-----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, AWa/0GKP97/wG7jfnDp7p7R2RJmWidiYXDu/5SvN2xGEPr+xu/r0+wqpeO2H22aP nTPA02fICbCXSbc99odpAg== 0000914039-99-000345.txt : 19990809 0000914039-99-000345.hdr.sgml : 19990809 ACCESSION NUMBER: 0000914039-99-000345 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990730 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-Q SEC ACT: SEC FILE NUMBER: 001-05542 FILM NUMBER: 99675135 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-Q 1 FORM 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __ to ____________________ Commission file number 1-5542 DEXTER CORPORATION (Exact name of registrant as specified in its charter) CONNECTICUT 06-0321410 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) ONE ELM STREET, WINDSOR LOCKS, CONNECTICUT 06096 (Address of principal executive offices) (Zip Code) (860) 292-7675 (Registrant's telephone number, including area code) N/A (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes..X..... No....... Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
CLASS Outstanding at June 30, 1999 COMMON STOCK, PAR VALUE $1 23,037,976 SHARES
2 PART I FINANCIAL INFORMATION Item 1 - Financial Statements Reference is made to the following condensed consolidated financial statements, which are incorporated herein by reference: (a) Exhibit 99a - Condensed Statement of Income for the three and six-month periods ended June 30, 1999 and 1998. (b) Exhibit 99b - Condensed Statement of Financial Position as of June 30, 1999, December 31, 1998, and June 30, 1998. (c) Exhibit 99c - Condensed Statement of Cash Flows for the six-month periods ended June 30, 1999 and 1998. (d) Exhibit 99d - Condensed Statement of Comprehensive Income for the three and six-month periods ended June 30, 1999 and 1998. (e) Exhibit 99e - Net Sales and Operating Income by Segment for the three and six-month periods ended June 30, 1999 and 1998. (f) Exhibit 99f - Notes to Condensed Consolidated Financial Statements. The unaudited financial data included herein as of June 30, 1999 and 1998, and for the three and six-month periods then ended, have been reviewed by the registrant's independent public accountants, PricewaterhouseCoopers LLP, and their report is attached. Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations ANALYSIS OF OPERATIONS The Company reported second quarter 1999 net income of $13.7 million, or $.60 per share on a diluted basis, compared with $16.4 million, or $.70 per share diluted, for the second quarter of 1998. Dexter's increased ownership of Life Technologies, Inc. created noncash amortization charges which, together with the net impact of divestitures and acquisitions, reduced second quarter 1999 earnings by $.10 per share. Sales in the second quarter of 1999 were $256.1 million, a decrease of 15%, compared with sales of $302.6 million in the second quarter of 1998. Volume increases of 5% were more than offset by an 18% decrease due to the net effect of divestitures and acquisitions, price decreases averaging 1%, and a 1% unfavorable effect of currency translation rates. 3 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations, continued ANALYSIS OF OPERATIONS, CONTINUED Sales for the first six months of 1999 were $536.0 million, a 10% decrease compared with sales of $592.5 million for the same period last year. Volume increases of 4% were more than offset by a 13% decrease due to the net effect of divestitures and acquisitions and price decreases averaging 1%. Earnings from operations for the first six months of 1999 were $24.1 million, or $1.05 per share on a diluted basis, compared with $30.6 million, or $1.31 per share diluted, for the same period last year. Dexter's increased ownership of Life Technologies, Inc. created noncash amortization charges which, together with the net impact of divestitures and acquisitions, reduced earnings for the first six months of 1999 by $.23 per share. Including the gain on divestiture of product lines of $2.53 per share, which occurred in the first quarter of 1999, total earnings for the first six months of 1999 were $82.6 million, or $3.58 per share diluted, compared with the $1.31 per share diluted for the same period last year. Sales of nonwoven medical products and electronic encapsulation materials showed continued improvement and were stronger in the second quarter of 1999 compared with the second quarter of 1998. Products with strong performance in the second quarter and first six months of 1999, compared with the same periods last year, include products at Life Technologies, Inc., nonwoven wet wipes and specialty coatings in the specialty polymers segment. Sales of magnetic materials and printed wiring board products serving the electronics market had weaker performance in both the second quarter and first six months of 1999 compared with the same periods last year. Sales of nonwoven food packaging products had weaker sales in the second quarter of 1999 compared to the second quarter of 1998. Consolidated gross margin of 39.9% for the second quarter of 1999, stated as a percentage of sales, increased 3.3 percentage points from 36.6% in the second quarter of 1998. Excluding charges incurred in the second quarter of 1999 relating to Dexter's increased ownership in Life Technologies, Inc., which unfavorably impacted gross margin by 0.8 percentage points, gross margin improved 4.1 percentage points. Gross margin of 38.4% for the first six months of 1999 increased 1.9 percentage points compared with 36.5% for the same period last year. Excluding the charges incurred for the first six months of 1999 relating to Dexter's increased ownership in Life Technologies, Inc., which unfavorably impacted gross margin by 1.0 percentage point, gross margin improved 2.9 percentage points. These improvements were the result of increased volume and a favorable product mix at Life Technologies, Inc. and the divestiture of the lower gross margin Packaging Coatings business in the first quarter of 1999. 4 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations, continued ANALYSIS OF OPERATIONS, CONTINUED Marketing and administrative costs increased $2.5 million, or 2%, for the first six months of 1999 compared with the first six months of 1998. The increase was primarily due to increased costs at Life Technologies, Inc. and higher general corporate expenses that were partially offset by reduced expense resulting from the Packaging Coatings divestiture in the first quarter of 1999. Research and development expense decreased $2.1 million, or 15%, in the second quarter of 1999 and $2.3 million, or 8%, for the first six months of 1999 compared with the same periods in 1998. These decreases were primarily due to lower expenses resulting from the divestiture in the first quarter of 1999. Interest expense of $11.1 million for the first six months of 1999 increased $2.4 million, or 28%, compared with the first six months of 1998. The increase was primarily due to higher average borrowings in the first quarter of 1999 following the acquisition of an additional 22% ownership in Life Technologies, Inc. in December 1998. These borrowings were repaid at the beginning of March 1999 with proceeds received from the divestiture of the Packaging Coatings business. Minority interest expense decreased $1.7 million, or 36%, in the second quarter of 1999 compared with the same period in 1998. This decrease was principally due to Dexter increasing its ownership of Life Technologies, Inc. to 71% effective in December 1998. 5 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations, continued ANALYSIS OF FINANCIAL CONDITION Accounts receivable as of June 30, 1999 were $176.2 million, a decrease of $27.7 million and $35.9 million, respectively, compared with $203.9 million at December 31, 1998 and $212.1 million at June 30, 1998. These decreases were primarily due to the divestiture of the Packaging Coatings business in the first quarter of 1999 of $44.7 million partially offset by increased receivables from continuing operations. Prepaid and deferred expenses as of June 30, 1999 were $24.2 million, a decrease of $4 million compared with $28.2 million at June 30, 1998. This decrease was primarily due to the divestiture of the Packaging Coatings business. Property, plant, and equipment as of June 30, 1999 was $331.9 million, a decrease of $28.6 million and $24.4 million, respectively, compared with $360.5 million at December 31, 1998 and $356.3 million at June 30, 1998. These decreases were primarily attributable to the divestiture of the Packaging Coatings business partially offset by capital expenditures, net of depreciation. Excess of cost over net assets of businesses acquired (excess acquisition cost) as of June 30, 1999 was $122.8 million, an increase of $29 million, compared with $93.8 million as of June 30, 1998. This increase was primarily due to an increase of $63.4 million attributable to Dexter acquiring an additional 22% ownership of LTI in December 1998, partially offset by a decrease of $30.8 million resulting from the divestiture of the Packaging Coatings business and amortization charges of $7.8 million. Excess acquisition cost at June 30, 1999 decreased $34.2 million from $157 million at December 31, 1998 primarily due to the divestiture of the Packaging Coatings business and amortization charges of $4.4 million. Patents, technology, trademarks, and covenants as of June 30, 1999 were $117.3 million, an increase of $89.1 million, compared with $28.2 million as of June 30, 1998. This increase was primarily due to an increase of $91.5 million attributable to Dexter's increased ownership of LTI partially offset by amortization charges of $3.9 million. Other assets were $54.6 million as of June 30, 1999, an increase of $8.4 million, compared with $46.2 million as of June 30, 1998. This increase was primarily due to increases in deferred tax assets, partially offset by a decrease in investments in affiliates due to the divestiture of the Company's 40% interest in Akzo Dexter Aerospace Finishes VoF in the first quarter of 1999. Accounts payable of $69.3 million as of June 30, 1999, decreased $22.4 million and $29.1 million, respectively, compared with $91.7 million at December 31, 1998 and $98.4 million at June 30, 1998. These decreases were primarily due to the divestiture of the Packaging Coatings business. 6 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations, continued ANALYSIS OF FINANCIAL CONDITION, CONTINUED Accrued liabilities and taxes as of June 30, 1999 were $116.7 million, an increase of $21.3 million and $23.6 million, respectively, compared with $95.4 million as of December 31, 1998 and $93.1 million as of June 30, 1998. These increases were principally due to an increase in accrued taxes related to the gain on the sale of the Packaging Coatings business. Long-term deferred income taxes were $45.5 million as of June 30, 1999, an increase of $23.3 million, compared with $22.2 million as of June 30, 1998. This increase was also primarily due to increased deferred taxes related to the gain on the sale of the Packaging Coatings business. Long-term debt was $199.8 million as of June 30, 1999, a decrease of $182.4 million, compared with $382.2 million as of December 31, 1998. This decrease was primarily due to the repayment of long-term borrowings, related to the increased ownership of LTI, with proceeds received from the divestiture of the Packaging Coatings business. Long-term debt at June 30, 1999 increased by $20 million compared with $179.8 million as of June 30, 1998. Included in this increase was $3 million of debt related to LTI's acquisition of a process chromatography and research products business, combined with additional borrowings used to fund partial payment of the taxes on the gain on the sale of the Packaging Coatings business. Deferred items were $40.7 million as of June 30, 1999, an increase of $4.5 million compared with $36.2 million as of December 31, 1998. This increase was primarily due to a non-compete agreement associated with the divestiture of the Packaging Coatings business partially offset by decreased pension and postretirement liabilities. Deferred items at June 30, 1999 increased $7.2 million from $33.5 million at June 30, 1998 primarily due to the non-compete agreement associated with the divestiture of the Packaging Coatings business. Minority interests of $86.7 million as of June 30, 1999 decreased $28.1 million compared with $114.8 million as of June 30, 1998. This decrease was primarily due to Dexter's increased ownership of LTI. Dexter's ownership in LTI increased to approximately 71% from approximately 52% at June 30, 1998. LIQUIDITY AND CAPITAL RESOURCES The Company's liquidity is strong and ample lines of credit are available to the Company and its subsidiaries. As shown in the Condensed Statement of Cash Flows, cash provided from operations of $5.7 million and investment activities of $181.6 million were exceeded by the cash needed for financing activities of $208 million, thereby decreasing cash for the first six months of 1999 by $20.7 million. Operating activities for the first six months of 1999 provided $5.7 million in cash. Net income, after adjustments for the pretax gain on the divestiture of the Packaging Coatings business, and the associated income taxes not due, depreciation and amortization, and minority interests were the principal source of cash from operations in 1999. Working capital increases were the principal use of cash from operations. Investment activity for the first six months of 1999 included cash received from divestitures of $228.9 million, primarily related to the divestiture of the Packaging Coatings business, including Dexter SAS. Also included in investment activity during the first six months of 1999 were capital expenditures of $34.7 million and cash expenditures for acquisitions of $13.5 million, primarily related to LTI's acquisition of a process chromatography and research products business. Financing activities for the first six months of 1999 included cash outflows principally used for the repayment of long-term debt of $182.6 million, which was primarily related to the increased ownership of LTI, the purchase of 344,500 shares of the Company's outstanding common stock for $10.1 million, and dividend payments of $12 million. 7 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations, continued LIQUIDITY AND CAPITAL RESOURCES, CONTINUED The Company plans to meet its future working capital and capital expenditure needs with funds provided from operations, the reduction of short-term securities and, as needed, short-term and long-term borrowings. IMPACT OF THE YEAR 2000 General The year 2000 issue is the result of computer programs being written using two digits rather than four digits to define the applicable year. Any of the Company's systems, equipment, or hardware that have date-sensitive software or embedded chips may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruption of operations, including, among other things, a temporary inability to properly manufacture products, process transactions, send invoices, or engage in similar normal business activities. Based on its initial assessments, the Company had determined that it would be required to modify or replace portions of its equipment, hardware, and software so that affected systems will properly utilize dates beyond December 31, 1999. The Company presently believes that, with modifications and replacement of existing equipment, hardware, and software, the year 2000 issue will be mitigated. Project Plan & Status The Company's plan to resolve the year 2000 issue is being implemented by each of the Company's businesses and involves five phases: inventory; risk assessment, prioritization, and ownership assignment; compliance research; remediation; and testing. The inventory phase and the risk assessment, prioritization, and ownership assignment phase, which were performed concurrently, are complete. The compliance research phase is substantially complete. The remediation and testing phases are well underway and are expected to be substantially completed by September 30, 1999. Although the Company's year 2000 plan is being completed on a business by business basis, it is estimated that the remediation phase is approximately 85% to 90% complete, and the testing phase is approximately 50% to 60% complete. The Company's year 2000 inventory of potentially affected items is segregated into four categories: business applications (developed software, customized extensions to purchased software and system interfaces), tools and platforms (purchased commercial products, both hardware and software), intelligent devices (manufacturing, laboratory, office, and facilities equipment), and external business partners (suppliers, customers, and other service providers). Business applications and tools and platforms are considered information technology ("IT") systems while intelligent devices and external business partners are considered non-IT systems. 8 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations, continued IMPACT OF THE YEAR 2000, CONTINUED Concerning IT systems, two of the Company's businesses have replaced the majority of their applications with year 2000 compliant versions of new enterprise resource planning ("ERP") software. Remaining legacy systems for these businesses that were not replaced by the ERP systems are being made year 2000 compliant or replaced. Two businesses are in the process of "repairing" (i.e., making year 2000 compliant) their existing core business systems and have replaced some portions of their software with year 2000 compliant software. The remaining business has upgraded its core business applications to a year 2000 compliant version and is testing these applications to validate year 2000 compliancy. With respect to non-IT systems, the Company has dedicated resources to assist its businesses with identifying potentially affected intelligent devices and is using an outside firm that has a proprietary year 2000 compliance status database to assist in the compliance research for these devices. Determination of compliance status, remediation, and testing of these devices includes reliance, in some cases, on equipment manufacturer's compliance certification. The external business partners category includes identifying and prioritizing critical suppliers and customers and communicating with them about their plans and progress in addressing the year 2000 problem. The Company has established a questionnaire to be used by the businesses for obtaining this information from key business partners. To date, the Company is not aware of any problems that would materially impact results of operations, liquidity, or capital resources. However, the Company has no means of insuring that these parties will be year 2000 ready and the inability of these parties to successfully complete their year 2000 compliance program could impact the Company. For key business partners, the initial assessments are evaluated and, as deemed necessary, follow-up assessments are made. We expect this process to be ongoing throughout 1999. The Company is in the process of developing detailed contingency and business continuation plans for each business to address potential year 2000 exposures. Development of these plans will be ongoing throughout 1999. Costs The Company utilizes both internal and external resources to repair or replace, test, and implement the software and operating equipment for year 2000 modifications. The total cost of the year 2000 project is estimated at between $6 and $7 million and is being funded through operating cash flows. To date, the Company has incurred approximately $4.1 million (approximately 60% expensed and 40% capitalized) related to all phases of the year 2000 project. The remaining project costs are attributable to either repair or replacement of equipment, hardware, and software and will be expensed as incurred or capitalized, as appropriate. 9 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations, continued IMPACT OF THE YEAR 2000, CONTINUED Risks The failure to remediate a material year 2000 problem could result in an interruption in, or a failure of, certain normal business activities or operations, including the ability to produce or deliver products to customers. Such failures could materially or adversely affect the Company's results of operations, liquidity, and financial condition. Due to the general uncertainty inherent in the year 2000 problem, the Company is unable to determine with certainty at this time whether the consequences of year 2000 failures will have a material impact on the Company. The Company's year 2000 plan is expected to significantly reduce the Company's level of uncertainty about the year 2000 problem. The Company believes that by executing its year 2000 plan in a timely manner, the possibility of significant interruptions of normal operations should be reduced. The Company plans to complete the year 2000 project are based on management's best estimates, which were derived utilizing numerous assumptions of future events including, but not limited to, the continued availability of certain resources and other factors. Estimates of the status of completion and the expected completion dates are based on tasks completed to date compared to all required tasks. However, there can be no guarantee that expected completion dates will be met, and actual results could differ materially from those forecasted. Specific factors that might cause such material differences include, but are not limited to, the availability and cost of personnel trained in certain areas, the ability to locate and correct all relevant equipment, devices and computer codes, and similar uncertainties. Item 3 - Quantitative and Qualitative Disclosures about Market Risk In the first quarter of 1999, the Company sold its Packaging Coatings business, including Dexter SAS, its French industrial coatings subsidiary. As a result, the Company no longer has any foreign currency exposures relating to foreign operations of the Packaging Coatings business. Therefore, in March 1999, the Company redenominated its Swiss franc 29.9 million floating rate long-term borrowing due in 2003 into a Euro 18.7 million floating rate long-term borrowing with terms and conditions which exactly mirror the original Swiss franc debt. The redenomination was effected to hedge certain of the Company's remaining net asset investments in foreign operations. The Company also terminated the interest rate exchange agreement applicable to the Swiss franc debt and entered into a new interest rate swap agreement expiring in 2003 to limit exposures to interest rate volatility on the Euro 18.7 million floating rate promissory note. The swap resulted in a fixed annual rate of 3.975%. The Company's currency exposures vary but, as of June 30, 1999, are primarily concentrated in the Euro, British Pound Sterling, Swedish Krona, and Japanese Yen. 10 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations, continued FORWARD LOOKING STATEMENTS Statements made in this report that are not historical are forward-looking statements, and as such, are subject to a number of risks. These risks, including those pertaining to the year 2000 issue, and other risks and uncertainties, are detailed in Dexter's Form 10-K, for the year ended December 31, 1998. 11 PART II OTHER INFORMATION Item 5 - Other Information Effective in July 1999, Mr. John B. Lockwood was appointed Vice President, Taxes of the Company. Prior to his appointment, Mr. Lockwood was Director of Taxes for the Company. Effective in July 1999, Ms. Rosanne S. Potter was appointed Treasurer of the Company. Prior to joining the Company, Ms. Potter served as Leader of Global Facilities Integration for Hercules, Incorporated, and as Treasurer of BetzDearborn, Inc. from 1996 until its acquisition by Hercules in 1998. Item 6 - Exhibits and Reports on Form 8-K (a) Exhibit 15 of Part 1 - Letter to Securities and Exchange Commission re: Incorporation of Accountants' Report Exhibit 27 of Part 1 - Financial Data Schedule Exhibit 99 of Part 1 - Second Quarter 1999 Financial Statements and Notes (b) No reports on Form 8-K were filed during the quarter for which the report was filed. 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DEXTER CORPORATION (Registrant) July 30, 1999 /s/ Kathleen Burdett Date........................... ................................... Kathleen Burdett Vice President and Chief Financial Officer (Principal Financial Officer) July 30, 1999 /s/ Dale J. Ribaudo Date........................... ................................... Dale J. Ribaudo Vice President and Controller (Principal Accounting Officer) 13 INDEX TO EXHIBITS Exhibit No. 15 Letter to Securities and Exchange Commission re: Incorporation of Accountants' Report 27 Financial Data Schedule 99 Second Quarter 1999 Financial Statements and Notes EX-15 2 EXHIBIT 15 1 Exhibit 15 Securities and Exchange Commission 450 5th Street, N.W. Judiciary Plaza Washington, D.C. 20549 We are aware that our report dated July 14, 1999 on our review of the interim financial information of Dexter Corporation as of June 30, 1999 and 1998, and for the three and six month periods then ended, and included in this Form 10-Q is incorporated by reference in the company's registration statements on Form S-8, Registration Nos. 2-63959, 33-27597, 33-53307, 33-53309, 333-02985, 333-04081, 333-42663 and 333-76873. Pursuant to Rule 436(c) under the Securities Act of 1933, this report should not be considered a part of the registration statements prepared or certified by us within the meaning of Sections 7 and 11 of that Act. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Springfield, Massachusetts July 30, 1999 EX-27 3 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED STATEMENT OF FINANCIAL POSITION AND CONDENSED STATEMENT OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1999 JUN-30-1999 87,849 0 168,570 4,964 163,805 452,085 678,841 346,971 1,078,616 245,182 199,784 0 0 24,984 422,925 1,078,616 535,989 540,512 329,943 329,943 0 0 11,086 138,270 49,308 82,579 0 0 0 82,579 3.61 3.58
EX-99 4 EXHIBIT 99 1 EXHIBIT 99a DEXTER CORPORATION CONDENSED STATEMENT OF INCOME
- ----------------------------------------------------------------------------------------------------------------------- Three Months Ended June 30 Six Months Ended June 30 In thousands of dollars ---------------------------- ------------------------------- (except per share amounts) 1999 1998 Change 1999 1998 Change - ----------------------------------------------------------------------------------------------------------------------- REVENUES Net sales $256,062 $302,613 -15% $535,989 $592,528 - 10% Other income 2,396 2,384 + 1% 4,523 4,670 - 3% --------- --------- --------- --------- 258,458 304,997 -15% 540,512 597,198 - 9% EXPENSES Cost of sales 153,794 191,813 -20% 329,943 376,377 - 12% Marketing and administrative 62,207 61,889 + 1% 126,395 123,933 + 2% Research and development 12,293 14,390 -15% 26,179 28,466 - 8% Interest 4,700 4,371 + 8% 11,086 8,679 + 28% Gain on divestiture of product lines (91,361) --------- --------- --------- --------- INCOME BEFORE TAXES 25,464 32,534 -22% 138,270 59,743 +131% Income taxes 8,697 11,387 -24% 49,308 20,910 +136% --------- --------- --------- --------- INCOME BEFORE MINORITY INTERESTS 16,767 21,147 -21% 88,962 38,833 +129% Minority interests 3,022 4,730 -36% 6,383 8,186 - 22% --------- --------- --------- --------- NET INCOME $ 13,745 $ 16,417 -16% $ 82,579 $ 30,647 +169% ========= ========= ========= ========= NET INCOME PER SHARE - BASIC $0.60 $0.71 -15% $3.61 $1.33 +171% NET INCOME PER SHARE - DILUTED $0.60 $0.70 -14% $3.58 $1.31 +173% DIVIDENDS DECLARED PER SHARE $0.26 $0.26 $0.52 $0.50 + 4% AVERAGE SHARES OUTSTANDING (000) - BASIC 22,769 23,012 - 1% 22,884 22,979 AVERAGE SHARES OUTSTANDING (000) - DILUTED 22,946 23,258 - 1% 23,030 23,231 -1% - -----------------------------------------------------------------------------------------------------------------------
See accompanying notes to the condensed consolidated financial statements. Amounts are unaudited. 2 EXHIBIT 99b DEXTER CORPORATION CONDENSED STATEMENT OF FINANCIAL POSITION
- ---------------------------------------------------------------------------------------------------------------------- In thousands of dollars June 30 December 31 June 30 (except per share amounts) 1999 1998 1998 - -------------------------- ----------- ------------ ----------- ASSETS Cash and short-term securities $ 87,849 $ 111,049 $ 70,256 Accounts receivable, net 176,207 203,872 212,129 Inventories Materials and supplies 53,397 65,180 64,160 In process and finished 125,666 129,175 121,223 LIFO reserve (15,258) (17,388) (18,329) ----------- ----------- ----------- 163,805 176,967 167,054 Prepaid and deferred expenses 24,224 25,642 28,231 ----------- ----------- ----------- Total current assets 452,085 517,530 477,670 Property, plant and equipment, at cost, net 331,870 360,456 356,332 Excess of cost over net assets of businesses acquired 122,753 156,989 93,818 Patents, technology, trademarks, and covenants 117,312 118,152 28,229 Other assets 54,596 55,241 46,161 ----------- ----------- ----------- $ 1,078,616 $ 1,208,368 $ 1,002,210 =========== =========== =========== LIABILITIES & SHAREHOLDERS' EQUITY Short-term debt $ 35,943 $ 39,810 $ 34,189 Accounts payable 69,266 91,718 98,374 Dividends payable 5,926 5,989 5,989 Accrued liabilities and taxes 116,728 95,427 93,120 Current installments of long-term debt 17,319 17,230 12,914 ----------- ----------- ----------- Total current liabilities 245,182 250,174 244,586 Long-term debt 199,784 382,163 179,764 Deferred items 40,675 36,160 33,504 Long-term deferred income taxes 45,484 53,481 22,186 Long-term environmental reserves 12,834 13,501 13,609 Minority interests 86,748 84,340 114,758 Shareholders' equity Common stock and paid-in capital 40,125 40,255 37,699 Retained earnings 488,750 418,074 428,994 Treasury stock (59,167) (51,512) (49,629) Accumulated other comprehensive income (21,799) (18,268) (23,261) ----------- ----------- ----------- Total shareholders' equity 447,909 388,549 393,803 ----------- ----------- ----------- $ 1,078,616 $ 1,208,368 $ 1,002,210 =========== =========== =========== EQUITY PER SHARE $ 19.65 $ 16.86 $ 17.10 - ----------------------------------------------------------------------------------------------------------------------
See accompanying notes to the condensed consolidated financial statements. Amounts as of June 30, 1999 and June 30, 1998 are unaudited. 3 EXHIBIT 99c DEXTER CORPORATION CONDENSED STATEMENT OF CASH FLOWS _______________________________________________________________________________
Six Months Ended June 30 In thousands of dollars 1999 1998 - ----------------------- ---- ---- OPERATIONS Net income $ 82,579 $ 30,647 Noncash items Depreciation and amortization 30,321 26,035 Gain on divestiture of product lines (91,361) Income taxes not due 19,687 6,375 Minority interests 6,383 8,186 LIFO inventory credit (61) (470) Equity in net income of affiliates (405) (1,336) Other (732) 417 Operating working capital increase (40,745) (30,670) --------- --------- 5,666 39,184 --------- --------- INVESTMENTS Property, plant and equipment (34,678) (34,247) Acquisitions (13,481) (1,047) Divestitures 228,916 Proceeds from exercise of LTI stock options 1,625 3,168 Other (723) 2,033 --------- --------- 181,659 (30,093) --------- --------- FINANCING Long-term debt, net (182,576) 5,193 Short-term debt, net (3,915) (1,059) Dividends paid (11,966) (11,013) LTI dividends paid to minority interest shareholders (990) (1,136) Purchase of treasury stock (10,126) Other 1,565 1,117 --------- --------- (208,008) (6,898) --------- --------- (DECREASE) INCREASE IN CASH AND SHORT-TERM SECURITIES $ (20,683) $ 2,193 ========= ========= RECONCILIATION OF (DECREASE) INCREASE IN CASH AND SHORT-TERM SECURITIES Cash and short-term securities at beginning of period $ 111,049 $ 68,306 Cash and short-term securities at end of period 87,849 70,256 --------- --------- (Decrease) Increase in cash and short-term securities per Statement of Financial Position (23,200) 1,950 Currency translation effects 2,517 243 --------- --------- $ (20,683) $ 2,193 ========= =========
_________________________________________________________________________ See accompanying notes to the condensed consolidated financial statements. Amounts are unaudited. 4 EXHIBIT 99d DEXTER CORPORATION CONDENSED STATEMENT OF COMPREHENSIVE INCOME
______________________________________________________________________________________________________________________________ Three Months Ended June 30 Six Months Ended June 30 ------------------------------------ --------------------------------- In thousands of dollars 1999 1998 Change 1999 1998 Change ---- ---- ------ ---- ---- ------ ______________________________________________________________________________________________________________________________ NET INCOME $13,745 $16,417 - 16% $82,579 $30,647 + 169% -------- -------- -------- -------- OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX Currency translation effects (3,600) (389) (3,178) (142) Unrealized losses on investments (168) (156) + 8% (353) (194) + 82% -------- -------- -------- -------- OTHER COMPREHENSIVE INCOME (LOSS) (3,768) (545) (3,531) (336) -------- -------- -------- -------- COMPREHENSIVE INCOME $ 9,977 $15,872 - 37% $79,048 $30,311 + 161% ======== ======== ======== ======== ______________________________________________________________________________________________________________________________
See accompanying notes to the condensed consolidated financial statements. Amounts are unaudited. 5 EXHIBIT 99e DEXTER CORPORATION NET SALES BY SEGMENT
_________________________________________________________________________________________________________________________________ Three Months Ended June 30 Six Months Ended June 30 ------------------------------------- ----------------------------------- In thousands of dollars 1999 1998 Change 1999 1998 Change _________________________________________________________________________________________________________________________________ LIFE SCIENCES (a) $ 99,814 $ 91,544 + 9% $199,351 $179,899 + 11% NONWOVENS 74,106 72,889 + 2% 143,496 139,691 + 3% SPECIALTY POLYMERS (b) 82,142 138,180 - 41% 193,142 272,938 - 29% --------- --------- --------- --------- CONSOLIDATED $256,062 $302,613 - 15% $535,989 $592,528 - 10% ========= ========= ========= =========
(a) The effect of businesses acquired increased net sales in the Life Sciences segment by $.7 million, or 1% for the quarter. (b) The effect of businesses divested decreased net sales in the Specialty Polymers segment by $56.4 million, or 41%, for the quarter, and $74.6 million, or 27%, year-to-date.
_________________________________________________________________________________________________________________________________ OPERATING INCOME BY SEGMENT _________________________________________________________________________________________________________________________________ Three Months Ended June 30 Six Months Ended June 30 ---------------------------- -------------------------- In thousands of dollars 1999 1998 Change 1999 1998 Change _________________________________________________________________________________________________________________________________ LIFE SCIENCES (a) $12,893 $14,675 - 12% $ 26,718 $28,164 - 5% NONWOVENS 9,536 10,915 - 13% 18,241 20,463 - 11% SPECIALTY POLYMERS (b) 10,229 13,880 - 26% 110,971 25,149 -------- -------- --------- -------- CONSOLIDATED OPERATING INCOME 32,658 39,470 - 17% 155,930 73,776 + 111% OTHER INCOME, NET 2,225 1,166 + 91% 3,161 2,635 + 20% INTEREST EXPENSE (4,700) (4,371) + 8% (11,086) (8,679) + 28% GENERAL CORPORATE EXPENSE (4,719) (3,731) + 26% (9,735) (7,989) + 22% -------- -------- --------- -------- CONSOLIDATED INCOME BEFORE TAXES $25,464 $32,534 - 22% $138,270 $59,743 + 131% ======== ======== ========= ======== (a) Life Sciences operating income includes $2.0 million of amortization charges for the quarter, and $5.5 million, year-to-date associated with Dexter's increased ownership in LTI. (b) The gain on the divestiture of product lines increased operating income in the Specialty Polymers segment by $91.4 million year-to-date. _________________________________________________________________________________________________________________________________
Amounts are unaudited. 6 Exhibit 99f Dexter Corporation Notes to Condensed Consolidated Financial Statements Note 1 - In the opinion of the Company's management, the unaudited condensed consolidated financial statements reflect adjustments of a normal recurring nature which are necessary to present fairly the results for the interim periods. The notes to the condensed consolidated financial statements, including management's discussion in Part 1, Item 2 of this Form 10-Q, are incorporated as part of these condensed consolidated financial statements. The year-end condensed balance sheet data was derived from the audited financial statements. Note 2 - Presented below is the reconciliation between basic earnings per share and diluted earnings per share for the three and six-month periods ended June 30, 1999 and 1998:
Amounts in thousands Three Months ended June 30 Six Months ended June 30 (except per share data) 1999 1998 1999 1998 - ------------------------------------------------------------------------------- EARNINGS PER SHARE - BASIC: Net income $13,745 $16,417 $82,579 $30,647 Weighted average shares outstanding 22,769 23,012 22,884 22,979 Earnings per share - basic $.60 $.71 $3.61 $1.33 EARNINGS PER SHARE - DILUTED: Net income $13,745 $16,417 $82,579 $30,647 Effect of subsidiary dilutive options on net income (19) (111) (39) (220) ------- ------- ------- ------- $13,726 $16,306 $82,540 $30,427 ======= ======= ======= ======= Weighted average shares outstanding 22,769 23,012 22,884 22,979 Weighted average effect of common stock equivalents 177 246 146 252 ------- ------- ------- ------- 22,946 23,258 23,030 23,231 ======= ======= ======= ======= Earnings per share diluted $.60 $.70 $3.58 $1.31 - -------------------------------------------------------------------------------
7 Exhibit 99f Dexter Corporation Notes to Condensed Consolidated Financial Statements (continued) Note 3 - In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities. As issued, this statement is effective for all fiscal quarters of all fiscal years beginning after June 15, 1999. In June 1999, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 137, Accounting for Derivative Instruments and Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133. This statement amends Statement No. 133 to be effective for all fiscal quarters of all fiscal years beginning after June 15, 2000. The Company is currently evaluating the impact of SFAS No. 133. Note 4 - The following are included as components of Common Stock and Paid-in Capital:
COMMON STOCK & PAID-IN CAPITAL JUNE 30, DECEMBER 31, JUNE 30, (IN THOUSANDS OF DOLLARS) 1999 1998 1998 - --------------------------------- -------- ------------ -------- Common stock $24,984 $24,984 $24,984 Paid-in capital 18,634 17,689 16,570 Unearned compensation on restricted stock (3,493) (2,418) (3,855) ------- ------- ------- $40,125 $40,255 $37,699 ======= ======= =======
Note 5 - The following are included as components of Accumulated Other Comprehensive Income:
ACCUMULATED OTHER COMPREHENSIVE JUNE 30, DECEMBER 31, JUNE 30, INCOME (IN THOUSANDS OF DOLLARS) 1999 1998 1998 - --------------------------------- -------- ------------ -------- Currency translation effects ($21,035) ($17,857) ($22,617) Unrealized losses on investments (743) (390) (620) Minimum pension liability adjustment (21) (21) (24) --------- ------- -------- ($21,799) ($18,268) ($23,261) ========= ======== ========
Note 6 - Presented below is a reconciliation of currency translation effects, included in the Statement of Comprehensive Income, for reclassification adjustments due to divestitures:
THREE MONTHS ENDED SIX MONTHS ENDED (IN THOUSANDS OF DOLLARS) JUNE 30, 1999 JUNE 30, 1999 - ------------------------- ------------------ ---------------- Currency translation effects ($3,600) ($11,752) Plus: Reclassification adjustments for losses included in net income due to divestitures 8,574 ------- -------- Net currency translation effects ($3,600) ($3,178) ======= ========
8 Exhibit 99f Dexter Corporation Notes to Condensed Consolidated Financial Statements (continued) Note 7- In August 1998, the Company entered into a purchase and sale agreement to sell certain assets and stock of its Packaging Coatings business and Dexter SAS to The Valspar Corporation. The sale of these businesses was subject to regulatory approval and customary closing conditions. This transaction was completed in February 1999 with total proceeds of $225 million subject to post-closure adjustments. In January 1999, the Company divested its 40% interest in Akzo Dexter Aerospace Finishes VoF, a joint venture between the Company and Akzo Nobel NV, to Akzo Nobel NV for approximately book value. Note 8- In December 1998, Dexter acquired an additional 22% ownership of LTI. As a result of the acquisition, Dexter owns an aggregate of approximately 71% of the total number of issued and outstanding shares of LTI. The following unaudited pro forma information presents the results of operations of the Company as if the acquisition had taken place on January 1, 1998.
In Thousands of Dollars Three Months Ended Six Months Ended (except per share amounts) June 30, 1998 June 30, 1998 -------------------------- ------------------ ---------------- Net Sales $302,613 $592,528 Net Income $ 14,680 $ 26,062 Net Income Per Share-diluted $.63 $1.12
These unaudited pro forma results have been prepared for comparative purposes only and include certain adjustments, such as the charges for acquired-in-process research and development and transaction costs, additional amortization expense, and increased interest expense on acquisition debt. They do not purport to be indicative of the results of operations which actually would have resulted had the acquisition occurred on the date indicated, or which may result in the future. Note 9- Assets in the Specialty Polymers segment at June 30, 1999 were $261.3 million, a decrease of $156.7 million, compared with $418 million at December 31, 1998. This decrease was primarily due to the divestiture of the Packaging Coatings business, including Dexter SAS, in February 1999. Assets in the Life Sciences segment at June 30, 1999 were $333.3 million, an increase of $35.8 million, compared with $297.5 million at December 31, 1998. This increase was primarily due to the acquisition by LTI of a process chromatography and research products business in May 1999, and capital expenditures, net of depreciation. 9 Exhibit 99f Dexter Corporation Notes to Condensed Consolidated Financial Statements (continued) Note 10 - The Company and its subsidiaries are subject to potential liability under government regulations, contractual and other matters, and various claims and legal actions which are pending or may be asserted. These matters arise in the ordinary course and conduct of the business of the Company and its subsidiaries and some are expected to be covered, at least in part, by insurance. At June 30, 1999, $0.3 million of current and $5 million of long-term receivables from third party insurance companies are included as assets of the Company. Equal and offsetting payables to third parties are included as liabilities of the Company. It is reasonably possible that some of the potential claims and legal actions that may be asserted against LTI could be decided unfavorably to LTI and, if so, this could have a material adverse effect on the Company's operating results or cash flows in future reporting periods. While the outcome of all of the pending and potential claims and legal actions against the Company and its subsidiaries cannot be forecast with certainty, management believes that, with the possible exception of the potential liability of LTI described above, such matters should not result in any liability which would have a material adverse effect on the Company's financial position, results of operations, or cash flows. 10 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Board of Directors of Dexter Corporation We have reviewed the accompanying condensed statement of financial position of Dexter Corporation as of June 30, 1999 and 1998, and the related condensed statements of income and comprehensive income for the three and six month periods then ended, and the condensed statement of cash flows for the six month periods then ended. These financial statements are the responsibility of the company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated statement of financial position of Dexter Corporation as of December 31, 1998, and the related consolidated statements of income, cash flows, and changes in shareholders' equity for the year then ended (not presented herein); and in our report dated February 9, 1999, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed statement of financial position as of December 31, 1998 is fairly stated, in all material respects, in relation to the consolidated statement of financial position from which it has been derived. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Springfield, Massachusetts July 14, 1999 -----END PRIVACY-ENHANCED MESSAGE-----