-----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, OdzJwialGJWUPL0DJArCSU5ePHR/OqtzWmV+tsPBebkWk7HlUME1qohqrNfZkuL0 jQ08cz6fly/rD2S7e9DddQ== 0000914039-99-000068.txt : 19990310 0000914039-99-000068.hdr.sgml : 19990310 ACCESSION NUMBER: 0000914039-99-000068 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990309 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: 99560424 BUSINESS ADDRESS: STREET 1: ONE ELM ST CITY: WINDSOR LOCKS STATE: CT ZIP: 06096 BUSINESS PHONE: 8602927675 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, 1998 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ____________ to ____________ Commission file number 1-5542 DEXTER CORPORATION ------------------------------------------------------ (Exact name of registrant as specified in its charter) CONNECTICUT 06-0321410 -------------------------------- ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification 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. [ ] Aggregate market value of the registrant's common stock as of February 26, 1999, held by nonaffiliates of the registrant was $645,735,035. The number of shares of the registrant's common stock, $1 par value, outstanding at February 26, 1999 was 23,269,731. PORTIONS OF THE FOLLOWING DOCUMENTS ARE INCORPORATED BY REFERENCE: Dexter Corporation's 1998 Annual Report to Shareholders (Parts I, II and IV). Proxy Statement accompanying the notice, dated March 9, 1999, of the annual meeting of Dexter Corporation's shareholders to be held on April 22, 1999 (Parts I and III). - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 TABLE OF CONTENTS
PAGE NUMBER ------ PART I Item 1. Business.................................................... 1 Item 2. Properties.................................................. 3 Item 3. Legal Proceedings........................................... 5 Item 4. Submission of Matters to a Vote of Security Holders......... 5 Item 4a. Executive Officers of the Registrant........................ 5 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters......................................... 7 Item 6. Selected Financial Data..................................... 7 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 7 Item 7a. Quantitative and Qualitative Disclosures about Market Risk........................................................ 9 Item 8. Financial Statements and Supplementary Data................. 10 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................... 10 PART III Item 10. Directors and Executive Officers of the Registrant.......... 11 Item 11. Executive Compensation...................................... 11 Item 12. Security Ownership of Certain Beneficial Owners and Management.................................................. 11 Item 13. Certain Relationships and Related Transactions.............. 11 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K......................................................... 12
3 PART I As used herein, the term "Dexter" and the term "Company" shall mean Dexter Corporation and its consolidated subsidiaries unless the context otherwise indicates, the term "1998 Annual Report" shall mean the Company's 1998 Annual Report to Shareholders, and the term "Proxy Statement" shall mean the Proxy Statement accompanying Dexter's notice, dated March 9, 1999, of the annual meeting of Dexter's shareholders to be held on April 22, 1999. The 1998 Annual Report is filed as an exhibit to this report. Portions of the 1998 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, Dexter Corporation operates specialty materials businesses with leadership positions in markets that provide opportunities for profitable growth. The principal markets served by the Company are the worldwide aerospace, electronics, food packaging, and medical markets. For an analysis of operations of the business of Dexter, see pages 24 through 29 of the 1998 Annual Report, incorporated herein by reference, which includes Life Technologies, Inc. information on pages 26 and 27, Segment Data on pages 28 and 29, and Geographic Information on page 29. Also, see Events, Trends and Vulnerabilities and Acquisitions and Divestitures information on pages 22 and 23 of the 1998 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 16 through 20, Quarterly Financial Information on page 21, Analysis of Financial Condition and Operations contained on pages 22 and 23, Analysis of Operations contained on pages 24 through 29, and Analysis of Financial Position contained on pages 30 through 39 of the 1998 Annual Report. SEGMENT INFORMATION AND PRODUCTS The Company has three operating segments: Life Sciences, Nonwovens, and Specialty Polymers. The businesses of Dexter are organized and reported based on the commonality of the products, services and technologies employed within these segments. The life sciences segment focuses on the development and manufacture of precise, reproducible biological and biochemical products for life sciences research and commercial applications within the medical market. Life Technologies, Inc. is reported in this segment. The nonwovens segment focuses on the proprietary formulation and manufacture of long-fiber, wet-formed, and hydroentangled products, primarily for use in the food packaging, medical and hygiene markets. The Nonwoven Materials business and its cogeneration facility, which provides electricity and steam to the Nonwoven Materials, Windsor Locks, Connecticut facility, as well as, electricity to the local utility, are reported in this segment. The specialty polymers segment includes businesses whose product offerings are based on polymer technology for the formulation and processing of specialty adhesives, coatings and encapsulants primarily for use in the aerospace and electronics markets. Long-term polymer research and development for this segment is performed at the segment's specialty polymer research and development laboratories in San Diego, California. The Adhesive and Coating Systems business, Electronic Materials business and Magnetic Technologies business are reported in this segment. The Packaging Coatings business and Dexter SAS, a French subsidiary, whose product offerings are based on polymer technology serving the food packaging and industrial markets are also included in this segment but were divested in February 1999. For additional information on the divestiture of the Packaging Coatings business and Dexter SAS, refer to the Acquisitions and Divestitures footnote on page 23 of the 1998 Annual Report which is incorporated herein by reference. For additional information on the Company's segment and product information refer to Segment Data on pages 28 and 29 of the 1998 Annual Report which is incorporated herein by reference. 1 4 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 woodpulp; 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 pages 22 and 23 of the 1998 Annual Report which is incorporated herein by reference. CUSTOMERS In 1998, 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. 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. Life science 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 299 were directly engaged in field sales in 1998, 275 in 1997, and 252 in 1996. The remaining products are sold through agents or distributors. In general, each of the Company's product lines has its own sales force. Management believes that product research and development, close customer relations and strong technical service are important factors in Dexter's growth over the years. BACKLOG Dexter continues to maintain a backlog of orders. Such backlog was approximately $85 million at December 31, 1998 and $77 million at December 31, 1997 and typically represents less than two months sales for businesses where backlog is applicable. The Company expects substantially all of the December 31, 1998 backlog to be shipped in 1999. Backlog was significant in all businesses except Life Technologies, Inc. (LTI), 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 markets are diverse and highly competitive and emphasize the quality of their products. The businesses of the Company are characterized by technological leadership and the continual introduction of new products and services. Dexter continues to experience competition from imports in several of its domestic markets. For further discussion on competition, see Events, Trends and Vulnerabilities on pages 22 and 23 of the 1998 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 section entitled Events, Trends and Vulnerabilities on pages 22 and 23 of the 1998 Annual Report which is incorporated herein by reference. 2 5 The total number of employees engaged in research and development were approximately 483, 465, and 447 at December 31, 1998, 1997 and 1996, respectively. For information on research and development expenditures, and acquired in-process research and development costs, see the Statement of Income on page 16 and the Acquisitions and Divestitures footnote on page 23 of the 1998 Annual Report which are 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 $1.5 million for 1998 and are estimated to range from $1 -- $2 million for 1999. For further discussion of other current environmental matters, see Events, Trends and Vulnerabilities on pages 22 and 23 and the Environmental Liabilities footnote on page 33 of the 1998 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 7, for information on administrative proceedings arising under the Comprehensive Environmental Response, Compensation and Liability Act of 1980. EMPLOYEES Approximately 1,800 of the Company's 5,000 employees (see page 14 of the 1998 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 Events, Trends and Vulnerabilities on pages 22 and 23, Geographic Information on page 29, and the Currency Exchange Effects footnote on page 33 of the 1998 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 page 31, the Leases footnote on page 32, and Business and Subsidiary Headquarters on page 42 of the 1998 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 business. The company considers its facilities to be adequate and suitable for their current use. The capacity utilization percentage for Dexter's production facilities in 1998 was approximately 74%. There were no material leases under which properties described below were held. In the Life Sciences segment, during 1998, 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 its corporate office, a corporate research and development facility, and other administrative facilities located in Rockville, Maryland (approximately 238,000 square feet), which it owns. In addition, Life Technologies, Inc. leases a distribution center located in Frederick, Maryland of approximately 50,000 square feet and owns a distribution center of approximately 35,000 square feet located in Inchinnan, Scotland. The capacity utilization percentage at Life Technologies, Inc. production facilities in 1998 was approximately 84%. 3 6 In the Nonwovens segment, during 1998, the Nonwoven Materials business 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 Nonwoven Materials business also leases a production facility in Radcliffe, England totaling approximately 175,000 square feet. The Nonwoven Materials business 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 Nonwoven Materials business production facilities in 1998 was approximately 89%. During 1998, the Specialty Polymers segment consisted of the following businesses and their principal facilities: The Adhesive & Coating Systems business, in 1998, operated three principal facilities owned by the Company totaling approximately 354,000 square feet. These facilities are located in Bay Point, California; Waukegan, Illinois; and Bassano, Italy. The Adhesive & Coating Systems business capacity utilization percentage in 1998 was approximately 66%. The Electronic Materials business, in 1998, operated six production facilities and laboratories in the United States, Germany and Japan, of which four are owned (approximately 452,000 square feet) and two are leased (approximately 51,000 square feet). These facilities of the Electronic Materials business, 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 business capacity utilization percentage in 1998 was approximately 48%. The Magnetic Technologies business, in 1998, 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 Technologies business capacity utilization percentage in 1998 was approximately 64%. The Packaging Coatings business, in 1998, 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 were owned by the Company. The Packaging Coatings business had offices and a laboratory located in Waukegan, Illinois (approximately 31,000 square feet), which the Company owns. The Packaging Coatings business also managed the operation of a multi-business production facility located in Singapore of approximately 92,000 square feet. This production facility was owned by the Company. The Packaging Coatings business had a capacity utilization percentage of approximately 78% in 1998. Dexter SAS, the Company's French coatings subsidiary, located in Tournus, France operated a production facility of approximately 162,000 square feet with a capacity utilization percentage of approximately 66% in 1998. This facility was owned by the Company. In February 1999, the Packaging Coatings business and Dexter SAS were divested. For additional information on this transaction, see the section entitled Acquisitions and Divestitures on page 23 of the 1998 Annual Report which is incorporated herein by reference. 4 7 ITEM 3 LEGAL PROCEEDINGS The Company and its subsidiaries are 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 7, 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 1998. ITEM 4A EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of Dexter Corporation, together with the offices in Dexter Corporation presently held by them, their other business experience since January 1, 1994, and their ages, are as follows:
OTHER BUSINESS EXPERIENCE NAME TITLE SINCE 1/1/94 AGE ---- ----- ------------------------- --- K. Grahame Walker Chairman, President and Chief 61 Executive Officer (since 1993) Bruce H. Beatt Vice President, General Counsel 46 and Secretary (since 1992) Ronald C. Benham Vice President; President, 56 Electronic Materials Business (since 1992) John B. Blatz Vice President, Environmental Corporate Director of 47 and Process Management Environmental Affairs (effective January 1999) Kathleen Burdett Vice President and Chief Vice President and Controller 43 Financial Officer (since 1995) David G. Gordon Vice President; President, President, D & S Plastics 47 Nonwoven Materials Business International (since 1996) Jeffrey W. McClelland Vice President; President, President, Adhesive & Coating 56 Adhesive & Coating Systems Systems Business Business (since 1998) Lawrence D. McClure Vice President, Human Resources Vice President, Organization 50 (since 1995) Capabilities, Aetna Life & Casualty Company Dale J. Ribaudo Treasurer (since 1992) 41 John D. Thompson Senior Vice President, Vice President, Corporate 49 Strategic and Business Services; Vice President, Development (since 1995) Financial Services David Woodhead Vice President; President, President, Magnetic 58 Magnetic Technologies Business Technologies Business (since 1998)
5 8 The following changes in executive officers occurred during 1998: Effective in April 1998, Jeffrey W. McClelland and David Woodhead were appointed Vice Presidents of the Company, and effective in January 1999, John B. Blatz was appointed Vice President, Environmental and Process Management. Effective in June 1998, Glenn E. Tynan was appointed Controller of the Company until February 1999, when he left the Company. Prior to being Controller, he was Vice President, Finance and Controller, Lightolier Division of the Genlyte Group. Effective in December 1998, R. Barry Gettins, Ph.D. retired as Senior Vice President, Operations and Technology Development. Effective in February 1999, T. Daniel Clark, Vice President of the Company and President of the Packaging Coatings business, left the Company as a result of the divestiture of the Packaging Coatings business. 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 22, 1999. No family relationships exist between any of the executive officers of Dexter. 6 9 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 14 and 15, Statement of Financial Position on pages 18 and 19, Statement of Changes in Shareholders' Equity on page 20, Shareholders' Equity, Preferred Stock and Stock Compensation Plans footnotes on page 38, Stock Plans footnote on page 39, and Shareholder/Investor Information on the inside back cover of the 1998 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 14 and 15 of the 1998 Annual Report which is incorporated herein by reference. For a discussion of this Financial Data, see the Quarterly Financial Information on page 21, Analysis of Financial Condition and Operations on pages 22 and 23, Analysis of Operations on pages 24 through 26, Life Technologies, Inc. on pages 26 and 27, and Segment Data on pages 28 and 29 of the 1998 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 12 and the Summary of Financial Data on pages 14 and 15 of the 1998 Annual Report which are incorporated herein by reference. For information concerning results of operations, see Analysis of Operations on pages 24 through 26, Life Technologies, Inc. on pages 26 and 27, Segment Data on pages 28 and 29 and Geographic Information on page 29 of the 1998 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 22 and 23, the Working Capital discussion on page 30, the Property, Plant and Equipment footnote on page 31, the Short-term Debt footnote on page 32, and the Long-term Debt footnote on pages 36 and 37 of the 1998 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 23, the Property, Plant and Equipment footnote on page 31, the Short-term Debt footnote on page 32, the Long-term Debt footnote on pages 36 and 37, and the Shareholders' Equity footnote on page 38 of the 1998 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 5 of this Form 10-K, and the Contingencies footnote on page 32 of the 1998 Annual Report which are incorporated herein by reference. For information on environmental matters, see Events, Trends and Vulnerabilities footnote on pages 22 and 23, and the Environmental Liabilities footnote on page 33 of the 1998 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 17 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. 7 10 IMPACT OF THE YEAR 2000 General The year 2000 issue is the result of computer programs being written using two digits rather than four digits to define the applicable year. Any of the Company's systems, equipment, or hardware that have date-sensitive software or embedded chips may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruption of operations, including, among other things, a temporary inability to properly manufacture products, process transactions, send invoices, or engage in similar normal business activities. Based on its initial assessments, the Company determined that it would be required to modify or replace portions of its equipment, hardware, and software so that affected systems will properly utilize dates beyond December 31, 1999. The Company presently believes that, with modifications and replacement of existing equipment, hardware, and software, the year 2000 issue will be mitigated. Project Plan The Company's plan to resolve the year 2000 issue is being implemented by each of the Company's businesses and involves five phases: inventory; risk assessment, prioritization, and ownership assignment; compliance research; remediation; and testing. The inventory phase and the risk assessment, prioritization and ownership assignment phase, which were performed concurrently, are substantially complete. The compliance research phase is expected to be substantially completed by March 31, 1999. The remediation and testing phases are expected to be substantially completed by September 30, 1999. Although the Company's year 2000 plan is being completed on a business by business basis, it is estimated that the compliance research phase is 80% complete, the remediation phase is approximately 50% to 60% complete, and the testing phase is approximately 30% to 40% complete. The Company's year 2000 inventory of potentially affected items is segregated into four categories: business applications (developed software, customized extensions to purchased software and system interfaces), tools and platforms (purchased commercial products, both hardware and software), intelligent devices (manufacturing, laboratory, office, and facilities equipment), and external business partners (suppliers, customers, and other service providers). Business applications and tools and platforms are considered information technology ("IT") systems while intelligent devices and external business partners are considered non-IT systems. Concerning IT systems, two of the Company's businesses will replace most of their existing applications with a year 2000 compliant version of new enterprise resource planning ("ERP") software. Those legacy systems for these businesses that will not be replaced by the ERP system will either be made year 2000 compliant or replaced. Two businesses are in the process of "repairing" (i.e., making year 2000 compliant) their existing core business systems and will replace some portions of their software with year 2000 compliant software. The remaining businesses have upgraded their core business applications to a year 2000 compliant software version and are in the process of testing these applications for year 2000 compliancy. With respect to non-IT systems, the Company has dedicated resources to assist its businesses with identifying potentially affected intelligent devices and is using an outside firm that has a proprietary year 2000 compliance status database to assist in the compliance research for these devices. Determination of compliance status, remediation, and testing of these devices may be more difficult than IT systems, as some of the manufacturers of potentially affected equipment may no longer be in business. The external business partners category primarily includes the process of identifying and prioritizing critical suppliers and customers and communicating with them about their plans and progress in addressing the year 2000 problem. The Company has established a questionnaire to be used by the businesses for obtaining this information from key business partners. To date, the Company is not aware of any problems that would materially impact results of operations, liquidity, or capital resources. However, the Company has no means of insuring that these parties will be year 2000 ready and the inability of these parties to successfully complete their year 2000 compliance program could impact the Company. For key business partners, the 8 11 initial assessments are evaluated and, as deemed necessary, follow-up assessments are made. We expect this process to be ongoing throughout 1999. The Company is in the process of developing detailed contingency and business continuation plans for each business to address potential year 2000 exposures. Costs The Company utilizes both internal and external resources to repair or replace, test, and implement the software and operating equipment for year 2000 modifications. The total cost of the year 2000 project is estimated at between $6 and $7 million and is being funded through operating cash flows. To date, the Company has incurred approximately $2.5 million (approximately 60% expensed and 40% capitalized) related to all phases of the year 2000 project. The remaining project costs are attributable to either repair or replacement of equipment, hardware, and software and will be expensed as incurred or capitalized, as appropriate. Risks The failure to remediate a material year 2000 problem could result in an interruption in, or a failure of, certain normal business activities or operations, including the ability to produce or deliver products to customers. Such failures could materially or adversely affect the Company's results of operations, liquidity, and financial condition. Due to the general uncertainty inherent in the year 2000 problem, the Company is unable to determine with certainty at this time whether the consequences of year 2000 failures will have a material impact on the Company. The Company's year 2000 plan is expected to significantly reduce the Company's level of uncertainty about the year 2000 problem. The Company believes that by executing its year 2000 plan in a timely manner, the possibility of significant interruptions of normal operations should be reduced. The Company plans to complete the year 2000 project are based on management's best estimates, which were derived utilizing numerous assumptions of future events including, but not limited to, the continued availability of certain resources and other factors. Estimates of the status of completion and the expected completion dates are based on tasks completed to date compared to all required tasks. However, there can be no guarantee that expected completion dates will be met, and actual results could differ materially from those forecasted. Specific factors that might cause such material differences include, but are not limited to, the availability and cost of personnel trained in certain areas, the ability to locate and correct all relevant equipment, devices and computer codes, and similar uncertainties. ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Dexter is exposed to market risk related to changes in foreign currency exchange rates, interest rates and commodity prices, and selectively uses financial instruments to manage these risks. The Company does not enter into financial instruments for speculation or trading purposes. A discussion of the Company's accounting policies for derivative financial instruments is included in the Long-term Debt footnote on pages 36 and 37, and the Currency Exchange Effects footnote on page 33 of the 1998 Annual Report which are incorporated herein by reference. The Company has two interest rate exchange agreements with a financial institution to limit exposure to interest rate volatility. Additionally, the Company enters into forward foreign currency contracts to mitigate the risks of doing business in foreign currencies. The Company hedges currency exposures of firm commitments and specific assets and liabilities denominated in non-functional currencies to protect against the possibility of diminished cash flow and adverse impact on earnings. The Company's currency exposures vary, but are primarily concentrated in the German Mark, Swiss Franc, British Pound Sterling, Swedish Krona and Japanese Yen. Selective translation exposures are hedged using foreign currency-denominated debt. The Company's exposure to commodity price changes relates to certain manufacturing operations that utilize certain commodities as raw materials. The Company manages its exposure to changes in those prices 9 12 primarily through its procurement and sales practices. At December 31, 1998, the Company had no financial instruments outstanding as hedges of commodity price risk. These financial exposures are monitored and managed by Dexter as an integral part of Dexter's overall risk management program, which recognizes the unpredictability of financial markets and seeks to reduce the potentially adverse effect on Dexter's results. The value of market risk sensitive financial instruments is subject to change as a result of movement in market rates and prices. Sensitivity analysis is one technique used to evaluate the impact of such possible movements on the valuation of these instruments. Based on a hypothetical ten-percent change in the value of business unit functional currencies at December 31, 1998, the Company estimates that the fair market value of the forward foreign currency contracts would have changed by $1.4 million. Further, the impact on Dexter's future cash flow related to foreign currency-denominated debt would be $3.5 million. In addition, based on a hypothetical one percentage point decrease in interest rates at December 31, 1998, the Company estimates that the fair market value of the interest rate exchange agreements would have decreased by $1.2 million. Changes in the fair market value of the forward foreign currency contracts and interest rate exchange agreements are substantially offset by changes in the fair value of the underlying hedged positions. Further, based on a hypothetical one percentage point decrease in interest rates at December 31, 1998, the Company estimates that the fair market value of its fixed-rate long-term debt would have increased by $9 million, which includes the effect of interest rate exchange agreements. A hypothetical one percentage point increase in interest rates related to floating rate debt at December 31, 1998 would decrease future pretax earnings and cash flow by $2.6 million annually. ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Reference is made to the Summary of Financial Data contained on pages 14 and 15, Financial Statements contained on pages 16 through 20, Quarterly Financial Information on page 21, Analysis of Financial Condition and Operations contained on pages 22 and 23, Analysis of Operations contained on pages 24 through 29, and Analysis of Financial Position contained on pages 30 through 39 of the Company's 1998 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, risks pertaining to the Year 2000 issue, and other risks identified in the Company's 1998 Annual Report in the section entitled Events, Trends and Vulnerabilities on pages 22 and 23 which are incorporated herein by reference. 10 13 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 7, 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 7 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 8 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 7, 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. 11 14 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 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 3A(1) -- Amendment to the Restated Certificate of Incorporation of the registrant, filed with the Secretary of State of Connecticut on April 23, 1998, was filed as Exhibit 3A(1) with the registrant's quarterly report on Form 10-Q (File No. 1-5542) for the quarter ended March 31, 1998, and is hereby incorporated herein by reference. Exhibit 3B -- Bylaws of 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.
12 15 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. 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 4E -- Five Year, $300,000,000 Credit Agreement among Dexter Corporation, The First National Bank of Chicago, Bank of America National Trust and Savings Association, Fleet National Bank, and the Lenders named therein, dated December 15, 1998, was filed as Exhibit 4E to Form 8-K (File No. 1-5542) which was filed with Securities and Exchange Commission on January 12, 1999, and is hereby incorporated herein by reference. Exhibit 4F -- 364 Day, $300,000,000 Credit Agreement among Dexter Corporation, The First National Bank of Chicago, Bank of America National Trust and Savings Association, Fleet National Bank, and the Lenders named therein, dated December 15, 1998, was filed as Exhibit 4F to Form 8-K (File No. 1-5542) which was filed with Securities and Exchange Commission on January 12, 1999, 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, John B. Blatz, Kathleen Burdett, Horst Geldmacher, Lawrence D. McClure, Dale J. Ribaudo, and John D. Thompson.
13 16 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 six 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: David G. Gordon, Richard B. Hurley, John B. Lockwood, Jeffrey W. McClelland, Edward J. Scannell and David Woodhead. Exhibit 10C -- 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 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 -- Dexter Corporation's 1988 Stock Option Plan, was filed as Exhibit 28(d) to the registrant's Registration Statement on Form S-8 (File No. 33-27597) dated March 17, 1989, and is hereby incorporated herein by reference. Exhibit 10E -- 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 -- Dexter Corporation's Amended and Restated Retirement Equalization Plan. Exhibit 10G -- 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 -- 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 -- 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 10I(1) -- Amendment, dated February 26, 1999, to Dexter Corporation's 1994 Stock Plan for Outside Directors.
14 17 Exhibit 10J -- 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 Dexter Corporation's 1996 Non-Employee Director's Stock Plan was filed as Exhibit 10J(1) to the registrant's report on Form 10-K (File No. 1-5542) for the fiscal period ended December 31, 1997, and is hereby incorporated herein by reference. Exhibit 10K -- 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 10L -- Agreement, dated October 21, 1998, between the registrant and R. Barry Gettins, Ph.D. Exhibit 13 -- Dexter Corporation's 1998 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 other than that filed as Exhibit 4E as referenced above. The registrant agrees that it will furnish a copy of any other long-term debt instrument to the Securities and Exchange Commission upon its request.
(b) Reports on Form 8-K On January 12, 1999, a report on Form 8-K (File No. 1-5542) was filed for Item 2, Acquisition of Assets, pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934. 15 18 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 9, 1999 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 9, 1999:
NAME CAPACITY DATE ---- -------- ---- /s/ K. Grahame Walker Chairman; Director March 9, 1999 - ------------------------------------------ (principal executive officer) K. Grahame Walker /s/ Kathleen Burdett Vice President and March 9, 1999 - ------------------------------------------ Chief Financial Officer Kathleen Burdett (principal financial officer) (principal accounting officer) /s/ Charles H. Curl Director March 9, 1999 - ------------------------------------------ Charles H. Curl /s/ Henrietta Holsman Fore Director March 9, 1999 - ------------------------------------------ Henrietta Holsman Fore /s/ Bernard M. Fox Director March 9, 1999 - ------------------------------------------ Bernard M. Fox /s/ Robert M. Furek Director March 9, 1999 - ------------------------------------------ Robert M. Furek /s/ Martha Clark Goss Director March 9, 1999 - ------------------------------------------ Martha Clark Goss /s/ Edgar G. Hotard Director March 9, 1999 - ------------------------------------------ Edgar G. Hotard /s/ Peter G. Kelly Director March 9, 1999 - ------------------------------------------ Peter G. Kelly /s/ Jean-Francois Saglio Director March 9, 1999 - ------------------------------------------ Jean-Francois Saglio /s/ George M. Whitesides Director March 9, 1999 - ------------------------------------------ George M. Whitesides
16 19 INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
PAGE ----------- Report of Independent Accountants........................... F-2 1998 ANNUAL FINANCIAL STATEMENTS REPORT PAGE - ------------------------------------------------------------ ----------- Summary of Financial Data................................. 14-15 Statement of Income....................................... 16 Statement of Cash Flows................................... 17 Statement of Financial Position........................... 18-19 Statement of Changes in Shareholders' Equity.............. 20 Quarterly Financial Information........................... 21 Analysis of Financial Condition and Operations............ 22-23 Analysis of Operations.................................... 24-29 Analysis of Financial Position............................ 30-39 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 1998 Annual Report to Shareholders, elsewhere in Form 10-K or they are not required or are not applicable. F-1 20 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Dexter Corporation In our opinion, the consolidated financial statements of Dexter Corporation listed in the index on page F-1 of this Form 10-K, present fairly, in all material respects, the consolidated financial position of Dexter Corporation at December 31, 1998, 1997, and 1996, 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 listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements are the responsibility of Dexter Corporation's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Springfield, Massachusetts February 9, 1999 F-2 21 SCHEDULE II DEXTER CORPORATION VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (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 ----------- ---------- ---------- ---------- ---------- ---------- 1998 Environmental Reserve..................... $15,825 $ 509 $15,316 Restructuring Reserve..................... 716 (291)(b) 1,007 Allowance for Doubtful Accounts........... 7,663 $ 910 1,461 7,112 ------- ------ ------ ------- $24,204 $ 910 $1,679 $23,435 ======= ====== ====== ======= 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 ======= ====== ====== =======
- --------------- (a) Due to acquisitions. (b) Due to recovery of insurance claim. F-3 EX-10.F 2 EXHIBIT 10.F 1 Exhibit 10F Exhibit A DEXTER CORPORATION RETIREMENT EQUALIZATION PLAN (Amended and Restated as of December 18, 1998) 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. 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) Dexter ESPRIT Plan ("ESPRIT"), (b) Dexter MERIT Plan ("MERIT"), (c) Dexter 401(k) Savings Plan ("the SAVINGS PLAN") and (d) The Dexter Pension Plan ("the PENSION PLAN"). 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 18, 1998. 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. 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. 1.14 Valuation Date. The last day of each quarter of each Plan Year. 3 Exhibit 10F continued 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 Corporation 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 Dexter Corporation, a Connecticut corporation (the "Corporation"), and (the "Employee"). WITNESSETH THAT: WHEREAS, the Employee is a participant in the [identify applicable Covered Plan or Plans]; WHEREAS, the Corporation desires to provide retirement benefits that otherwise would be provided to the Employee under [identify applicable Covered Plan or Plans] 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 DEXTER CORPORATION ____________________________ By______________________________ 7 9 Exhibit 10F continued EXHIBIT B 1.01 Scope This Exhibit B sets forth the method for calculating the Annual Benefit payable to Participants in this Plan under Section 4.01. 1.02 Calculation of Annual Benefit Each Participant in this Plan who is an active participant in ESPRIT, MERIT or the SAVINGS PLAN shall receive the Annual Benefit set forth in subsection (a) of this Section 1.02. Notwithstanding any other provision of this Plan to the contrary, each Participant in this Plan who is an active participant in the PENSION PLAN shall receive the Annual Benefit set forth in Subsection (b) of this Section 1.02. (a) The Annual Benefit for a given Plan Year shall be equal to the Adjusted Covered Plan Contribution (as defined below) less 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. (b) The Annual Benefit for a given Plan Year shall be an amount equal to four percent (4%) multiplied by the Participant's Compensation for the Plan Year, as such term is defined in Section 1.11 of the PENSION PLAN, without regard to Section 401(a)(17) of the Code, less the annual Compensation Limit then in effect under Section 401(a)(17) of the Code for the Plan Year. 8 EX-10.I.1 3 EXHIBIT 10I (1) 1 Exhibit 10I (1) DEXTER CORPORATION AMENDMENT OF THE 1994 STOCK PLAN FOR OUTSIDE DIRECTORS 1. This amendment to the 1994 Stock Plan for Outside Directors (the Plan) of Dexter Corporation (the Company) is made pursuant to Article X of the Plan and shall be effective as of February 26, 1999. 2. Section 5.01 of the Plan is amended to read as follows: 5.01. Amount of grants. Beginning with the Fiscal Year 1994 and continuing for all Fiscal Years until the Plan expires pursuant to Section 8.02 or is earlier terminated pursuant to Article X, and subject to Section 5.02, a grant of Directors Shares shall be made to each person who served as an Outside Director during all or part of such Fiscal Year as follows: (i) each person who has served as an Outside Director during the entire Fiscal Year shall be granted 300 Directors Shares; and (ii) each person who has served as an Outside Director during only a portion of the Fiscal Year shall be granted the number of Directors Shares determined by multiplying 300 by the Pro Ration Fraction, provided, however, that any fractional shares resulting from such multiplication shall not be awarded, and the Outside Director shall instead be paid an amount in cash equal to such fractional amount times the Fair Market Value of one share of Common Stock determined as of the last day of the relevant Fiscal Year. 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 February 26, 1999, such execution having been duly authorized by the Company's Compensation & Organization Committee. DEXTER CORPORATION By: /s/ Bruce H. Beatt EX-10.L 4 EXHIBIT 10.L 1 Exhibit 10L October 21, 1998 To: R. Barry Gettins From: K. Grahame Walker Subject: Your Retirement Status The purpose of this memorandum is to confirm our earlier discussions and finalize the details relative to your retirement from Dexter Corporation. As several of the particular elements of your retirement benefits require formal approval by the Compensation and Organization Committee of the Dexter Corporation's Board of Directors, those elements are expressed as contingent upon the Committee's approval. Nevertheless, they represent what I am prepared to go forward with to the Committee subject to your agreement and understanding and accompanying release. Date of Retirement: December 31, 1998 Executive Supplemental Retirement Plan (SRP): Subject to the approval of the Compensation and Organization Committee of the Board, you will be eligible to receive a Special Early Retirement as provided for in Section 2.04 (d) of the Plan. The estimated benefits have been prepared by PriceWaterhouseCoopers LLP and provided to you already. A final calculation will be prepared and provided upon your retirement. Retiree Medical Insurance: You will become eligible to participate in the Retiree Medical Program provided by the Corporation. Under this program, you will be able to continue your current coverage until you reach age 65. Given your length of service, Dexter Corporation will contribute 75% of the cost of your retiree medical coverage for 1999. Beginning in the year 2000, the cost sharing formula will include a cap on the annual increase in Dexter's contribution. Long Term Incentive Plans: Restricted Stock Grants: Subject to the approval of the Compensation and Organization Committee of the Board, all remaining restrictions with respect to the restricted stock grants you have received shall expire. Specifically, the time-lapse restrictions on Grants # 1-6 will expire upon your retirement and any remaining performance target restrictions will expire at such time as the achievement of the relevant performance targets is determined. Non-Qualified Stock Options: Subject to the approval of the Compensation and Organization Committee of the Board, all remaining stock options that you have been awarded will become fully vested and exercisable on January 4, 1999. In addition, approval will be sought to extend the period of exercise for all of your options through December 31, 2000. 2 Exhibit 10L continued Company Car: You will retain the use of your company-provided car through June 30, 1999. You may elect to purchase the vehicle at its stated fair market value at the end of this extension period. Executive Incentive Compensation: You will be eligible to receive any applicable EIC payment for the performance year 1998 as determined by the provisions of the Plan. Any earned payment shall be made at the end of the year-end audit sign-off in February 1999. ESPRIT and Retirement Equalization: ESPRIT and Retirement Equalization contributions will be applied to all earnings for 1998 in accordance with the respective plans. Please indicate your understanding and acceptance of the terms of your retirement from Dexter Corporation. As they represent a significant additional benefit to you, they are contingent upon your signature on a standard release and waiver that is attached to this agreement. K. Grahame Walker Chairman & Chief Executive Officer Understood and Agreed: /s/ R.B. Gettins October 21, 1998 - ----------------------------------------------------------------- R. Barry Gettins Date EX-13 5 EXHIBIT 13 1 MANAGEMENT STATEMENT The management of Dexter Corporation has prepared the financial statements and review contained on pages 14 through 39 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 PricewaterhouseCoopers LLP. Dexter has a clearly stated business ethics policy and code of conduct that 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 Dexter Corporation and that the company's assets are protected from unauthorized use and preserved 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. PricewaterhouseCoopers LLP, independent certified public accountants, is 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 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 9, 1999 12 2 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Dexter Corporation: In our opinion, the accompanying consolidated statement of financial position and the related consolidated statements of income, cash flows, and changes in shareholders' equity, contained on pages 14 through 39, present fairly, in all material respects, the consolidated financial position of Dexter Corporation at December 31, 1998, 1997, and 1996, and the consolidated results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. These financial statements are the responsibility of Dexter Corporation's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PricewaterhouseCoopers LLP - ------------------------------ PricewaterhouseCoopers LLP February 9, 1999 Springfield, Massachusetts 13 3
SUMMARY OF FINANCIAL DATA Dexter Corporation In thousands of dollars (except per share amounts) 1998 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------- OPERATING RESULTS Net sales $ 1,168,037 $ 1,147,055 $ 1,100,185 $ 1,088,905 % increase (decrease) 2% 4% 1% 12% Gross profit 426,749 411,688 379,205 346,699 As % of sales 36.5% 35.9% 34.5% 31.8% LIFO (credit) charge included in cost of sales (1,411) (1,067) (4,873) 1,881 Marketing and administrative expenses 246,911 238,401 223,848 206,708 As % of sales 21.1% 20.8% 20.3% 19.0% Research and development expenses 56,656 54,021 51,504 49,375 As % of sales 4.9% 4.7% 4.7% 4.5% Interest expense 18,210 20,192 20,500 20,931 Income before taxes 86,547 111,085 98,252 79,824 As % of sales 7.4% 9.7% 8.9% 7.3% Tax rate 46.4% 36.0% 35.5% 35.5% Income (loss) before minority interests 46,400 71,094 63,372 51,487 As % of sales 4.0% 6.2% 5.8% 4.7% Income (loss) from continuing operations 31,704 56,427 48,722 40,578 As % of sales 2.7% 4.9% 4.4% 3.7% Discontinued operations loss Cumulative effect of change in accounting principles Net income (loss) $ 31,704 $ 56,427 $ 48,722 $ 40,578 As % of sales 2.7% 4.9% 4.4% 3.7% Return on: Average shareholders' equity 8.3% 15.1% 13.1% 11.4% Average total capital 6.6% 12.2% 10.6% 9.4% Income (loss) per share - diluted Continuing operations $ 1.35 $ 2.41 $ 2.03 $ 1.66 Discontinued operations Cumulative effect of change in accounting principles Net Income (loss) - diluted $ 1.35 $ 2.41 $ 2.03 $ 1.66 Cash dividends declared per share $ 1.02 $ .96 $ .88 $ .88 Rate of dividend payout* 74% 39% 43% 53% * Before cumulative effect of 1993 change in accounting principles - ---------------------------------------------------------------------------------------------------------- FINANCIAL POSITION Working capital $ 267,356 $ 203,916 $ 242,929 $ 248,623 Property, plant and equipment, net 360,456 348,172 334,266 325,203 Total assets 1,208,368 961,776 953,804 934,161 Long-term debt 382,163 180,030 209,952 215,839 Shareholders' equity $ 388,549 $ 372,861 $ 374,115 $ 369,615 Percent long-term debt to capital 49.6% 32.6% 35.9% 36.9% Equity per share at year end $ 16.86 $ 16.26 $ 15.94 $ 15.26 - ---------------------------------------------------------------------------------------------------------- OTHER DATA Capital expenditures $ 48,434 $ 59,087 $ 62,277 $ 28,969 Depreciation and amortization $ 50,357 $ 45,441 $ 44,239 $ 43,727 Shares outstanding at year end (000) 23,041 22,938 23,464 24,220 Average shares outstanding (000) 23,007 23,010 23,687 24,364 Market price per share-- high $ 43 3/8 $ 43 15/16 $ 33 5/8 $ 26 7/8 -- low $ 23 1/2 $ 28 3/4 $ 23 1/8 $ 20 3/8 -- close $ 31 7/16 $ 43 3/16 $ 31 7/8 $ 23 5/8 Price-earnings ratio range* 31-17 18-12 16-11 16-12 Number of shareholders at year end 2,800 3,000 3,100 3,400 Number of employees at year end** 5,000 4,800 4,600 4,800 % payroll and benefits to sales** 24% 24% 23% 24% % raw material costs to sales** 41% 41% 41% 44% * Before cumulative effect of 1993 change in accounting principles ** From continuing operations - ---------------------------------------------------------------------------------------------------------- INFLATION ADJUSTED DATA Net sales* $ 1,168,037 $ 1,164,948 $ 1,143,265 $ 1,164,835 % increase (decrease) -- 2% (2%) 9% Cash dividends declared per share* $ 1.02 $ .97 $ .91 $ .94 Market price per share at year end** $ 31 7/16 $ 43 7/8 $ 33 $ 25 1/4 * Stated in average 1998 dollars using the Consumer Price Index. ** Stated in year-end 1998 dollars using the Consumer Price Index. - ----------------------------------------------------------------------------------------------------------
14 4
SUMMARY OF FINANCIAL DATA Dexter Corporation In thousands of dollars (except per share amounts) 1994 1993 1992 1991 - -------------------------------------------------------------------------------------------------------- OPERATING RESULTS Net sales $ 974,719 $ 887,112 $ 951,439 $ 937,734 % increase (decrease) 10% (7%) 1% 3% Gross profit 316,541 293,345 314,275 309,157 As % of sales 32.5% 33.1% 33.0% 33.0% LIFO (credit) charge included in cost of sales 2,231 (1,290) 1,626 (173) Marketing and administrative expenses 188,272 175,141 188,263 198,334 As % of sales 19.3% 19.7% 19.8% 21.2% Research and development expenses 46,644 43,803 42,216 42,056 As % of sales 4.8% 4.9% 4.4% 4.5% Interest expense 20,509 18,756 18,799 16,800 Income before taxes 73,612 66,438 73,132 11,192 As % of sales 7.6% 7.5% 7.7% 1.2% Tax rate 36.0% 36.5% 37.7% 109.5% Income (loss) before minority interests 47,112 42,188 45,577 (1,059) As % of sales 4.8% 4.8% 4.8% (0.1%) Income (loss) from continuing operations 37,898 34,053 38,203 (7,119) As % of sales 3.9% 3.8% 4.0% (0.8%) Discontinued operations loss Cumulative effect of change in accounting principles (9,875) Net income (loss) $ 37,898 $ 24,178 $ 38,203 $ (7,119) As % of sales 3.9% 2.7% 4.0% (0.8%) Return on: Average shareholders' equity 11.5% 7.7% 12.1% (2.2%) Average total capital 9.2% 7.0% 10.0% 0.7% Income (loss) per share - diluted Continuing operations $ 1.55 $ 1.39 $ 1.57 $ (.30) Discontinued operations Cumulative effect of change in accounting principles $ (.40) Net Income (loss) - diluted $ 1.55 $ .99 $ 1.57 $ (.30) Cash dividends declared per share $ .88 $ .88 $ .88 $ .88 Rate of dividend payout* 56% 63% 56% -- * Before cumulative effect of 1993 change in accounting principles - -------------------------------------------------------------------------------------------------------- FINANCIAL POSITION Working capital $ 209,024 $ 199,146 $ 207,146 $ 193,873 Property, plant and equipment, net 328,935 309,954 298,869 299,342 Total assets 880,609 820,691 782,025 784,471 Long-term debt 225,402 227,307 179,024 188,702 Shareholders' equity $ 343,633 $ 313,295 $ 315,614 $ 313,782 Percent long-term debt to capital 39.6% 42.0% 36.2% 37.6% Equity per share at year end $ 14.11 $ 12.87 $ 12.98 $ 12.99 - -------------------------------------------------------------------------------------------------------- OTHER DATA Capital expenditures $ 45,097 $ 44,784 $ 51,793 $ 61,749 Depreciation and amortization $ 40,923 $ 36,655 $ 35,672 $ 34,095 Shares outstanding at year end (000) 24,350 24,340 24,308 24,149 Average shares outstanding (000) 24,345 24,325 24,220 24,145 Market price per share-- high $ 26 $ 28 7/8 $ 28 1/8 $ 26 1/8 -- low $ 19 7/8 $ 20 3/8 $ 20 7/8 $ 18 1/2 -- close $ 21 3/4 $ 23 1/2 $ 25 7/8 $ 21 5/8 Price-earnings ratio range* 17-13 21-15 18-13 -- Number of shareholders at year end 3,600 3,900 4,000 4,300 Number of employees at year end** 4,700 4,700 4,800 5,600 % payroll and benefits to sales** 25% 25% 25% 25% % raw material costs to sales** 43% 41% 42% 41% * Before cumulative effect of 1993 change in accounting principles ** From continuing operations - -------------------------------------------------------------------------------------------------------- INFLATION ADJUSTED DATA Net sales* $ 1,071,971 $ 1,001,032 $ 1,105,319 $ 1,122,430 % increase (decrease) 7% (9%) (2%) (1%) Cash dividends declared per share* $ .97 $ .99 $ 1.02 $ 1.05 Market price per share at year end** $ 23 7/8 $ 26 3/8 $ 29 7/8 $ 25 3/4 * Stated in average 1998 dollars using the Consumer Price Index. ** Stated in year-end 1998 dollars using the Consumer Price Index. - --------------------------------------------------------------------------------------------------------
5
SUMMARY OF FINANCIAL DATA Dexter Corporation In thousands of dollars (except per share amounts) 1990 1989 1988 - ----------------------------------------------------------------------------------------- OPERATING RESULTS Net sales $ 907,946 $ 848,724 $ 827,266 % increase (decrease) 7% 3% 9% Gross profit 314,449 284,142 269,416 As % of sales 34.6% 33.5% 32.6% LIFO (credit) charge included in cost of sales 1,100 (4,063) 4,193 Marketing and administrative expenses 191,656 168,935 159,448 As % of sales 21.1% 19.9% 19.3% Research and development expenses 39,880 37,359 32,685 As % of sales 4.4% 4.4% 4.0% Interest expense 17,484 10,926 12,178 Income before taxes 77,407 77,643 71,923 As % of sales 8.5% 9.1% 8.7% Tax rate 37.0% 38.0% 38.0% Income (loss) before minority interests 48,766 48,139 44,592 As % of sales 5.4% 5.7% 5.4% Income (loss) from continuing operations 42,150 42,977 39,889 As % of sales 4.6% 5.1% 4.8% Discontinued operations loss (4,393) Cumulative effect of change in accounting principles Net income (loss) $ 42,150 $ 42,977 $ 35,496 As % of sales 4.6% 5.1% 4.3% Return on: Average shareholders' equity 12.6% 13.6% 11.8% Average total capital 11.0% 11.6% 10.7% Income (loss) per share - diluted Continuing operations $ 1.71 $ 1.70 $ 1.58 Discontinued operations $ (.17) Cumulative effect of change in accounting principles Net Income (loss) - diluted $ 1.71 $ 1.70 $ 1.41 Cash dividends declared per share $ .88 $ .82 $ .80 Rate of dividend payout* 51% 47% 56% * Before cumulative effect of 1993 change in accounting principles - ------------------------------------------------------------------------------------------ FINANCIAL POSITION Working capital $ 215,410 $ 189,006 $ 182,284 Property, plant and equipment, net 274,147 252,895 186,894 Total assets 762,383 694,490 626,391 Long-term debt 160,478 130,834 92,830 Shareholders' equity $ 343,698 $ 325,281 $ 307,226 Percent long-term debt to capital 31.8% 28.7% 23.2% Equity per share at year end $ 14.24 $ 13.14 $ 12.36 - ------------------------------------------------------------------------------------------ OTHER DATA Capital expenditures $ 43,910 $ 33,119 $ 26,145 Depreciation and amortization $ 30,272 $ 26,243 $ 24,349 Shares outstanding at year end (000) 24,136 24,761 24,855 Average shares outstanding (000) 24,282 24,877 24,842 Market price per share-- high $ 24 1/2 $ 34 3/4 $ 28 3/4 -- low $ 18 $ 20 1/8 $ 20 1/4 -- close $ 21 $ 21 7/8 $ 22 1/4 Price-earnings ratio range* 14-10 20-12 20-14 Number of shareholders at year end 4,400 4,500 4,400 Number of employees at year end** 5,500 5,400 5,400 % payroll and benefits to sales** 24% 23% 23% % raw material costs to sales** 42% 46% 45% * Before cumulative effect of 1993 change in accounting principles ** From continuing operations - ------------------------------------------------------------------------------------------ INFLATION ADJUSTED DATA Net sales* $ 1,132,816 $ 1,116,195 $ 1,140,211 % increase (decrease) 1% (2%) 5% Cash dividends declared per share* $ 1.10 $ 1.08 $ 1.10 Market price per share at year end** $ 25 3/4 $ 28 1/2 $ 30 1/4 * Stated in average 1998 dollars using the Consumer Price Index. ** Stated in year-end 1998 dollars using the Consumer Price Index. - ------------------------------------------------------------------------------------------
15 6 STATEMENT OF INCOME Dexter Corporation
Years ended December 31 ---------------------------------------- In thousands of dollars (except per share amounts) 1998 1997 1996 - --------------------------------------------------------------------------------------- REVENUES Net sales $ 1,168,037 $ 1,147,055 $ 1,100,185 Equity in net income of affiliates 3,319 4,461 4,810 Other income 8,099 7,550 7,370 ----------- ----------- ----------- 1,179,455 1,159,066 1,112,365 EXPENSES Cost of sales 741,288 735,367 720,980 Marketing and administrative 246,911 238,401 223,848 Research and development 56,656 54,021 51,504 Interest 18,210 20,192 20,500 Gain on divestiture of product lines (2,719) Transaction costs of Life Technologies, Inc. 5,335 Acquired in-process research and development costs 24,508 ----------- ----------- ----------- INCOME BEFORE TAXES 86,547 111,085 98,252 Income taxes 40,147 39,991 34,880 ----------- ----------- ----------- INCOME BEFORE MINORITY INTERESTS 46,400 71,094 63,372 Minority interests 14,696 14,667 14,650 ----------- ----------- ----------- NET INCOME $ 31,704 $ 56,427 $ 48,722 =========== =========== =========== NET INCOME PER SHARE - BASIC $ 1.38 $ 2.45 $ 2.06 NET INCOME PER SHARE - DILUTED $ 1.35 $ 2.41 $ 2.03 DIVIDENDS DECLARED PER SHARE $ 1.02 $ .96 $ .88
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See accompanying financial review. 16 7 STATEMENT OF CASH FLOWS Dexter Corporation
Years ended December 31 ----------------------------------- In thousands of dollars 1998 1997 1996 - ----------------------------------------------------------------------------------------------- OPERATIONS Net income $ 31,704 $ 56,427 $ 48,722 Noncash items: Depreciation 38,696 37,453 37,312 Amortization 11,661 7,988 6,927 Acquired in-process research & development costs 24,508 Gain on divestiture of product lines (2,719) Income taxes not due (paid) 9,764 (5,660) 9,418 Minority interests 14,696 14,667 14,650 LIFO inventory credit (1,411) (1,037) (4,873) Equity in net income of affiliates (3,319) (4,461) (4,810) Other (584) (978) 4,075 Operating working capital (increase) decrease (27,736) (19,778) 18,944 ----------------------------------- 97,979 84,621 127,646 ----------------------------------- INVESTMENTS Property, plant and equipment (54,198) (62,989) (55,294) Acquisitions (217,963) (68,517) (16,315) Divestitures 41,539 34,913 Joint ventures 2,543 2,643 10,050 Notes receivable 750 200 Proceeds from sale of investments 677 838 1,070 Purchases of investments (4,970) Proceeds from exercise of LTI stock options 27,051 4,052 1,998 Other (3,539) 1,061 (274) ----------------------------------- (245,429) (80,623) (28,622) ----------------------------------- FINANCING New long-term debt 246,000 20,000 4,390 Repayment of long-term debt (37,844) (47,185) (13,762) Short-term debt, net 4,234 30,611 (8,371) Dividends paid (22,990) (21,728) (20,967) LTI dividends paid to minority interest shareholders (2,278) (1,859) (1,561) Purchase of treasury stock (20,517) (26,658) Proceeds from exercise of Dexter stock options 1,996 4,315 5,269 Other (268) (359) 131 ----------------------------------- 188,850 (36,722) (61,529) ----------------------------------- INCREASE (DECREASE) IN CASH AND SHORT-TERM SECURITIES $ 41,400 $ (32,724) $ 37,495 =================================== CHANGES IN MAJOR ELEMENTS WHICH INCREASE (DECREASE) OPERATING WORKING CAPITAL Accounts receivable, net $ 14,409 $ 13,713 $ (3,827) Inventories at FIFO 11,764 14,857 (7,912) Prepaid and deferred expenses 458 2,908 (3,891) Accounts payable 3,663 (6,448) (62) Accrued liabilities and expenses (2,558) (5,252) (3,252) ----------------------------------- $ 27,736 $ 19,778 $ (18,944) =================================== RECONCILIATION OF INCREASE (DECREASE) IN CASH AND SHORT-TERM SECURITIES Cash and short-term securities at beginning of year $ 68,306 $ 103,420 $ 65,542 Cash and short-term securities at end of year 111,049 68,306 103,420 ----------------------------------- Increase (Decrease) in cash and short-term securities per Statement of Financial Position 42,743 (35,114) 37,878 Currency translation effects (1,343) 2,390 (383) ----------------------------------- $ 41,400 $ (32,724) $ 37,495 =================================== INTEREST PAID $ 18,284 $ 20,407 $ 22,403 TAXES PAID $ 30,383 $ 45,651 $ 25,462
Investment in property, plant and equipment for the year ended December 31, 1998 includes $4.6 million related to the exercise of an option to purchase land under a capital lease by LTI. - -------------------------------------------------------------------------------- See accompanying financial review. 17 8 STATEMENT OF FINANCIAL POSITION Dexter Corporation
December 31 ------------------------------------------ In thousands of dollars 1998 1997 1996 - ------------------------------------------------------------------------------------------ ASSETS Current assets: Cash $ 8,566 $ 11,273 $ 11,837 Short-term securities 102,483 57,033 91,583 Accounts receivable, net 203,872 185,257 178,093 Inventories: Materials and supplies 65,180 61,233 58,290 In process and finished goods 129,175 117,467 110,457 LIFO reserve (17,388) (18,799) (19,836) ----------- ----------- ----------- 176,967 159,901 148,911 Current deferred tax assets 14,874 17,107 22,477 Prepaid and deferred expenses 10,768 9,881 7,510 ----------- ----------- ----------- 517,530 440,452 460,411 Property, plant and equipment: Land 30,879 28,501 23,273 Buildings and improvements 193,594 184,388 158,635 Machinery and equipment 509,406 474,079 458,069 Construction in progress 22,302 25,157 37,859 ----------- ----------- ----------- 756,181 712,125 677,836 Less accumulated depreciation (395,725) (363,953) (343,570) ----------- ----------- ----------- 360,456 348,172 334,266 Investments of wholly owned captive insurance companies 8,248 9,056 9,875 Investment in unconsolidated affiliates 9,861 8,704 50,025 Patents, technology, trademarks and covenants 118,152 29,489 2,313 Excess of cost over net assets of businesses acquired 156,989 97,507 71,906 Other assets 37,132 28,396 25,008 ----------- ----------- ----------- $ 1,208,368 $ 961,776 $ 953,804 =========== =========== ===========
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See accompanying financial review. 18 9 Dexter Corporation
December 31 ----------------------------------------- In thousands of dollars 1998 1997 1996 - ----------------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short-term debt $ 39,810 $ 35,361 $ 5,111 Accounts payable 91,718 91,155 91,855 Dividends payable 5,989 5,505 5,170 Accrued and deferred income taxes 18,590 21,153 36,212 Accrued liabilities and expenses 76,837 70,022 66,837 Current installments of long-term debt 17,230 13,340 12,297 ----------- ----------- ----------- 250,174 236,536 217,482 Long-term debt 382,163 180,030 209,952 Deferred items 36,160 31,913 27,393 Long-term deferred income taxes 53,481 22,284 19,481 Long-term environmental liabilities 13,501 13,726 14,978 Minority interests - principally Life Technologies, Inc. 84,340 104,426 90,403 Shareholders' equity Common stock, par value $1 per share (authorized 100,000,000 shares; issued 24,983,907 shares in 1998, 1997 and 1996) 24,984 24,984 24,984 Additional paid-in capital 17,689 17,482 14,669 Treasury stock, at cost (1,702,704 shares in 1998, 1,814,035 shares in 1997 and 1,520,261 shares in 1996) (51,512) (52,216) (35,673) Unearned Compensation (2,418) (4,308) (2,780) Retained earnings 418,074 409,844 375,480 Accumulated Other Comprehensive Income: Currency translation effects (17,857) (22,475) (2,187) Unrealized losses on investments (390) (426) (174) Minimum pension liability (21) (24) (204) ----------- ----------- ----------- (18,268) (22,925) (2,565) ----------- ----------- ----------- Total shareholders' equity 388,549 372,861 374,115 ----------- ----------- ----------- $ 1,208,368 $ 961,776 $ 953,804 =========== =========== ===========
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See accompanying financial review. 19 10 STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY Dexter Corporation
Accumulated Other Additional Unearned In thousands of dollars Comprehensive Comprehensive Retained Paid-in Compen- Common (except per share amounts) Income Income Earnings Capital sation Stock - --------------------------------------------------------------------------------------------------------------------------------- DECEMBER 31, 1995 $ 1,013 $347,544 $ 12,316 $ (1,583) $ 24,984 Comprehensive income Net income $48,722 48,722 Other comprehensive income (loss), net of tax: Foreign currency translation adjustments (3,801) Unrealized loss on investments (46) Minimum pension liability adjustment 269 ------- Other comprehensive income (loss) (3,578) (3,578) ------- Comprehensive income $45,144 ======= Dividends - $.88 per share (20,786) Stock purchases Stock options 1,065 Restricted stock 1,282 (1,197) Pooling tax benefits 6 -------------------------------------------------------------------------- DECEMBER 31, 1996 (2,565) 375,480 14,669 (2,780) 24,984 Comprehensive income Net income $56,427 56,427 Other comprehensive income (loss), net of tax: Foreign currency translation adjustments (20,288) Unrealized loss on investments (252) Minimum pension liability adjustment 180 ------- Other comprehensive income (loss) (20,360) (20,360) ------- Comprehensive income $36,067 ======= Dividends - $.96 per share (22,063) Stock purchases Stock options 892 Restricted stock 1,920 (1,528) Pooling tax benefits 1 -------------------------------------------------------------------------- DECEMBER 31, 1997 (22,925) 409,844 17,482 (4,308) 24,984 Comprehensive income Net income $31,704 31,704 Other comprehensive income, net of tax: Foreign currency translation adjustments 4,618 Unrealized gain on investments 36 Minimum pension liability adjustment 3 ------- Other comprehensive income 4,657 4,657 ------- Comprehensive income $36,361 ======= Dividends - $1.02 per share (23,474) Stock options 464 Restricted stock (259) 1,890 Pooling tax benefits 2 -------------------------------------------------------------------------- DECEMBER 31, 1998 $(18,268) $418,074 $17,689 $ (2,418) $24,984 ==========================================================================
Total Share- In thousands of dollars Treasury holders' (except per share amounts) Stock Equity - -------------------------------------------------------------------- DECEMBER 31, 1995 $(14,659) $369,615 Comprehensive income Net income 48,722 Other comprehensive income (loss), net of tax: Foreign currency translation adjustments (3,801) Unrealized loss on investments (46) Minimum pension liability adjustment 269 Other comprehensive income (loss) Comprehensive income Dividends - $.88 per share (20,786) Stock purchases (26,658) (26,658) Stock options 4,704 5,769 Restricted stock 940 1,025 Pooling tax benefits 6 ------------------------------ DECEMBER 31, 1996 (35,673) 374,115 Comprehensive income Net income 56,427 Other comprehensive income (loss), net of tax: Foreign currency translation adjustments (20,288) Unrealized loss on investments (252) Minimum pension liability adjustment 180 Other comprehensive income (loss) Comprehensive income Dividends - $.96 per share (22,063) Stock purchases (20,517) (20,517) Stock options 2,490 3,382 Restricted stock 1,484 1,876 Pooling tax benefits 1 ------------------------- DECEMBER 31, 1997 (52,216) 372,861 Comprehensive income Net income 31,704 Other comprehensive income, net of tax: Foreign currency translation adjustments 4,618 Unrealized gain on investments 36 Minimum pension liability adjustment 3 Other comprehensive income Comprehensive income Dividends - $1.02 per share (23,474) Stock options 1,403 1,867 Restricted stock (699) 932 Pooling tax benefits 2 ------------------------- DECEMBER 31, 1998 $ (51,512) $ 388,549 =========================
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See accompanying financial review. 20 11 QUARTERLY FINANCIAL INFORMATION (unaudited) Dexter Corporation
In millions of dollars Market Price --------------------------------------- ---------------------- Net Income Net Income Net (loss) per (loss) per Net Cost Income Share - Share - Dividends Quarter Sales of Sales (loss) Basic Diluted per Share High Low - ------------------------------------------------------------------------------------------------------------------------- 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 LTI'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 ========================================================================================================================= - ------------------------------------------------------------------------------------------------------------------------- 1998** First $ 289.9 $ 184.6 $ 14.2 $ .62 $ .61 $ .24 $ 43 3/8 $37 1/2 Second 302.6 191.8 16.4 .71 .70 .26 42 15/16 31 9/16 Third 283.4 179.2 14.2 .62 .61 .26 33 5/16 23 7/8 Fourth 292.1 185.7 (13.1) (.57) (.57) .26 32 7/8 23 1/2 - --------------------------------------------------------------------------------------------- Year $ 1,168.0 $ 741.3 $ 31.7 $ 1.38 $ 1.35 $ 1.02 Close $31 7/16 =========================================================================================================================
**The third and fourth quarters' pretax income included charges incurred by LTI of $0.3 million and $5.0 million, respectively, for transaction costs related to Dexter's increased ownership. Additionally, the fourth quarter pretax income included a charge of $24.5 million for the write-off of acquired in-process research and development costs. - -------------------------------------------------------------------------------- 21 12 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") 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 periods. Actual results could differ from those estimates. Certain amounts for prior years have been reclassified to conform to and be consistent with the 1998 presentation. FORWARD-LOOKING STATEMENTS Some of the matters discussed in this 1998 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; risks pertaining to the Year 2000 issue, and other risks identified below in the section entitled "Events, Trends and Vulnerabilities." EVENTS, TRENDS AND VULNERABILITIES Dexter is subject to a multitude of events and trends that 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. During 1998, selling prices and raw material costs were relatively stable. Although aggressive efforts to raise prices and gain full value for our product offerings occurred in 1998, excess worldwide capacity made it increasingly difficult to obtain selling price increases. Most businesses, including LTI, experienced overall selling price decreases in 1998. Most businesses also experienced overall decreases in raw material costs, but these decreases did not fully offset the lower selling prices. We expect raw material costs to remain relatively stable 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. LTI is subject to volatility in the cost of fetal bovine serum, which stems from a fundamental limit of 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 2% supported gross margin expansion in 1998. 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 severe Asian economic downturn experienced in 1998 had an unfavorable impact on the electronics industry as a whole and resulted in significantly lower sales and lower margins in our electronic materials business. It is expected that the Asian economic environment will improve moderately in 1999. However, further decreases in demand for the company's products or the inability of customers to remain viable in the 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. Additionally, the volatility of several Asian and Latin American currencies could create exposures and losses for the company. Geographical expansion will continue to provide opportunities and challenges as the company endeavors to create profitable growth in developing countries. There will continue to be costs incurred by the need to respond to heightened regulatory pressures. Such costs 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. National and local deficits, as well as ongoing 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 in which we operate may be the ultimate outcome of this imbalance. Lower government spending may adversely affect LTI 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 creates 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. 22 13 The company recognizes potential system failures arising from processing the Year 2000 date as a known risk. The company is addressing this risk by executing its Year 2000 Project Plan, which requires, among other things, that systems and equipment found not to be Year 2000 compliant be repaired or replaced. The company is currently working with its customers and suppliers to identify external issues associated with the Year 2000 and their planned remedies. There can be no assurance, however, that the company will be able to identify and correct all aspects of Year 2000 problems that affect the company's business. The company believes that the cost associated with becoming Year 2000 compliant will not have a material negative effect on its results. See item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, in the 1998 Form 10-K for further information regarding the company's Year 2000 project status. 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 successfully face these challenges with continued innovation and increased productivity. ACQUISITIONS AND DIVESTITURES On July 7, 1998, Dexter announced two major strategic initiatives aimed at better positioning the company to achieve its long-term growth objectives. These initiatives included the proposal to acquire the remaining 48% equity in LTI that it did not own and to sell Dexter's Packaging Coatings business, including Dexter SAS, its French coatings subsidiary. As a result, Dexter made a proposal to the LTI Board of Directors to acquire approximately 11.3 million shares of LTI common stock it did not own. On November 2, 1998, Dexter commenced a tender offer for such shares and on December 22, 1998, Dexter completed its tender offer. Approximately 5.5 million shares representing approximately 22% of all issued and outstanding LTI shares were tendered and purchased by Dexter for a total of $222.1 million including transaction costs. As a result of the acquisition of these shares, Dexter owns an aggregate of 17.8 million shares or approximately 71% of the total number of issued and outstanding shares. The acquisition was accounted for as a purchase, and accordingly, the purchase price has been allocated to the identified tangible and intangible assets based upon Dexter's proportionate interest in the estimated fair market value of those assets. This allocation resulted in a write-up of tangible assets of approximately $3.2 million. Identifiable intangible assets were valued at approximately $91.5 million, consisting of trademarks and current technology, including patented technology. These intangible assets will be amortized over their estimated useful life of 30 years. In addition, deferred tax liabilities of approximately $33.1 million were recognized relative to the assets referenced above. The value of in-process research and development for which technical feasibility had not yet been achieved was approximately $24.5 million and was charged against earnings in the fourth quarter of 1998. This transaction resulted in excess cost over net assets acquired (goodwill) of approximately $63.4 million which will be amortized over the estimated useful life of 30 years. The following unaudited pro forma information presents the results of operations of the company as if the acquisition had taken place on January 1, 1998, and January 1, 1997, respectively.
In thousands of dollars Years ended December 31 (except per share amounts) 1998 1997 - -------------------------------------------------------------- Net Sales $1,168,037 $1,147,055 Net Income $ 23,460 $ 21,276 Net Income per share-diluted $ 1.00 $ .89 - --------------------------------------------------------------
These unaudited pro forma results have been prepared for comparative purposes only and include certain adjustments, such as, the charges for acquired in-process research and development and transaction costs, additional amortization expense, and increased interest expense on acquisition debt. They do not purport to be indicative of the results of operations which actually would have resulted had the acquisition occurred on the dates indicated, or which may result in the future. On August 21, 1998, Dexter entered into a purchase and sale agreement to sell certain assets and stock of its Packaging Coatings business and Dexter SAS to The Valspar Corporation. The sale of these businesses was subject to regulatory approval and customary closing conditions. This transaction was completed in February 1999 with estimated total proceeds of $225 million. In January 1999, Dexter divested its 40% interest in Akzo Dexter Aerospace Finishes VoF, a joint venture between Dexter Corporation and Akzo Nobel NV, to Akzo Nobel NV for approximately book value. As a result of this divestiture, Dexter announced its intention to expand its existing network as a worldwide supplier of aerospace coatings technologies, continuing to operate from its OEM-approved manufacturing facilities in Bassano, Italy and Waukegan, Illinois. LIQUIDITY The company's liquidity is strong and ample lines of credit are available to the company and its subsidiaries. The current ratio (current assets divided by current liabilities) is 2.1 to 1, and the quick ratio (cash, short-term securities and accounts receivable divided by current liabilities) is 1.3 to 1. As shown in the Statement of Cash Flows, cash provided from operations of $98 million and financing activities of $188.8 million exceeded cash needed for investments of $245.4 million, thereby increasing year-end cash and short-term securities by $41.4 million. Investment activity during 1998 included capital expenditures of $54.2 million in addition to cash outflows for acquisitions of $218 million, primarily related to the acquisition of an additional 22% of LTI. These investments were funded primarily by new long-term debt of $246 million in 1998. The LTI acquisition is described in the acquisitions and divestitures footnote on this page. Excluding LTI, the current ratio is 1.6 to 1 and the quick ratio is 1 to 1. Excluding LTI, cash provided from financing activities of $192.1 million and operations of $55.9 million exceeded cash needed for investments of $246.7 million, resulting in an increase in cash and short-term securities of $1.3 million in 1998. 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. The company plans to use the proceeds from the sale of its Packaging Coatings business to repay long-term debt. 23 14 ANALYSIS OF OPERATIONS 1998 COMPARED WITH 1997 REVENUES: Net sales were a record $1.17 billion in 1998, an increase of $21 million, or 2%, over 1997 sales of $1.15 billion. The 2% increase in sales was due to unit volume increases of 2% and a 2% increase due to the effect of acquisitions, partially offset by selling price decreases averaging 1% and a 1% decrease due to the effect of lower currency translation rates on international sales. Equity in net income of affiliates decreased $1.1 million to $3.3 million in 1998. This decrease was primarily due to no 1998 equity earnings from D & S Plastics International, which was divested effective April 1, 1997. EXPENSES: Cost of sales decreased as a percentage of sales in 1998, thereby increasing consolidated gross margins by .6 percentage points to 36.5% of sales from 35.9% in 1997. Gross margin, excluding Life Technologies, Inc. ("LTI"), increased .3 percentage points, primarily due to productivity improvements and cost containment activities. The remaining favorable impact in gross margin was primarily attributable to increased sales volume at LTI. Marketing and administrative expenses increased $8.5 million, or 4%, in 1998 compared with 1997 principally due to increased marketing and administrative expenses at LTI. Research and development expense increased $2.6 million, or 5%, primarily due to costs associated with acquired Dexter businesses in the fourth quarter of 1997 and increased research and development expense in the nonwovens segment and at LTI. Interest expense decreased $2 million, or 10%, in 1998 compared with 1997 primarily due to lower average long-term borrowings in 1998. The company does not capitalize interest on facilities under construction. If interest had been capitalized, there would have been no impact on earnings per share in 1998 and earnings per share would have increased by $.02 per share in 1997. Pretax income included a charge of $24.5 million, which represents the write-off of acquired in-process research and development costs arising from the acquisition of an additional 22% of LTI in December 1998 and $5.3 million of transaction costs incurred by LTI related to Dexter's increased ownership. There were no such charges in 1997. INCOME TAXES: In 1998, the effective tax rate was 35% from operations, excluding one-time charges. Due to the nondeductibility of acquired in-process research and development costs and certain transaction costs at LTI, the consolidated effective tax rate in 1998 was 46.4% compared with 36% in 1997. MINORITY INTEREST: Income attributed to minority interest shareholders remained largely unchanged in 1998 compared with 1997 as increases in LTI income from operations were offset by $5.3 million of transaction costs. NET INCOME: Net income from operations, excluding one-time charges, for the year 1998 was $58.4 million, or $2.50 per share on a diluted basis. This represents a 4% increase in earnings and diluted earnings per share from operations compared with results for 1997 of $56.4 million, or $2.41 per share diluted. Including the acquired in-process research and development costs and transaction costs which totaled $29.8 million, or $1.15 per share diluted, 1998 net income was $31.7 million, or $1.35 per share diluted, compared with $2.41 per share diluted in 1997. 1997 COMPARED WITH 1996 REVENUES: Net sales were $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 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. 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 $56.4 million, or $2.41 per share on a diluted basis. This represents an 18% increase in net income and a 21% increase in diluted earnings per share, compared with results for 1996 of $47.7 million, or $1.99 per share diluted, 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 $2.03 per share diluted. Comparing the total amounts for 1996, the increases for 1997 in earnings and diluted earnings per share were 16% and 19%, respectively. 24 15 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. NET INCOME: Net income for the year 1996 was $47.7 million, or $1.99 per share diluted, 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 20% increase in diluted earnings per share, compared with results for 1995 of $40.6 million, or $1.66 per share diluted. Total earnings for 1996, including the gain on divested product lines, increased 20% to $48.7 million while diluted earnings per share gained 22% to $2.03 per share diluted. The 1996 earnings include the favorable effect of selling price increases and lower raw material costs of approximately $.51 per share compared with 1995 which was somewhat offset by currency exchange rates, product mix, and increased marketing and administrative expenses. TAXES: The effective income tax rate was 46.4% in 1998, 36% in 1997, and 35.5% in 1996. The tax rate is currently expected to approximate 36% in 1999. The income tax rate differs from the statutory U.S. federal income tax rate as shown below:
1998 1997 1996 ------------------------------------ U.S. FEDERAL RATE 35.0% 35.0% 35.0% STATE TAXES, NET OF FEDERAL BENEFIT 2.1 1.7 1.8 INTERNATIONAL TAXATION DIFFERENCES (4.6) (3.1) (2.2) ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT COSTS 9.9 ACQUISITION BASIS DIFFERENCES 3.4 1.2 1.4 OTHER .6 1.2 (.5) ------------------------------------ EFFECTIVE INCOME TAX RATE 46.4% 36.0% 35.5% ====================================
Pretax income from international operations amounted to $57.3 million in 1998, $54.6 million in 1997 and $59.6 million in 1996. 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 $177 million, differences between the financial reporting amounts and tax bases 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 1998 1997 1996 - -------------------------------------------------------------------------------- INCOME TAXES CURRENT: U.S. FEDERAL $ 22,055 $ 22,527 $ 18,188 U.S. STATE 2,601 2,235 3,817 INTERNATIONAL 11,956 12,673 18,342 --------------------------------------------- 36,612 37,435 40,347 --------------------------------------------- DEFERRED: U.S. FEDERAL 2,105 1,514 (5,256) U.S. STATE 209 206 (1,069) INTERNATIONAL 1,221 836 858 --------------------------------------------- 3,535 2,556 (5,467) --------------------------------------------- TOTAL INCOME TAXES 40,147 39,991 34,880 PAYROLL TAXES 20,982 20,420 19,819 PROPERTY TAXES 4,333 4,313 3,841 OTHER TAXES 704 662 635 --------------------------------------------- TOTAL $ 66,166 $ 65,386 $ 59,175 =============================================
25 16 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, 1998, 1997 and 1996 are as follows:
IN THOUSANDS OF DOLLARS 1998 1997 1996 - --------------------------------------------------------------------------------------------- DEFERRED TAX ASSETS: POSTRETIREMENT HEALTH BENEFITS $ 8,698 $ 8,852 $ 8,972 ACCRUED EXPENSES, NOT CURRENTLY DEDUCTIBLE 7,028 7,373 7,308 RESERVES FOR INSURANCE 6,448 6,028 5,632 PENSION BENEFITS 6,302 4,806 4,896 INVENTORY, PRINCIPALLY VALUATION RESERVES 5,111 5,450 5,685 ENVIRONMENTAL RESERVES 5,004 4,865 5,074 LOSS CARRYFORWARDS 3,610 4,944 6,099 ALTERNATIVE MINIMUM TAX CREDIT CARRYFORWARDS 4,252 OTHER 10,718 10,924 11,213 ---------------------------------------------- GROSS DEFERRED TAX ASSETS $ 52,919 $ 53,242 $ 59,131 ---------------------------------------------- DEFERRED TAX LIABILITIES: FIXED ASSETS, PRINCIPALLY DEPRECIATION $(44,879) $(46,274) $(46,560) TECHNOLOGY AND TRADEMARKS (32,032) OTHER (11,519) (7,557) (5,111) ---------------------------------------------- GROSS DEFERRED TAX LIABILITIES $(88,430) $(53,831) $(51,671) ---------------------------------------------- NET DEFERRED TAX (LIABILITY) ASSET BEFORE VALUATION ALLOWANCE $(35,511) $ (589) $ 7,460 VALUATION ALLOWANCE (1,316) (2,277) (3,573) ---------------------------------------------- NET DEFERRED TAX (LIABILITY) ASSET AFTER VALUATION ALLOWANCE $(36,827) $ (2,866) $ 3,887 ==============================================
Valuation allowances of $1.3 million at December 31, 1998, $2.3 million at December 31, 1997 and $3.6 million at December 31, 1996, reduced the deferred tax asset attributable to foreign loss carryforwards to an amount that, based upon all available information, 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 of the loss carryforwards to become more likely than not. The decrease of $1 million in the valuation allowance during 1998 was due principally to the utilization of foreign loss carryforwards. The components of deferred taxes at December 31, 1998, 1997 and 1996 are as follows:
IN THOUSANDS OF DOLLARS 1998 1997 1996 - ----------------------------------------------------------------------------------------------- CURRENT DEFERRED TAX ASSETS $ 14,874 $ 17,107 $ 22,477 LONG-TERM DEFERRED TAX ASSETS 4,343 3,856 2,483 (INCLUDED IN OTHER ASSETS) CURRENT DEFERRED TAX LIABILITIES (2,563) (1,545) (1,592) (INCLUDED IN ACCRUED AND DEFERRED INCOME TAXES) LONG-TERM DEFERRED TAX LIABILITIES (53,481) (22,284) (19,481) ----------------------------------------------- NET DEFERRED TAX (LIABILITY) ASSET $(36,827) $ (2,866) $ 3,887 ===============================================
EARNINGS PER SHARE Earnings in 1998 of $1.35 per share represented a decrease of 44% in diluted earnings per share, compared with earnings of $2.41 per share in 1997. Excluding the net loss of $1.15 per share in 1998 due to transaction costs and the write-off of acquired in-process research and development costs, 1998 earnings from operations were $2.50 per share diluted, an increase of 3.7% compared with 1997. Basic earnings per share in 1998 of $1.38 decreased 43.7% compared with $2.45 per share in 1997. Excluding the transaction costs and the write-off of acquired in-process research and development costs incurred in 1998, basic earnings per share from operations were $2.54, a 3.7% increase over 1997. 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 reconciliation between basic earnings per share and diluted earnings per share is presented below:
AMOUNTS IN THOUSANDS YEARS ENDED DECEMBER 31. (EXCEPT PER SHARE DATA) --------------------------------------------- 1998 1997 1996 - -------------------------------------------------------------------------------------- EARNINGS PER SHARE - BASIC: NET INCOME $ 31,704 $ 56,427 $ 48,722 WEIGHTED AVERAGE SHARES OUTSTANDING 23,007 23,010 23,687 EARNINGS PER SHARE - BASIC $ 1.38 $ 2.45 $ 2.06 EARNINGS PER SHARE - DILUTED: NET INCOME $ 31,704 $ 56,427 $ 48,722 EFFECT OF SUBSIDIARY DILUTIVE OPTIONS ON NET INCOME (337) (546) (406) ---------------------------------------------- $ 31,367 $ 55,881 $ 48,316 ============================================== WEIGHTED AVERAGE SHARES OUTSTANDING 23,007 23,010 23,687 WEIGHTED AVERAGE EFFECT OF COMMON STOCK EQUIVALENTS 179 217 129 ---------------------------------------------- 23,186 23,227 23,816 ============================================== EARNINGS PER SHARE - DILUTED $ 1.35 $ 2.41 $ 2.03
At December 31, 1998, 279,950 options were outstanding at a weighted average exercise price of $41.42 that were not included in the computation of diluted earnings per share because the exercise price of the options was greater than the average market price of the company's common stock for the year. At December 31, 1997, 10,000 options were outstanding at an exercise price of $41.22, and at December 31, 1996, 24,644 options were outstanding at an exercise price of $29.06 that were not included in the computation of diluted earnings per share. LIFE TECHNOLOGIES, INC. On September 1, 1983, Dexter's GIBCO subsidiary merged with Bethesda Research Laboratories, Inc. The resulting freestanding company was renamed Life Technologies, Inc. (and hereinafter referred to as "LTI") and at December 31, 1998 was owned 71% by Dexter, with the remainder owned by the public. LTI's common stock is currently available for quotation on the OTC Bulletin Board. In 1998, Dexter's proportionate ownership of LTI increased from 52% to 71% subsequent to the completed tender offer for LTI common stock in December 1998. LTI is reported in the life sciences segment, although LTI, as a publicly owned company, issues its own annual report including audited financial statements. These statements follow in condensed form. Net sales of LTI increased $30.8 million, or 9%, in 1998. This improvement was principally due to a $36.3 million, or 13%, increase in sales of products other than fetal bovine serum ("FBS"), partially offset by lower currency translation rates of $6.4 million. Gross margin for 1998 was 53.6% of net sales compared with 53.9% in 1997. Marketing and administrative expenses increased 10% to $118.6 million, or 32.8% of net sales in 1998, compared with $108 million, or 32.6% of net sales in 1997. Research and development expenses were $21.9 million in 1998, representing a 3% increase compared with $21.3 million for 1997. 26 17 LIFE TECHNOLOGIES, INC. (continued) Pretax income decreased $0.2 million to $51.1 million as a result of one-time charges of $5.3 million related to Dexter's acquisition of additional shares of LTI. Excluding these charges, pretax income increased 10% in 1998 compared with 1997. The effective tax rate was 37.5% in 1998 and 36% in 1997. Apart from the nondeductable portion of the one-time charges, the effective income tax rate would have been 34.5% in 1998. Net income decreased 3% to $31.3 million in 1998 from $32.2 million in 1997. Excluding one-time charges and the related income tax effect, net income was 13% greater in 1998 than in 1997. LTI declared quarterly dividends totaling $0.20 per share in 1998 and $0.18 per share in 1997. After the deduction of minority interests, LTI contributed $16.3 million to Dexter's net income or $.69 per share on a diluted basis, in 1998, compared with $17 million, or $.71 per share in 1997. Dexter's portion of LTI shareholders' equity, per share of Dexter, increased to $8.56 at December 31, 1998, from $4.77 at year-end 1997, principally as a result of Dexter increasing its ownership to 71% in 1998. At year-end 1998, LTI had $56 million in cash and short-term securities, $164.1 million in other current assets and $59.8 million of current liabilities. In 1998, LTI spent $25.4 million on capital expenditures and was self-funding. Capital expenditures in 1999 are expected to range between $30 and $35 million. It is expected that LTI will continue to be self-funding in 1999. CONDENSED STATEMENT OF INCOME
YEARS ENDED DECEMBER 31 -------------------------- IN THOUSANDS OF DOLLARS 1998 1997 - ---------------------------------------------------------------------- REVENUES NET SALES $361,726 $330,967 NET ROYALTIES 2,480 1,841 -------------------------- 364,206 332,808 -------------------------- EXPENSES COST OF SALES 167,862 152,547 MARKETING AND ADMINISTRATIVE 118,620 108,046 RESEARCH AND DEVELOPMENT 21,880 21,281 TRANSACTION COSTS 5,335 -------------------------- 313,697 281,874 -------------------------- OTHER INCOME, NET 606 404 -------------------------- INCOME BEFORE INCOME TAXES 51,115 51,338 INCOME TAXES 19,168 18,481 -------------------------- INCOME BEFORE MINORITY INTERESTS 31,947 32,857 MINORITY INTERESTS 644 622 -------------------------- NET INCOME $ 31,303 $ 32,235 ==========================
- ------------------------------------------------------------------------ CONTRIBUTION OF LTI TO DEXTER NET INCOME
IN THOUSANDS OF DOLLARS YEARS ENDED DECEMBER 31 -------------------------- (EXCEPT PER SHARE AMOUNTS) 1998 1997 - ------------------------------------------------------------------------ NET INCOME OF LTI $31,303 $32,235 PORTION ATTRIBUTABLE TO MINORITY INTERESTS 14,998 15,212 ------------------------ DEXTER'S PORTION OF NET INCOME OF LTI $16,305 $17,023 ======================== NET INCOME PER SHARE - BASIC OF DEXTER $ .71 $ .74 NET INCOME PER SHARE - DILUTED OF DEXTER $ .69 $ .71 - ----------------------------------------------------------------------
CONDENSED STATEMENT OF FINANCIAL POSITION
DECEMBER 31 -------------------------- IN THOUSANDS OF DOLLARS 1998 1997 - ------------------------------------------------------------------------ ASSETS CASH AND SHORT-TERM SECURITIES $ 56,047 $ 19,076 TRADE ACCOUNTS RECEIVABLE, NET 67,797 57,103 INVENTORIES 74,319 68,063 OTHER CURRENT ASSETS 21,992 12,537 PROPERTY, PLANT AND EQUIPMENT, NET 107,374 100,098 INVESTMENTS AND OTHER ASSETS 15,392 12,353 EXCESS OF COST OVER NET ASSETS OF BUSINESSES ACQUIRED 10,666 12,365 -------------------------- TOTAL ASSETS $353,587 $281,595 ========================== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES $ 59,752 $ 55,852 LONG-TERM DEBT 4,564 OTHER LIABILITIES 17,727 12,455 SHAREHOLDERS' EQUITY 276,108 208,724 -------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $353,587 $281,595 ==========================
- ------------------------------------------------------------------------ CONTRIBUTION OF LTI TO DEXTER BOOK VALUE
IN THOUSANDS OF DOLLARS DECEMBER 31 -------------------------- (EXCEPT PER SHARE AMOUNTS) 1998 1997 - -------------------------------------------------------------- LTI SHAREHOLDERS' EQUITY $276,108 $208,724 PORTION ATTRIBUTABLE TO MINORITY INTERESTS 78,880 99,257 -------------------------- DEXTER'S PORTION OF LTI SHAREHOLDERS' EQUITY $197,228 $109,467 ========================== BOOK VALUE PER SHARE OF DEXTER STOCK $ 8.56 $ 4.77 - --------------------------------------------------------------
CONDENSED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31 --------------------------- IN THOUSANDS OF DOLLARS 1998 1997 - ------------------------------------------------------------------------ OPERATIONS NET INCOME $ 31,303 $ 32,235 NONCASH ITEMS: DEPRECIATION AND AMORTIZATION 14,330 12,717 OTHER 5,137 (2,145) OPERATING WORKING CAPITAL INCREASE (8,658) (11,197) --------------------------- 42,112 31,610 --------------------------- INVESTMENTS PROPERTY, PLANT AND EQUIPMENT (25,359) (27,300) ACQUISITIONS AND JOINT VENTURES (1,047) (914) OTHER 585 (127) --------------------------- (25,821) (28,341) --------------------------- FINANCING DIVIDENDS PAID (4,711) (3,929) EXERCISE OF STOCK OPTIONS 27,051 4,052 SHORT-TERM BORROWINGS (971) 1,896 LONG-TERM LOAN REPAYMENTS (23) (713) --------------------------- 21,346 1,306 --------------------------- EFFECT OF TRANSLATION RATE CHANGES ON CASH AND SHORT-TERM SECURITIES (666) (825) --------------------------- TOTAL INCREASE IN CASH AND SHORT-TERM SECURITIES $ 36,971 $ 3,750 =========================== - ------------------------------------------------------------------------
27 18 SEGMENT DATA In 1998, the company adopted SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information, which changes the way the company reports information about its operating segments. The information provided for 1997 and 1996 has been restated in order to conform to the 1998 presentation. The company is a global specialty materials supplier with three operating segments: life sciences, nonwovens, and specialty polymers. The specialty polymers segment includes businesses whose product offerings are primarily based on polymer technologies serving the aerospace, electronics, food packaging, and industrial assembly markets. 1998 COMPARED WITH 1997 Sales in the life sciences segment increased $30.8 million, or 9%, in 1998. A 12% increase in unit volume was somewhat offset by a 2% unfavorable effect of currency translation rates and selling price decreases averaging 1%. Operating income decreased $24.9 million, or 49%, in 1998 due to one-time charges for the write-off of acquired in-process research and development costs of $24.5 million recorded by Dexter and transaction costs of $5.3 million recorded by LTI related to Dexter's increased ownership in LTI. Excluding these charges, operating income increased $4.9 million due to the favorable impact on margins of the higher sales volume. Sales in the nonwovens segment decreased $2.2 million, or 1%, in 1998. A 1% increase in unit volume was more than offset by price decreases averaging 1% and a 1% unfavorable currency translation effect. Sales of medical and hygiene products were stronger in 1998 compared with 1997, while sales of food packaging materials and other specialty materials were weaker. Operating income decreased $3.3 million, or 8%, in 1998 primarily due to lower gross margins resulting from an unfavorable product mix, as well as, increased marketing and administrative expenses and increased research and development expenses. Sales in the specialty polymers segment decreased $7.5 million, or 1%, in 1998. The effect of acquired businesses increased 1998 net sales by $19.8 million, or 4%. Net of acquired businesses, sales decreased 5% due to a 3% decrease in unit volume, unfavorable currency translation effects of 1%, and selling price decreases averaging 1%. Lower volume in the electronic materials business related to the slowdown in the electronics market, especially in the Asian sector, and lower sales of beer and beverage can coatings were partially offset by higher sales in both the aerospace business and food and specialty can coatings serving international markets. Operating income decreased $4.1 million, or 8%, in 1998 primarily due to lower gross margins in the electronic materials business resulting from sales volume decreases. This negative effect was partially offset by higher operating income in the aerospace business resulting from increased sales volume and continued productivity improvements. 1997 COMPARED WITH 1996 Sales in the life sciences segment increased $21.5 million, or 7%, in 1997. An 11% increase in unit volume was somewhat offset by a 4% unfavorable effect of currency translation rates. Operating income increased $4.8 million, or 10%, in 1997 primarily due to the favorable impact on gross margins of the higher sales volume. Operating income in 1996 included a $2.6 million gain due to the receipt of proceeds from a note related to the sale of a product line in 1990. Sales in the nonwovens segment increased $4.8 million, or 2%, in 1997. A 3% increase in unit volume was offset by a 1% unfavorable currency translation effect. Sales of food packaging materials were stronger in 1997 compared with 1996. Operating income increased $1.1 million, or 3%, in 1997 primarily due to higher sales and the inclusion in 1996 of costs associated with the realigning of the nonwoven operations in Europe. Sales in the specialty polymers segment increased $20.5 million, or 4%, in 1997. The net effect of acquired and divested businesses increased sales by $3.7 million, or 1%. Net of acquired and divested businesses, sales increased 3% due to an 8% increase in unit volume offset by unfavorable currency translation effects of 4% and selling price decreases averaging 1%. Increased volume in both the electronic materials and aerospace businesses were partially offset by lower sales of food and beverage can coatings serving the international markets. Operating income increased $12.8 million, or 34%, in 1997 primarily due to higher gross margins in the electronic materials business resulting from sales volume increases and favorable product mix, and higher gross margins in the aerospace business primarily due to increased sales volume and productivity improvements. These increases were partially offset by lower operating income in the international food and beverage can coatings business resulting from decreased sales volume and unfavorable currency translation effects. 28 19 SEGMENT DATA
In thousands of dollars 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------- NET SALES Life Sciences $ 361,726 $ 330,967 $ 309,455 Nonwovens 279,951 282,180 277,344 Specialty Polymers 526,360 533,908 513,386 ------------------------------------------------------- Consolidated $ 1,168,037 $ 1,147,055 $ 1,100,185 ======================================================= - ------------------------------------------------------------------------------------------------------------- CONSOLIDATED OPERATING INCOME Life Sciences $ 26,001 $ 50,938 $ 46,109 Nonwovens 40,735 44,061 42,925 Specialty Polymers 46,391 50,526 37,698 ------------------------------------------------------- Consolidated Operating Income 113,127 145,525 126,732 Other Income, net 7,696 6,014 9,897 Interest Expense (18,210) (20,192) (20,500) General Corporate Expense (16,066) (20,262) (17,877) ------------------------------------------------------- Consolidated Income before Taxes $ 86,547 $ 111,085 $ 98,252 ======================================================= - ------------------------------------------------------------------------------------------------------------- CREDIT (CHARGE) INCLUDED IN OPERATING INCOME Life Sciences: Write-off of acquired in-process research and development costs $ (24,508) Transaction costs (5,335) Gain on divesture of product line $ 2,569 ------------------------------------------------------- Total Life Sciences (29,843) 2,569 Specialty Polymers: Gain on divesture of product line 150 ------------------------------------------------------- Consolidated $ (29,843) $ 2,719 ======================================================= - ------------------------------------------------------------------------------------------------------------- DEPRECIATION AND AMORTIZATION Life Sciences $ 14,330 $ 12,508 $ 10,576 Nonwovens 15,462 14,987 14,883 Specialty Polymers 20,320 17,434 18,409 General Corporate 245 512 371 ------------------------------------------------------- Consolidated $ 50,357 $ 45,441 $ 44,239 ======================================================= - ------------------------------------------------------------------------------------------------------------- ASSETS AT YEAR END Life Sciences $ 297,540 $ 261,198 $ 238,633 Nonwovens 218,473 210,084 209,747 Specialty Polymers 417,985 412,920 344,390 ------------------------------------------------------- Consolidated Operating Assets 933,998 884,202 792,770 General Corporate* 274,370 77,574 161,034 ------------------------------------------------------- Consolidated $ 1,208,368 $ 961,776 $ 953,804 =======================================================
* Corporate assets consist primarily of cash, securities and investments, which include the investment in D & S Plastics International of $41,605 in 1996 and, in addition, corporate assets of Life Technologies, Inc. - --------------------------------------------------------------------------------
CAPITAL EXPENDITURES Life Sciences $ 17,210 $ 23,257 $ 41,876 Nonwovens 15,924 17,430 7,306 Specialty Polymers 15,202 18,351 13,075 General Corporate 98 49 20 ------------------------------------------------------ Consolidated $ 48,434 $ 59,087 $ 62,277 ====================================================== - -------------------------------------------------------------------------------------------------------------
GEOGRAPHIC INFORMATION
NET SALES United States $ 629,129 $ 615,746 $ 586,033 United Kingdom 135,206 141,220 136,090 Other countries 403,702 390,089 378,062 ------------------------------------------------------ Consolidated $1,168,037 $1,147,055 $1,100,185 ====================================================== LONG-LIVED ASSETS United States $ 495,097 $ 357,882 $ 333,506 United Kingdom 60,550 40,757 43,505 Other countries 130,848 118,829 113,899 ------------------------------------------------------ Consolidated $ 686,495 $ 517,468 $ 490,910 ====================================================== - -------------------------------------------------------------------------------------------------------------
29 20 ANALYSIS OF FINANCIAL POSITION WORKING CAPITAL Total working capital, including cash and short-term securities, increased $63.4 million from 1997. Operating working capital increased $27.8 million to $240.4 million at year-end 1998. The sum of cash, short-term securities, and accounts receivable exceeded total current liabilities at December 31, 1998. The following is a summary of the changes in operating and total working capital during 1998: INCREASE (DECREASE) IN OPERATING WORKING CAPITAL AND TOTAL WORKING CAPITAL IN 1998
BUSINESS CHANGE IN ACQUISITIONS CURRENCY CONSOLIDATED CASH AND ACCOUNTING TRANSLATION ACCOUNT IN THOUSANDS OF DOLLARS CHANGES ACCRUALS EFFECTS BALANCES - ------------------------------------------------------------------------------------------------------------------ ACCOUNTS RECEIVABLE, NET $ 14,409 $ (187) $ 4,393 $ 18,615 INVENTORIES AT FIFO 11,764 2,890 1,001 15,655 PREPAID AND DEFERRED EXPENSES 458 429 887 ACCOUNTS PAYABLE 3,663 (2,525) (1,701) (563) ACCRUED LIABILITIES AND EXPENSES (2,558) (3,018) (1,239) (6,815) ----------------------------------------------------------------- OPERATING WORKING CAPITAL 27,736 (2,840) 2,883 27,779 ----------------------------------------------------------------- CASH (2,843) 136 (2,707) SHORT-TERM SECURITIES 44,243 1,207 45,450 LIFO RESERVE 1,411 1,411 CURRENT DEFERRED TAX ASSETS (2,233) (2,233) SHORT-TERM DEBT (4,234) (215) (4,449) OTHER CURRENT LIABILITIES AND TAXES (273) (2,086) 548 (1,811) ---------------------------------------------------------------- WORKING CAPITAL $ 66,040 $ (7,159) $ 4,559 $ 63,440 =================================================================
CASH AND SHORT-TERM SECURITIES Cash principally comprises in-transit 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 instruments, 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, 1998, there were $102.5 million in short-term securities, of which $50.2 million were directly available to Dexter and $52.3 million were maintained separately by LTI due to its different shareholder constituency. Of these amounts, $34.2 million for Dexter and $28.1 million for LTI were held outside the United States. Of the $50.2 million for Dexter, $22.8 million was held by Dexter's captive insurance company. ACCOUNTS RECEIVABLE Gross accounts receivable of $213.6 million at December 31, 1998 were reduced by allowances of $9.7 million. Such allowances were $10.4 million at December 31, 1997 and $8.1 million at December 31, 1996. Currency translation effects increased net accounts receivable by $4.4 million in 1998. Included in accounts receivable are non-trade accounts receivable of $18.3 million in 1998 compared with $11 million in 1997 and $13.2 million in 1996. These amounts principally comprise tax receivables. The collection period for accounts receivable increased to approximately 58 days at December 31, 1998, compared with 53 days at December 31, 1997 and 57 days at December 31, 1996. INVENTORIES Inventories are valued at the lower of cost or market. Inventories located in the United States represented 49% of total inventories. The LIFO (last-in, first-out) method was used for determining the cost of 59% of U.S. inventories in 1998 and 58% in 1997 and 1996. The FIFO (first-in, first-out) method was used for determining the cost of the remaining 41% of inventories in the United States and the 51% of total inventories which were located outside the United States. The reduction in levels of LIFO valued inventories (LIFO liquidation) was not significant in 1998, 1997 or 1996. Inventories at December 31 were as follows:
IN THOUSANDS OF DOLLARS 1998 1997 1996 - ----------------------------------------------------------------------------------- MATERIALS AND SUPPLIES $ 65,180 $ 61,233 $ 58,290 WORK-IN-PROCESS 19,101 17,664 17,078 FINISHED GOODS 110,074 99,803 93,379 ------------------------------------------------- TOTAL FIFO COST 194,355 178,700 168,747 LIFO RESERVE (17,388) (18,799) (19,836) ------------------------------------------------- $ 176,967 $ 159,901 $ 148,911 =================================================
FIFO inventories increased $15.7 million in 1998 to $194.4 million, primarily due to higher inventories at LTI due to increased sales levels and a planned finished goods inventory build in the nonwovens segment during the last quarter of 1998. 30 21 PROPERTY, PLANT AND EQUIPMENT Capital expenditures on the accrual basis were $48.4 million in 1998, $59.1 million in 1997 and $62.3 million in 1996. The $62.3 million in 1996 includes a capital lease for $4.7 million at LTI for a parcel of land, which was subsequently purchased in 1998. Capital expenditures in 1999 are currently estimated to range between $55 million and $65 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 50 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 an asset when impairment is identified. Property, plant and equipment is written down when the asset has become redundant or the remaining book value exceeds its anticipated future productive asset value. Maintenance and repairs are charged to operations as incurred and amounted to $18.9 million in 1998, $18.3 million in 1997 and $16.3 million in 1996. 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 1998 1997 1996 - ------------------------------------------------------------------------------------- LAND $ 30,879 $ 28,501 $ 23,273 BUILDINGS AND IMPROVEMENTS 193,594 184,388 158,635 MACHINERY AND EQUIPMENT 509,406 474,079 458,069 CONSTRUCTION IN PROGRESS 22,302 25,157 37,859 ------------------------------------------------- TOTAL COST 756,181 712,125 677,836 LESS ACCUMULATED DEPRECIATION (395,725) (363,953) (343,570) ------------------------------------------------- PROPERTY, PLANT AND EQUIPMENT, NET $ 360,456 $ 348,172 $ 334,266 =================================================
Changes in property, plant and equipment for the past three years were as follows:
IN THOUSANDS OF DOLLARS 1998 1997 1996 - ---------------------------------------------------------------------------------------- JANUARY 1 $ 348,172 $ 334,266 $ 325,203 CAPITAL EXPENDITURES 48,434 59,087 62,277 ASSETS OF BUSINESSES ACQUIRED 282 4,271 562 ASSETS OF BUSINESSES DIVESTED (893) (15,140) WRITE-DOWN OF ASSET VALUES (470) (1,880) DEPRECIATION (38,696) (37,453) (37,312) CURRENCY EFFECTS 2,264 (10,636) 556 ------------------------------------------------- DECEMBER 31 $ 360,456 $ 348,172 $ 334,266 =================================================
PATENTS, TECHNOLOGY, TRADEMARKS AND COVENANTS Patents, technology, trademarks and covenants not to compete are stated at cost less accumulated amortization of $22.6 million, $19.9 million and $18.5 million at December 31, 1998, 1997 and 1996, respectively. Such items that have been acquired by purchase or merger are capitalized and amortized on a straight-line basis over periods ranging from 5 to 30 years. During 1998, the company acquired approximately $91.5 million of such items as a result of the acquisition of an additional 22% of LTI. Research and development costs and any costs associated with internally developed patents or other proprietary technology are expensed in the year incurred. EXCESS ACQUISITION COST Excess acquisition cost was $157 million at year-end 1998, $97.5 million at year-end 1997 and $71.9 million at year-end 1996. Excess acquisition costs increased substantially in 1998 primarily due to $63.4 million resulting from the increase in ownership of LTI and $1.9 million due to currency translation effects. This increase was partially offset by $6.9 million of amortization costs. 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. The excess of cost over the net asset value of businesses acquired 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 ranging from 5 to 30 years. Accumulated amortization amounted to $31.2 million, $23.8 million and $18.8 million at December 31, 1998, 1997 and 1996, 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. When a loss is expected from the proposed sale of a business or product line, a diminution in the value of the excess of cost over the net asset value of the business acquired is identified. In the instance of an ongoing business, such a diminution is recognized when there has been a history of the business' inability to generate operating income after the amortization of goodwill and, in management's judgment, the business will not recover from this position in the future. There were no impairment charges in 1998, 1997 or 1996. 31 22 SHORT-TERM DEBT Short-term borrowings were denominated principally in U.S. dollars, Japanese yen and pound sterling, and had maturities of three months or less. The company uses short-term borrowings of less than three-month maturity to partially offset net nonlocal currency exposures relating to current accounts receivable and accounts payable. It can be expected that short-term borrowings will continue to be utilized for this purpose. The $39.8 million short-term borrowings outstanding at year-end included $2.2 million of short-term debt of LTI. The weighted average interest rate on short-term borrowings outstanding was 6% at December 31, 1998, 6.1% at December 31, 1997, and 5.4% at December 31, 1996. In December 1998, the company entered into a $300 million, 364-day revolving credit agreement with a syndicate of U.S. and international banks. This revolving credit agreement carries a facility fee that is based on the credit ratings of the company. At December 31, 1998, the facility fee on the revolving credit agreement was 0.10% per annum. A utilization fee of up to 0.10% per annum will also be charged if the utilization of the revolving credit agreement exceeds certain contractual levels. This revolving credit agreement has a minimum consolidated net worth provision and a maximum leverage ratio. At December 31, 1998, the company was in compliance with these provisions. There were no borrowings under the 364-day revolving credit agreement as of December 31, 1998. In addition, the company has available short-term lines of credit in excess of $100 million. The company had outstanding letters of credit at December 31, 1998 totaling $10.5 million for liabilities already reflected in the Statement of Financial Position. In addition to its 364-day revolving credit facility, the company has authorized the borrowing of up to $100 million under its short-term lines of credit and commercial paper program. There was no commercial paper issued during 1998. ACCRUED LIABILITIES AND EXPENSES Accrued liabilities and expenses at December 31 were as follows:
IN THOUSANDS OF DOLLARS 1998 1997 1996 - --------------------------------------------------------------------------------- SALARIES, WAGES AND BENEFITS $18,130 $17,381 $17,047 PENSION AND PROFIT SHARING 12,826 13,265 12,349 LTI TRANSACTION COSTS 7,349 ROYALTIES 6,120 3,482 2,792 TAXES, OTHER THAN INCOME TAXES 3,774 3,529 2,679 PROVISION FOR CLAIMS AND WARRANTIES 3,222 5,106 3,806 PROFESSIONAL SERVICES 2,894 4,351 2,344 CUSTOMER REBATES AND VOLUME DISCOUNTS 2,083 2,482 3,426 ENVIRONMENTAL LIABILITIES 1,815 2,099 1,358 DEFERRED PURCHASE AND CONSTRUCTION PAYMENTS 1,252 1,580 2,800 COMMISSIONS 1,242 1,455 1,111 DEFERRED INCOME 1,192 855 868 INTEREST 1,088 1,162 1,377 SEVERANCE AND RELOCATION 617 1,313 2,980 OTHER, PRINCIPALLY ACCRUALS FOR UNBILLED OBLIGATIONS 13,233 11,962 11,900 ----------------------------------------- $76,837 $70,022 $66,837 =========================================
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. Obligations under capital leases were not significant at December 31, 1998. 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 constructed a new corporate R&D center and other administrative offices, including their headquarters. In 1998, LTI exercised their option to purchase this parcel of land. Aggregate future minimum lease payments under noncancelable operating leases as of December 31, 1998, were as follows:
FOR THE YEARS ENDING (IN THOUSANDS OF DOLLARS) OPERATING LEASES - ---------------------------------------------------------- 1999 $13,275 2000 9,898 2001 6,335 2002 3,962 2003 3,413 LATER YEARS 13,952 ------- TOTAL MINIMUM LEASE PAYMENTS $50,835 =======
Total rent expense incurred under noncancelable leases, net of minor sublease rentals, amounted to $15.5 million in 1998, $11.5 million in 1997 and $10.9 million in 1996. The company has no contingent rentals. MINORITY INTERESTS Minority interests decreased by $20.1 million in 1998 to $84.3 million. The decrease in 1998 was due principally to the company's increased ownership of LTI. In December of 1998, the company acquired approximately 22% of all the issued and outstanding LTI shares. As a result, Dexter's ownership in LTI increased to approximately 71% and the corresponding minority interest ownership decreased to 29%. This resultant decrease of approximately $61.7 million was partially offset by $15 million of net income attributable to the minority interest shareholders of LTI, $27.2 million due to the exercise of stock options at LTI and currency translation effects of $1.6 million. Somewhat offsetting these increases were quarterly cash dividends paid by LTI to minority interest shareholders totaling $2.3 million. At year-end 1997, minority interests were $104.4 million, an increase of $14 million from 1996 minority interests of $90.4 million. The increase in 1997 was principally due to $15.2 million of net income attributable to the minority interest shareholders of LTI and a $4.7 million increase due to the exercise of stock options at LTI. These increases in minority interests were somewhat offset by currency translation effects of $4.1 million and cash dividends paid by LTI to minority interest shareholders of $1.9 million. Minority interest in LTI's equity represented $78.9 million and $99.3 million at December 31, 1998 and 1997, respectively. CONTINGENCIES The company and its subsidiaries are subject to potential liability under government regulations and various claims and legal actions which are pending or may be asserted. These claims and legal actions arise in the ordinary course and conduct of the business of the company and its subsidiaries and some are expected to be covered, at least in part, by insurance. At December 31, 1998, $0.2 million of current and $5.1 million of long-term receivables from third-party insurance companies are included as assets of the company. Equal and offsetting payables to third parties are included as liabilities of the company. Estimated amounts for claims which are probable and are not covered by third-party insurance are properly reflected as liabilities of the company. It is reasonably possible that some of the potential claims and legal actions that may be asserted against LTI could be decided unfavorably to LTI and, if so, this could have a material adverse effect on the company's operating results or cash flows in future reporting periods. While the outcome of all of the pending and potential claims and legal actions against the company and its subsidiaries cannot be forecast with certainty, management believes that, with the possible exception of the potential liability of LTI described above, such matters should not result in any liability which would have a material adverse effect on the company's financial position, results of operations, or cash flows. 32 23 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 related to environmental assessments, site remediation and other response activities are recorded and expensed when incurrence of the liability is probable and the expenses 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 that 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, 1998, with respect to 17 sites, were $15.3 million, including current reserves of $1.8 million, which are expected to be spent in 1999, and long-term reserves of $13.5 million. Environmental reserves at December 31, 1997 were $15.8 million and at year-end 1996 were $16.3 million. Such reserves, which are not discounted, included, at year-end, the following estimated amounts for claims accepted and payable by third-party insurers: $2.8 million in 1998, $2.7 million in 1997, and $2.5 million in 1996. The related receivables from insurance companies of $2.8 million, $2.7 million, and $2.5 million were included as assets of the company at year-end 1998, 1997 and 1996, respectively. The reserves were decreased during 1998 by expenditures of $0.6 million. Dexter Environmental Assurance, Ltd. ("DEAL"), a wholly owned Bermuda company, was established in 1993. In December 1993, environmental reserves totaling $5.9 million were transferred to DEAL to insure all wholly owned U.S. operations of Dexter, other than exposures in Windsor Locks, Connecticut, against environmental liabilities arising from occurrences prior to January 1, 1994. In November 1994, environmental reserves totaling $5 million were transferred to DEAL. With the second transfer, the coverage period was extended to include occurrences after December 31, 1993 and prior to January 1, 1995 for all wholly owned U.S. operations of Dexter. In December 1997, environmental reserves totaling $0.4 million were transferred to DEAL. With this transfer, the coverage became available to all wholly owned operations of Dexter, U.S. and non-U.S., against environmental liabilities arising from occurrences prior to January 1, 1998. The covered periods have since been extended through December 31, 1998. 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 component of shareholders' equity, "Currency Translation Effects". Results of operations are translated at average monthly currency exchange rates during the period. Currency translation effects increased shareholders' equity in 1998 by $4.6 million, including $3.6 million of translation effects and a $1 million related tax effect. This increase was the result of the net weakening of the U.S. dollar against currencies of countries in which the company operates. Currency translation effects decreased shareholders' equity by $20.3 million in 1997, including $20.5 million of translation effects partially offset by a $0.2 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 results of operations. Currency gains and losses realized on these nonlocal currency transactions were not significant in 1998, 1997 or 1996. 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, 1998, 1997 and 1996 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 1998 were short-term in nature and related to nonlocal currency transactions of the company's U.S., European and Asian operations. Excluding LTI, the equivalent U.S. dollar purchase amounts of forward contracts outstanding were $1.3 million, $0.8 million and $1 million as of December 31, 1998, 1997 and 1996, respectively. The equivalent U.S. dollar sale amounts of the forward contracts outstanding were $13.8 million, $9.6 million, and $7.5 million as of December 31, 1998, 1997 and 1996, respectively. For LTI, the equivalent U.S. dollar purchase amounts of its forward contracts were $3 million, $2.9 million, and $6.2 million as of December 31, 1998, 1997 and 1996, respectively. There were no sale amounts outstanding as of December 31, 1998, 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, 1998 of $39.8 million of which $5.1 million related to nonlocal currency transaction exposure management. 33 24 POSTRETIREMENT BENEFITS Effective December 31, 1998, the company adopted SFAS No. 132, Employers' Disclosures about Pensions and Other Postretirement Benefits. The provisions of SFAS No. 132 standardize the disclosure requirements for pensions and other postretirement benefits and do not change the measurement or accounting of these plans. 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. The components of net periodic pension cost for the years ended December 31, 1998, 1997 and 1996 were:
1998 1997 1996 - --------------------------------------------------------------------------------------------------------------------------------- DOMESTIC INTERNATIONAL DOMESTIC INTERNATIONAL DOMESTIC INTERNATIONAL IN THOUSANDS OF DOLLARS PLANS PLANS PLANS PLANS PLANS PLANS - --------------------------------------------------------------------------------------------------------------------------------- SERVICE COST $ 5,588 $ 1,761 $ 4,811 $ 1,066 $ 4,817 $ 1,588 INTEREST COST 6,485 2,643 5,756 1,963 5,450 1,990 EXPECTED RETURN ON PLAN ASSETS (7,639) (2,438) (6,457) (1,943) (5,880) (1,596) AMORTIZATION OF: TRANSITION OBLIGATION (ASSET) 24 (64) 24 (63) 24 (59) PRIOR SERVICE COST 493 73 444 81 426 79 ACTUARIAL (GAIN) LOSS (329) 658 (132) 74 374 573 -------------------------------------------------------------------------------------- NET PERIODIC PENSION COST $ 4,622 $ 2,633 $ 4,446 $ 1,178 $ 5,211 $ 2,575 ======================================================================================
The following table provides a summary of the projected benefit obligation, plan assets, and funded status of the company's pension plans:
1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------ DOMESTIC INTERNATIONAL DOMESTIC INTERNATIONAL DOMESTIC INTERNATIONAL IN THOUSANDS OF DOLLARS PLANS PLANS PLANS PLANS PLANS PLANS - ------------------------------------------------------------------------------------------------------------------------------ CHANGE IN PROJECTED BENEFIT OBLIGATION PROJECTED BENEFIT OBLIGATION AT JANUARY 1 $ 93,284 $ 37,247 $ 85,275 $ 27,656 $ 84,233 $ 26,457 SERVICE COST 5,588 1,761 4,811 1,066 4,817 1,588 INTEREST COST 6,485 2,643 5,756 1,963 5,450 1,990 PLAN PARTICIPANTS' CONTRIBUTIONS 735 645 563 AMENDMENTS 1,567 437 (70) ACTUARIAL LOSS (GAIN) 7,598 (1,731) 754 8,210 (4,067) (5,075) CURTAILMENT GAIN (1,202) SPECIAL TERMINATION BENEFIT 128 BENEFITS PAID (4,223) (552) (3,466) (926) (3,652) (512) EXPENSES PAID (129) (411) (304) FOREIGN CURRENCY EXCHANGE RATE CHANGES 641 (1,297) 2,645 ---------------------------------------------------------------------------------- PROJECTED BENEFIT OBLIGATION AT DECEMBER 31 $ 110,170 $ 40,744 $ 93,284 $ 37,247 $ 85,275 $ 27,656 ================================================================================== CHANGE IN PLAN ASSETS FAIR VALUE OF PLAN ASSETS AT JANUARY 1 $ 86,489 $ 27,646 $ 73,164 $23,270 $ 65,813 $ 18,296 ACTUAL RETURN ON PLAN ASSETS 13,051 389 15,175 3,950 9,708 1,563 EMPLOYER CONTRIBUTION 778 2,162 2,027 1,717 1,599 1,539 PLAN PARTICIPANTS' CONTRIBUTIONS 735 645 563 BENEFITS PAID (4,223) (552) (3,466) (926) (3,652) (512) EXPENSES PAID (129) (411) (304) FOREIGN CURRENCY EXCHANGE RATE CHANGES 442 (1,010) 1,821 ---------------------------------------------------------------------------------- FAIR VALUE OF PLAN ASSETS AT DECEMBER 31 $ 95,966 $ 30,822 $ 86,489 $ 27,646 $ 73,164 $ 23,270 ================================================================================== FUNDED STATUS $ (14,204) $ (9,922) $ (6,795) $ (9,601) $ (12,111) $ (4,386) UNRECOGNIZED ACTUARIAL (GAIN) LOSS (5,868) 9,987 (8,382) 10,179 (174) 4,220 UNRECOGNIZED PORTION OF NET OBLIGATION AT TRANSITION 70 (388) 94 (454) 117 (532) UNRECOGNIZED PRIOR SERVICE COST 4,809 840 3,734 895 3,365 1,098 ---------------------------------------------------------------------------------- NET AMOUNT RECOGNIZED $ (15,193) $ 517 $ (11,349) $ 1,019 $ (8,803) $ 400 ================================================================================== AMOUNTS RECOGNIZED IN THE STATEMENT OF FINANCIAL POSITION CONSIST OF: PREPAID PENSION COST $ 1,576 $ 1,856 $ 1,651 ACCRUED PENSION LIABILITY $ (17,816) (1,233) $ (13,115) (994) $ (10,608) (1,417) INTANGIBLE ASSETS 2,602 174 1,742 157 1,601 166 INCLUDED IN ACCUMULATED OTHER COMPREHENSIVE INCOME 21 24 204 ---------------------------------------------------------------------------------- NET AMOUNT RECOGNIZED $ (15,193) $ 517 $ (11,349) $ 1,019 $ (8,803) $ 400 ==================================================================================
34 25 For pension plans where the accumulated benefit obligation exceeded the plan's assets, the projected benefit obligations, accumulated benefit obligations, and fair value of plan assets were $13.5 million, $11.3 million, and $1 million, respectively, as of December 31, 1998; $11.4 million, $9.2 million, and $0.8 million, respectively, as of December 31, 1997; and $10.4 million, $8.7 million, and $1 million, respectively, as of December 31, 1996. The assets in the plans included stock of Dexter Corporation in the amount of $5.3 million, $7.2 million, and $5.2 million at December 31, 1998, 1997 and 1996, respectively.
1998 1997 1996* - ------------------------------------------------------------------------------------ WEIGHTED AVERAGE ASSUMPTIONS AS OF DECEMBER 31 DISCOUNT RATE DOMESTIC 6.58% 6.82% 7.00% INTERNATIONAL 5.93% 7.01% 8.20% EXPECTED RETURN ON PLAN ASSETS DOMESTIC 9.00% 9.00% 9.00% INTERNATIONAL 7.16% 8.55% 8.43% RATE OF COMPENSATION INCREASE DOMESTIC 4.95% 4.95% 4.96% INTERNATIONAL 4.09% 5.50% 6.47%
* 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. 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 employees' pay and totaled $7.2 million in 1998, $8.1 million in 1997 and $7.3 million in 1996. In addition to providing pension benefits, Dexter's wholly owned domestic businesses provide some healthcare and life insurance benefits for retired employees. Dexter has funded trusts for future payment of such benefits. These funds are expected to achieve long-term returns in excess of 10%. The components of net periodic postretirement benefit income for the years ended December 31, 1998, 1997 and 1996 were:
IN THOUSANDS OF DOLLARS 1998 1997 1996 - ----------------------------------------------------------------------------------- SERVICE COST $ 1,136 $ 828 $ 889 INTEREST COST 1,801 1,596 1,541 EXPECTED RETURN ON PLAN ASSETS (4,074) (3,328) (3,000) AMORTIZATION OF: PRIOR SERVICE COST (337) (470) (504) ACTUARIAL GAIN (455) (237) (150) ------------------------------------------- NET PERIODIC POSTRETIREMENT BENEFIT INCOME $(1,929) $(1,611) $(1,224) ===========================================
The following provides a reconciliation of accumulated benefit obligation, plan assets and funded status of the company's postretirement health benefit plan:
IN THOUSANDS OF DOLLARS 1998 1997 1996 - ---------------------------------------------------------------------------------------- CHANGE IN ACCUMULATED BENEFIT OBLIGATION ACCUMULATED POSTRETIREMENT BENEFIT OBLIGATION AT JANUARY 1 $ 27,154 $ 23,192 $ 24,457 SERVICE COST 1,136 828 889 INTEREST COST 1,801 1,596 1,541 PLAN PARTICIPANTS' CONTRIBUTIONS 217 242 AMENDMENTS 1,467 CURTAILMENT GAIN (1,019) ACTUARIAL LOSS (GAIN) 1,066 1,163 (1,735) BENEFITS PAID (1,171) (1,334) (941)* ---------------------------------------------- ACCUMULATED POSTRETIREMENT BENEFIT OBLIGATION AT DECEMBER 31 $ 30,203 $ 27,154 $ 23,192 ============================================== CHANGE IN PLAN ASSETS FAIR VALUE OF PLAN ASSETS AT JANUARY 1 $ 41,209 $ 33,709 $ 29,112 ACTUAL RETURN ON PLAN ASSETS 4,617 8,413 5,386 EMPLOYER CONTRIBUTION 143 179 152 PLAN PARTICIPANTS' CONTRIBUTIONS 217 242 BENEFITS PAID (1,171) (1,334) (941)* ---------------------------------------------- FAIR VALUE OF PLAN ASSETS AT DECEMBER 31 $ 45,015 $ 41,209 $ 33,709 ============================================== FUNDED STATUS $ 14,812 $ 14,055 $ 10,517 UNRECOGNIZED ACTUARIAL GAIN (6,767) (7,746) (4,060) UNRECOGNIZED PRIOR SERVICE COST (1,489) (1,826) (3,764) ---------------------------------------------- PREPAID POSTRETIREMENT BENEFIT COST RECOGNIZED IN THE STATEMENT OF FINANCIAL POSITION $ 6,556 $ 4,483 $ 2,693 ==============================================
* 1996 benefits paid are net of plan participants' contributions. The discount rates used in determining the accumulated postretirement benefit obligation were 6.5%, 6.75%, and 7% at December 31, 1998, 1997 and 1996, respectively. In June 1996, the company recognized a $1.6 million curtailment gain resulting from the sale of its Automotive businesses. At June 30, 1996, the accumulated postretirement benefit obligation was remeasured using a 7.5% discount rate. The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation was 9.5% in 1998, declining gradually to 5% in 2007 and remaining level thereafter. Assumed health care cost trend rates have a significant effect on the amounts reported for the postretirement health benefit plan. A one-percentage point change in assumed healthcare cost trend rates would have the following effects:
ONE-PERCENTAGE ONE-PERCENTAGE IN THOUSANDS OF DOLLARS POINT DECREASE POINT INCREASE - ---------------------------------------------------------------- EFFECT ON TOTAL OF SERVICE AND INTEREST COST COMPONENTS $ (480) $ 90 EFFECT ON THE ACCUMULATED POSTRETIREMENT BENEFIT OBLIGATION $(3,900) $ 1,500 - ----------------------------------------------------------------
As with pension benefits, the assumptions utilized in these calculations are periodically reviewed and adjusted as deemed appropriate. 35 26 LONG-TERM DEBT Long-term debt at December 31, 1998, consisted of promissory notes, revolving credit borrowings and sinking fund debentures. In December 1998, the company entered into a $300 million, 5-year revolving credit agreement with a syndicate of U.S. and international banks. This revolving credit agreement replaced the $100 million multi-currency revolving credit agreement in effect during 1998 and 1997 and carries a facility fee that is based on the credit ratings of the company. At December 31, 1998, the facility fee on the revolving credit agreement was 0.125% per annum. A utilization fee of up to 0.10% per annum will also be charged if the utilization of the revolving credit agreement exceeds certain contractual levels. This revolving credit agreement has a minimum consolidated net worth provision and a maximum leverage ratio. At December 31, 1998, the company was in compliance with these provisions. As of December 31, 1998, the company had borrowings under the 5-year revolving credit agreement of $216 million at an annual rate of 5.925%. In March 1998, the company entered into a $10 million floating rate promissory note due in the year 2001. The company also entered into an interest rate swap agreement expiring in the year 2001 in order to limit the exposure to interest rate volatility on the $10 million floating rate promissory note. The swap agreement resulted in a fixed annual rate of 6.315%. At December 31, 1998, termination of the swap agreement would result in a loss of $0.2 million. In March 1998, the company borrowed the Swiss franc denominated equivalent of approximately $20 million under a floating rate promissory note due in the year 2003. Payments of 14.9 million Swiss francs are due in each of the years 2002 and 2003. The company also entered into an interest rate swap agreement expiring in the year 2003 to limit exposure to interest rate volatility on the 29.8 million Swiss franc floating rate promissory note. The swap agreement resulted in a fixed annual rate of 2.98%. At December 31, 1998, termination of the swap agreement would result in a loss of 0.6 million Swiss francs or the equivalent of approximately $0.4 million. The company monitors the risk of default on the swap agreements and does not anticipate nonperformance by the counterparties. In 1996, LTI capitalized a lease for a parcel of land on which a new R & D center and other administrative offices were constructed. In March 1998, LTI exercised their option under the lease to purchase the land. In 1996, Dexter refinanced 350 million yen debt and borrowed an additional 150 million yen at an annual rate of 1.66%. The total borrowing of 500 million yen (equivalent to approximately $3.8 million) is scheduled to mature in the year 1999. In November 1993, Dexter privately placed with The Prudential Insurance Company of America, $35 million, 20-year senior unsecured notes at an annual rate of 6.21% due in the year 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 an annual rate of 4.86% due in the year 2008. Required prepayments began in 1994 with installments of 2.2 million Swiss francs per year through the year 1997, decreased to 1.5 million Swiss francs in 1998 which will continue through the year 2004, and decrease further to 0.8 million Swiss francs from the year 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 an annual rate of 8.96% due in the year 2011. Required prepayments of $2.5 million per year began in 1998 and will continue 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 the year 2010. Required prepayments began in 1996 and are scheduled to continue with installments of $5 million per year through maturity. In December 1986, the company sold publicly $50 million, 9.25% sinking fund debentures due in 2016. The sinking fund payments 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 and December 1998, Dexter made optional sinking fund payments of $5 million on these debentures in addition to the scheduled, mandatory sinking fund payments of $2.5 million. The redemption price of the optional and mandatory sinking fund payments was 100%. The company has $50 million of authorized and unissued medium-term notes. 36 27 Long-term debt represented 49.6% of total capital at December 31, 1998. The weighted average interest rate of long-term debt outstanding at December 31, 1998 was 6.70%. Certain long-term debt agreements include provisions that restrict the amount of future dividend increases if consolidated equity falls below $175 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, 1998, the company was in compliance with these provisions. LTI has guaranteed approximately $0.3 million of bank loans to others. At December 31, 1998, 1997 and 1996, the fair value of net long-term debt was $391 million, $188 million, and $218 million, respectively, compared with the carrying value of $382 million, $180 million, and $210 million, respectively. 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 1998, the fair value of long-term debt exceeded the carrying value by $9 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 1998 1997 1996 - ---------------------------------------------------------------------------------------- PROMISSORY NOTES $ 178,393 $ 155,792 $ 166,110 REVOLVING CREDIT BORROWINGS 216,000 19,720 SINKING FUND DEBENTURES 5,000 12,500 50,000 CAPITALIZED LEASE 4,658 4,739 INDUSTRIAL DEVELOPMENT BONDS 700 1,400 ------------------------------------------------- 399,393 193,370 222,249 LESS: PAYMENTS DUE WITHIN ONE YEAR (17,230) (13,340) (12,297) ------------------------------------------------- NET LONG-TERM DEBT $ 382,163 $ 180,030 $ 209,952 =================================================
DEBT MATURITIES BY CURRENCY AND TYPE AMOUNTS IN THOUSANDS
MULTI-CURRENCY PROMISSORY NOTES ------------------------------------------------------- SINKING TOTAL TOTAL WEIGHTED FUND SWISS JAPANESE U.S. DOLLAR U.S. DOLLAR AVERAGE DEBENTURES U.S. DOLLAR FRANC YEN EQUIVALENT EQUIVALENT INTEREST RATE - ------------------------------------------------------------------------------------------------------------------------- 1999 $2,500 $ 9,250 SF 1,454 Y 500,000 $ 14,730 $ 17,230 6.81% 2000 2,500 9,250 1,454 10,308 12,808 8.60 2001 20,250 1,454 21,309 21,309 7.47 2002 10,250 16,394 22,185 22,185 5.79 2003 226,250 16,394 238,187 238,187 5.91 2004 10,250 1,454 11,308 11,308 8.49 2005 10,250 727 10,779 10,779 8.67 2006 10,250 727 10,779 10,779 8.67 2007 10,250 727 10,779 10,779 8.67 2008 10,250 727 10,779 10,779 8.67 2009-2021 33,250 33,250 33,250 8.47 ---------------------------------------------------------------------------------- TOTAL $5,000 $359,750 SF 41,512 Y 500,000 $394,393 $399,393 6.70% ================================================================================================ RATES OF INTEREST 9.25% 5.925 - 9.72% 2.98 - 4.86% 1.66%
37 28 SHAREHOLDERS' EQUITY Shareholders' equity increased by $15.7 million in 1998 to $388.5 million representing a book value of $16.86 per share. Net income increased shareholders' equity by $31.7 million. The exercise of stock options along with the impact of restricted stock awards added $2.8 million to shareholders' equity in 1998, while Other Comprehensive Income added $4.7 million. Offsetting these increases were reductions due to dividends declared of $23.5 million. In 1990, the Board of Directors authorized a repurchase of up to 1,000,000 shares of the company's outstanding common stock. In 1995 and 1996, the company purchased 1,000,000 shares of its outstanding common stock at an average cost of $25.59 per share under this plan. 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 1998, there were 1,702,704 shares held in treasury compared with 1,814,035 shares at the end of 1997 and 1,520,261 shares at the end of 1996. In 1998, the company adopted SFAS No. 130, Reporting Comprehensive Income. This statement establishes rules for the reporting of comprehensive income and its components. Comprehensive income consists primarily of net income and foreign currency translation adjustments and is presented in the Statement of Changes in Shareholders' Equity. The adoption of SFAS No. 130 has no impact on total shareholders' equity. PREFERRED STOCK The company has the following classes of preferred stock, without par value, as of December 31, 1998:
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 is 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 the restricted stock plan was $1.1 million in 1998, $2.1 million in 1997 and $1.2 million in 1996. Had compensation cost for the company's stock-based compensation plans been determined in accordance with SFAS No. 123, Accounting for Stock-Based Compensation, the company would have expensed $1.4 million for its fixed stock option plans and an additional $0.2 million for its restricted stock plan in 1998. As a result, 1998 net income would have decreased by $1.1 million, or $.05 per share. The net impact of SFAS No. 123 on the company's net income and earnings per share was not significant in 1997 or 1996. 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 1998, 1997 and 1996 was $8.47, $6.90 and $7.14 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:
1998 1997 1996 - ------------------------------------------------------------------------ EXPECTED LIFE (YEARS) 6.5 5.9 6.2 INTEREST RATE 4.7% 5.7% 6.3% VOLATILITY 20% 18% 23% DIVIDEND YIELD 2.9% 2.4% 2.7%
38 29 STOCK PLANS 1994 LONG-TERM INCENTIVE PLAN AND DATA In 1994, Dexter established a long-term incentive plan for certain key management 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. Restricted stock grants and stock option grants have been awarded under this Plan. The Plan will terminate on April 28, 2004, after which time no additional grants may be made. At December 31, 1998, there were 629,314 shares available for future grant under this Plan. RESTRICTED STOCK Under the 1994 Long-Term Incentive Plan, participants are granted restricted stock awards at no cost to the recipient. As of the grant date, restricted stock participants have the rights of shareholders, including the right to receive any cash dividends and the right to vote the shares. Restricted stock awards are subject to forfeiture provisions including the lapse of time and the 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 restricted stock awarded under this Plan is amortized over the restriction period. The weighted average fair value at date of grant for restricted stock granted during 1998, 1997 and 1996 was $41.09, $29.94 and $27.06, respectively, which in each case was equal to the market value of the company's common stock at the date of grant. The shares outstanding are summarized as follows:
DECEMBER 31 --------------------------------------------- 1998 1997 1996 --------------------------------------------- NUMBER OF SHARES --------------------------------------------- OUTSTANDING AT BEGINNING OF YEAR 231,758 202,487 138,187 AWARDED 58,800 74,800 75,500 EARNED AND DISTRIBUTED (32,158) (20,154) CANCELLED (17,760) (25,375) (11,200) ------- ------- ------- OUTSTANDING AT END OF YEAR 240,640 231,758 202,487 ======= ======= =======
STOCK OPTIONS Options granted under the 1994 Long-Term Incentive Plan have an exercise price not less than 100% of the fair market value on the date of grant. Options granted under the Plan 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 Plan lapses ten years after the date it was granted, or earlier, as outlined under the provisions of the Plan. In 1998, 276,921 options for shares of common stock were granted at a weighted average exercise price of $40.80. During the year, 1,050 options, having a weighted average exercise price of $41.41, were cancelled. At December 31, 1998, no options were exercisable and 275,871 options were outstanding with a range of exercise prices of $31.47 - $41.41, a weighted average exercise price of $40.80, and a weighted average contractual life of approximately 6 years. - ------------------------------------------------------------------------------- 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 ------------------------------------------------------------------------------------ 1998 1997 1996 ------------------------------------------------------------------------------------ WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE ------------------------------------------------------------------------------------ OUTSTANDING AT BEGINNING OF YEAR 560,603 $ 26.60 492,241 $ 24.42 690,522 $ 24.01 GRANTED 11,079 $ 42.03 202,700 $ 30.49 49,000 $ 26.63 EXERCISED (86,155) $ 23.20 (125,265) $ 24.26 (210,069) $ 23.17 EXPIRED OR CANCELLED (4,021) $ 28.91 (9,073) $ 27.49 (37,212) $ 26.78 --------- -------- -------- OUTSTANDING AT END OF YEAR 481,506 $ 27.55 560,603 $ 26.60 492,241 $ 24.42 ========= ======== ======== EXERCISABLE OPTIONS AT END OF YEAR 323,970 $ 25.89 322,531 $ 24.25 385,519 $ 24.12 SHARES AVAILABLE FOR FUTURE GRANT 2,301 9,359 202,986
At December 31, 1998, there were 460,427 options outstanding with a range of exercise prices of $21.63 - $29.94 and a weighted average remaining contractual life of approximately 3 years. The remaining 21,079 options outstanding had a range of exercise prices of $41.22 - $42.78 and a weighted average contractual life of approximately 6 years. - ------------------------------------------------------------------------------- 39 30 PRINCIPAL OFFICERS K. GRAHAME WALKER Chairman and Chief Executive Officer Age 61, Service 33 years BRUCE H. BEATT Vice President, General Counsel and Secretary Age 46, Service 8 years RONALD C. BENHAM Corporate Vice President President, Electronic Materials Age 56, Service 36 years JOHN B. BLATZ Vice President, Environmental and Process Management* Age 47, Service 9 years KATHLEEN BURDETT Vice President and Chief Financial Officer Age 43, Service 18 years HORST GELDMACHER Vice President, Overseas Business Development Age 50, Service 16 years R. BARRY GETTINS, PH.D. Retired** Senior Vice President, Operations and Technology Development Age 57, Service 24 years DAVID G. GORDON Corporate Vice President President, Nonwoven Materials Age 47, Service 23 years JEFFREY W. MCCLELLAND Corporate Vice President President, Adhesive & Coating Systems Age 56, Service 19 years LAWRENCE D. MCCLURE Vice President, Human Resources Age 50, Service 4 years DALE J. RIBAUDO Treasurer Age 41, Service 15 years JOHN D. THOMPSON Senior Vice President, Strategic and Business Development Age 49, Service 20 years DAVID WOODHEAD Corporate Vice President President, Magnetic Technologies Age 58, Service 32 years J. STARK THOMPSON, PH.D. President and Chief Executive Officer Life Technologies, Inc. Age 57, Service 10 years * Effective January 1, 1999 ** Effective December 31, 1998 BUSINESS AND SUBSIDIARY HEADQUARTERS DEXTER ADHESIVE & COATING SYSTEMS 2850 Willow Pass Road Bay Point, CA 94565-3299 Tel: 925.458.8000 Jeffrey W. McClelland President DEXTER ELECTRONIC MATERIALS 15051 East Don Julian Road Industry, CA 91746-3398 Tel: 626.968.6511 Ronald C. Benham President DEXTER MAGNETIC TECHNOLOGIES 48460 Kato Road Fremont, CA 94538-7337 Tel: 510.656.5700 David Woodhead President DEXTER NONWOVEN MATERIALS Two Elm Street Windsor Locks, CT 06096-2335 Tel: 860.654.8300 David G. Gordon President LIFE TECHNOLOGIES, INC. (majority owned) 9800 Medical Center Drive Rockville, MD 20850-6482 Tel: 301.610.8000 J. Stark Thompson, Ph.D. President and Chief Executive Officer 42 31 Dexter Corporation One Elm Street Windsor Locks, CT 06096-2334 Tel: 860.292.7675 Fax: 860.292.7673 Stock Exchange Listing: New York Stock Exchange Stock Symbol: DEX Registrar ChaseMellon Shareholder Services, L.L.C. Ridgefield Park, NJ Transfer Agent ChaseMellon Shareholder Services, L.L.C. Ridgefield Park, NJ, and New York, NY Investor Relations Kathleen Burdett Vice President and Chief Financial Officer Tel: 860.292.7620 Fax: 860.292.7669 John D. Thompson Senior Vice President, Strategic and Business Development Tel: 860.292.7640 Fax: 860.292.7669 Corporate Communications/ Media Contact Ellen M. Miles Corporate Communications Manager Tel: 860.292.7686 Fax: 860.292.7627 Notice of Annual Meeting You are cordially invited to attend the Dexter Corporation Annual Meeting of Shareholders beginning at 10:00 a.m., Thursday, April 22, 1999, at The Hartford Club, 46 Prospect Street, Hartford, Connecticut. Notice of Form 10-K Annual Report The Form 10-K Annual Report of Dexter Corporation filed with the Securities and Exchange Commission, as well as the Form 10-K Annual Report of Life Technologies, Inc., are available without charge after March 31 of each year to shareholders and prospective investors. Please contact the Corporate Communications Department in Windsor Locks, Connecticut, at 860.292.7615. Shareholders' Stock Savings Plan/Inquiries Dexter shareholders can reinvest their dividends automatically in additional shares of Dexter common stock at the market price. Participants can also invest up to an additional $3,000 in Dexter shares each quarter through this service. Also, if you have any questions concerning your account as a shareholder, such as name and address changes, inquiries regarding dividend checks, stock certificates, or if you need tax information regarding your account, please contact: ChaseMellon Shareholder Services, L.L.C. Overpeck Centre 85 Challenger Road Ridgefield Park, NJ 07660 Tel: 800.288.9541 www.chasemellon.com TDD Service Available Dexter shareholders with hearing or speech disabilities can get information about their accounts through TDD services offered by ChaseMellon Shareholder Services, L.L.C. at 800.231.5469. EX-21 6 EXHIBIT 21 1 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT The following table sets forth subsidiaries of Dexter Corporation which are included in the consolidated financial statements.
PERCENTAGE OF JURISDICTION IN WHICH NAME OWNERSHIP(A) INCORPORATED OR ORGANIZED ---- ---------------- ------------------------- Crown Metro Aerospace Coatings, Inc. .................... 100% South Carolina DDL Sales Limited........................................ 80%(D)(B) Scotland Dexter ADAF Holdings, Inc. .............................. 100%(F) Delaware Dexter Acquisition Delaware, Inc. ....................... 100% Delaware Dexter Asia Pacific Limited.............................. 100%(C) Hong Kong Dexter Automotive Materials GmbH......................... 100%(E)(B) Germany Dexter do Brasil Ltda.................................... 100% Brazil Dexter Electronic Materials(M) Sdn. Bhd.................. 100% Malaysia Dexter Environmental Assurance Ltd. ..................... 100% Bermuda Dexter Europe B.V........................................ 100%(J) Netherlands Dexter Europe S.A........................................ 100% Belgium Dexter GmbH.............................................. 100% Austria Dexter Holdings.......................................... 100% England Dexter Holdings B.V...................................... 100% Netherlands 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 Magnetic Technologies, Inc. ...................... 100% New York 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 SAS............................................... 100% France Dexter S.p.A............................................. 100%(F) Italy Dexter South Africa (Pty) Ltd. .......................... 60% South Africa Dexter Speciality Chemicals Limited...................... 100%(C)(B) England Dexter Speciality Materials Limited...................... 100%(C) Scotland Dexter U.K. Limited...................................... 100%(H) England Hysol Limited............................................ 100% Japan
2 EXHIBIT 21 -- CONTINUED
PERCENTAGE OF JURISDICTION IN WHICH NAME OWNERSHIP(A) INCORPORATED OR ORGANIZED ---- ---------------- ------------------------- Kettlebrook Insurance Company, Ltd. ..................... 100%(I) Bermuda Kolack A.G............................................... 100% Switzerland Life Technologies, Inc. ................................. 71%(K) Delaware 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 Dexter Corporation and 33% by Dexter U.K. Limited (J) owned by Dexter Holdings B.V. (K) owned 49% by Dexter Corporation and 22% by Dexter Acquisition Delaware, Inc. 3 EXHIBIT 21 -- CONTINUED The following table sets forth subsidiaries of Life Technologies, Inc. (owned 71% by 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 GIBCO BRL India Pvt. Ltd. ......................... 100%(A) India 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%(C) Brazil Life Technologies Foreign Sales Corporation........ 100% Barbados Life Technologies GIBCO BRL Co., Ltd. ............. 51% Republic of China (Taiwan) Life Technologies Holdings, Unlimited.............. 100% Scotland Life Technologies Italia S.r.l..................... 100% Italy Life Technologies Ltd. ............................ 100%(D) Scotland Life Technologies Ltd. ............................ 100% New Zealand Life Technologies Mauritius Ltd. .................. 100% Mauritius Life Technologies Oriental K.K..................... 80% Japan Life Technologies Overseas GmbH.................... 100%(B) Germany Life Technologies Overseas Ltd. ................... 100%(D) 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 Technologies (unincorporated joint venture)..................... 40%(E) Maryland
- --------------- (A) owned by Life Technologies Mauritius Ltd. (B) owned by Life Technologies Overseas Ltd. (C) owned 90% by Life Technologies, Inc. and 10% by Life Technologies Mauritius Ltd. (D) owned by Life Technologies Holdings, Unlimited (E) owned by Serum Technologies Holdings, Inc. 4 EXHIBIT 21 -- CONTINUED The following unconsolidated companies owned in part by 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.l............................................. 49%(B)(D) Italy Midland-Dexter de Venezuela, S.A......................... 49%(C) Venezuela
- --------------- (A) owned by Dexter ADAF Holdings, Inc. (B) owned by Dexter Corporation (C) owned 13.9% by Dexter U.K. Ltd. and 35.1% by Dexter Corporation (D) inactive EX-23 7 EXHIBIT 23 1 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS We consent to the incorporation by reference in the registration statements of 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 9, 1999, on our audits of the consolidated financial statements and financial statement schedule of Dexter Corporation as of December 31, 1998, 1997, and 1996, and for the years then ended, appearing on page F-2 of Dexter Corporation's Annual Report on Form 10-K for the year ended December 31, 1998. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Springfield, Massachusetts March 9, 1999 EX-27 8 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-31-1998 DEC-31-1998 111,049 0 195,246 7,112 176,967 517,530 756,181 395,725 1,208,368 250,174 382,163 0 0 24,984 363,565 1,208,368 1,168,037 1,179,455 741,288 741,288 0 0 18,210 86,547 40,147 31,704 0 0 0 31,704 1.38 1.35
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