-----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, N1JjeCbwqpAiYrhCLP9FDwwtYxRFnVzSOAbgA7IEuNiJdbJ/jMjqcvGcpqkyehX9 l4Je3vq92VcqvbU4hwRu7w== 0000914039-99-000473.txt : 19991108 0000914039-99-000473.hdr.sgml : 19991108 ACCESSION NUMBER: 0000914039-99-000473 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991105 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: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-05542 FILM NUMBER: 99741649 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 September 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 October 29, 1999 - -------------------------- ------------------------------- COMMON STOCK, PAR VALUE $1 23,042,276 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 nine-month periods ended September 30, 1999 and 1998. (b) Exhibit 99b - Condensed Statement of Financial Position as of September 30, 1999, December 31, 1998, and September 30, 1998. (c) Exhibit 99c - Condensed Statement of Cash Flows for the nine-month periods ended September 30, 1999 and 1998. (d) Exhibit 99d - Condensed Statement of Comprehensive Income for the three and nine-month periods ended September 30, 1999 and 1998. (e) Exhibit 99e - Net Sales and Operating Income by Segment for the three and nine-month periods ended September 30, 1999 and 1998. (f) Exhibit 99f - Notes to Condensed Consolidated Financial Statements. The unaudited financial data included herein as of September 30, 1999 and 1998, and for the three and nine-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 third quarter 1999 earnings from operations, excluding restructuring costs, of $12.6 million, or $.55 per share on a diluted basis. This includes the negative impact of $.01 per share from two nonrecurring events in the third quarter at Life Technologies, Inc. In the third quarter of 1998, earnings from operations were $14.2 million, or $.61 per share diluted. Dexter's increased ownership of Life Technologies, Inc. created noncash amortization charges which, together with the net impact of divestitures and acquisitions, reduced third quarter 1999 earnings by $.10 per share. During the third quarter, Dexter announced restructuring activities in its Specialty Polymers and Nonwovens segments. These include a plant closure and other business realignments that will result in the elimination of approximately 60 full-time positions. Including the restructuring charge of $2.4 million, or $.07 per share, total earnings for the third quarter of 1999 were $11 million, or $.48 per share diluted. 3 Item 2 - Management's Discussion and Analysis of Financial - -------- ------------------------------------------------- Condition and Results of Operations, continued ---------------------------------------------- Analysis of Operations, continued - ----------------------- The third quarter results included a pretax charge of $3.9 million, or $.08 per share, representing a voluntary refund Life Technologies, Inc. has offered to the Department of Veterans Affairs (VA) related to its supply contract with the VA. Also included in the third quarter results was the effect of a favorable income tax settlement between Life Technologies, Inc. and the Internal Revenue Service which resulted in a reduction in income tax expense of $2.3 million, or $.07 per share. The net effect of these two items incurred by Life Technologies, Inc. reduced Dexter's third quarter 1999 earnings from operations by $.01 per share. Sales in the third quarter of 1999 were $250.3 million, a decrease of 12%, compared with sales of $283.4 million in the third quarter of 1998. Volume increases of 8% were more than offset by a 19% decrease due to the net effect of divestitures and acquisitions and price decreases averaging 1%. Sales for the first nine months of 1999 were $786.3 million, a 10% decrease compared with sales of $875.9 million for the same period last year. Volume increases of 5% were more than offset by a 14% decrease due to the net effect of divestitures and acquisitions and price decreases averaging 1%. Earnings from operations, excluding restructuring costs, for the first nine months of 1999 were $36.7 million, or $1.59 per share on a diluted basis, compared with $44.8 million, or $1.92 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 of the first nine months of 1999 by $.33 per share. Earnings from operations include a net unfavorable $.01 per share impact due to the two nonrecurring events at Life Technologies, Inc. in the third quarter of 1999. Including the gain from divestiture of product lines of $2.54 per share that occurred in the first quarter of 1999 and the charge for restructuring activities in the third quarter of 1999 of $.07 per share, total earnings for the first nine months of 1999 were $93.6 million, or $4.06 per share diluted, compared with $44.8 million, or the $1.92 per share diluted for the same period last year. Sales in the Life Sciences segment increased $12.7 million, or 14%, in the third quarter of 1999 and $32.2 million, or 12%, for the first nine months of 1999 compared with the same periods last year principally due to sales of products other than fetal bovine serum. Sales in the Nonwovens segment increased $3.4 million, or 5%, in the third quarter of 1999 compared with the third quarter of 1998 primarily due to stronger sales of medical and specialty products. Sales for the first nine months of 1999 in the Nonwovens segment increased $7.2 million, or 4%, compared with the first nine months of 1998 due to stronger sales of wet wipes, medical and specialty products and despite lower pricing for food packaging products. Sales of ongoing businesses in the Specialty Polymers segment increased $5.3 million, or 7%, in the third quarter of 1999 compared to the same period last year. This increase was principally due to stronger sales of electronic encapsulation materials. Sales for the first nine months of 1999 were comparable to last year. Stronger sales of electronic encapsulation materials and specialty coatings were offset by weaker sales of printed wiring board products and magnetic materials. 4 Item 2 - Management's Discussion and Analysis of Financial - -------- ------------------------------------------------- Condition and Results of Operations, continued ---------------------------------------------- Analysis of Operations, continued - --------------------------------- Consolidated gross margin of 39.7% for the third quarter of 1999, stated as a percentage of sales, increased 2.9 percentage points from 36.8% in the third quarter of 1998. Excluding charges incurred in the third quarter of 1999 relating to Dexter's increased ownership in Life Technologies, Inc., which unfavorably impacted gross margin by 0.5 percentage points, gross margin improved 3.4 percentage points. Gross margin of 38.8% for the first nine months of 1999 increased 2.2 percentage points compared with 36.6% for the same period last year. Excluding the charges incurred in the first nine months of 1999 relating to Dexter's increased ownership in Life Technologies, Inc., which unfavorably impacted gross margin by 0.9 percentage points, gross margin improved 3.1 percentage points. These improvements were the result of increased volume, a favorable product mix at Life Technologies, Inc. and divestiture of the lower gross margin Packaging Coatings business in the first quarter of 1999. Marketing and administrative costs increased $1.5 million, or 2%, in the third quarter of 1999, and $3.9 million, or 2%, for the first nine months of 1999 compared with the same periods in 1998. The principal reasons were increased costs at Life Technologies, Inc. and corporate expenses which compared adversely with a favorable position last year. These increases were partially offset by reduced expense resulting from the Packaging Coatings divestiture in the first quarter of 1999. Research and development expense decreased $2.2 million, or 16%, in the third quarter of 1999 and $4.5 million, or 11%, for the first nine months of 1999 compared with the same periods in 1998. These decreases were entirely due to the divestiture of Packaging Coatings in the first quarter of 1999. Interest expense of $16 million for the first nine months of 1999 increased $2.7 million, or 21%, compared with the first nine 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. The effective tax rate was 19.4% in the third quarter of 1999 and 33.9% on a year-to-date basis compared with 35% in each of the comparable periods in 1998. These decreases were primarily the result of Life Technologies, Inc. reaching a favorable income tax settlement in the third quarter of 1999. Excluding this one-time adjustment, the effective tax rate was 33% in the third quarter of 1999 and 35.4% for the nine month period. Minority interest expense decreased $1.3 million, or 30%, in the third quarter of 1999 and $3.1 million, or 25%, for the first nine months of 1999 compared with the same periods in 1998. These decreases were 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 September 30, 1999 were $184 million, a decrease of $19.9 million and $21.5 million, respectively, compared with $203.9 million at December 31, 1998 and $205.5 million at September 30, 1998. Accounts receivable decreased $44.7 million due to the divestiture of the Packaging Coatings business in the first quarter of 1999, partially offset by increased receivables from continuing operations. Prepaid and deferred expenses as of September 30, 1999 were $23.6 million, a decrease of $5.8 million compared with $29.4 million at September 30, 1998. This decrease was primarily due to the divestiture of the Packaging Coatings business and decreased deferred tax assets. Property, plant, and equipment as of September 30, 1999 was $336.6 million, a decrease of $23.9 million, compared with $360.5 million at December 31, 1998 and September 30, 1998. This decrease was 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 September 30, 1999 was $121.4 million, an increase of $26.6 million, compared with $94.8 million as of September 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 $7.9 million. Excess acquisition cost at September 30, 1999 decreased $35.6 million from $157 million at December 31, 1998 primarily due to the divestiture of the Packaging Coatings business and amortization charges of $6.4 million. Patents, technology, trademarks, and covenants as of September 30, 1999 were $115.8 million, an increase of $88.1 million, compared with $27.7 million as of September 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 $4.8 million. Other assets were $54.8 million as of September 30, 1999, an increase of $8 million, compared with $46.8 million as of September 30, 1998. This increase was primarily due to increases in long-term deferred tax assets and expenditures for computer software, net of amortization, 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 $64.6 million as of September 30, 1999, decreased $27.1 million and $29.8 million, respectively, compared with $91.7 million at December 31, 1998 and $94.4 million at September 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 - ------------------------------------------ Long-term debt was $211.9 million as of September 30, 1999, a decrease of $170.3 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 September 30, 1999 increased by $29.4 million compared with $182.5 million as of September 30, 1998. Included in this increase was $3.5 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 $39.7 million as of September 30, 1999, an increase of $3.5 million and $5.2 million, respectively, compared with $36.2 million as of December 31, 1998 and $34.5 million as of September 30, 1998. These increases were primarily due to a non-compete agreement associated with the divestiture of the Packaging Coatings business partially offset by decreased pension and postretirement liabilities. Long-term deferred income taxes were $44.6 million as of September 30, 1999, an increase of $22.5 million, compared with $22.1 million as of September 30, 1998. This increase was primarily due to increased deferred income taxes related to the increased ownership of LTI, partially offset by decreased deferred income taxes due to the divestiture of the Packaging Coatings business. Long-term deferred income taxes at September 30, 1999 decreased $8.9 million from $53.5 million at December 31, 1998, primarily due to the divestiture of the Packaging Coatings business. Minority interests of $89.8 million as of September 30, 1999 decreased $31.6 million compared with $121.4 million as of September 30, 1998. This decrease was primarily due to Dexter's increased ownership of LTI. Dexter's ownership in LTI increased to approximately 71% in December 1998 from approximately 52% at September 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 $9.3 million and investment activities of $159.3 million were exceeded by the cash needed for financing activities of $195.8 million, thereby decreasing cash for the first nine months of 1999 by $27.2 million. Operating activities for the first nine months of 1999 provided $9.3 million in cash. Net income, after adjustments for the pretax gain on the divestiture of the Packaging Coatings business, depreciation, 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. 7 Item 2 - Management's Discussion and Analysis of Financial - -------- ------------------------------------------------- Condition and Results of Operations, continued ---------------------------------------------- Liquidity and Capital Resources, continued - ------------------------------------------ Investment activity for the first nine months of 1999 included cash received from divestitures of $226.4 million, primarily related to the divestiture of the Packaging Coatings business, including Dexter SAS. Also included in investment activity during the first nine months of 1999 were capital expenditures of $46.7 million, and cash expenditures for acquisitions of $13.9 million primarily related to LTI's acquisition of a process chromatography and research products business. Financing activities for the first nine months of 1999 included cash outflows principally used for the repayment of long-term debt of $170.4 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 $17.9 million. 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 also complete. The remediation and testing phases are substantially complete. 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 95% complete, and the testing phase is approximately 80% to 90% complete. 8 Item 2 - Management's Discussion and Analysis of Financial - -------- ------------------------------------------------- Condition and Results of Operations, continued ---------------------------------------------- Impact of the Year 2000, continued - ---------------------------------- 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 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 have been made year 2000 compliant or replaced. Another business has remediated (i.e., made year 2000 compliant) their existing core business systems and has 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 has tested 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 has used 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 the remainder of 1999. The Company has formed contingency and business continuation plans for each business to address potential year 2000 exposures. Further development and refinement of these plans will be ongoing throughout the remainder of 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 $5.0 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 completing 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 September 30, 1999, are primarily concentrated in the Euro, British Pound Sterling, Swedish Krona, and Japanese Yen. 10 Forward Looking Statements - -------------------------- Any statements in this report that are not historical facts are "forward-looking statements" as that term is defined under the Federal Securities Laws. Forward-looking statements are subject to risks, uncertainties and other factors, which could cause actual results to differ materially from those stated in such statements. Such risks, uncertainties and factors include, but are not limited to, the possibility of adverse rulings by, or adverse developments in negotiations with, the government, risks pertaining to the year 2000 issue, as well as other risks detailed in the Company's filings with the Securities and Exchange Commission. 11 PART II OTHER INFORMATION Item 5 - Other Information - ------ ----------------- Effective September 1, 1999, Mr. David G. Gordon was appointed President and Chief Operating Officer of Dexter Corporation. Prior to his appointment, Mr. Gordon served as a Corporate Vice President and President of Dexter Nonwoven Materials. Effective September 1, 1999, Mr. A. Duncan Middleton was appointed a Corporate Vice President and President of Dexter Nonwoven Materials. Prior to his appointment, Mr. Middleton was Senior Vice President, European Operations of Dexter Nonwoven Materials. In October 1999, Dexter announced that, consistent with the Company's previously announced divestiture plans, it had signed a definitive agreement to sell its printed wiring board business to Cookson Group plc for a total cash consideration of $33 million. The sale is subject to regulatory approval which is expected to be granted by the end of November 1999. Item 6 -Exhibits and Reports on Form 8-K - ------ -------------------------------- (a) Exhibits Exhibit 4A(1) - Amendment to Rights Agreement, dated as of August 23, 1996, between the registrant and ChaseMellon Shareholders Services, L.L.C. dated as of October 4, 1999, was filed as Exhibit 4 to Form 8-K (File No. 1-5542), which was filed with the Securities Exchange Commission on October 13, 1999, and is hereby incorporated herein by reference. Exhibit 15 of Part 1 - Letter to Securities and Exchange Commission re: Incorporation of Accountants' Report Exhibit 27 of Part 1 - Financial Data Schedule Exhibit 99 of Part 1 - Third Quarter 1999 Financial Statements and Notes (b) Reports on Form 8-K On October 13, 1999, a report on Form 8-K (File No. 1-5542) was filed for Item 5, Other Events, pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934. 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) Date November 5, 1999 /s/ Kathleen Burdett .............................. ................................ Kathleen Burdett Vice President and Chief Financial Officer (Principal Financial Officer) Date November 5, 1999 /s/ Dale J. Ribaudo ............................. ................................ Dale J. Ribaudo Vice President and Controller (Principal Accounting Officer) 13 INDEX TO EXHIBITS Exhibit No. 4A(1) Amendment to Rights Agreement, dated as of August 23, 1996, between the registrant and ChaseMellon Shareholder Services, L.L.C. dated as of October 4, 1999, was filed as Exhibit 4 to Form 8-K (File No. 1-5542), which was filed with the Securities and Exchange Commission on October 13, 1999, and is hereby incorporated herein by reference. 15 Letter to Securities and Exchange Commission re: Incorporation of Accountants' Report 27 Financial Data Schedule 99 Third 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 October 13, 1999 on our review of the interim financial information of Dexter Corporation (the "Company") as of and for the period ended September 30, 1999, and included in the Company's quarterly report on Form 10-Q for the quarter then ended is incorporated by reference in its 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 November 5, 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 9-MOS DEC-31-1999 SEP-30-1999 81,734 0 170,861 5,205 165,229 454,558 694,020 357,413 1,083,185 228,067 211,949 0 0 24,984 431,342 1,083,185 786,280 792,982 480,892 480,892 0 0 15,950 155,581 52,673 93,565 0 0 0 93,565 4.09 4.06
EX-99 4 EXHIBIT 99 1 EXHIBIT 99a DEXTER CORPORATION CONDENSED STATEMENT OF INCOME
- -------------------------------------------------------------------------------------------------------- Three Months Ended Nine Months Ended September 30, September 30, In thousands of dollars ---------------------------- ---------------------------- (except per share amounts) 1999 1998 Change 1999 1998 Change - -------------------------------------------------------------------------------------------------------- Revenues Net Sales $250,291 $283,357 - 12% $786,280 $875,885 - 10% Other income 2,179 2,528 - 14% 6,702 7,198 - 7% -------- -------- -------- -------- 252,470 285,885 - 12% 792,982 883,083 - 10% Expenses Cost of sales 150,949 179,220 - 16% 480,892 555,597 - 13% Marketing and administrative 61,470 60,015 + 2% 187,865 183,948 + 2% Research and development 11,576 13,808 - 16% 37,755 42,274 - 11% Interest 4,864 4,534 + 7% 15,950 13,213 + 21% Provision for contract settlement 3,870 3,870 Charge for restructuring businesses 2,430 2,430 Gain on divestiture of product lines (91,361) -------- -------- -------- -------- Income before Taxes 17,311 28,308 - 39% 155,581 88,051 + 77% Income taxes 3,365 9,908 - 66% 52,673 30,818 + 71% -------- -------- -------- -------- Income before Minority Interests 13,946 18,400 - 24% 102,908 57,233 + 80% Minority interests 2,960 4,222 - 30% 9,343 12,408 - 25% -------- -------- -------- -------- Net income $ 10,986 $14,178 - 23% $93,565 $44,825 + 109% ======== ======== ======== ======== Net Income per Share - basic $0.48 $0.62 - 23% $4.09 $1.95 + 110% Net Income per Share - diluted $0.48 $0.61 - 21% $4.06 $1.92 + 111% Dividends Declared per Share $0.26 $0.26 $0.78 $0.76 + 3% Average Shares Outstanding (000) - basic 22,800 23,034 - 1% 22,856 22,998 - 1% Average Shares Outstanding (000) - diluted 22,983 23,130 - 1% 23,014 23,204 - 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 SEPTEMBER 30 December 31 September 30 --------------------------------------------------- (except per share amounts) 1999 1998 1998 - -------------------------- ----------- ----------- ----------- ASSETS Cash and short-term securities $ 81,734 $ 111,049 $ 89,066 Accounts receivable, net 184,013 203,872 205,515 Inventories Materials and supplies 54,622 65,180 66,367 In process and finished 126,179 129,175 127,917 LIFO reserve (15,572) (17,388) (17,625) ----------- ----------- ----------- 165,229 176,967 176,659 Prepaid and deferred expenses 23,582 25,642 29,428 ----------- ----------- ----------- Total current assets 454,558 517,530 500,668 Property, plant and equipment, at cost, net 336,607 360,456 360,536 Excess of cost over net assets of businesses acquired 121,408 156,989 94,766 Patents, technology, trademarks, and covenants 115,844 118,152 27,707 Other assets 54,768 55,241 46,759 ----------- ----------- ----------- $ 1,083,185 $ 1,208,368 $ 1,030,436 =========== =========== =========== LIABILITIES & SHAREHOLDERS' EQUITY Short-term debt $ 42,405 $ 39,810 $ 37,804 Accounts payable 64,620 91,718 94,385 Dividends payable 5,928 5,989 5,989 Accrued liabilities and taxes 97,101 95,427 97,426 Current installments of long-term debt 18,013 17,230 12,805 ----------- ----------- ----------- Total current liabilities 228,067 250,174 248,409 Long-term debt 211,949 382,163 182,519 Deferred items 39,654 36,160 34,511 Long-term deferred income taxes 44,634 53,481 22,081 Long-term environmental reserves 12,773 13,501 13,649 Minority interests 89,782 84,340 121,357 Shareholders' equity Common stock and paid-in capital 40,410 40,255 37,686 Retained earnings 493,807 418,074 437,183 Treasury stock (59,076) (51,512) (49,749) Accumulated other comprehensive income (18,815) (18,268) (17,210) ----------- ----------- ----------- Total shareholders' equity 456,326 388,549 407,910 ----------- ----------- ----------- $ 1,083,185 $ 1,208,368 $ 1,030,436 =========== =========== =========== EQUITY PER SHARE $ 20.01 $ 16.86 $ 17.71
See accompanying notes to the condensed consolidated financial statements. Amounts as of September 30, 1999 and September 30, 1998 are unaudited. 3 EXHIBIT 99c DEXTER CORPORATION CONDENSED STATEMENT OF CASH FLOWS
- ----------------------------------------------------------------------------------------- Nine Months Ended September 30 ------------------------------ In thousands of dollars 1999 1998 - ----------------------------------------------------------------------------------------- OPERATIONS Net income $ 93,565 $ 44,825 Noncash items Depreciation 27,603 29,850 Amortization 15,777 8,781 Gain on divestiture of product lines (91,361) Charge for restructuring businesses 2,430 Income taxes (paid) / not due (1,087) 7,480 Minority interests 9,343 12,408 LIFO inventory charge / (credit) 253 (1,174) Equity in net income of affiliates (394) (2,156) Other (1,131) 1,423 Operating working capital increase (45,680) (32,885) --------- --------- 9,318 68,552 --------- --------- INVESTMENTS Property, plant and equipment (46,734) (44,056) Acquisitions (13,880) (1,781) Divestitures 226,353 Proceeds from exercise of LTI stock options 1,638 5,230 Other (8,107) 2,024 --------- --------- 159,270 (38,583) --------- --------- FINANCING Long-term debt, net (170,437) 4,992 Short-term debt, net 2,398 2,512 Dividends paid (17,893) (17,002) LTI dividends paid to minority interest shareholders (1,346) (1,703) Purchase of treasury stock (10,126) Other 1,621 984 --------- --------- (195,783) (10,217) --------- --------- (DECREASE) INCREASE IN CASH AND SHORT-TERM $ (27,195) $ 19,752 SECURITIES ========= ========= 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 81,734 89,066 (Decrease) Increase in cash and short-term securities --------- --------- per Statement of Financial Position (29,315) 20,760 Currency translation effects 2,120 (1,008) --------- --------- $ (27,195) $ 19,752 ========= =========
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 September 30 Nine Months Ended September 30 ------------------------------- ------------------------------ In thousands of dollars 1999 1998 Change 1999 1998 Change - ----------------------------------------------------------------------------------------------------------------------------------- NET INCOME $ 10,986 $ 14,178 - 23% $ 93,565 $44,825 + 109% -------- -------- -------- ------- OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX Currency translation effects 3,035 5,946 - 49% (143) 5,804 Unrealized (losses) gains on investments (51) 105 (404) (89) -------- -------- -------- ------- OTHER COMPREHENSIVE INCOME (LOSS) 2,984 6,051 - 51% (547) 5,715 -------- -------- -------- ------- COMPREHENSIVE INCOME $ 13,970 $ 20,229 - 31% $ 93,018 $50,540 + 84% ======== ========= ======== =======
See accompanying notes to the condensed consolidated financial statements. Amounts are unaudited. 5 Exhibit 99e Dexter Corporation Net Sales by Segment
Three Months Ended September 30 Nine Months Ended September 30 -------------------------------------- ------------------------------ In thousands of dollars 1999 1998 Change 1999 1998 Change - -------------------------------------------------------------------------------------------------------------- Life Sciences (a) $ 101,797 $ 89,084 + 14% $ 301,148 $ 268,983 +12% Nonwovens 69,037 65,628 + 5% 212,533 205,319 + 4% Specialty Polymers (b) 79,457 128,645 - 38% 272,599 401,583 -32% ------ ------- ------- ------- Consolidated $ 250,291 $283,357 - 12% $ 786,280 $ 875,885 -10% ========= ======== ========= =========
(a) The effect of businesses acquired increased net sales in the Life Sciences segment by $1.3 million, or 1% for the quarter, and $2.1 million, or 1%, year-to-date. (b) The effect of businesses divested decreased net sales in the Specialty Polymers segment by $54.5 million, or 42%, for the quarter, and $129.1 million, or 32%, year-to-date. Operating Income by Segment
Three Months Ended September 30 Nine Months Ended September 30 ------------------------------- ------------------------------ In thousands of dollars 1999 1998 Change 1999 1998 Change - ----------------------------------------------------------------------------------------------------------------------------- Life Sciences (a) $ 9,639 $ 13,319 - 28% $ 36,357 $ 41,483 - 12% Nonwovens (b) 8,225 8,995 - 9% 26,466 29,458 - 10% Specialty Polymers (c) 6,604 11,952 - 45% 117,575 37,101 + 217% --------- --------- -------- --------- Consolidated Operating Income 24,468 34,266 - 29% 180,398 108,042 + 67% Other Income, net 2,080 1,717 + 21% 5,241 4,352 + 20% Interest Expense (4,864) (4,534) + 7% (15,950) (13,213) + 21% General Corporate Expense (4,373) (3,141) + 39% (14,108) (11,130) + 27% --------- --------- -------- --------- Consolidated Income before Taxes $ 17,311 $ 28,308 - 39% $155,581 $ 88,051 + 77% ========= ========= ======== =========
(a) Life Sciences operating income includes $1.3 million of amortization charges for the quarter, and $6.8 million, year-to-date associated with Dexter's increased ownership in LTI. Life Sciences operating income includes a $3.9 million charge for the quarter and year-to-date related to the provision for contract settlement at LTI. (b) Nonwovens operating income for the quarter and year-to-date includes a $0.8 million restructuring charge. (c) The gain on the divestiture of product lines increased operating income in the Specialty Polymers segment by $91.4 million year-to-date. The effect of businesses divested decreased operating income in the Specialty Polymers segment by $4.2 million for the quarter and $8.1 million, year-to-date. Specialty Polymers operating income for the quarter and year-to-date includes a $1.6 million restructuring charge. - -------------------------------------------------------------------------------- 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 nine-month periods ended September 30, 1999 and 1998:
Three Months ended Nine Months ended Amounts in thousands September 30 September 30 (except per share data) 1999 1998 1999 1998 - -------------------------------------------------------------------------------------------------- EARNINGS PER SHARE - BASIC: Net income $ 10,986 $ 14,178 $ 93,565 $ 44,825 Weighted average shares outstanding 22,800 23,034 22,856 22,998 Earnings per share - basic $ .48 $ .62 $ 4.09 $ 1.95 EARNINGS PER SHARE - DILUTED: Net income $ 10,986 $ 14,178 $ 93,565 $ 44,825 Effect of subsidiary dilutive options on net income (25) (102) (64) (320) -------- -------- -------- -------- $ 10,961 $ 14,076 $ 93,501 $ 44,505 ======== ======== ======== ======== Weighted average shares outstanding 22,800 23,034 22,856 22,998 Weighted average effect of common stock equivalents 183 96 158 206 -------- -------- -------- -------- 22,983 23,130 23,014 23,204 ======== ======== ======== ======== Earnings per share - diluted $ .48 $ .61 $ 4.06 $ 1.92
7 Exhibit 99f Dexter Corporation Notes to Condensed Consolidated Financial Statements (continued) Note 3 - In September 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 SEPTEMBER 30, December 31, September 30, (in thousands of dollars) 1999 1998 1998 - ------------------------- -------- -------- -------- Common stock $ 24,984 $ 24,984 $ 24,984 Paid-in capital 18,358 17,689 15,228 Unearned compensation on restricted stock (2,932) (2,418) (2,526) -------- -------- -------- $ 40,410 $ 40,255 $ 37,686 ======== ======== ========
Note 5 - The following are included as components of Accumulated Other Comprehensive Income:
ACCUMULATED OTHER COMPREHENSIVE SEPTEMBER 30, December 31, September 30, INCOME (in thousands of dollars) 1999 1998 1998 - ------------------------------------ -------- -------- -------- Currency translation effects ($18,000) ($17,857) ($16,671) Unrealized losses on investments (794) (390) (515) Minimum pension liability adjustment (21) (21) (24) -------- -------- -------- ($18,815) ($18,268) ($17,210) ======== ======== ========
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 NINE MONTHS ENDED (in thousands of dollars) SEPTEMBER 30, 1999 SEPTEMBER 30, 1999 - ------------------------- -------------------- ------------------- Currency translation effects $ 3,035 $ (8,717) Plus: Reclassification adjustments for losses included in net income due to divestitures 8,574 -------- ------------ Net currency translation effects $ 3,035 $ (143) ======== ============
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 $221.9 million. 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 Nine Months Ended (except per share amounts) September 30, 1998 September 30, 1998 -------------------------- ------------------ ------------------ Net Sales $ 283,357 $ 875,885 Net Income $ 12,797 $ 38,859 Net Income Per Share - diluted $ .55 $ 1.67
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 September 30, 1999 were $262.1 million, a decrease of $155.9 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 September 30, 1999 were $347.1 million, an increase of $49.6 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 September 30, 1999, $0.4 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. In September 1999, LTI submitted a report in connection with a voluntary disclosure to the Department of Veteran Affairs ("VA") regarding matters involving the management of LTI's Federal Supply Schedule contract with the VA that has been in effect since April 1992. As part of the disclosure LTI has offered to provide a refund to the government in the amount of $3.9 million. LTI has recorded this amount in September 1999. There can be no assurance that the government will agree with LTI's assessment of this matter or accept LTI's offered refund amount. Consequently, it is possible the final resolution of this matter could materially differ from LTI's offer and could have a material adverse effect on the Company's financial position, operating results or cash flows when resolved in a future reporting period. 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 September 30, 1999 and 1998, and the related condensed statements of income and comprehensive income for each of the three-month and nine-month periods then ended, and the condensed statement of cash flows for the nine-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 condensed interim 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 October 13, 1999 -----END PRIVACY-ENHANCED MESSAGE-----