9% 39.6% Equity per share at year end $16.26 $15.94 $15.26 $14.11
- ----------------------------------------------------------------------------------------------------------------- OTHER DATA Capital expenditures $59,087 $62,277 $28,969 $45,097 Depreciation and amortization $45,441 $44,239 $43,727 $40,923 Shares outstanding at year end (000) 22,938 23,464 24,220 24,350 Average shares outstanding (000) 23,010 23,687 24,364 24,345 Market price per share-- high $43 15/16 $33 5/8 $26 7/8 $ 26 -- low $28 3/4 $23 1/8 $20 3/8 $19 7/8 -- close $43 3/16 $31 7/8 $23 5/8 $21 3/4 Price-earnings ratio range* 18-12 16-11 16-12 17-13 Number of shareholders at year end 3,000 3,100 3,400 3,600 Number of employees at year end** 4,800 4,600 4,800 4,700 % payroll and benefits to sales** 24% 23% 24% 25% % raw material costs to sales** 41% 41% 44% 43%
* Before cumulative effect of 1993 change in accounting principles ** From continuing operations
- ----------------------------------------------------------------------------------------------------------------- INFLATION ADJUSTED DATA Net sales* $1,147,055 $ 1,125,705 $1,146,944 $1,055,507 % increase (decrease) 2% (2%) 9% 7% Cash dividends declared per share* $ .96 $ .90 $ .93 $ .95 Market price per share - year end** $43 3/16 $32 3/8 $24 7/8 $23 1/2
* Stated in average 1997 dollars using the Consumer Price Index. ** Stated in year-end 1997 dollars using the Consumer Price Index. - ------------------------------------------------------------------------------ 18 the dexter corporation 10 SUMMARY OF FINANCIAL DATA THE DEXTER CORPORATION
In thousands of dollars (except per share amounts) 1993 1992 1991 1990 1989 - ----------------------------------------------------------------------------------------------------------------------- OPERATING RESULTS Net sales $887,112 $951,439 $937,734 $907,946 $848,724 % increase (decrease) (7%) 1% 3% 7% 3% Gross profit 293,345 314,275 309,157 314,449 284,142 As % of sales 33.1% 33.0% 33.0% 34.6% 33.5% LIFO (credit) charge included in cost of sales (1,290) 1,626 (173) 1,100 (4,063) Marketing and administrative expenses 175,141 188,263 198,334 191,656 168,935 As % of sales 19.7% 19.8% 21.2% 21.1% 19.9% Research and development expenses 43,803 42,216 42,056 39,880 37,359 As % of sales 4.9% 4.4% 4.5% 4.4% 4.4% Interest expense 18,756 18,799 16,800 17,484 10,926 Income before taxes 66,438 73,132 11,192 77,407 77,643 As % of sales 7.5% 7.7% 1.2% 8.5% 9.1% Tax rate 36.5% 37.7% 109.5% 37.0% 38.0% Income (loss) before minority interests 42,188 45,577 (1,059) 48,766 48,139 As % of sales 4.8% 4.8% (0.1%) 5.4% 5.7% Income (loss) from continuing operations 34,053 38,203 (7,119) 42,150 42,977 As % of sales 3.8% 4.0% (0.8%) 4.6% 5.1% Discontinued operations loss Cumulative effect of change in accounting principles (9,875) Net income (loss) $24,178 $38,203 $(7,119) $42,150 $42,977 As % of sales 2.7% 4.0% (0.8%) 4.6% 5.1% Return on Average shareholders' equity 7.7% 12.1% (2.2%) 12.6% 13.6% Average total capital 7.0% 10.0% 0.7% 11.0% 11.6% Income (loss) per share - basic Continuing operations $1.40 $1.58 $(.29) $1.74 $1.73 Discontinued operations Cumulative effect of change in accounting principles $(.41) Net income (loss) - basic $.99 $1.58 $(.29) $1.74 $1.73 Income (loss) per share - diluted Continuing operations $1.39 $1.57 $(.30) $1.71 $1.70 Discontinued operations Cumulative effect of change in accounting principles $(.40) Net income (loss) - diluted $.99 $1.57 $(.30) $1.71 $1.70 Cash dividends declared per share $.88 $.88 $.88 $.88 $.82 Rate of dividend payout* 63% 56% -- 51% 47%
* Before cumulative effect of 1993 change in accounting principles
- ----------------------------------------------------------------------------------------------------------------------- FINANCIAL POSITION Working capital $199,146 $207,146 $193,873 $215,410 $189,006 Property, plant and equipment, net 309,954 298,869 299,342 274,147 252,895 Total assets 820,691 782,025 784,471 762,383 694,490 Long-term debt 227,307 179,024 188,702 160,478 130,834 Shareholders' equity $313,295 $315,614 $313,782 $343,698 $325,281 Percent long-term debt to capital 42.0% 36.2% 37.6% 31.8% 28.7% Equity per share at year end $12.87 $12.98 $12.99 $14.24 $13.14
- ----------------------------------------------------------------------------------------------------------------------- OTHER DATA Capital expenditures $44,784 $51,793 $61,749 $43,910 $33,119 Depreciation and amortization $36,655 $35,672 $34,095 $30,272 $26,243 Shares outstanding at year end (000) 24,340 24,308 24,149 24,136 24,761 Average shares outstanding (000) 24,325 24,220 24,145 24,282 24,877 Market price per share-- high $28 7/8 $28 1/8 $26 1/8 $24 1/2 $34 3/4 -- low $20 3/8 $20 7/8 $18 1/2 $ 18 $20 1/8 -- close $23 1/2 $25 7/8 $21 5/8 $ 21 $21 7/8 Price-earnings ratio range* 21-15 18-13 -- 14-10 20-12 Number of shareholders at year end 3,900 4,000 4,300 4,400 4,500 Number of employees at year end** 4,700 4,800 5,600 5,500 5,400 % payroll and benefits to sales** 25% 25% 25% 24% 23% % raw material costs to sales** 41% 42% 41% 42% 46%
* Before cumulative effect of 1993 change in accounting principles ** From continuing operations
- --------------------------------------------------------------------------------------------------------------------------- INFLATION ADJUSTED DATA Net sales* $ 985,657 $ 1,088,342 $ 1,105,191 $1,115,416 $ 1,099,051 % increase (decrease) (9%) (2%) (1%) 1% (2%) Cash dividends declared per share* $ .98 $ 1.01 $ 1.04 $ 1.08 $ 1.06 Market price per share - year end** $ 26 $29 3/8 $25 1/4 $25 1/4 $ 28 * Stated in average 1997 dollars using the Consumer Price Index. ** Stated in year-end 1997 dollars using the Consumer Price Index. - ---------------------------------------------------------------------------------------------------------------------------
19 the dexter corporation 11 SUMMARY OF FINANCIAL DATA THE DEXTER CORPORATION
In thousands of dollars (except per share amounts) 1988 1987 - ---------------------------------------------------------------------------- OPERATING RESULTS Net sales $827,266 $757,710 % increase (decrease) 9% 22% Gross profit 269,416 263,120 As % of sales 32.6% 34.7% LIFO (credit) charge included in cost of sales 4,193 5,961 Marketing and administrative expenses 159,448 152,357 As % of sales 19.3% 20.1% Research and development expenses 32,685 28,690 As % of sales 4.0% 3.8% Interest expense 12,178 14,127 Income before taxes 71,923 76,858 As % of sales 8.7% 10.1% Tax rate 38.0% 38.0% Income (loss) before minority interests 44,592 47,652 As % of sales 5.4% 6.3% Income (loss) from continuing operations 39,889 43,391 As % of sales 4.8% 5.7% Discontinued operations loss (4,393) (606) Cumulative effect of change in accounting principles Net income (loss) $35,496 $42,785 As % of sales 4.3% 5.6% Return on Average shareholders' equity 11.8% 15.5% Average total capital 10.7% 13.3% Income (loss) per share - basic Continuing operations $1.61 $1.74 Discontinued operations $(.18) $(.02) Cumulative effect of change in accounting principles Net income (loss) - basic $1.43 $1.72 Income (loss) per share - diluted Continuing operations $1.58 $1.71 Discontinued operations $(.17) $(.02) Cumulative effect of change in accounting principles Net income (loss) - diluted $1.41 $1.69 Cash dividends declared per share $.80 $.60 Rate of dividend payout* 56% 35%
* Before cumulative effect of 1993 change in accounting principles
- ----------------------------------------------------------------------------- FINANCIAL POSITION Working capital $182,284 $181,106 Property, plant and equipment, net 186,894 183,972 Total assets 626,391 612,517 Long-term debt 92,830 106,338 Shareholders' equity $307,226 $293,788 Percent long-term debt to capital 23.2% 26.6% Equity per share at year end $12.36 $11.84
- --------------------------------------------------------------------------- OTHER DATA Capital expenditures $26,145 $23,619 Depreciation and amortization $24,349 $22,775 Shares outstanding at year end (000) 24,855 24,821 Average shares outstanding (000) 24,842 24,895 Market price per share-- high $28 3/4 $32 3/8 -- low $20 1/4 $ 17 -- close $22 1/4 $23 3/8 Price-earnings ratio range* 20-14 19-10 Number of shareholders at year end 4,400 4,500 Number of employees at year end** 5,400 5,200 % payroll and benefits to sales** 23% 23% % raw material costs to sales** 45% 43%
* Before cumulative effect of 1993 change in accounting principles ** From continuing operations
- --------------------------------------------------------------------------- INFLATION ADJUSTED DATA Net sales* $1,122,698 $1,070,295 % increase (decrease) 5% 17% Cash dividends declared per share* 1.09 $ .85 Market price per share - year end** $29 3/4 $32 5/8
* Stated in average 1997 dollars using the Consumer Price Index. ** Stated in year-end 1997 dollars using the Consumer Price Index. - --------------------------------------------------------------------------- 19 the dexter corporation 12 STATEMENT OF INCOME THE DEXTER CORPORATION
Years ended December 31 In thousands of dollars ------------------------------------------ (except per share amounts) 1997 1996 1995 - ----------------------------------------------------------------------------------- REVENUES Net sales $ 1,147,055 $1,100,185 $1,088,905 Equity in net income of affiliates 4,461 4,810 1,348 Other income 7,550 7,370 8,791 ------------------------------------------ 1,159,066 1,112,365 1,099,044 EXPENSES Cost of sales 735,367 720,980 742,206 Marketing and administrative 238,401 223,848 206,708 Research and development 54,021 51,504 49,375 Interest 20,192 20,500 20,931 Gain on divestiture of product lines (2,719) ------------------------------------------ INCOME BEFORE TAXES 111,085 98,252 79,824 Income taxes 39,991 34,880 28,337 ------------------------------------------ INCOME BEFORE MINORITY INTERESTS 71,094 63,372 51,487 Minority interests 14,667 14,650 10,909 ------------------------------------------ NET INCOME $ 56,427 $ 48,722 $ 40,578 ========================================== NET INCOME PER SHARE - BASIC $ 2.45 $ 2.06 $ 1.67 NET INCOME PER SHARE - DILUTED $ 2.41 $ 2.03 $ 1.66 DIVIDENDS DECLARED PER SHARE $ .96 $ .88 $ .88 - ----------------------------------------------------------------------------------- See accompanying financial review.
20 the dexter corporation 13 STATEMENT OF CASH FLOWS THE DEXTER CORPORATION
Years ended December 31 -------------------------------------- In thousands of dollars 1997 1996 1995 - ---------------------------------------------------------------------------------------------------- OPERATIONS Net income $ 56,427 $ 48,722 $ 40,578 Noncash items Depreciation 37,453 37,312 38,246 Amortization 7,988 6,927 5,481 Gain on divestiture of product lines (2,719) Income taxes (paid) not due (5,660) 9,418 (5,262) Minority interests 14,667 14,650 10,909 LIFO inventory (credit) charge (1,037) (4,873) 1,881 Equity in net income of affiliates (4,461) (4,810) (1,348) Other (978) 4,075 (1,547) Operating working capital (increase) decrease (19,778) 18,944 (31,512) -------------------------------------- 84,621 127,646 57,426 -------------------------------------- INVESTMENTS Property, plant and equipment (62,989) (55,294) (30,235) Acquisitions (68,517) (16,315) (525) Divestitures 41,539 34,913 Joint ventures 2,643 10,050 (3,133) Notes receivable 750 200 3,150 Proceeds from sale of investments 838 1,070 1,048 Purchases of investments (4,970) (771) Proceeds from exercise of LTI stock options 4,052 1,998 2,990 Other 1,061 (274) 850 -------------------------------------- (80,623) (28,622) (26,626) -------------------------------------- FINANCING New long-term debt 20,000 4,390 Repayment of long-term debt (47,185) (13,762) (4,260) Short-term debt, net 30,611 (8,371) 8,825 Dividends paid (21,728) (20,967) (21,441) LTI dividends paid to minority interest shareholders (1,859) (1,561) (1,374) Purchase of treasury stock (20,517) (26,658) (4,205) Proceeds from exercise of stock options 4,315 5,269 754 Other (359) 131 (478) -------------------------------------- (36,722) (61,529) (22,179) -------------------------------------- (DECREASE) INCREASE IN CASH AND SHORT-TERM SECURITIES $ (32,724) $ 37,495 $ 8,621 ====================================== CHANGES IN MAJOR ELEMENTS WHICH INCREASE (DECREASE) OPERATING WORKING CAPITAL Accounts receivable, net $ 13,713 $ (3,827) $ 20,085 Inventories at FIFO 14,857 (7,912) 10,441 Prepaid and deferred expenses 2,908 (3,891) 1,343 Accounts payable (6,448) (62) (6,690) Accrued liabilities and expenses (5,252) (3,252) 6,333 -------------------------------------- $ 19,778 $ (18,944) $ 31,512 ====================================== RECONCILIATION OF (DECREASE) INCREASE IN CASH AND SHORT-TERM SECURITIES Cash and short-term securities at beginning of year $ 103,420 $ 65,542 $ 55,012 Cash and short-term securities at end of year 68,306 103,420 65,542 -------------------------------------- (Decrease) Increase in cash and short-term securities per Statement of Financial Position (35,114) 37,878 10,530 Currency translation effects 2,390 (383) 225 Cash included from consolidation of a subsidiary which became majority-owned in 1995 (2,134) -------------------------------------- $ (32,724) $ 37,495 $ 8,621 ====================================== INTEREST PAID $ 20,407 $ 22,403 $ 19,113 TAXES PAID $ 45,651 $ 25,462 $ 33,599
This Statement of Cash Flows does not reflect the addition of $4.7 million of property, plant and equipment and $4.7 million of debt related to a capital lease for land acquired in 1996 by Life Technologies, Inc., as this was a non-cash transaction. - -------------------------------------------------------------------------------- See accompanying financial review. the dexter corporation 21 14 THE DEXTER CORPORATION STATEMENT OF FINANCIAL POSITION
December 31 --------------------------------------- In thousands of dollars 1997 1996 1995 - --------------------------------------------------------------------------------------- ASSETS Current assets Cash $ 11,273 $ 11,837 $ 9,577 Short-term securities 57,033 91,583 55,965 Accounts receivable, net 185,257 178,093 201,389 Inventories Materials and supplies 61,233 58,290 60,099 In process and finished goods 117,467 110,457 121,644 LIFO reserve (18,799) (19,836) (24,709) --------------------------------------- 159,901 148,911 157,034 Current deferred tax assets 17,107 22,477 20,890 Prepaid and deferred expenses 9,881 7,510 11,866 --------------------------------------- 440,452 460,411 456,721 Property, plant and equipment Land 28,501 23,273 19,307 Buildings and improvements 184,388 158,635 153,071 Machinery and equipment 474,079 458,069 457,611 Construction in progress 25,157 37,859 12,250 --------------------------------------- 712,125 677,836 642,239 Less accumulated depreciation (363,953) (343,570) (317,036) --------------------------------------- 348,172 334,266 325,203 Investments of wholly owned captive insurance companies 9,056 9,875 5,878 Investment in unconsolidated affiliates 8,704 50,025 47,982 Patents, technology, formulas and covenants 29,489 2,313 2,857 Excess of cost over net assets of businesses acquired 97,507 71,906 74,102 Other assets 28,396 25,008 21,418 --------------------------------------- $ 961,776 $ 953,804 $ 934,161 ======================================= - --------------------------------------------------------------------------------------- See accompanying financial review.
22 the dexter corporation 15 THE DEXTER CORPORATION
December 31 --------------------------------------- In thousands of dollars 1997 1996 1995 - ------------------------------------------------------------------------------------------ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Short-term debt $ 35,361 $ 5,111 $ 13,598 Accounts payable 91,155 91,855 92,447 Dividends payable 5,505 5,170 5,351 Accrued and deferred income taxes 21,153 36,212 26,622 Accrued liabilities and expenses 67,923 65,479 55,037 Current environmental liabilities 2,099 1,358 1,395 Current installments of long-term debt 13,340 12,297 13,648 --------------------------------------- 236,536 217,482 208,098 Long-term debt 180,030 209,952 215,839 Deferred items 29,652 24,642 23,693 Long-term deferred income taxes 22,284 19,481 21,486 Deferred tax credits 2,261 2,751 3,313 Long-term environmental liabilities 13,726 14,978 15,745 Minority interests - principally Life Technologies, Inc. 104,426 90,403 76,372 Shareholders' equity Common stock, par value $1 per share (authorized 100,000,000 shares; issued 24,983,907 shares in 1997, 1996 and 1995) 24,984 24,984 24,984 Additional paid-in capital 17,482 14,669 12,316 Retained earnings 409,844 375,480 347,544 Currency translation effects (22,475) (2,187) 1,614 Other equity items (4,758) (3,158) (2,184) Treasury stock, at cost (1,814,035 shares in 1997, 1,520,261 shares in 1996 and 763,782 shares in 1995) (52,216) (35,673) (14,659) --------------------------------------- Total shareholders' equity 372,861 374,115 369,615 --------------------------------------- $ 961,776 $ 953,804 $ 934,161 ======================================= - ------------------------------------------------------------------------------------------ See accompanying financial review.
the dexter corporation 23 16 STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY THE DEXTER CORPORATION
Add'l Currency Other Total In thousands of dollars Common Paid-in Retained Translation Equity Treasury Shareholders' (except per share amounts) Stock Capital Earnings Effects Items Stock Equity - ---------------------------------------------------------------------------------------------------------------------------------- DECEMBER 31, 1994 $24,984 $11,979 $328,401 $ (7,364) $(2,433) $(11,934) $343,633 Net income 40,578 40,578 Dividends - $.88 per share (21,435) (21,435) Currency effects 8,978 8,978 Stock purchases (4,205) (4,205) Unrealized gain on investments 1,340 1,340 Stock options (33) 854 821 Pension liability adjustment (473) (473) Restricted stock 338 (618) 626 346 Pooling tax benefits 32 32 ----------------------------------------------------------------------------------------------- DECEMBER 31, 1995 24,984 12,316 347,544 1,614 (2,184) (14,659) 369,615 Net income 48,722 48,722 Dividends - $.88 per share (20,786) (20,786) Currency effects (3,801) (3,801) Stock purchases (26,658) (26,658) Unrealized loss on investments (46) (46) Stock options 1,065 4,704 5,769 Pension liability adjustment 269 269 Restricted stock 1,282 (1,197) 940 1,025 Pooling tax benefits 6 6 ----------------------------------------------------------------------------------------------- DECEMBER 31, 1996 24,984 14,669 375,480 (2,187) (3,158) (35,673) 374,115 Net income 56,427 56,427 Dividends - $.96 per share (22,063) (22,063) Currency effects (20,288) (20,288) Stock purchases (20,517) (20,517) Unrealized loss on investments (252) (252) Stock options 892 2,490 3,382 Pension liability adjustment 180 180 Restricted stock 1,920 (1,528) 1,484 1,876 Pooling tax benefits 1 1 ----------------------------------------------------------------------------------------------- DECEMBER 31, 1997 $24,984 $17,482 $409,844 $(22,475) $(4,758) $(52,216) $372,861 =============================================================================================== - ---------------------------------------------------------------------------------------------------------------------------------- See accompanying financial review.
QUARTERLY FINANCIAL INFORMATION (unaudited)
In millions of dollars Market Price --------------------------------------- ------------------------ Net Income Net Income Net Cost Net per Share - per Share - Dividends Quarter Sales of Sales Income Basic Diluted per Share High Low - ---------------------------------------------------------------------------------------------------------------------------------- 1995 First $ 266.8 $181.1 $10.5 $ .43 $ .43 $.22 $ 22 7/8 $20 3/8 Second 283.0 193.1 11.9 .49 .49 .22 25 1/8 21 5/8 Third 268.5 183.9 9.4 .39 .38 .22 25 7/8 23 Fourth 270.6 184.1 8.8 .36 .36 .22 26 7/8 23 1/8 -------------------------------------------------------------------------------- Year $1,088.9 $742.2 $40.6 $1.67 $1.66 $.88 Close $23 5/8 ============================================================================================================= - ---------------------------------------------------------------------------------------------------------------------------------- 1996* First $ 277.2 $182.5 $11.1 $ .46 $ .46 $.22 $ 26 1/2 $ 23 1/8 Second 285.7 187.8 14.4 .61 .60 .22 29 7/8 25 1/4 Third 269.5 177.0 11.8 .50 .49 .22 30 1/2 26 7/8 Fourth 267.8 173.7 11.4 .49 .48 .22 33 5/8 29 3/8 -------------------------------------------------------------------------------- Year $1,100.2 $721.0 $48.7 $2.06 $2.03 $.88 Close $31 7/8 =============================================================================================================
*The second quarter pretax income included a $2.7 million gain on divestiture of product lines, including $2.6 million due to the receipt of proceeds from a note related to the sale of Life Technologies, Inc.'s molecular diagnostic product line in 1990. The net effect of the sale of the company's acoustic materials business and a small powder coatings business in the second quarter had a slightly positive impact on earnings.
- ---------------------------------------------------------------------------------------------------------------------------------- 1997 First $ 272.3 $175.3 $12.9 $ .55 $ .54 $.24 $ 32 1/8 $ 28 3/4 Second 293.2 187.2 16.0 .70 .69 .24 33 1/2 29 1/8 Third 286.9 182.8 14.2 .62 .61 .24 40 3/16 31 1/2 Fourth 294.7 190.1 13.3 .58 .57 .24 43 15/16 38 15/16 -------------------------------------------------------------------------------- Year $1,147.1 $735.4 $56.4 $2.45 $2.41 $.96 Close $43 3/16 ============================================================================================================= - ----------------------------------------------------------------------------------------------------------------------------------
24 the dexter corporation 17 ANALYSIS OF OPERATIONS 1997 COMPARED WITH 1996 Revenues: Net sales were a record $1.15 billion in 1997, an increase of $46.9 million, or 4% over 1996 sales. The 4% increase in sales was due to unit volume increases of 7% partially offset by a 3% decrease due to the effect of lower translation rates on international sales. Selling prices remained largely unchanged versus 1996. The net effect of acquisitions and divestitures in 1996 and 1997 accounted for an increase in sales of $3.7 million in 1997. Equity in net income of affiliates decreased $0.3 million to $4.5 million in 1997. This decrease was primarily due to lower equity earnings resulting from the divestiture of D & S Plastics International, which was effective April 1, 1997. Expenses: Cost of sales decreased as a percentage of sales in 1997, thereby increasing consolidated gross margins by 1.4 percentage points to 35.9% of sales from 34.5% in 1996. Gross margin, excluding Life Technologies, Inc. (LTI), increased 1.2 percentage points, primarily due to strong volume increases, favorable product mix and productivity improvements. The remaining improvement was attributable to LTI. Marketing and administrative expenses increased $14.6 million, or 7%, in 1997 compared to 1996, principally due to costs associated with acquired Dexter businesses in 1997 and increased marketing and administrative expenses at LTI. Research and development expenses increased $2.5 million, or 5%, primarily due to increases at LTI. Interest expense decreased $0.3 million, or 2%, in 1997 compared with 1996, primarily due to lower average long-term borrowings throughout the year. The company does not capitalize interest on facilities under construction. If interest had been capitalized, earnings per share would have increased by $.02 per share in 1997 and there would have been no impact on earnings per share in 1996. In 1996, there was a gain on divestiture of product lines of $2.7 million. This included $2.6 million due to the receipt of proceeds from a note related to the sale of LTI's molecular diagnostic product line in 1990 and the net effect of the sale of the company's acoustic materials business and a small powder coatings business in 1996. Income Taxes: The effective tax rate was 36% in 1997 compared with 35.5% in 1996. Minority Interest: Income attributed to minority interest shareholders remained largely unchanged in 1997 compared with 1996. Higher minority interest expense attributed to increased profits at LTI in 1997 was principally offset by lower minority interest expense resulting from other majority owned entities. Net Income: Net income for the year 1997 was a record $56.4 million, or $2.45 per share. This represents an 18% increase in net income and a 21% increase in basic earnings per share, compared with results for 1996 of $47.7 million, or $2.02 per share, excluding the net gain from the 1996 disposal of product lines. Including the $.04 per share gain on divested product lines, the 1996 earnings were $48.7 million, or $2.06 per share. Comparing the total amounts for 1996, the increases for 1997 in earnings and basic earnings per share were 16% and 19%, respectively. On a diluted basis, the company's earnings were $2.41 per share in 1997, a 19% increase over diluted earnings of $2.03 per share in 1996 and a 21% increase over diluted earnings from operations of $1.99 per share in 1996. 1996 COMPARED WITH 1995 Revenues: Net sales were $1.10 billion in 1996, an increase of $11.3 million, or 1%, over 1995 sales. The 1% increase in sales was due to unit volume increases of 3%, selling price increases averaging 1%, a 2% decrease due to the net effect of acquisitions and divestitures, and a 1% decrease due to the effect of lower translation rates on international sales. Equity in net income of affiliates increased $3.5 million to $4.8 million in 1996. This increase was due to the increase in the results of D & S Plastics International. Expenses: Cost of sales decreased as a percentage of sales in 1996, thereby increasing consolidated gross margin by 2.7 percentage points to 34.5% of sales from 31.8% in 1995. Gross margin, excluding LTI, increased 1.6 percentage points, principally resulting from the favorable impact of selling price increases and raw material cost decreases. The remaining improvement was attributable to an increased gross margin on sales of fetal bovine serum and higher gross margin on sales of product in Japan by LTI. Marketing and administrative expenses increased $17.1 million, or 8%, in 1996 compared with 1995, principally due to increased marketing and administrative expenses at LTI, which included the consolidation of results from the third quarter 1995 acquisition of a controlling interest in their Japanese subsidiary. Marketing and administrative expenses, excluding LTI, increased 3% in 1996 compared with 1995, due mainly to higher selling and marketing expenses. Research and development expenses increased $2.1 million, or 4%, due to increases at LTI. Interest expense decreased $0.4 million, or 2%, in 1996 compared with 1995, primarily due to lower average long-term borrowing throughout the year. If interest had been capitalized, there would have been no impact on earnings per share in 1996 or 1995. In 1996, there was a gain on divestiture of product lines of $2.7 million. This gain included $2.6 million due to the receipt of proceeds from a note related to the sale of LTI's molecular diagnostic product line in 1990 and the net effect of the sale of the company's acoustic materials business and a small powder coatings business in 1996. Income Taxes: The effective tax rate was 35.5% in 1996 and 1995. Minority Interests: Income attributed to minority interest shareholders increased 34% from 1995 due primarily to increased profits at LTI. the dexter corporation 25 18 Net Income: Net income for the year 1996 was $47.7 million, or $2.02 per share, excluding the $.04 per share net gain from the second quarter 1996 disposal of product lines. This represents an 18% increase in net income and a 21% increase in basic earnings per share, compared with results for 1995 of $40.6 million, or $1.67 per share. Total earnings for 1996, including the gain on divested product lines, increased 20% to $48.7 million while basic earnings per share gained 23% to $2.06 per share. The 1996 earnings include the favorable effect of selling price increases and lower raw material costs of approximately $.51 per share compared with 1995. This was somewhat offset by the effect of unfavorable currency exchange rates of $.04 per share due to the strengthening of the U.S. dollar against international currencies, a less favorable product mix from wholly owned Dexter businesses, and increased marketing and administrative expenses, principally at LTI. On a diluted basis, earnings were $2.03 per share in 1996, a 22% increase over diluted earnings of $1.66 in 1995. Diluted earnings from operations of $1.99 per share in 1996 increased 20% compared with 1995. 1995 COMPARED WITH 1994 Revenues: Net sales were $1.09 billion in 1995, an increase of $114 million, or 12%, over sales of $975 million for 1994. The 12% increase in sales was due to unit volume increases of 7%, a 3% increase due to the effect of higher translation rates on international sales, price increases averaging 1%, and increased consolidated sales of 1% through acquisition of a controlling interest in a Japanese subsidiary of LTI. Equity in net income of affiliates decreased $2.5 million to $1.3 million in 1995 principally due to a decrease in the results of D & S Plastics International. Expenses: Cost of sales increased as a percentage of sales in 1995 thereby reducing consolidated gross margin by .7 percentage points to 31.8% of sales from 32.5% in 1994. Substantially improved gross margin at LTI improved overall gross margin by 1.3 percentage points. Gross margin, excluding LTI, decreased 2 percentage points and more than offset the favorable impact of LTI. Unprecedented increases in the cost of commodity raw materials, principally wood pulp, solvents, and polypropylene, more than accounted for the margin erosion, excluding LTI. Somewhat offsetting these cost increases were the favorable effects of overall selling price increases, productivity improvements and cost containment. Marketing and administrative expenses increased $18.4 million, or 10%, in 1995 compared with 1994 principally due to increased marketing efforts at LTI and the third quarter consolidation of its subsidiary in Japan. Marketing and administrative expenses, excluding LTI, increased less than one-half of one percent over 1994. Overall marketing and administrative expenses continued to decrease as a percentage of sales from 19.3% in 1994 to 19% in 1995. Research and development expenses increased $2.7 million, or 6%, due to increases at LTI and in the can coatings business. Interest expense increased $0.4 million, or 2%, in 1995 compared with 1994 primarily due to higher average short-term borrowing throughout the year. If interest had been capitalized, there would have been no impact on earnings per share in 1995 or 1994. Income Taxes: The effective tax rate was 35.5% in 1995 compared with 36% in 1994. Minority Interests: Income attributed to minority interest shareholders increased 18% from 1994 due primarily to increased profits at LTI. Net Income: Net income for the year 1995 was $40.6 million, or $1.67 per share, a 7% increase compared with $37.9 million, or $1.56 per share, in 1994. The 1995 net income includes a decrease due to the effect of higher raw material cost, net of selling price increases, of approximately $.43 per share. Somewhat offsetting this negative impact was a $.07 per share increase due to favorable currency translation rates and a $.02 per share increase due to a reduction of the effective income tax rate from 36% in 1994 to 35.5% in 1995. On a diluted basis, earnings were $1.66 per share in 1995, a 7% increase over diluted earnings of $1.55 in 1994. - -------------------------------------------------------------------------------- TAXES The effective income tax rate was 36% in 1997, and 35.5% in 1996 and 1995. The tax rate is currently expected to approximate 35% in 1998. The income tax rate differs from the statutory U.S. federal income tax rate as shown below.
1997 1996 1995 ------------------------------ U.S. federal rate 35.0% 35.0% 35.0% State taxes, net of federal benefit 1.7 1.8 1.7 International taxation differences (3.1) (2.2) (0.7) Other 2.4 0.9 (0.5) ------------------------------ Effective income tax rate 36.0% 35.5% 35.5% ==============================
- -------------------------------------------------------------------------------- Pretax income from international operations amounted to $54.6 million in 1997, $59.6 million in 1996 and $57.3 million in 1995. U.S. and international income and withholding taxes have not been provided on temporary differences related to investments in foreign subsidiaries. These differences principally include unremitted earnings of approximately $194 million, differences between the financial reporting amount and the tax basis of investments in foreign subsidiaries and cumulative translation adjustments. The investment in these subsidiaries is considered to be permanent in nature. It is impracticable to estimate the total tax liability, if any, which these differences could cause should such investments cease to be treated as permanently reinvested. - --------------------------------------------------------------------------------
TAXES, OTHER THAN SALES TAXES In thousands of dollars 1997 1996 1995 - -------------------------------------------------------------------------------- Income taxes Current United States $ 22,527 $ 18,188 $ 5,932 State 2,235 3,817 1,691 International 12,673 18,342 18,752 ----------------------------------------- 37,435 40,347 26,375 ----------------------------------------- Deferred United States 1,514 (5,256) 754 State 206 (1,069) 348 International 836 858 860 ----------------------------------------- 2,556 (5,467) 1,962 ----------------------------------------- Total income taxes 39,991 34,880 28,337 Payroll taxes 20,420 19,819 20,201 Property taxes 4,313 3,841 4,082 Other taxes 662 635 624 ----------------------------------------- Total taxes $ 65,386 $ 59,175 $53,244 =========================================
- -------------------------------------------------------------------------------- 26 the dexter corporation 19 DEFERRED INCOME TAXES The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1997, 1996 and 1995 are presented below.
In thousands of dollars 1997 1996 1995 - --------------------------------------------------------------------------------------- Deferred tax assets: Postretirement health benefits $ 8,852 $ 8,972 $ 9,644 Accrued expenses, not currently deductible 6,509 6,395 5,820 Loss carryforwards 4,944 6,099 6,234 Pension benefits 5,670 5,809 4,768 Inventory, principally valuation reserves 5,450 5,685 5,039 Reserves for insurance 6,028 5,632 5,409 Environmental reserves 4,865 5,074 5,164 Alternative minimum tax credit carryforwards 4,252 3,820 Other 10,924 11,213 10,953 ------------------------------------------ Gross deferred tax assets $ 53,242 $ 59,131 $ 56,851 ------------------------------------------ Deferred tax liabilities: Fixed assets, principally depreciation $(46,274) $(46,560) $(49,828) Other (7,557) (5,111) (4,839) ------------------------------------------ Gross deferred tax liabilities $(53,831) $(51,671) $(54,667) ------------------------------------------ Net deferred tax (liability) asset before valuation allowance $ (589) $ 7,460 $ 2,184 Valuation allowance (2,277) (3,573) (3,585) ------------------------------------------ Net deferred tax (liability) asset after valuation allowance $ (2,866) $ 3,887 $ (1,401) ========================================== - ---------------------------------------------------------------------------------------
Valuation allowances of $2.3 million at December 31, 1997 and of $3.6 million at December 31, 1996 and 1995, reduced the deferred tax asset attributable to foreign loss carryforwards to the amount that, based upon all available evidence, is more likely than not to be realized. Reversal of the valuation allowance is contingent upon the recognition of future taxable income and capital gains in specific foreign countries or changes in circumstances which cause the recognition of the benefits to become more likely than not. The decrease of $1.3 million in the valuation allowance during 1997 was due principally to the utilization of foreign loss carryforwards. The components of deferred taxes at December 31, 1997, 1996 and 1995 are as follows:
In thousands of dollars 1997 1996 1995 - ----------------------------------------------------------------------------------------- Current deferred tax assets $ 17,107 $ 22,477 $ 20,890 Long-term deferred tax assets 3,856 2,483 930 (included in other assets) Current deferred tax liabilities (1,545) (1,592) (1,735) (included in accrued and deferred income taxes) Long-term deferred income taxes (22,284) (19,481) (21,486) ------------------------------------------ Net deferred tax (liability) asset $ (2,866) $ 3,887 $ (1,401) ========================================== - -----------------------------------------------------------------------------------------
EARNINGS PER SHARE In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share, which requires companies to compute and disclose basic earnings per share and diluted earnings per share, and to present a reconciliation between the two. The new standard was required to be adopted by all public companies for reporting periods ending after December 15, 1997. Earnings in 1997 of $2.45 per share represented an 18.9% increase in basic earnings per share, compared with earnings of $2.06 per share in 1996. Excluding the net gain of $.04 per share from the 1996 disposal of product lines, 1997 basic earnings increased 21.3% over earnings from operations of $2.02 per share in 1996. Basic earnings per share is calculated by dividing net income by the weighted average number of shares of common stock outstanding during the year. The decrease in the average number of shares in 1997 resulted from Dexter's purchase of 671,200 shares of its outstanding common stock which was partially offset by the exercise of stock options. On a diluted basis, earnings of $2.41 per share in 1997 increased 18.7% over diluted earnings of $2.03 per share in 1996, and increased 21.1% over diluted earnings from operations of $1.99 per share in 1996. The reconciliation between basic earnings per share and diluted earnings per share is presented below.
Years ended December 31 Amounts in thousands ------------------------------------------ (except per share data) 1997 1996 1995 - --------------------------------------------------------------------------------- Earnings per share - basic: Net Income $ 56,427 $ 48,722 $ 40,578 Weighted average shares outstanding 23,010 23,687 24,364 Earnings per share - basic $ 2.45 $ 2.06 $ 1.67 Earnings per share - diluted: Net Income $ 56,427 $ 48,722 $ 40,578 Effect of subsidiary dilutive options on net income (546) (406) (171) ------------------------------------------ $ 55,881 $ 48,316 $ 40,407 ========================================== Weighted average shares outstanding 23,010 23,687 24,364 Weighted average effect of common stock equivalents 217 129 49 ------------------------------------------ 23,227 23,816 24,413 ========================================== Earnings per share - diluted $ 2.41 $ 2.03 $ 1.66
At December 31, 1997, 10,000 options were outstanding at an exercise price of $41.22 that were not included in the computation of diluted earnings per share because the options' exercise price was greater than the average market price of the company's common stock for the year. At December 31, 1996, 24,644 options were outstanding at an exercise price of $29.06 and at December 31, 1995, 513,821 options were outstanding at a weighted-average exercise price of $25.11 that were not included in the computation of diluted earnings per share. - -------------------------------------------------------------------------------- the dexter corporation 27 20 MARKET SEGMENT DATA 1997 COMPARED WITH 1996 Sales to the Aerospace market increased $11.1 million, or 22%. Sales increased due to higher sales of both aerospace adhesives and aerospace coatings. Operating income increased $7 million in 1997 primarily due to lower operating losses from aerospace coatings resulting from higher sales volume attributable to growth in the airline manufacturing industry, and productivity improvements at the coatings facility in Waukegan, Illinois. Aerospace adhesives also contributed to the increase in operating income in 1997 principally due to increased sales volume. Sales to the Electronics market increased $26.3 million, or 14%. The effect of acquired businesses increased sales by $2.5 million. Net of acquired businesses, sales increased 12% principally due to strong sales of electronic encapsulation materials and magnetic materials. Operating income increased $9 million, or 49%, in 1997 primarily due to increased gross margin of electronic encapsulation materials resulting from higher sales volume and favorable product mix. Sales to the Food Packaging market increased $8.2 million, or 3%. The effect of acquired businesses increased sales by $20.5 million. Net of acquired businesses, sales decreased 5% principally due to lower sales of food and beverage can coatings serving the international markets. Lower currency translation rates on international sales also contributed to this decrease. Operating income decreased $3.6 million, or 12%, in 1997 principally due to lower gross margin on international food and beverage can coatings resulting from sales volume decreases. Lower currency translation rates on international results also unfavorably impacted operating income in 1997. Sales to the Medical market increased $22.8 million, or 6%. Sales increased primarily due to increased sales of products at LTI. Partially offsetting this increase were lower currency translation rates on international sales. Operating income increased $5.6 million, or 10%, in 1997. Operating income increased at LTI in 1997 primarily due to the favorable impact of higher unit sales and increased gross margin on sales of fetal bovine serum partially offset by the effect of lower currency translation rates on international results. Operating income in 1996 included a $2.6 million gain due to the receipt of proceeds from a note related to the sale of LTI's molecular diagnostic product line in 1990. Sales of the "Other" category decreased $21.5 million, or 12%. Net of divested businesses, sales in 1997 decreased $2.2 million, or 1%, compared with 1996 sales. Unfavorable currency translation rates more than offset sales volume increases. Operating income increased $0.9 million, or 4%, in 1997 primarily due to higher sales volume and lower operating losses from domestic specialty coatings. 1996 COMPARED WITH 1995 Sales to the Aerospace market increased $4.4 million, or 10%. Sales increased primarily due to higher sales of aerospace adhesives. Operating income increased $2.4 million primarily due to lower operating losses from aerospace coatings. Operating income in 1995 was reduced by costs associated with the consolidation of the domestic aerospace coatings business and start-up costs of the new coatings facility. Aerospace adhesives also contributed to the increase in operating income in 1996 principally due to sales volume increases. Sales to the Electronics market increased $3.8 million, or 2%, in spite of a recession in the global electronics market during 1996. Operating income decreased $0.6 million, or 3%, in 1996. Costs associated with the write-off of assets and severance related to realigning operations in Europe more than offset improvements in operating income due to stronger volume of magnetic materials products and the favorable impact of cost containment activities. Sales to the Food Packaging market decreased $12.6 million, or 4%. The effect of acquired businesses increased sales by $2.3 million. Net of acquired businesses, sales decreased principally due to lower sales of food and beverage can coatings serving the international markets. Lower currency translation rates on international sales also contributed to this decrease. Operating income decreased $1.9 million, or 6%, in 1996 principally due to lower gross margin on international food and beverage can coatings resulting from sales volume decreases in Europe and selling price decreases in Japan. This decrease was partially offset by lower raw material costs. Sales to the Medical market increased $43.1 million, or 12%. The effect of the consolidation of LTI's Japanese subsidiary increased sales by $9.5 million. Net of this impact, sales increased 9% primarily due to increased sales of products at LTI. Higher sales of medical nonwoven materials also contributed to this increase. Partially offsetting this increase were lower currency translation rates on international sales. Operating income increased $15 million, or 36%, in 1996. Operating income increased at LTI in 1996 primarily due to the favorable impact of higher unit sales and increased gross margin on sales of fetal bovine serum. LTI's operating income in 1996 also included a $2.6 million gain due to the receipt of proceeds from a note related to the sale of its molecular diagnostic product line in 1990. Medical nonwovens also contributed to the increase in operating income, as higher sales combined with lower raw material costs to improve margins. Sales of the "Other" category decreased $27.3 million, or 13%. Net of divested businesses, sales in 1996 increased $1.6 million, or 1%, compared with 1995 sales. Operating income increased $5.5 million, or 36%, in 1996 due to improved results from the company's cogeneration operation in 1996. Higher sales and lower raw material costs from nonwoven specialty materials also contributed favorably to the increase in operating income as did improved results of the company's specialty coatings operation in France. - -------------------------------------------------------------------------------- In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 131, Disclosures about Segments of an Enterprise and Related Information, which becomes effective for financial statements for periods beginning after December 15, 1997. In the first year of implementation, SFAS No. 131 is not required to be applied in interim period financial statements. The company will begin making the disclosures required by SFAS No. 131 with financial statements for the period ending December 31, 1998. 28 the dexter corporation 21
MARKET SEGMENT DATA In thousands of dollars 1997 1996 1995 1994 1993 - ---------------------------------------------------------------------------------------------------------------------------------- NET SALES Aerospace $ 60,884 $ 49,773 $ 45,387 $ 44,769 $ 41,815 Electronics 218,524 192,262 188,461 161,353 145,359 Food Packaging 277,794 269,561 282,183 259,398 232,164 Medical 430,168 407,385 364,334 315,616 284,733 Other 159,685 181,204 208,540 193,583 183,041 --------------------------------------------------------------------------------- Consolidated $1,147,055 $ 1,100,185 $ 1,088,905 $ 974,719 $ 887,112 ================================================================================= Unit Volume and Product Mix Change 7% 3% 7% 10% 1% Field Sales Force 275 252 241 229 230 - ---------------------------------------------------------------------------------------------------------------------------------- DEPRECIATION AND AMORTIZATION Aerospace $ 2,847 $ 3,098 $ 3,373 $ 3,479 $ 3,414 Electronics 5,444 4,958 4,719 4,627 4,466 Food Packaging 9,484 8,659 9,563 9,114 7,160 Medical 17,388 16,068 13,449 11,606 10,588 Other 9,766 11,085 12,247 11,684 10,717 General Corporate 512 371 376 413 310 --------------------------------------------------------------------------------- Consolidated $ 45,441 $ 44,239 $ 43,727 $ 40,923 $ 36,655 ================================================================================= - ---------------------------------------------------------------------------------------------------------------------------------- RESEARCH AND DEVELOPMENT Aerospace $ 4,467 $ 4,076 $ 3,973 $ 3,742 $ 3,474 Electronics 8,037 7,089 6,878 6,547 5,496 Food Packaging 11,883 11,735 12,478 10,967 9,898 Medical 23,334 21,652 17,147 17,109 17,052 Other 6,037 6,695 8,632 7,933 7,316 General Corporate 263 257 267 346 567 --------------------------------------------------------------------------------- Consolidated $ 54,021 $ 51,504 $ 49,375 $ 46,644 $ 43,803 ================================================================================= Laboratory Staff 465 447 454 452 439 - ---------------------------------------------------------------------------------------------------------------------------------- DIVESTITURE, RESTRUCTURING & ENVIRONMENTAL Credit (Charge) Aerospace $ (5,170) Electronics (1,864) Food Packaging (2,234) Medical $ 2,569 (2,008) Other 150 11,405 General Corporate (501) ----------- --------- Consolidated $ 2,719 $ (372) =========== ========= - ---------------------------------------------------------------------------------------------------------------------------------- CONSOLIDATED OPERATING INCOME (LOSS) Aerospace $ 7,814 $ 833 $ (1,533) $ (844) $ (6,215) Electronics 27,355 18,394 19,038 15,248 10,295 Food Packaging 26,293 29,898 31,809 32,031 28,765 Medical 62,554 56,958 41,979 36,164 36,089 Other 21,509 20,649 15,193 19,407 24,783 --------------------------------------------------------------------------------- Consolidated Operating Income 145,525 126,732 106,486 102,006 93,717 Other Income, net 6,014 9,897 9,993 9,386 8,586 Interest Expense (20,192) (20,500) (20,931) (20,509) (18,756) General Corporate Expense (20,262) (17,877) (15,724) (17,271) (17,109) --------------------------------------------------------------------------------- Consolidated Income before Taxes $ 111,085 $ 98,252 $ 79,824 $ 73,612 $ 66,438 ================================================================================= - ---------------------------------------------------------------------------------------------------------------------------------- CAPITAL EXPENDITURES Aerospace $ 850 $ 1,254 $ 4,336 $ 8,397 $ 3,062 Electronics 11,320 6,786 3,364 6,370 7,457 Food Packaging 12,642 4,403 3,986 6,239 6,771 Medical 29,994 44,885 12,643 16,536 19,081 Other 4,232 4,929 4,566 7,368 8,292 General Corporate 49 20 74 187 121 --------------------------------------------------------------------------------- Consolidated $ 59,087 $ 62,277 $ 28,969 $ 45,097 $ 44,784 ================================================================================= - ---------------------------------------------------------------------------------------------------------------------------------- ASSETS AT YEAR END Aerospace $ 54,701 $ 60,910 $ 64,201 $ 60,753 $ 56,878 Electronics 170,996 108,137 103,571 97,646 87,978 Food Packaging 190,990 177,010 191,107 179,927 158,884 Medical 336,873 313,812 258,084 235,191 218,129 Other 130,642 132,901 180,064 186,384 172,080 --------------------------------------------------------------------------------- Consolidated Operating Assets 884,202 792,770 797,027 759,901 693,949 General Corporate* 77,574 161,034 137,134 120,708 126,742 --------------------------------------------------------------------------------- Consolidated Assets 961,776 953,804 934,161 880,609 820,691 Consolidated Liabilities (588,915) (579,689) (564,546) (536,976) (507,396) --------------------------------------------------------------------------------- Net Assets $ 372,861 $ 374,115 $ 369,615 $ 343,633 $ 313,295 ================================================================================= * Corporate assets consist primarily of cash, securities and investments, which include the investment in D & S Plastics International of $41,605 in 1996, $38,709 in 1995, $39,435 in 1994, and $37,110 in 1993, and, in addition, corporate assets of Life Technologies, Inc. - 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the dexter corporation 29 22 GEOGRAPHIC DATA Operations outside of North America continue to be important to Dexter, giving geographic diversification to both sales and operating income. 1997 COMPARED WITH 1996 Net sales increased in all geographic areas. In North America, net sales increased $31.3 million, or 5%. Net sales increased in all major markets in North America, with strong increases in the Aerospace and Electronics markets and at LTI in the Medical market. Sales decreased in the "Other" category primarily due to businesses divested in 1996. Sales outside of North America increased $15.6 million, or 3%, despite lower currency translation rates which decreased net sales $34.4 million. In Western Europe, sales to the Food Packaging market increased due to acquired businesses. Lower sales volume of food and beverage can coatings and lower currency translation rates somewhat offset this increase. In the Pacific area, sales to the Electronics and Medical markets were strong. Net sales outside of North America were 45% of consolidated net sales in 1997 and 1996. Export sales increased $11 million to $80 million and represented 7% of consolidated net sales in 1997. Operating income increased in all geographic areas. In North America, operating income increased $13.7 million, or 21%. This increase was principally due to sales volume increases in the Aerospace and Electronics markets and at LTI in the Medical market. Productivity improvements in the aerospace coatings operation also contributed to this increase. Somewhat offsetting these increases was a decrease in the Food Packaging market primarily due to product mix and lower selling prices. Operating income outside of North America increased $5.1 million, or 8%. In Western Europe, operating income increased in all markets except the Medical market. The decrease in the Medical market was primarily due to unfavorable currency translation and transaction effects. Operating income increased 34% in the Pacific area, primarily due to increases in the Electronics market and at LTI in the Medical market. Somewhat offsetting these increases was a decrease in the Food Packaging market primarily due to lower selling prices and higher raw material costs. Lower currency translation rates also had a negative impact on operating income in this region. Operating income outside of North America was 47% of total operating income in 1997 and 50% in 1996. Total net assets decreased $1.3 million in 1997. Operating assets increased in North America principally due to an acquisition and net additions to property, plant and equipment. Corporate assets decreased principally due to a decrease in cash and short-term securities and the divestiture of the investment in D & S Plastics International. Liabilities increased in North America and decreased in Western Europe primarily due to intercompany activity arising from the movement of cash from Western Europe to North America. Currency translation rates decreased net assets outside of North America by $20.3 million. 1996 COMPARED WITH 1995 Net sales increased in the Pacific area but decreased in North America and Western Europe. In North America, net sales increased in all major markets, with strong increases in the Aerospace and Medical markets. These increases were more than offset by decreases in the "Other" category, primarily due to divested businesses. Sales outside of North America increased $14.5 million, or 3%, despite lower currency translation rates which decreased net sales $12.7 million. Net sales increased in all markets in which we operate outside of North America except in the Food Packaging market. Sales to the Food Packaging market decreased principally due to sales volume decreases in Europe, selling price decreases in Japan, and lower currency translation rates. Net sales in the Pacific area increased 16%, primarily due to strong sales at LTI mainly due to the consolidation of their Japanese subsidiary resulting from the acquisition of a controlling interest in the third quarter of 1995. Net sales outside of North America were 45% of consolidated net sales in 1996 and 44% in 1995. Export sales decreased $2 million to $69 million and represented 6% of consolidated net sales in 1996. Operating income increased in North America and the Pacific area but decreased in Western Europe. In North America, operating income increased $21.8 million, or 51%. Operating income increased in all markets in North America, principally due to sales volume increases and the favorable impact on operating income of the combination of lower raw material costs and selling price increases. Operating income in North America also included LTI's $2.6 million gain due to the receipt of proceeds from a note related to a prior sale. Operating income in Western Europe decreased $2.5 million, or 5%, principally due to decreases in the Electronics and Food Packaging markets. Sales volume decreases in the Food Packaging market, as well as lower currency translation rates, contributed to this decrease. Costs associated with the write-off of assets and severance and relocation costs also decreased operating income in Western Europe in 1996. Operating income increased 4% in the Pacific area primarily due to increases at LTI in the Medical market. Somewhat offsetting the increases were decreases in the Food Packaging market primarily due to selling price decreases net of raw material cost decreases. Operating income outside of North America was 50% of total operating income in 1996 and 61% in 1995. Total net assets increased 1%, or $4.5 million, in 1996. Corporate assets increased in North America and decreased in Western Europe and the Pacific area principally due to cash and short-term securities. Currency translation rates decreased net assets outside of North America by $3.8 million. 30 the dexter corporation 23 GEOGRAPHIC DATA
In thousands of dollars 1997 1996 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------ NET SALES* North America Total Net Sales $ 718,425 $ 671,544 $ 666,581 $ 634,230 $ 586,868 Intercompany Sales 85,951 70,369 62,177 53,302 40,731 ------------------------------------------------------------------------------------- Net Sales $ 632,474 $ 601,175 $ 604,404 $ 580,928 $ 546,137 ===================================================================================== Western Europe Total Net Sales $ 395,901 $ 390,699 $ 392,267 $ 331,397 $ 290,814 Intercompany Sales 10,021 11,425 11,132 14,513 13,156 ------------------------------------------------------------------------------------- Net Sales $ 385,880 $ 379,274 $ 381,135 $ 316,884 $ 277,658 ===================================================================================== Pacific Area Total Net Sales $ 128,805 $ 122,100 $ 104,719 $ 76,907 $ 63,317 Intercompany Sales 104 2,364 1,353 ------------------------------------------------------------------------------------- Net Sales $ 128,701 $ 119,736 $ 103,366 $ 76,907 $ 63,317 ===================================================================================== Consolidated Total Net Sales $ 1,243,131 $ 1,184,343 $ 1,163,567 $ 1,042,534 $ 940,999 Intercompany Sales 96,076 84,158 74,662 67,815 53,887 ------------------------------------------------------------------------------------- Net Sales $ 1,147,055 $ 1,100,185 $ 1,088,905 $ 974,719 $ 887,112 ===================================================================================== * Intercompany sales between areas are based on estimated market prices or on amounts computed to provide profits to each unit. Excluded from net sales is Dexter's share of the sales of 50% or less owned joint ventures which are accounted for under the equity or cost methods - ------------------------------------------------------------------------------------------------------------------- OPERATING INCOME North America $ 78,523 $ 64,851 $ 43,014 $ 51,555 $ 50,863 Western Europe 53,321 52,031 54,576 45,155 40,298 Pacific Area 15,117 11,300 10,881 6,013 3,080 Consolidated, net of eliminations $ 145,525 $ 126,732 $ 106,486 $ 102,006 $ 93,717 ===================================================================================== - ------------------------------------------------------------------------------------------------------------------- NET ASSETS AT YEAR END North America Operating Assets $ 548,205 $ 457,005 $ 452,721 $ 459,481 $ 437,257 Corporate Assets* 54,893 132,245 103,813 97,579 116,041 Liabilities (518,404) (433,199) (399,093) (414,521) (411,108) ------------------------------------------------------------------------------------- Net Assets $ 84,694 $ 156,051 $ 157,441 $ 142,539 $ 142,190 ===================================================================================== Western Europe Operating Assets $ 269,192 $ 269,817 $ 271,866 $ 248,217 $ 216,800 Corporate Assets* 20,827 26,301 30,236 22,476 10,541 Liabilities (34,030) (107,434) (115,673) (93,049) (75,795) ------------------------------------------------------------------------------------- Net Assets $ 255,989 $ 188,684 $ 186,429 $ 177,644 $ 151,546 ===================================================================================== Pacific Area Operating Assets $ 66,805 $ 65,948 $ 72,440 $ 52,203 $ 39,892 Corporate Assets* 1,854 2,488 3,085 653 160 Liabilities (36,481) (39,056) (49,780) (29,406) (20,493) ------------------------------------------------------------------------------------- Net Assets $ 32,178 $ 29,380 $ 25,745 $ 23,450 $ 19,559 ===================================================================================== Consolidated Operating Assets $ 884,202 $ 792,770 $ 797,027 $ 759,901 $ 693,949 Corporate Assets* 77,574 161,034 137,134 120,708 126,742 Liabilities (588,915) (579,689) (564,546) (536,976) (507,396) ------------------------------------------------------------------------------------- Net Assets $ 372,861 $ 374,115 $ 369,615 $ 343,633 $ 313,295 =====================================================================================
* Corporate assets consist primarily of cash, securities and investments, which include the investment in D & S Plastics International of $41,605 in 1996, $38,709 in 1995, $39,435 in 1994, and $37,110 in 1993, and, in addition, corporate assets of Life Technologies, Inc. - ------------------------------------------------------------------------------- the dexter corporation 31 24 LIFE TECHNOLOGIES, INC. On September 1, 1983, Dexter's GIBCO subsidiary merged with Bethesda Research Laboratories, Inc. (BRL). The resulting free-standing company was renamed Life Technologies, Inc. (LTI) and at December 31, 1997 was owned 52% by Dexter, with the remainder owned by the public. The common stock of LTI is publicly traded on the over-the-counter market under the Nasdaq symbol LTEK. Since 1983, Dexter's proportionate ownership of LTI has decreased from 64% in 1983 to 52% due principally to the effect of the exercise of stock options and the conversion of LTI subordinated debentures held by parties other than Dexter into LTI common stock. LTI is reported as part of the Medical market segment, although LTI, as a publicly owned company, issues its own annual report including audited financial statements. These statements are shown below in condensed form. Net sales of LTI increased $21.5 million, or 7%, in 1997. This improvement was due to a $35.5 million, or 13%, increase in sales of products other than fetal bovine serum (FBS), partially offset by lower FBS sales of $1.3 million and lower currency translation rates of $12.7 million. Gross margin for 1997 was 53.9% of net sales compared with 52.5% in 1996. Gross margin on products other than FBS increased in 1997 due to production efficiencies and lower scrap costs which more than offset unfavorable currency movements and price erosion on some products. FBS gross margin improved in 1997, principally due to lower unit costs. The FBS cost decline in 1997 caused most of the $1.4 million reduction in the LIFO reserve compared with a $3.3 million reduction in 1996. Marketing and administrative expenses increased 7% to $108 million in 1997 and represented 32.6% of net sales in 1997 and 1996. Research and development expenses increased 12% to $21.3 million and represented 6.4% of net sales in 1997 compared with 6.2% in 1996. Research and development expenses were primarily directed toward developing new products and business solutions for LTI's customers in the life sciences research and industrial bioprocessing areas and toward improved production processes. In 1996, LTI reported a $2.6 million gain related to the disposition of a product line in 1990. Pretax income increased 10%. Income taxes were provided at a rate of 36% in 1997 and 1996. Net income increased 12% to $32.2 million in 1997 from $28.7 million in 1996. LTI declared quarterly dividends totaling $.18 per share in 1997 and $.15 1/3 in 1996. Dividends in 1996 were adjusted for a 3-for-2 stock split effected on August 28, 1996. After the deduction of minority interests, LTI contributed $17 million to Dexter's net income, or $.71 per share on a diluted basis, in 1997, compared with $15.4 million, or $.63 per share, in 1996. Dexter's portion of LTI shareholders' equity, per share of Dexter, increased to $4.77 at December 31, 1997, from $4.16 at year-end 1996. At year-end 1997, LTI had $19.1 million in cash and short-term securities, $136.4 million in other current assets and $54.5 million of current liabilities. In 1997, LTI spent $27.3 million on capital expenditures and was self funding. Capital expenditures in 1998 are expected to range between $20 and $25 million. It is expected that LTI will be self funding in 1998. - ------------------------------------------------------------------------------ CONDENSED STATEMENT OF INCOME
Years ended December 31 ------------------------ In thousands of dollars 1997 1996 - -------------------------------------------------------------------------- REVENUES Net sales $330,967 $309,455 Net royalties 1,841 884 ------------------------ 332,808 310,339 ------------------------ EXPENSES Cost of sales 152,547 146,926 Marketing and administrative 108,046 100,797 Research and development 21,281 19,084 Gain on product line disposal (2,569) ------------------------ 281,874 264,238 ------------------------ Other income, net 404 619 ------------------------ INCOME BEFORE INCOME TAXES 51,338 46,720 Income taxes 18,481 16,819 ------------------------ INCOME BEFORE MINORITY INTERESTS 32,857 29,901 Minority interests 622 1,201 ------------------------ NET INCOME $ 32,235 $ 28,700 ========================
- -------------------------------------------------------------------------- CONTRIBUTION OF LTI TO DEXTER NET INCOME
Years ended December 31 In thousands of dollars ------------------------- (except per share amounts) 1997 1996 - -------------------------------------------------------------------------- Net income of LTI $ 32,235 $ 28,700 Portion attributable to minority interests 15,212 13,341 ------------------------- Dexter's portion of net income of LTI $ 17,023 $ 15,359 ========================= Net income per share - basic of Dexter $ .74 $ .65 Net income per share - diluted of Dexter $ .71 $ .63 - --------------------------------------------------------------------------
32 the dexter corporation 25 LIFE TECHNOLOGIES, INC. - ------------------------------------------------------------------ CONDENSED STATEMENT OF FINANCIAL POSITION
December 31 -------------------------- In thousands of dollars 1997 1996 - ---------------------------------------------------------------------------------------------- ASSETS Cash and short-term securities $ 19,076 $ 15,326 Accounts receivable, net 58,096 54,566 Inventories 68,063 62,320 Other current assets 10,223 8,285 Property, plant and equipment, net 100,098 88,367 Investments and other assets 12,353 11,023 Excess of cost over net assets of businesses acquired 12,365 14,044 -------------------------- Total assets $ 280,274 $ 253,931 ========================== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities $ 54,531 $ 56,301 Long-term debt 4,564 4,668 Other liabilities 12,455 10,043 Shareholders' equity 208,724 182,919 -------------------------- Total liabilities and shareholders' equity $ 280,274 $ 253,931 ========================== - ---------------------------------------------------------------------------------------------- CONTRIBUTION OF LTI TO DEXTER BOOK VALUE December 31 In thousands of dollars -------------------------- (except per share amounts) 1997 1996 - ---------------------------------------------------------------------------------------------- LTI shareholders' equity $ 208,724 $ 182,919 Portion attributable to minority interests 99,257 85,328 -------------------------- Dexter's portion of LTI shareholders' equity $ 109,467 $ 97,591 ========================== Book value per share of Dexter stock $ 4.77 $ 4.16
- ------------------------------------------------------------------ CONDENSED STATEMENT OF CASH FLOWS
Years ended December 31 ----------------------- In thousands of dollars 1997 1996 - ---------------------------------------------------------------------------------------------- OPERATIONS Net income $ 32,235 $ 28,700 Noncash items Depreciation and amortization 12,717 10,576 Gain on product line disposal (2,569) Other (2,429) (3,535) Operating working capital (increase) decrease (10,913) 7,092 -------------------------- 31,610 40,264 -------------------------- INVESTMENTS Property, plant and equipment (27,300) (36,017) Acquisitions and joint ventures (914) (11,704) Proceeds from product line disposal 2,569 Other (127) (30) -------------------------- (28,341) (45,182) -------------------------- FINANCING Dividends paid (3,929) (3,351) Exercise of stock options 4,052 1,998 Short-term borrowings 1,896 319 Long-term loan repayments (713) (1,617) -------------------------- 1,306 (2,651) -------------------------- EFFECT OF TRANSLATION RATE CHANGES ON CASH AND SHORT-TERM SECURITIES (825) (306) -------------------------- TOTAL INCREASE (DECREASE) IN CASH AND SHORT-TERM SECURITIES $ 3,750 $ (7,875) ==========================
- -------------------------------------------------------------------------------- ANALYSIS OF FINANCIAL CONDITION AND OPERATIONS PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of all majority-owned subsidiaries. All consolidated subsidiaries are wholly owned except Life Technologies, Inc. (LTI) (52% owned) and a few other subsidiaries, primarily outside the United States, in which aggregate minority interests are not significant. Intercompany accounts, transactions and profits have been eliminated in the consolidated financial statements. Companies owned 20% to 50% are accounted for by the equity method. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Certain amounts for prior years have been reclassified to conform to and be consistent with the 1997 presentation. FORWARD-LOOKING STATEMENTS Some of the matters discussed in this 1997 Annual Report are forward-looking statements that involve risks and uncertainties. These forward-looking statements include, but are not limited to statements about (i) meeting the company's published financial goals, (ii) future growth in the company's revenues, earnings and dividends; and (iii) improvements in the markets served by the company. Actual results could differ materially from such forward-looking statements because of, among other things, the following factors: unit volume growth substantially different from the company's targeted range, the impact of competitive products and pricing, changes in the prices of raw materials, fluctuations in foreign currency rates, changes in laws and regulations, and other risks identified on page 34 in the section entitled Events, Trends and Vulnerabilities. the dexter corporation 33 26 EVENTS, TRENDS AND VULNERABILITIES Dexter is subject to a multitude of events and trends which influence its business prospects, profitability and liquidity. Many of these events and trends are outside the control of the company. However, the consequent effects need to be managed as part of the ongoing business environment. In 1997, there was overall relative stability of raw material costs and selling prices for the company's products. Aggressive efforts to raise prices and to gain full value for our product offerings will continue. However, the heightened degree of competition throughout the world makes it increasingly difficult to obtain selling price increases. Although the overall cost of raw materials has moderated, it is possible that such costs will rise again. This appears unlikely in the short term. However, any substantial increases in future demand for the materials the company purchases, provided no additional production capacity is built, will inevitably support higher levels of cost to Dexter. The company's Life Technologies, Inc. subsidiary is subject to volatility in the cost of fetal bovine serum which stems from a fundamental limit to supply. Further, for less critical applications, additional competition can be expected consequent to the development of substitute products for cell culture which do not depend on traditional raw materials. Unit volume growth of sales of 7% supported gross margin expansion in 1997. To the extent that the unit volume growth rate decreases in the future as a result of some weakness in domestic or international economies, revenue and earnings growth may be negatively impacted. The current Asian economic environment is not expected to have a material negative impact on the results of the company. However, decreases in demand for the company's products or the inability of customers to remain viable in this region may reduce the growth potential in this area over the short- to medium-term. The consequences of domestic interest rate changes and tax policy may also influence total demand in our served markets. Since approximately 50% of Dexter's profits are derived from products sold outside the United States, any weakening of international currencies against the U.S. dollar could have a negative effect on the company's results. The continuing strength of the pound sterling against other European currencies could also have a negative effect on the company's results. Additionally, the volatility of several Asian currencies could create exposures and losses for the company. Revenues and profits in the food packaging, electronics and medical markets are the most sensitive to currency rate fluctuations. Geographical expansion will continue to provide opportunities and challenges as we endeavor to create profitable growth in developing countries. There will continue to be increasing costs incurred by the need to respond to heightened regulatory pressures. Such increases may be significant in areas of environmental, health, social and administrative regulation. Heightened worldwide environmental concerns have led to greater capital requirements and increased operating expenses. While the company, based on known facts and circumstances, has provided substantial environmental reserves as shown at year end in the Statement of Financial Position, the ultimate cost of compliance and remediation cannot be ascertained and, therefore, there is no assurance that such reserves will prove to be adequate over time. Substantial national and local deficits as well as current economic issues in several parts of the world may dictate the need for greater tax receipts or significant reductions in government spending. Future increases in taxes by countries, states and localities may be the ultimate outcome of this imbalance. Lower government spending may adversely affect Life Technologies, Inc. by reducing the overall availability of government funding for life science research. Other areas which will have an important impact on the future of the company will be the increasing rate of technological change, a continued universal move toward higher quality products, shortened product life cycles and further globalization of our customers and competitors. Technology is the lifeblood of the corporation. In order to remain competitive we must, successfully and rapidly, introduce new products that not only replace our current products but also those of our competitors, otherwise we are potentially exposed to reduced margins and loss of business. The general aging of the U.S. population will create challenges with respect to the availability of employees as well as amplifying trends in increased health care costs. Dexter's ability to hire and retain a qualified workforce around the world will be fundamental to our growth and success. Increased training and developmental needs will require additional resources to maintain and improve our overall competencies. The company recognizes potential software failures arising from processing the Year 2000 date as a known risk. The company is addressing this risk by developing and implementing procedures that identify systems and equipment that are not Year 2000 compliant and executing appropriate solutions to modify or replace them in order to become compliant. The company believes that the cost associated with becoming Year 2000 compliant will not have a material negative effect on its results. The company is currently working with its customers and suppliers to identify external issues associated with the Year 2000. There can be no assurance, however, that the company will be able to identify and correct all aspects of the Year 2000 problems of customers and suppliers that affect the company's business. The complexities of ever-changing worldwide events and trends including the international political environment, the global marketplace and the advancement of technology generate numerous vulnerabilities and challenges. The company believes that it will face these challenges with continued innovation and increased productivity. 34 the dexter corporation 27 ACQUISITIONS AND DIVESTITURES To pursue strategic growth opportunities as a global supplier to the food packaging industry, Dexter acquired the can coatings businesses of Kolack A.G. based in Switzerland in January 1997; Stolllack, a business unit of Herberts Austria GmbH, based in Austria in March 1997; and Akzo Nobel Tintas Metalgraficas Ltda., a subsidiary of Akzo Nobel Coatings International B.V., based in Brazil in April 1997. In addition, Dexter formed a joint venture marketing company based in South Africa, effective October 1997. The company will do business as Dexter South Africa (Pty) Ltd. and is owned 60% by Dexter and 40% by Plascon (Pty) Ltd. These businesses will operate as part of the Dexter Packaging Products Division. To further enhance its strategic position as a global supplier to the electronics industry, Dexter acquired Quantum Materials, Inc. of San Diego, California, in October 1997. This business will operate as a part of the Dexter Electronic Materials Division. In April 1997, Dexter completed the divestiture of its 50% interest of D & S Plastics International, an equally owned joint venture based in Auburn Hills, Michigan, between The Dexter Corporation and the Solvay Group to Solvay America, Inc. There was no net gain or loss on the sale of Dexter's 50% interest. This transaction completed the program announced in 1995 to reduce Dexter's future strategic emphasis on the automotive market. None of these businesses acquired or divested, either individually or in the aggregate, constitute a significant subsidiary of The Dexter Corporation. LIQUIDITY The company's liquidity is strong and ample lines of credit are available to the company and its subsidiaries. The current ratio (current assets divided by current liabilities) is 1.9 to 1, and the quick ratio (cash, short-term securities and accounts receivable divided by current liabilities) is 1.1 to 1. As shown in the Statement of Cash Flows, cash provided from operations of $84.6 million exceeded cash needed for investments in 1997 by $4 million. Investment activity during 1997 included capital expenditures of $63 million in addition to cash outflows for acquisitions of $68.5 million which were funded, in part, by cash proceeds from divestitures of $41.5 million. The nature of these transactions is described in the acquisitions and divestitures footnote on this page. Financing activities also used funds of $36.7 million in 1997 principally due to dividend payments of $21.7 million and the purchase of 671,200 shares of the company's outstanding common stock for $20.5 million. In 1997, there was a reduction of cash and short-term securities of $32.7 million. Excluding LTI, the current ratio is 1.6 to 1 and the quick ratio is 1 to 1. Excluding LTI, cash needed for investments exceeded cash provided from operations by $3.3 million. Financing activities, excluding LTI, also used funds of $36.1 million resulting in a reduction of cash and short-term securities of $39.4 million in 1997. The company plans to meet its future working capital and capital expenditure needs with funds provided from operations, the reduction of short-term securities and, as needed, short-term and long-term borrowings. - -------------------------------------------------------------------------------- ANALYSIS OF FINANCIAL POSITION WORKING CAPITAL Working capital, including cash and short-term securities, decreased $39 million from 1996. Operating working capital increased $17 million to $212.7 million at year-end 1997. The current ratio at December 31, 1997 was 1.9 to 1. The company's liquidity is strong, and ample lines of credit are available to the company and its subsidiaries. The sum of cash, short-term securities and accounts receivable exceeded total current liabilities at December 31, 1997. As of year-end 1997, the company has short-term lines of credit in excess of $100 million of which the Board has authorized borrowing only $50 million at any one time. At year-end 1997, $35.4 million was borrowed against these lines of credit. Additionally, there is authorized $50 million in medium-term notes, which were all unissued at year end. As of year-end 1997, the company has eight multi-currency, revolving credit agreements aggregating $100 million. At year-end 1997, $19.7 million has been borrowed under these agreements, and the remaining funds are immediately available should the company so desire.
- -------------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN OPERATING WORKING CAPITAL AND WORKING CAPITAL IN 1997 Business Change in Acquisitions Currency Consolidated Cash and Accounting Translation Account In thousands of dollars Changes Accruals Effects Balances - -------------------------------------------------------------------------------------------------------------------------------- Accounts receivable, net $ 13,713 $3,834 $(10,383) $ 7,164 Inventories at FIFO 14,857 2,814 (7,718) 9,953 Prepaid and deferred expenses 2,908 234 (771) 2,371 Accounts payable (6,448) 2,214 4,934 700 Accrued liabilities and expenses (5,252) (216) 2,283 (3,185) ---------------------------------------------------------------------------------- Operating working capital 19,778 8,880 (11,655) 17,003 ---------------------------------------------------------------------------------- Cash (4,799) 4,957 (722) (564) Short-term securities (32,906) 24 (1,668) (34,550) LIFO reserve 1,037 1,037 Current deferred tax assets (5,370) (5,370) Short-term debt (30,611) 361 (30,250) Other current liabilities and taxes 13,585 (624) 720 13,681 ---------------------------------------------------------------------------------- Working capital $(33,916) $7,867 $(12,964) $(39,013) ================================================================================== - --------------------------------------------------------------------------------------------------------------------------------
the dexter corporation 35 28 CASH AND SHORT-TERM SECURITIES Cash principally comprises in-transit, uncollected funds in the United States and amounts in operating bank accounts in other countries. Short-term securities have maturities of less than 90 days when purchased and represent cash awaiting use in the business, funds available for future investment, and partial offsets of net nonlocal currency exposures relating to current accounts payable and accounts receivable. Short-term securities are held in interest-bearing overnight securities, time deposits, prime commercial paper and other fixed income investments. The carrying value of short-term securities approximates fair value because of the short maturity of these instruments. At December 31, 1997, there were $57 million in short-term securities, of which $39.9 million were directly available to Dexter and $17.1 million were maintained separately by Life Technologies, Inc. due to its different shareholder constituency. Of these amounts, $25.8 million for Dexter and $9.7 million for Life Technologies, Inc. were held outside the United States. Of the $39.9 million for Dexter, $19.5 million was held by Dexter's captive insurance companies. ACCOUNTS RECEIVABLE Gross accounts receivable of $195.7 million at December 31, 1997 were reduced by allowances of $10.4 million. Such allowances were $8.1 million at December 31, 1996 and $7.5 million at December 31, 1995. Currency translation effects decreased net accounts receivable by $10.4 million in 1997. Included in accounts receivable are non-trade accounts receivable of $11 million in 1997 compared with $13.2 million in 1996 and $25.8 million in 1995. These amounts principally comprise tax receivables and amounts due from affiliates. The collection period for accounts receivable improved to approximately 53 days at December 31, 1997, compared with 57 days at December 31, 1996 and 59 days at December 31, 1995. INVENTORIES Inventories are valued at the lower of cost or market. Inventories located in the United States represented 52% of total inventories. The LIFO (last-in, first-out) method was used for determining the cost of 58% of U.S. inventories in 1997 and 1996, and 63% in 1995. The FIFO (first-in, first-out) method was used for determining the cost of remaining inventories in the United States and the 48% of total inventories which were outside the United States. The reduction in levels of LIFO valued inventories (LIFO liquidation) was not significant in 1997, 1996 or 1995. Inventories at December 31 were:
In thousands of dollars 1997 1996 1995 - ---------------------------------------------------------------------------- Materials and supplies $ 61,233 $ 58,290 $ 60,099 Work-in-process 17,664 17,078 17,038 Finished goods 99,803 93,379 104,606 --------------------------------------------- Total FIFO cost 178,700 168,747 181,743 LIFO reserve (18,799) (19,836) (24,709) --------------------------------------------- $ 159,901 $ 148,911 $ 157,034 =============================================
- -------------------------------------------------------------------------------- Before deducting the LIFO reserve, FIFO inventories increased $10 million in 1997 to $178.7 million primarily due to increased FIFO inventories at LTI of $4.4 million and $2.8 million of FIFO inventories related to businesses acquired by Dexter in 1997. SHORT-TERM DEBT Short-term borrowings were denominated principally in U.S. dollars, Japanese yen, pound sterling and French francs, and had maturities of three months or less. The company uses short-term borrowings of less than three-month maturity to partially offset net nonlocal currency exposures relating to current accounts receivable and accounts payable. It can be expected that short-term borrowings will continue to be utilized for this purpose. The $35.4 million short-term borrowings outstanding at year end included $2.9 million of short-term debt of Life Technologies, Inc. The weighted average interest rate on short-term borrowings outstanding was 6.1% at December 31, 1997, 5.4% at December 31, 1996, and 6.1% at December 31, 1995. The company had outstanding letters of credit at December 31, 1997 totaling $9.9 million for liabilities already reflected in the Statement of Financial Position. The company has authorized up to $50 million of commercial paper, none of which was issued during 1997 and all of which was available for issue at December 31, 1997. Available short-term lines of bank credit are in excess of $100 million. ACCRUED LIABILITIES AND EXPENSES Accrued liabilities and expenses at December 31 were:
In thousands of dollars 1997 1996 1995 - --------------------------------------------------------------------------- Salaries, wages and benefits $17,381 $17,047 $16,615 Pension and profit sharing 13,265 12,349 9,082 Provision for claims and warranties 5,106 3,806 3,194 Professional services 4,351 2,344 1,433 Taxes, other than income taxes 3,529 2,679 1,975 Royalties 3,482 2,792 1,964 Customer rebates and volume discounts 2,482 3,426 3,551 Deferred purchase and construction payments 1,580 2,800 182 Commissions 1,455 1,111 1,052 Severance and relocation 1,313 2,980 593 Interest 1,162 1,377 3,280 Other, principally accruals for unbilled obligations 12,817 12,768 12,116 ------------------------------------- $67,923 $65,479 $55,037 =====================================
- -------------------------------------------------------------------------------- PROPERTY, PLANT AND EQUIPMENT Capital expenditures on the accrual basis were $59.1 million in 1997, $62.3 million in 1996 and $29 million in 1995. The $62.3 million in 1996 includes a capital lease for $4.7 million at LTI for a parcel of land. Capital expenditures in 1998 are currently estimated to range between $60 million and $70 million. For financial reporting purposes, the company uses the straight-line method of computing depreciation on plant and equipment. This method charges the cost to income evenly over the useful lives of the assets, principally 20 to 45 years for buildings, 16 years for nonwovens related machinery and equipment, and 3 to 15 years for all other machinery and equipment. For tax purposes the company uses shorter lives and accelerated depreciation methods. Capital investment incentive grants are recorded as a reduction of the cost of assets, which spreads the benefits over the lives of the related assets through reduced depreciation. Management evaluates, on an ongoing basis, the carrying value of property, plant and equipment and makes a specific provision against the asset when impairment is identified. Property, plant and equipment is written down when the asset has become redundant or 36 the dexter corporation 29 the remaining book value exceeds its anticipated future productive asset value as required by SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, which was adopted by the company as of January 1, 1996. Maintenance and repairs are charged to operations as incurred and amounted to $18.3 million in 1997, $16.3 million in 1996 and $17 million in 1995. Betterments and major renewals are capitalized. The cost of assets sold or retired and the related amounts of accumulated depreciation are eliminated from the accounts, and the resulting gains or losses are included in income. The cost and accumulated depreciation of property, plant and equipment at December 31, were as follows:
In thousands of dollars 1997 1996 1995 - ------------------------------------------------------------------------------- Land $ 28,501 $ 23,273 $ 19,307 Buildings and improvements 184,388 158,635 153,071 Machinery and equipment 474,079 458,069 457,611 Construction in progress 25,157 37,859 12,250 --------------------------------------------- Total cost 712,125 677,836 642,239 Less accumulated depreciation (363,953) (343,570) (317,036) Property, plant and --------------------------------------------- equipment, net $ 348,172 $ 334,266 $ 325,203 =============================================
- -------------------------------------------------------------------------------- Changes in property, plant and equipment for the past three years were as follows:
In thousands of dollars 1997 1996 1995 - ---------------------------------------------------------------------------------- January 1 $ 334,266 $ 325,203 $ 328,935 Capital expenditures 59,087 62,277 28,969 Assets of businesses acquired 4,271 562 212 Assets of businesses divested (893) (15,140) Write-down of asset values (470) (1,880) Depreciation (37,453) (37,312) (38,246) Currency effects (10,636) 556 5,333 --------------------------------------------- December 31 $ 348,172 $ 334,266 $ 325,203 =============================================
- -------------------------------------------------------------------------------- PATENTS, TECHNOLOGY, FORMULAS AND COVENANTS Patents, technology, formulas and covenants not to compete are stated at cost less accumulated amortization of $19.9 million, $18.5 million and $18.6 million at December 31, 1997, 1996 and 1995, respectively. Such items which have been acquired by purchase or merger are capitalized and amortized on a straight-line basis over periods ranging from 5 to 17 years. Businesses acquired in 1997 increased patents, technology, formulas and covenants by $28.6 million. Research and development costs and any costs associated with internally developed patents, formulas or other proprietary technology are expensed in the year incurred. EXCESS ACQUISITION COST Excess acquisition cost was $97.5 million at year-end 1997, and $71.9 million at year-end 1996. Excess acquisition cost increased $34.5 million in 1997 due to businesses acquired. This increase was somewhat offset by $5.6 million of amortization costs and $3.3 million due to currency translation effects. Excess acquisition cost increased $6.1 million in 1996 due to the net impact of businesses acquired and divested. This increase was offset by $4.9 million of amortization costs and $3.4 million due to currency translation effects. The excess of cost over the net asset value of businesses acquired (goodwill) prior to 1991 is amortized on a straight-line basis over 25 to 40 years. Excess acquisition cost of businesses acquired after 1990 is amortized over periods not exceeding 25 years. Accumulated amortization amounted to $23.8 million, $18.8 million and $16.5 million at December 31, 1997, 1996 and 1995, respectively. Management evaluates, on an ongoing basis, the carrying value of excess acquisition cost and makes a specific provision against the asset when impairment is identified as required by SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. When a loss is expected from the proposed sale of a business or product line, a diminution in the value of the excess of cost over the net asset value of the business acquired is identified. In the instance of an ongoing business, such a diminution is recognized when there has been a history of the business' inability to generate operating income after the amortization of goodwill and in management's judgement, the business will not recover from this position in the future. There were no impairment charges in 1997, 1996 or 1995. LEASES The company leases facilities, vehicles, computers and other equipment under long-term operating leases with varying terms and expiration dates. Some leases contain renewal provisions, purchase options and escalation clauses. At December 31, 1997 and 1996, LTI had a capital lease in the amount of $4.7 million for a parcel of land on which they are constructing a new corporate R&D center and other administrative offices, including their headquarters. Obligations under capital leases were not significant at December 31, 1995. Aggregate future minimum lease payments under noncancelable leases as of December 31, 1997, were as follows:
For the years ending (in thousands of dollars) Capital Lease Operating Leases - ------------------------------------------------------------------------ 1998 $ 440 $ 9,495 1999 440 6,364 2000 440 4,189 2001 440 2,642 2002 440 2,208 Later years 7,085 11,628 ------ ------ Total minimum lease payments 9,285 $36,526 Less amount representing interest (4,627) ======= ------ Present value of net minimum lease payments $4,658 ======
- ------------------------------------------------------------------------------- Total rent expense incurred under noncancelable leases, net of minor sublease rentals, amounted to $11.5 million in 1997, $10.9 million in 1996, and $11.1 million in 1995. The company has no contingent rentals. LEGAL PROCEEDINGS The company is involved in various environmental and other lawsuits and claims, many of which are covered by insurance. At December 31, 1997, $0.4 million of current and $4.5 million of long-term receivables from third-party insurance companies are included as assets of the company. Equal and offsetting payables to third parties are included as liabilities of the company. Estimated amounts for claims which are probable and are not covered by third-party insurance are properly reflected as liabilities of the company. While the outcome of these lawsuits and claims cannot be forecast with certainty, management believes that such matters should not result in any liability which would have a material adverse effect on the company's financial position, results of operations, or cash flows. the dexter corporation 37 30 POSTRETIREMENT BENEFITS The company has pension (defined benefit) or deferred profit sharing (defined contribution) plans for substantially all U.S. employees. Retirement benefits for most employees of international operations are provided by government-sponsored or insured programs and, in certain countries, by defined benefit plans. With respect to its qualified defined benefit pension plans, the company's policy is to fund amounts as are necessary on an actuarial basis to provide for benefits in accordance with the requirements of ERISA for domestic plans and in accordance with local laws and income tax regulations for international plans. The plans covering the majority of domestic employees of the company and of Life Technologies, Inc. provide benefits that are generally based upon the employee's average compensation before retirement. The company also sponsors an unfunded nonqualified executive supplemental plan for certain key employees that provides benefits based on average compensation before retirement, offset by other benefits payable to the participant. In computing the company's year-end funded status for domestic plans, discount rates of 6.75% and 7% were used in 1997 and 7% and 6.5% were used in 1996 and 1995, respectively. The discount rates used in computing the year-end funded status for international plans ranged from 4% to 7.5% in 1997, 4% to 8.5% in 1996, and 4% to 9% in 1995.
- -------------------------------------------------------------------------------------------------------------------------------- The funded status of the company's plans were as follows: DECEMBER 31, 1997 December 31, 1996 December 31, 1995 - -------------------------------------------------------------------------------------------------------------------------------- Plans Where Plans Where Plans Where Plans Where Plans Where Plans Where Assets Exceed Accumulated Assets Exceed Accumulated Assets Exceed Accumulated Accumulated Benefits Accumulated Benefits Accumulated Benefits In thousands of dollars Benefits Exceed Assets Benefits Exceed Assets Benefits Exceed Assets - -------------------------------------------------------------------------------------------------------------------------------- Actuarial present value of benefit obligations Vested benefit obligation $ 82,074 $ 7,634 $ 65,912 $ 7,731 $ 63,864 $ 7,356 Accumulated benefit obligation $ 84,252 $ 9,191 $ 68,701 $ 8,745 $ 66,497 $ 8,768 Projected benefit obligation $ 119,083 $ 11,448 $ 102,560 $ 10,371 $ 99,947 $ 10,743 Plan assets at fair value, primarily equity securities and insurance contracts $ 113,351 $ 784 $ 95,386 $ 1,048 $ 83,110 $ 999 ---------------------------------------------------------------------------------------------- Projected benefit obligation in excess of plan assets $ (5,732) $(10,664) $ (7,174) $ (9,323) $(16,837) $ (9,744) Unrecognized net loss 189 1,608 2,514 1,532 14,811 2,194 Unrecognized prior service cost 2,466 2,163 2,897 1,566 3,265 1,802 Unamortized net (asset) obligation (534) 174 (628) 213 (635) 254 Adjustment required to recognize minimum liability (1,923) (1,971) (2,732) ---------------------------------------------------------------------------------------------- (Accrued pension liability) Prepaid pension cost $ (3,611) $ (8,642) $ (2,391) $ (7,983) $ 604 $ (8,226) ============================================================================================== - --------------------------------------------------------------------------------------------------------------------------------
In 1997, there was a combined net periodic pension cost of $5.6 million for all plans. Net periodic pension cost was $7.8 million for 1996 and $4.8 million for 1995. Net periodic pension cost for 1997, 1996 and 1995 included the following components:
In thousands of dollars 1997 1996 1995 - ------------------------------------------------------------------------------- Service cost $ 5,877 $ 6,405 $ 4,276 Interest cost 7,719 7,440 6,429 Actual return on assets (19,125) (11,271) (13,678) Net amortization and deferral 11,153 5,212 7,725 ------------------------------------------ Net periodic pension cost $ 5,624 $ 7,786 $ 4,752 ==========================================
- -------------------------------------------------------------------------------- Assumptions used in the accounting for pension cost in 1997, 1996 and 1995 for domestic plans were:
1997 1996 1995 - --------------------------------------------------------------- Discount rate 7% 6.5%* 8.5% Average wage increase 4 - 5% 4 - 5% 6% Expected long-term rate of return on plan assets 9% 9% 9%
* In June of 1996, the company recognized a $1.1 million curtailment gain resulting from the sale of its Automotive businesses. At June 30, 1996 the Dexter Pension Plan was remeasured using a 7.5% discount rate. - -------------------------------------------------------------------------------- 38 the dexter corporation 31 Assumptions used in the accounting for pension cost in 1997, 1996 and 1995 for international plans were:
1997 1996 1995 - ------------------------------------------------------------------------- Discount rate 4 - 8.5% 4 - 9% 5.5 - 9.75% Average wage increase 2.5 - 6% 3 - 7% 4.5 - 7% Expected long-term rate of return on plan assets 2.5 - 9% 2.5 - 9% 4 - 9%
- ------------------------------------------------------------------------- The discount rate is the estimated rate at which the obligation for pension benefits could effectively be settled. The average wage increase assumption was reduced from the 6% used in 1995 to a range of 4 - 5% in 1997 and 1996 for computing pension cost for domestic plans. The average wage increase to be used in the international plans ranges from 2.5% to 6% in 1998. The expected long-term rate of return on plan assets reflects the average rate of earnings that the company estimates will be generated on the assets of the plan over the long term. The rate of return on plan assets in the U.S. was 21% in 1997, 15.1% in 1996, and 22% in 1995. Certain defined benefit plans' accumulated benefit obligation exceeded plan assets. The minimum liability adjustment, intangible asset and reduction to shareholders' equity at December 31, 1997, 1996 and 1995 were as follows:
In thousands of dollars 1997 1996 1995 - ------------------------------------------------------------------------- Minimum liability adjustment $1,261 $1,489 $2,052 Intangible asset 1,223 1,173 1,318 ---------------------------------- 38 316 734 Tax benefit 14 112 261 ---------------------------------- Pension liability adjustment to shareholders' equity $ 24 $ 204 $ 473 ==================================
- ------------------------------------------------------------------------- The company sponsors deferred profit sharing plans for substantially all domestic employees not covered under pension plans. Contributions and cost are determined based on a percentage of each covered employee's pay and totaled $8.1 million in 1997, $7.3 million in 1996 and $6.6 million in 1995. In addition to providing pension benefits, certain businesses of Dexter provide some health care and life insurance benefits for retired employees. Dexter has funded trusts for future payment of such benefits. The assets in the trusts amounted to $41.2 million, $33.7 million and $29.1 million at December 31, 1997, 1996 and 1995, respectively, and were invested as follows:
In thousands of dollars 1997 1996 1995 - ------------------------------------------------------------------------- Equity funds $15,899 $13,916 $10,492 Indexed fund 15,574 12,675 12,031 Convertible preferred stocks 9,466 6,946 6,237 Short-term liquid investment funds 270 172 352 ------------------------------------- $41,209 $33,709 $29,112 =====================================
- ------------------------------------------------------------------------- The combined results of these funds are expected to achieve returns in excess of 10% over the long term. The components of net periodic postretirement benefit income for the years ended December 31, 1997, 1996 and 1995 were:
In thousands of dollars 1997 1996 1995 - ---------------------------------------------------------------------------- Service cost $ 828 $ 889 $ 666 Interest cost 1,596 1,541 1,447 Actual return on assets (8,413) (5,386) (6,953) Net amortization and deferral 4,378 1,732 4,005 --------------------------------------- Net periodic postretirement benefit income $(1,611) $(1,224) $ (835) =======================================
- -------------------------------------------------------------------------------- The funded status of the plan at December 31, 1997, 1996 and 1995 was:
In thousands of dollars 1997 1996 1995 - ----------------------------------------------------------------------------------- Accumulated postretirement benefit obligation Retirees and dependents $ 9,500 $ 7,668 $ 8,103 Actives fully eligible 4,432 4,685 4,469 Actives not yet fully eligible 13,222 10,839 11,885 ------------------------------------------ Total accumulated postretirement benefit obligation 27,154 23,192 24,457 Plan assets at fair value 41,209 33,709 29,112 ------------------------------------------ Accumulated postretirement benefit obligation less than plan assets 14,055 10,517 4,655 Unrecognized net gain (7,746) (4,060) (90) Unrecognized prior service effect from plan amendment (1,826) (3,764) (4,838) ------------------------------------------ Prepaid postretirement benefit cost (accrued postretirement benefit cost) $ 4,483 $ 2,693 $ (273) ========================================== - -----------------------------------------------------------------------------------
The discount rates used in determining the accumulated postretirement benefit obligation were 6.75% at December 31, 1997, 7% at December 31, 1996, and 6.5% at December 31, 1995. In June of 1996, the company recognized a $1.6 million curtailment gain resulting from the sale of its Automotive businesses. At June 30, 1996, the accumulated postretirement benefit obligation was remeasured using a 7.5% discount rate. The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation was 10% in 1997, declining gradually to 5% in 2007 and remaining level thereafter. If the health care cost trend rate assumptions were increased by 1%, the accumulated postretirement benefit obligation as of December 31, 1997 would be increased by $1 million, while the aggregate of the service and interest cost components of the net periodic postretirement benefit cost for 1997 would be increased by $0.1 million. As with pension benefits, the assumptions utilized in these calculations are periodically reviewed and adjusted if deemed appropriate. the dexter corporation 39 32 LONG-TERM DEBT Long-term debt at December 31, 1997 consisted of promissory notes, revolving credit borrowings, sinking fund debentures, industrial development bonds and a capitalized lease. In December 1986, the company sold publicly $50 million, 9.25% sinking fund debentures due in 2016. The sinking fund payments commenced in 1997 and were designed to retire 95% of the debt prior to maturity. During 1997, Dexter redeemed $30 million of the 9.25% sinking fund debentures in advance of their maturities at a redemption price of 104.625%. Also, in December 1997, Dexter made an optional sinking fund payment of $5 million on these debentures in addition to the scheduled, mandatory sinking fund payment of $2.5 million. The redemption price of the optional and mandatory sinking fund payments was 100%. In 1996, Dexter refinanced 350 million yen debt and borrowed an additional 150 million yen at an all-in-rate of 1.66%. The borrowing of 500 million yen (equivalent to approximately $3.8 million) is scheduled to mature in 1999. In 1996, LTI capitalized a lease for a parcel of land on which a new R&D center and other administrative offices were being constructed. Payments began in February 1997 and continue for 22 years. The agreement allows LTI to lease the property for 25 years with a 50-year renewal clause. LTI also has an option to purchase the land. In November 1993, Dexter privately placed with The Prudential Insurance Company of America $35 million, 20-year senior unsecured notes at a rate of 6.21% due in 2013. Required prepayments began in 1994 and are scheduled to continue with installments of $1.75 million per year through the year 2013. In December 1993, Dexter privately placed with The Prudential Insurance Company of America the equivalent of $15 million, 15-year senior unsecured notes denominated in Swiss francs at a rate of 4.86% due in 2008. Required prepayments began in 1994 and continued with installments of Swiss franc 2.2 million per year through the year 1997. The installments decrease to Swiss franc 1.5 million from 1998 through the year 2004 and decrease further to Swiss franc 0.8 million from 2005 through the year 2008. In November 1991, Dexter privately placed with The Prudential Insurance Company of America $50 million, 20-year senior unsecured notes at a rate of 8.96% due in 2011. Required prepayments are scheduled to begin in 1998 in installments of $2.5 million per year through the year 2000. The installments increase to $3.5 million per year from 2001-2010, with a final lump sum payment of $7.5 million due at maturity. In July 1990, Dexter privately placed with The Prudential Insurance Company of America $75 million, 20-year senior unsecured notes at a rate of 9.72% due in 2010. Required prepayments began in 1996 and are scheduled to continue with installments of $5 million per year through maturity. The company has $50 million of authorized and unissued medium-term notes. Multi-currency, revolving credit agreements maintained with eight banks aggregate another $100 million. This revolving credit is for a three-year evergreen term and carries a commitment fee of 0.08% per annum on the unborrowed portion. On December 31, 1997, Swiss franc 28.8 million (equivalent to approximately $19.7 million) was borrowed under the revolving credit agreements at a rate of 1.76% and is scheduled to mature in the year 2000. Long-term debt represented 32.6% of total capital at December 31, 1997. The weighted average interest rate of long-term debt outstanding at December 31, 1997 was 7.58%. Certain long-term debt agreements include provisions that restrict the amount of dividend increases if consolidated equity falls below $175 million. Consolidated equity at December 31, 1997 was $373 million. There are also provisions placing limits on the amount of additional debt the company may incur without amendment of the agreements. At December 31, 1997 there was approximately $207 million of additional debt allowable under these terms. Life Technologies, Inc. has guaranteed approximately $0.2 million of bank loans to others. Dexter has guaranteed approximately $0.4 million of bank loans to others. At December 31, 1997 and 1996 the fair value of net long-term debt was $188 million and $218 million, respectively, compared with the carrying value of $180 million and $210 million. The fair value of long-term debt is based on quoted market prices for similar issues or on the current rates offered to the company for debt of the same remaining maturities. In 1997, the fair value of long-term debt exceeded the carrying value by $8 million due to the net reduction in interest rates subsequent to the issuance of the long-term debt and the consequent increase in fair value. The company is only obligated to repay the amounts reflected in the carrying value of this debt. - ------------------------------------------------------------------------------- DEBT OUTSTANDING
December 31 --------------------------------------------- In thousands of dollars 1997 1996 1995 - --------------------------------------------------------------------------------- Promissory notes $ 155,792 $ 166,110 $ 177,437 Revolving credit borrowings 19,720 Sinking fund debentures 12,500 50,000 50,000 Capitalized lease 4,658 4,739 Industrial development bonds 700 1,400 2,050 --------------------------------------------- 193,370 222,249 229,487 Less: Payments due within one year (13,340) (12,297) (13,648) --------------------------------------------- Net long-term debt $ 180,030 $ 209,952 $ 215,839 ============================================= - -----------------------------------------------------------------------------------------------------------------------------------
DEBT MATURITIES BY CURRENCY AND TYPE Amounts in thousands
Multi-currency Promissory Notes -------------------------------------------------- Industrial Sinking Total Total Weighted Capitalized Development Fund Swiss Japanese U.S. Dollar U.S. Dollar Average Lease Bonds Debentures U.S. Dollar Franc Yen Equivalent Equivalent Interest Rate ----------- ----------- ---------- ----------- -------- --------- ---------- ---------- ------------- 1998 $ 94 $500 $ 2,500 $ 9,251 SF 1,454 $ 10,246 $ 13,340 8.28% 1999 102 200 2,500 9,251 1,454 Y500,000 14,079 16,881 6.83 2000 109 2,500 9,250 30,264 29,965 32,574 4.37 2001 118 2,500 10,250 1,454 11,245 13,863 8.42 2002 127 2,500 10,250 1,454 11,245 13,872 8.42 2003 137 10,250 1,454 11,245 11,382 8.23 2004 148 10,250 1,454 11,245 11,393 8.23 2005 159 10,250 727 10,748 10,907 8.53 2006 171 10,250 727 10,748 10,919 8.53 2007 185 10,250 727 10,748 10,933 8.52 2008-2020 3,308 43,500 727 43,998 47,306 8.42 --------------------------------------------------------------------------------------------------- Total $4,658 $700 $12,500 $143,002 SF41,896 Y500,000 $175,512 $193,370 7.58% ================================================================================================================= Rates of 5.70- 6.21- 1.76- Interest 7.50% 6.50% 9.25% 9.72% 4.86% 1.66% - -----------------------------------------------------------------------------------------------------------------------------------
40 the dexter corporation 33 ENVIRONMENTAL LIABILITIES Environmental expenditures attributed to ongoing operations of the company are expensed or capitalized as appropriate. Environmental expenditures attributed to previously owned properties and third party off-site facilities are expensed. Liabilities for expenses related to environmental assessments, site remediation and other response activities are expensed and recorded when incurrence of the liability is probable and the costs can be reasonably estimated. Generally, the incurrence of such liability is deemed probable when an environmental condition for which the company is likely to be legally responsible is determined to exist. Probable expenses are estimated, on an ongoing basis, as facts become available which indicate the scope of the condition to be addressed and the likely response measures for addressing it. Due to such factors as the wide discretion of regulatory authorities regarding cleanup levels and uncertain allocation of liability at multiple party sites, estimates made prior to approval of a formal plan of action represent management's best judgment as to estimates of reasonably foreseeable expenses based upon comparison to similar activities at other sites. Environmental reserves at December 31, 1997, with respect to 18 sites, were $15.8 million, including current reserves of $2.1 million, which are expected to be spent in 1998, and long-term reserves of $13.7 million. Such reserves, which are not discounted, were decreased during 1997 by expenditures of $0.6 million. Additionally, an estimated $2.7 million in 1997, $2.5 million in 1996, and $2.7 million in 1995 of claims payable by third-party insurance companies were included in the reserve at year end. The related receivables from insurance companies of $2.7 million, $2.5 million, and $2.7 million were included as assets of the company at year-end 1997, 1996 and 1995, respectively. Environmental reserves at December 31, 1996 were $16.3 million and at year-end 1995 were $17.1 million. Dexter Environmental Assurance, Ltd. (DEAL), a wholly owned Bermuda company, was established in 1993. In December 1993, a portfolio of environmental reserves totaling $5.9 million was transferred into DEAL to insure all wholly owned U.S. operations of Dexter, other than exposures at Windsor Locks, Connecticut, against environmental liabilities arising from occurrences prior to January 1, 1994. In November 1994, a second portfolio of environmental reserves totaling $5 million was transferred into DEAL. With the second transfer, the coverage period was expanded to include occurrences after December 31, 1993 and prior to January 1, 1995 for all wholly owned U.S. operations of Dexter. This coverage period has since been expanded to extend through December 31, 1997. In December 1997, a third portfolio of environmental reserves totaling $0.4 million was transferred into DEAL. With this transfer, the coverage was expanded to insure all wholly owned non-U.S. operations of Dexter against environmental liabilities arising from occurrences prior to January 1, 1998. MINORITY INTERESTS Minority interests increased by $14 million in 1997 to $104.4 million. At year-end 1996, minority interests were $90.4 million, an increase of $14 million from 1995. The increase in 1997 was principally due to $15.2 million of net income attributable to the minority interest shareholders of Life Technologies, Inc., Dexter's 52%-owned subsidiary, and a $4.7 million increase due to the exercise of stock options at LTI. Somewhat offsetting these increases were currency translation effects of $4.1 million and quarterly cash dividends paid by LTI to minority interest shareholders totaling $1.9 million. The increase in 1996 was principally due to $13.3 million of net income attributable to the minority interest shareholders of LTI and a $1.7 million increase due to the exercise of stock options at LTI. These increases in minority interests were somewhat offset by cash dividends paid by LTI to minority interest shareholders of $1.6 million. Minority interest in LTI's equity represented $99.3 million and $85.3 million at December 31, 1997 and 1996, respectively. CURRENCY EXCHANGE EFFECTS Assets and liabilities of those operations whose functional currency is other than the U.S. dollar are translated at end of period currency exchange rates and fluctuations due to changes in exchange rates are accounted for as a separate component of shareholders' equity, "Currency translation effects." Results of operations are translated at average currency exchange rates during the period. Currency translation effects decreased shareholders' equity in 1997 by $20.3 million, including $20.1 million of translation effects and a $0.2 million related tax effect. This decrease was the result of the net strengthening of the U.S. dollar against currencies of countries in which the company operates. Currency translation effects decreased shareholders' equity by $3.8 million in 1996, including $3.5 million of translation effects and a $0.3 million related tax effect. Many of the company's operations conduct a portion of their business in nonlocal currencies. These transactions give rise to nonlocal currency receivables or payables. Changes in the exchange rates between the functional currency and the nonlocal currency in which the transaction is denominated result in currency transaction gains and losses that are included in the determination of income. Currency gains and losses realized on these nonlocal currency transactions were not significant in 1997, 1996 or 1995. The company utilizes forward exchange contracts to hedge nonlocal currency transactions and commitments. Gains and losses on forward exchange contracts that hedge specific commitments are deferred and recognized in income in the same period as the hedged transaction. Such deferred unrealized gains and losses at December 31, 1997, 1996 and 1995 were not significant. Gains and losses on forward contracts that do not hedge an identifiable commitment are included in income as the gain or loss arises. Forward exchange contracts outstanding at year-end 1997 were short-term in nature and related to nonlocal currency transactions of the company's European and Asian operations. For the company, excluding LTI, the equivalent U.S. dollar purchase amounts of its forward contracts outstanding were $0.8 million and $1 million as of December 31, 1997 and 1996, respectively. There were no purchase amounts outstanding as of December 31, 1995. The equivalent U.S. dollar sale amounts of its forward contracts outstanding were $9.6 million, $7.5 million and $7.4 million as of December 31, 1997, 1996 and 1995, respectively. For LTI, the equivalent U.S. dollar purchase amounts of its forward contracts were $2.9 million, $6.2 million and $10.3 million as of December 31, 1997, 1996 and 1995, respectively. The equivalent U.S. dollar sale amount was $12.9 million as of December 31, 1995. There were no sale amounts outstanding as of December 31, 1997 and 1996 for LTI. The market risk associated with forward exchange contracts is caused by fluctuations in exchange rates subsequent to entering into the forward exchange contracts. Credit risk associated with forward exchange contracts is caused by nonperformance by the counterparties to these financial instruments. The company does not believe there is significant risk of nonperformance by the counterparties to these financial instruments. The company had short-term borrowings at December 31, 1997 of $35.4 million of which $2.4 million related to nonlocal currency transaction exposure management. the dexter corporation 41 34 SHAREHOLDERS' EQUITY Shareholders' equity decreased by $1.3 million in 1997 to $372.9 million representing a book value of $16.26 per share. Net income increased shareholders' equity by $56.4 million. The exercise of stock options along with the impact of restricted stock awards added $5.3 million to shareholders' equity in 1997. Offsetting these increases were reductions due to dividends declared of $22.1 million, the repurchases of the company's outstanding common stock of $20.5 million, and a currency translation impact of $20.3 million resulting from the strengthening of the U.S. dollar in 1997. In 1990, the Board of Directors authorized a repurchase of up to 1,000,000 shares of the company's outstanding common stock. In 1996, the company purchased 829,100 shares of its outstanding common stock at an average cost of $25.80 per share under this plan and in 1995, the company purchased 170,900 shares of its outstanding common stock at an average cost of $24.56 per share. In 1996, the Board of Directors authorized the repurchase of an additional 1,000,000 shares of the company's outstanding common stock and the company purchased 160,400 shares of its outstanding common stock at an average cost of $32.54 per share under this plan in 1996. In 1997, the company purchased 671,200 shares of its outstanding common stock at an average cost of $30.57 per share under this plan. At the end of 1997, there were 1,814,035 shares held in treasury compared with 1,520,261 shares at the end of 1996 and 763,782 shares at the end of 1995. In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income, which becomes effective for financial statements for periods beginning after December 15, 1997. SFAS No. 130 requires a company to (a) classify items of other comprehensive income by their nature in a financial statement and, (b) display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position. The company is currently evaluating the impact of SFAS No. 130 on its reporting practices. PREFERRED STOCK The company has the following classes of preferred stock, without par value, as of December 31, 1997:
CLASS AUTHORIZED AND UNISSUED Preferred Stock 150,000 shares Preferred Stock, Class I 500,000 shares Preferred Stock, Class II 500,000 shares Preferred Stock, Series A 250,000 shares
PREFERRED STOCK, SERIES A - PURCHASE RIGHTS In August 1996, the company authorized and declared a dividend distribution of one right for each share of common stock of the company outstanding at the close of business on November 17, 1996, and authorized the issuance of one right for each share of common stock of the company issued between November 17, 1996 and the distribution date. Each right entitles the holder to purchase one two-hundredth of a share of Series A Preferred Stock of the company at a purchase price of $90 per right. The rights will trade with the common stock and not be exercisable or transferable apart from the common stock until 10 days following the acquisition of, or tender offer for, 20% or more of the outstanding shares of the common stock. The rights plan also provides that if the company merges with or into another entity or sells or otherwise transfers more than 50% of the assets or earning power of the company, the holder of each right shall have the right to receive, upon exercise, shares of common stock having a value equal to two times the exercise price. The rights, which do not have voting privileges, are redeemable under certain circumstances at a redemption price of $.01 per right and will expire, unless earlier redeemed, on August 31, 2006. The company has authorized 250,000 shares of Series A Preferred Stock for issuance upon exercise of the rights. STOCK COMPENSATION PLANS The company applies APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for its stock-based compensation plans described below. Accordingly, no compensation cost has been recognized for its fixed stock option plans. Compensation expense for its restricted stock plan has been adjusted on a quarterly basis to reflect changes in the market price of the stock. The compensation cost that has been charged against income for its restricted stock plan was $2.1 million in 1997, $1.2 million in 1996 and $0.4 million in 1995. Had compensation cost for the company's stock-based compensation plans been determined consistent with SFAS No. 123, Accounting for Stock-Based Compensation, the company would have expensed $0.6 million in 1997, $0.2 million in 1996 and $0.1 million in 1995 for its fixed stock option plans which would have been offset by income of approximately $0.7 million in 1997 and $0.2 million in 1996 for its restricted stock plan with no income impact in 1995 for restricted stock. As such, the net impact of SFAS No. 123 on the company's net income and earnings per share was not significant. The SFAS No. 123 method of accounting has not been applied to options or restricted stock granted prior to January 1, 1995. As a result, compensation cost may not be representative of that to be expected in future years. The weighted average fair value at date of grant for options granted during 1997, 1996 and 1995 was $6.90, $7.14 and $5.34 per option, respectively. The fair value of options at date of grant was estimated using the Black-Scholes model with the following weighted average assumptions:
1997 1996 1995 - ------------------------------------------------------------------ Expected life (years) 6 6 6 Interest rate 5.7% 6.3% 6.3% Volatility 18% 23% 24% Dividend yield 2.4% 2.7% 3.7%
- ------------------------------------------------------------------ STOCK PLAN 1994 LONG-TERM INCENTIVE PLAN In 1994, Dexter established a long-term incentive plan for certain key management personnel of the company. The aggregate number of shares of the company's common stock that may be awarded under the 1994 Long-term Incentive Plan is 1,200,000 shares. Participants are granted restricted stock awards at no cost to the employee. As of the grant date, participants have the rights of shareholders, including the right to receive any cash dividends and the right to vote the shares. These stock awards are subject to forfeiture provisions including the lapse of time and achievement of certain performance targets and have restrictions limiting the sale or transfer of shares during the restriction periods defined in the Plan. The expense relating to this Plan is amortized over the restriction period. The 1994 Plan will terminate on April 28, 2004, after which time no additional grants may be made. The weighted-average fair value at date of grant for restricted stock granted during 1997, 1996 and 1995 was $29.94, $27.06 and $23.06, respectively, which in each case was equal to the market value of the company's common stock at the date of grant. 42 the dexter corporation 35
- -------------------------------------------------------------------------------------------------------------------------------- 1994 Long-term Incentive Plan Data December 31 ------------------------------------------------------- 1997 1996 1995 ------------------------------------------------------- Number of Shares ------------------------------------------------------- Outstanding at beginning of year 202,487 138,187 64,250 Awarded 74,800 75,500 76,500 Earned and distributed (20,154) (1,863) Cancelled (25,375) (11,200) (700) ------------------------------------------------------- Outstanding at end of year 231,758 202,487 138,187 - --------------------------------------------------------------------------------------------------------------------------------
STOCK OPTION PLANS 1979 STOCK OPTION PLAN AND DATA The Dexter Corporation 1979 Stock Option Plan permitted the granting of options to purchase a total of 999,999 shares (adjusted for stock splits) of common stock at prices not less than the fair market value of the shares on the date of grant. Such options could have been accompanied by stock appreciation rights, which were also issued at fair market value, for up to half the number of shares under option. Options and stock appreciation rights generally became exercisable at the rate of 20% of the shares each year starting two years after the date of grant. The exercise price could have been satisfied by surrendering company stock with a like market value. The Plan, as amended, permitted no future granting of options under the 1979 Stock Option Plan and expired on May 1, 1997.
December 31 --------------------------------------------------------------------------- 1997 1996 1995 --------------------------------------------------------------------------- WEIGHTED Weighted Weighted AVERAGE Average Average EXERCISE Exercise Exercise SHARES PRICE Shares Price Shares Price --------------------------------------------------------------------------- Outstanding at beginning of year 16,300 $23.75 59,575 $22.22 81,150 $20.42 Exercised (16,300) $23.75 (42,075) $21.66 (20,975) $15.23 Expired or cancelled (1,200) $20.83 (600) $23.75 ------- ------- ------- Outstanding and exercisable at end of year 0 16,300 $23.75 59,575 $22.22 - --------------------------------------------------------------------------------------------------------------------------------
1987 INTERIM STOCK OPTION PLAN AND DATA The 1987 Interim Stock Option Plan was intended to be a continuation and extension of The Dexter Corporation 1979 Stock Option Plan with similar terms and conditions, and, as such, stock appreciation rights could accompany the options as in the 1979 Plan. The aggregate number of shares of common stock permitted to be issued under the Plan was 75,000. The 1987 Stock Option Plan consisted of one grant which was issued in 1987 at an exercise price of $23.75. The Plan, as amended, permitted no future granting of options under the 1987 Interim Stock Option Plan and expired on May 1, 1997.
December 31 ------------------------------------------------------ 1997 1996 1995 ------------------------------------------------------ Number of Shares ------------------------------------------------------ Outstanding at beginning of year 6,200 13,350 16,000 Exercised (5,800) (6,550) (1,450) Expired or cancelled (400) (600) (1,200) ------------------------------------------------------ Outstanding and exercisable at end of year 0 6,200 13,350 - --------------------------------------------------------------------------------------------------------------------------------
1988 STOCK OPTION PLAN AND DATA The 1988 Stock Option Plan provides for the granting of incentive and nonqualified stock options to purchase up to 1,000,000 shares of common stock. No stock appreciation rights may be granted. The option price shall not be less than 100% of the fair market value on the date of grant for incentive stock options and not less than 80% of the market value on the date of grant for nonqualified options. Options generally become exercisable at the rate of 33 1/3% of the shares each year starting one year after the date of grant. Each option granted under the 1988 Plan lapses ten years after the date it was granted, or earlier, as outlined under the provisions of the Plan. There have been no nonqualified options issued under the Plan at less than fair market value; therefore, no charges against income have been made.
December 31 ----------------------------------------------------------------------------- 1997 1996 1995 ----------------------------------------------------------------------------- WEIGHTED Weighted Weighted AVERAGE Average Average EXERCISE Exercise Exercise SHARES PRICE Shares Price Shares Price ----------------------------------------------------------------------------- Outstanding at beginning of year 492,241 $24.42 690,522 $24.01 738,500 $24.21 Granted 202,700 $30.49 49,000 $26.63 31,500 $22.82 Exercised (125,265) $24.26 (210,069) $23.17 (19,566) $21.83 Expired or cancelled (9,073) $27.49 (37,212) $26.78 (59,912) $26.54 -------- -------- ------- Outstanding at end of year 560,603 $26.60 492,241 $24.42 690,522 $24.01 Exercisable options at end of year 322,531 $24.25 385,519 $24.12 535,584 $23.80 Shares available for future grant 9,359 202,986 214,774 At December 31, 1997, 550,603 options were outstanding with a range of exercise prices of $20.88 - $29.94 and a weighted-average remaining contractual life of approximately 4 years. The remaining 10,000 options outstanding had an exercise price of $41.22 and a weighted-average contractual life of approximately 7 years. - --------------------------------------------------------------------------------------------------------------------------------
the dexter corporation 43 36 DIVISION AND SUBSIDIARY HEADQUARTERS
DEXTER AEROSPACE MATERIALS DEXTER NONWOVENS LIFE TECHNOLOGIES, INC. 2850 Willow Pass Road Two Elm Street (majority owned) Bay Point, CA 94565-3299 Windsor Locks, CT 06096-2335 9800 Medical Center Drive (925) 458-8000 (860) 654-8300 Rockville, MD 20850 Jeffrey W. McClelland David G. Gordon (301) 610-8000 Division President Senior Division President J. Stark Thompson, Ph.D. President and DEXTER ELECTRONIC MATERIALS DEXTER PACKAGING PRODUCTS Chief Executive Officer 15051 East Don Julian Road East Water Street Industry, CA 91746-3398 Waukegan, IL 60085-5652 (626) 968-6511 (847) 623-4200 Ronald C. Benham T. Daniel Clark Senior Division President Senior Division President DEXTER MAGNETIC MATERIALS DEXTER S.A. 48460 Kato Road B.P. 51 Fremont, CA 94538-7337 14 rue Chanay (510) 656-5700 71700 Tournus, France David Woodhead 33-385-40-4545 Division President Gerard R. Mazure Directeur General
SHAREHOLDER/INVESTOR INFORMATION
THE DEXTER CORPORATION NOTICE OF ANNUAL MEETING One Elm Street You are cordially invited to attend the annual meeting of shareholders Windsor Locks, CT 06096-2334 beginning at 10:00 a.m., Thursday, April 23, 1998, at The Hartford Club, (860) 292-7675 46 Prospect Street, Hartford, Connecticut. (860) 292-7673 Facsimile NOTICE OF FORM 10-K ANNUAL REPORT STOCK EXCHANGE The Form 10-K Annual Report of The Dexter Corporation filed with the Securities Listing: New York Stock Exchange and Exchange Commission, as well as the Form 10-K Annual Report of Life Stock Symbol: DEX Technologies, Inc., are available without charge after March 31 of each year to shareholders and prospective investors. Please contact the Corporate REGISTRAR Communications Department in Windsor Locks, Connecticut, at (860) 292-7615. ChaseMellon Shareholder Services, L.L.C. Ridgefield Park, NJ SHAREHOLDERS' STOCK SAVINGS PLAN/INQUIRIES Dexter shareholders can reinvest their dividends automatically in additional TRANSFER AGENT shares of Dexter common stock at the market price. Participants can also invest ChaseMellon Shareholder Services, L.L.C. up to an additional $3,000 in Dexter shares each quarter through this service. Ridgefield Park, NJ, and New York, NY Also, if you have any questions concerning your account as a shareholder, such INVESTOR RELATIONS as name and address changes, inquiries regarding dividend checks, stock Kathleen Burdett certificates, or if you need tax information regarding your account, please Vice President and Chief Financial Officer contact: (860) 292-7620 (860) 292-7669 Facsimile ChaseMellon Shareholder Services, L.L.C. Overpeck Centre John D. Thompson 85 Challenger Road Senior Vice President, Ridgefield Park, NJ 07660 Strategic and Business Development (800) 288-9541 (860) 292-7640 www.chasemellon.com (860) 292-7669 Facsimile CORPORATE COMMUNICATIONS/ TDD SERVICE AVAILABLE MEDIA CONTACT Dexter shareholders with hearing or speech disabilities can get information Ellen C. Miles about their accounts through TDD services offered by ChaseMellon Shareholder Corporate Communications Manager Services, L.L.C. at (800) 231-5469. (860) 292-7686 (860) 292-7627 Facsimile
EX-21 5 EXHIBIT 21 1 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT The following table sets forth subsidiaries of The Dexter Corporation which are included in the consolidated financial statements.
PERCENTAGE OF JURISDICTION IN WHICH NAME OWNERSHIP(A) INCORPORATED OR ORGANIZED ---- ---------------- ------------------------- Canstoll GmbH............................................ 100% Austria Crown Metro Aerospace Coatings, Inc. .................... 100% South Carolina DDL Sales Limited........................................ 80%(D)(B) Scotland Dexter Asia Pacific Limited.............................. 100%(C) Hong Kong Dexter Automotive Materials GmbH......................... 100%(E)(B) Germany Dexter ADAF Holdings, Inc. .............................. 100%(F) Delaware Dexter do Brasil Ltda. .................................. 100% Brazil Dexter Electronic Materials (M) Sdn. Bhd................. 100% Malaysia Dexter Environmental Assurance Ltd. ..................... 100% Bermuda Dexter Europe S.A. ...................................... 100% Belgium Dexter Holdings.......................................... 100% England Dexter Hysol Aerospace, Inc. ............................ 100% Delaware Dexter Hysol (Malaysia) Sdn. Bhd. ....................... 100%(G) Malaysia Dexter International Corporation......................... 100% Connecticut Dexter International (Thailand), Ltd. ................... 100% Thailand Dexter Magnetic Materials GmbH........................... 100%(E) Germany Dexter Mexicana S.A. de C.V. ............................ 100% Mexico Dexter Midland Company Limited........................... 70% Japan Dexter Nonwovens A.B. ................................... 100% Sweden Dexter Overseas Limited.................................. 100%(C)(B) England Dexter Pacific, Inc. .................................... 100% Japan Dexter Packaging Products, S.A. ......................... 100% Spain Dexter Philippines, Inc. ................................ 100% Philippines Dexter Powders, Inc. .................................... 100%(B) Delaware Dexter (RPI), Inc. ...................................... 100%(B) Delaware Dexter S.A. ............................................. 97% France Dexter S.p.A. ........................................... 100%(F) Italy Dexter Speciality Chemicals Limited...................... 100%(C)(B) England Dexter Speciality Materials Limited...................... 100%(C) Scotland Dexter South Africa (Pty) Ltd. .......................... 60% South Africa Dexter U.K. Limited...................................... 100%(H) England Hysol Limited............................................ 100% Japan Kettlebrook Insurance Company, Ltd. ..................... 100%(I) Bermuda Kolack A.G. ............................................. 100% Switzerland Life Technologies, Inc. ................................. 52% Delaware Permag Corp. ............................................ 100% New York
2 EXHIBIT 21 -- CONTINUED
PERCENTAGE OF JURISDICTION IN WHICH NAME OWNERSHIP(A) INCORPORATED OR ORGANIZED ---- ---------------- ------------------------- Potter Paint Company of Texas, Inc. ..................... 100% Texas QMI Asia Pte. Ltd. ...................................... 100% Singapore The Dexter GmbH.......................................... 100%(C) Germany Vernicolor A.G. ......................................... 100% Switzerland Windsor Locks Canal Company.............................. 100% Connecticut
- --------------- (A) including directors' qualifying shares (B) inactive (C) owned by Dexter U.K. Limited (D) owned by Dexter Speciality Materials Limited (E) owned by The Dexter GmbH (F) owned by Crown Metro Aerospace Coatings, Inc. (G) owned by Dexter Asia Pacific Limited (H) owned by Dexter Holdings (I) owned 67% by The Dexter Corporation and 33% by Dexter U.K. Limited 3 EXHIBIT 21 -- CONTINUED The following table sets forth subsidiaries of Life Technologies, Inc. (owned 52% by The Dexter Corporation) which are included in the consolidated financial statements.
PERCENTAGE OF JURISDICTION IN WHICH NAME OWNERSHIP INCORPORATED OR ORGANIZED ---- ---------------- -------------------------- Canadian Life Technologies, Inc. .................. 100% Ontario Custom Primers, Inc. .............................. 100% California Laboratory Services Ltd. .......................... 100% New Zealand Life Technologies A.G. ............................ 100%(B) Switzerland Life Technologies A.S. ............................ 100% Denmark Life Technologies Asia Pacific, Inc. .............. 100% Delaware Life Technologies B.V.............................. 100%(B) Netherlands Life Technologies do Brasil Ltda. ................. 100% Brazil Life Technologies Foreign Sales Corporation........ 100% Barbados Life Technologies GIBCO BRL Co., Ltd. ............. 51% Republic of China (Taiwan) Life Technologies GmbH............................. 100%(B) Germany Life Technologies Holdings, Unlimited.............. 100% Scotland Life Technologies Investment Holdings, Inc. ....... 100% Delaware Life Technologies Italia S.r.1. ................... 100% Italy Life Technologies Ltd. ............................ 100%(A) Scotland Life Technologies Ltd. ............................ 100% New Zealand Life Technologies Mauritius Ltd. .................. 100% Mauritius Life Technologies Oriental K.K. ................... 80% Japan Life Technologies Overseas Ltd. ................... 100%(A) Scotland Life Technologies (Pacific) Ltd. .................. 100% Hong Kong Life Technologies Pty. Ltd. ....................... 100% Australia Life Technologies S.A. ............................ 100% Spain Life Technologies S.A.R.L. ........................ 100%(B) France Life Technologies Sweden AB........................ 100% Sweden Life Technologies Uruguay, S.A. ................... 100% Uruguay N.V. Life Technologies S.A. ....................... 100%(B) Belgium Serum Technologies Holdings, Inc. ................. 100% Delaware Serum Tech (unincorporated joint venture).......... 40%(C) Maryland
- --------------- (A) owned by Life Technologies Holdings, Unlimited (B) owned by Life Technologies Overseas Ltd. (C) owned by Serum Technologies Holdings, Inc. 4 EXHIBIT 21 -- CONTINUED The following unconsolidated companies owned in part by The Dexter Corporation are accounted for by the equity method. Financial statements of these companies are not required because when considered in the aggregate as a single subsidiary, they would not constitute a significant subsidiary.
PERCENTAGE OF JURISDICTION IN WHICH NAME OWNERSHIP INCORPORATED OR ORGANIZED ---- ---------------- ------------------------- Akzo Dexter Aerospace Finishes VoF....................... 40%(A) Netherlands Hysol Indael de Mexico S.A. ............................. 49%(B) Mexico Lexter S.r.1. ........................................... 49%(B)(D) Italy Midland-Dexter de Venezuela, S.A. ....................... 49%(C) Venezuela
- --------------- (A) owned by Dexter ADAF Holdings, Inc. (B) owned by The Dexter Corporation (C) owned 13.9% by Dexter U.K. Ltd. and 35.1% by The Dexter Corporation (D) inactive EX-23 6 EXHIBIT 23 1 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS We consent to the incorporation by reference in the registration statements of The Dexter Corporation on Form S-8 (File Nos. 2-63959, 33-27597, 33-53307, 33-53309, 333-02985, 333-04081 and 333-42663) of our report dated February 3, 1998, on our audits of the consolidated financial statements and financial statement schedule of The Dexter Corporation as of December 31, 1997, 1996, and 1995, and for the years then ended, appearing on page F-2 of The Dexter Corporation's Annual Report on Form 10-K for the year ended December 31, 1997. /s/ Coopers & Lybrand L.L.P. COOPERS & LYBRAND L.L.P. Springfield, Massachusetts March 10, 1998 EX-27 7 EXHIBIT 27
5 This schedule contains summary financial information extracted from the Statement of Financial Position and Statement of Income and is qualified in its entirety by reference to such financial statements. 1,000 YEAR DEC-31-1997 DEC-31-1997 68,306 0 184,744 7,663 159,901 440,452 712,125 363,953 961,776 236,536 180,030 0 0 24,984 347,877 961,776 1,147,055 1,159,066 735,367 735,367 0 0 20,192 111,085 39,991 56,427 0 0 0 56,427 2.45 2.41
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