<PAGE>   1
MANAGEMENT STATEMENT

The management of Dexter Corporation has prepared the financial statements and
review contained on pages 16 through 41 in conformity with generally accepted
accounting principles. Dexter's management is responsible for the integrity and
objectivity of this annual report, including the financial statements, charts,
tables and other supplementary information. The financial statements and review
are presented on the accrual basis of accounting and, accordingly, include some
amounts based on judgment. Information included on these pages is an integral
part of the consolidated statement of financial position and related
consolidated statements of income, cash flows and changes in shareholders'
equity which have been audited by PricewaterhouseCoopers LLP.

Dexter has a clearly stated business ethics policy and code of conduct that
require employees to maintain high standards in their conduct of company
affairs. The company's accounting and control systems are designed to provide
reasonable assurance that financial records accurately reflect the transactions
of Dexter Corporation and that the company's assets are protected from
unauthorized use and preserved in accordance with established policies and
procedures, as implemented by qualified personnel. We modify and improve our
systems in response to changes in business conditions and operations, the advice
of independent certified public accountants, and the recommendations of our own
internal auditors and other independent experts on procedures and controls.
There are no known significant accounting control weaknesses.

PricewaterhouseCoopers LLP, independent certified public accountants, is engaged
to perform quarterly reviews and annual audits. Their audits are conducted in
accordance with generally accepted auditing standards which include
consideration of the company's internal controls. The Audit Committee of the
Board of Directors, made up entirely of outside directors, meets both separately
and jointly with the independent certified public accountants, internal auditors
and management to review accounting policies, adequacy of controls, quality of
financial reporting, and the scope and results of audits. Both the internal
auditors and the independent accountants have free and direct access to the
Audit Committee without the presence of management.

A company with a good reputation is not only a good supplier, customer and
citizen, but a good employer. Dexter has enjoyed a reputation based on integrity
for over two centuries. We are all the guardians of that reputation, and that
responsibility requires vigilance.




<TABLE>
<S>                               <C>                              <C>
/s/ K. Grahame Walker             /s/ Kathleen Burdett             /s/ Dale Ribaudo
---------------------             --------------------             -------------------
K. Grahame Walker                 Kathleen Burdett                 Dale J. Ribaudo
Chairman                          Vice President                   Vice President and Controller
and Chief Executive Officer       and Chief Financial Officer
</TABLE>


February 28, 2000


REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of Dexter Corporation:

In our opinion, the accompanying consolidated statement of financial position
and the related consolidated statements of income, cash flows, and of changes in
shareholders' equity, contained on pages 16 through 41, present fairly, in all
material respects, the consolidated financial position of Dexter Corporation at
December 31, 1999, 1998, and 1997, and the consolidated results of its
operations and its cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of Dexter Corporation's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.


/s/ PricewaterhouseCoopers LLP
--------------------------------
Hartford, Connecticut
February 28, 2000


                                       15
<PAGE>   2
<TABLE>
<CAPTION>
                                                                                                             DEXTER CORPORATION
SUMMARY OF FINANCIAL DATA

IN THOUSANDS OF DOLLARS
(EXCEPT PER SHARE AMOUNTS)                                       1999                1998              1997                1996
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>                <C>               <C>                  <C>
OPERATING RESULTS
NET SALES                                                  $1,041,673         $ 1,168,037       $ 1,147,055          $1,100,185
  % INCREASE (DECREASE)                                           (11%)                 2%                4%                  1%
GROSS PROFIT                                                  405,849             426,749           411,688             379,205
  AS % OF SALES                                                  39.0%               36.5%             35.9%               34.5%
LIFO CHARGE (CREDIT)
  INCLUDED IN COST OF SALES                                       188              (1,411)           (1,067)             (4,873)
MARKETING AND ADMINISTRATIVE EXPENSES                         251,244             246,911           238,401             223,848
  AS % OF SALES                                                  24.1%               21.1%             20.8%               20.3%
RESEARCH AND DEVELOPMENT EXPENSES                              49,711              56,656            54,021              51,504
  AS % OF SALES                                                   4.8%                4.9%              4.7%                4.7%
INTEREST EXPENSE                                               20,910              18,210            20,192              20,500
INCOME BEFORE TAXES                                           181,178              86,547           111,085              98,252
  AS % OF SALES                                                  17.4%                7.4%              9.7%                8.9%
TAX RATE                                                         34.0%               46.4%             36.0%               35.5%
INCOME (LOSS) BEFORE MINORITY INTERESTS                       119,573              46,400            71,094              63,372
  AS % OF SALES                                                  11.5%                4.0%              6.2%                5.8%
INCOME (LOSS) BEFORE CHANGE IN ACCOUNTING PRINCIPLES          107,499              31,704            56,427              48,722
  AS % OF SALES                                                  10.3%                2.7%              4.9%                4.4%
CUMULATIVE EFFECT OF CHANGE IN
  ACCOUNTING PRINCIPLES
NET INCOME (LOSS)                                          $  107,499         $    31,704       $    56,427          $   48,722
  AS % OF SALES                                                  10.3%                2.7%              4.9%                4.4%
RETURN ON:
  AVERAGE SHAREHOLDERS' EQUITY                                   25.3%                8.3%             15.1%               13.1%
  AVERAGE TOTAL CAPITAL                                          16.7%                6.6%             12.2%               10.6%
INCOME (LOSS) PER SHARE - DILUTED:
  BEFORE CHANGE IN ACCOUNTING PRINCIPLES                   $     4.67         $      1.35        $     2.41          $     2.03
  CUMULATIVE EFFECT OF CHANGE IN
   ACCOUNTING PRINCIPLES
  NET INCOME (LOSS) - DILUTED                              $     4.67         $      1.35        $     2.41          $     2.03
CASH DIVIDENDS DECLARED PER SHARE                          $     1.04         $      1.02        $      .96          $      .88
RATE OF DIVIDEND PAYOUT*                                           22%                 74%               39%                 43%
* BEFORE CUMULATIVE EFFECT OF 1993 CHANGE IN
  ACCOUNTING PRINCIPLES.
-------------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
WORKING CAPITAL                                            $  264,887         $   267,356       $   203,916          $  242,929
PROPERTY, PLANT AND EQUIPMENT, NET                            328,146             360,456           348,172             334,266
TOTAL ASSETS                                                1,074,128           1,208,368           961,776             953,804
LONG-TERM DEBT                                                218,132             382,163           180,030             209,952
SHAREHOLDERS' EQUITY                                       $  462,636         $   388,549       $   372,861          $  374,115
PERCENT LONG-TERM DEBT TO CAPITAL                                32.0%               49.6%             32.6%               35.9%
EQUITY PER SHARE AT YEAR END                                   $20.29         $     16.86        $    16.26          $    15.94

-------------------------------------------------------------------------------------------------------------------------------
OTHER DATA
CAPITAL EXPENDITURES                                       $   52,962         $    48,434       $    59,087          $   62,277
DEPRECIATION AND AMORTIZATION                              $   55,455         $    50,357       $    45,441          $   44,239
SHARES OUTSTANDING AT YEAR END (000)                           22,806              23,041            22,938              23,464
AVERAGE SHARES OUTSTANDING (000)                               22,842              23,007            23,010              23,687
MARKET PRICE PER SHARE - HIGH                              $ 41 13/16         $    43 3/8       $  43 15/16          $   33 5/8
                       - LOW                               $ 26 11/16         $    23 1/2       $    28 3/4          $   23 1/8
                       - CLOSE                             $   39 3/4         $   31 7/16       $   43 3/16          $   31 7/8
PRICE-EARNINGS RATIO RANGE*                                       9-6               31-17             18-12               16-11
NUMBER OF SHAREHOLDERS AT YEAR END                              2,600               2,800             3,000               3,100
NUMBER OF EMPLOYEES AT YEAR END**                               4,600               5,000             4,800               4,600
% PAYROLL AND BENEFITS TO SALES**                                  26%                 24%               24%                 23%
% RAW MATERIAL COSTS TO SALES**                                    36%                 41%               41%                 41%
*    BEFORE CUMULATIVE EFFECT OF 1993 CHANGE IN
     ACCOUNTING PRINCIPLES.
**   FROM CONTINUING OPERATIONS.

-------------------------------------------------------------------------------------------------------------------------------
INFLATION ADJUSTED DATA
NET SALES*                                                 $1,041,673         $ 1,193,632       $ 1,190,475          $1,168,317
  % INCREASE (DECREASE)                                           (13%)                                   2%                 (2%)
CASH DIVIDENDS DECLARED PER SHARE*                         $     1.04         $      1.04       $      1.00          $      .93
MARKET PRICE PER SHARE AT YEAR END**                       $   39 3/4         $    32 1/4       $        45          $   33 7/8

*  STATED IN AVERAGE 1999 DOLLARS USING THE CONSUMER PRICE INDEX.
** STATED IN YEAR-END 1999 DOLLARS USING THE CONSUMER PRICE INDEX.
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       16
<PAGE>   3

<TABLE>
<CAPTION>
                                                                                                           DEXTER CORPORATION
SUMMARY OF FINANCIAL DATA

IN THOUSANDS OF DOLLARS
(EXCEPT PER SHARE AMOUNTS)

                                                                 1995               1994               1993              1992
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>                 <C>                <C>             <C>
OPERATING RESULTS
NET SALES                                                 $ 1,088,905         $  974,719          $ 887,112      $   951,439
  % INCREASE (DECREASE)                                            12%                10%                (7%)              1%
GROSS PROFIT                                                  346,699            316,541            293,345          314,275
  AS % OF SALES                                                  31.8%              32.5%              33.1%            33.0%
LIFO CHARGE (CREDIT)
  INCLUDED IN COST OF SALES                                     1,881              2,231             (1,290)           1,626
MARKETING AND ADMINISTRATIVE EXPENSES                         206,708            188,272            175,141          188,263
  AS % OF SALES                                                  19.0%              19.3%              19.7%            19.8%
RESEARCH AND DEVELOPMENT EXPENSES                              49,375             46,644             43,803           42,216
  AS % OF SALES                                                   4.5%               4.8%               4.9%             4.4%
INTEREST EXPENSE                                               20,931             20,509             18,756           18,799
INCOME BEFORE TAXES                                            79,824             73,612             66,438           73,132
  AS % OF SALES                                                   7.3%               7.6%               7.5%             7.7%
TAX RATE                                                         35.5%              36.0%              36.5%            37.7%
INCOME (LOSS) BEFORE MINORITY INTERESTS                        51,487             47,112             42,188           45,577
  AS % OF SALES                                                   4.7%               4.8%               4.8%             4.8%
INCOME (LOSS) BEFORE CHANGE IN ACCOUNTING PRINCIPLES           40,578             37,898             34,053           38,203
  AS % OF SALES                                                   3.7%               3.9%               3.8%             4.0%
CUMULATIVE EFFECT OF CHANGE IN
  ACCOUNTING PRINCIPLES                                                                             (9,875)
NET INCOME (LOSS)                                            $ 40,578         $   37,898         $   24,178        $    38,203
  AS % OF SALES                                                   3.7%               3.9%               2.7%             4.0%
RETURN ON:
  AVERAGE SHAREHOLDERS' EQUITY                                   11.4%              11.5%               7.7%            12.1%
  AVERAGE TOTAL CAPITAL                                           9.4%               9.2%               7.0%            10.0%
INCOME (LOSS) PER SHARE - DILUTED:
  BEFORE CHANGE IN ACCOUNTING PRINCIPLES                     $   1.66             $ 1.55         $     1.39        $    1.57
  CUMULATIVE EFFECT OF CHANGE IN
   ACCOUNTING PRINCIPLES                                                                         $     (.40)
  NET INCOME (LOSS) - DILUTED                                $   1.66             $ 1.55         $      .99        $     1.57
CASH DIVIDENDS DECLARED PER SHARE                            $    .88             $  .88         $      .88        $      .88
RATE OF DIVIDEND PAYOUT*                                           53%                56%                63%              56%
* BEFORE CUMULATIVE EFFECT OF 1993 CHANGE IN
  ACCOUNTING PRINCIPLES.

-----------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
WORKING CAPITAL                                              $248,623            $209,024        $  199,146       $   207,146
PROPERTY, PLANT AND EQUIPMENT, NET                            325,203             328,935           309,954           298,869
TOTAL ASSETS                                                  934,161             880,609           820,691           782,025
LONG-TERM DEBT                                                215,839             225,402           227,307           179,024
SHAREHOLDERS' EQUITY                                         $369,615            $343,633        $  313,295       $   315,614
PERCENT LONG-TERM DEBT TO CAPITAL                                36.9%               39.6%             42.0%             36.2%
EQUITY PER SHARE AT YEAR END                                 $  15.26            $  14.11        $    12.87       $     12.98

-----------------------------------------------------------------------------------------------------------------------------
OTHER DATA
CAPITAL EXPENDITURES                                         $ 28,969            $ 45,097        $   44,784       $    51,793
DEPRECIATION AND AMORTIZATION                                $ 43,727            $ 40,923        $   36,655       $    35,672
SHARES OUTSTANDING AT YEAR END (000)                           24,220              24,350            24,340            24,308
AVERAGE SHARES OUTSTANDING (000)                               24,364              24,345            24,325            24,220
MARKET PRICE PER SHARE - HIGH                                $ 26 7/8            $     26        $   28 7/8       $    28 1/8
                       - LOW                                 $ 20 3/8            $ 19 7/8        $   20 3/8       $    20 7/8
                       - CLOSE                               $ 23 5/8            $ 21 3/4        $   23 1/2       $    25 7/8
PRICE-EARNINGS RATIO RANGE*                                     16-12               17-13             21-15             18-13
NUMBER OF SHAREHOLDERS AT YEAR END                              3,400               3,600             3,900             4,000
NUMBER OF EMPLOYEES AT YEAR END**                               4,800               4,700             4,700             4,800
% PAYROLL AND BENEFITS TO SALES**                                  24%                 25%               25%               25%
% RAW MATERIAL COSTS TO SALES**                                    44%                 43%               41%               42%
*    BEFORE CUMULATIVE EFFECT OF 1993 CHANGE IN
     ACCOUNTING PRINCIPLES.
**   FROM CONTINUING OPERATIONS.

-----------------------------------------------------------------------------------------------------------------------------
INFLATION ADJUSTED DATA
NET SALES*                                                $ 1,190,360          $1,095,461        $ 1,022,968       $1,129,540
  % INCREASE (DECREASE)                                             9%                  7%               (9%)              (2%)
CASH DIVIDENDS DECLARED PER SHARE*                        $       .96          $      .99        $      1.01       $     1.04
MARKET PRICE PER SHARE AT YEAR END**                      $    25 7/8          $   24 1/2        $    27 1/8       $   30 5/8
</TABLE>

*   STATED IN AVERAGE 1999 DOLLARS USING THE CONSUMER PRICE INDEX.
**  STATED IN YEAR-END 1999 DOLLARS USING THE CONSUMER PRICE INDEX.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                                           DEXTER CORPORATION

SUMMARY OF FINANCIAL DATA

IN THOUSANDS OF DOLLARS
(EXCEPT PER SHARE AMOUNTS)

                                                          1991                1990                1989
--------------------------------------------------------------------------------------------------------
<S>                                                   <C>                <C>                 <C>
OPERATING RESULTS
NET SALES                                             $  937,734         $   907,946         $   848,724
  % INCREASE (DECREASE)                                       3%                  7%                  3%
GROSS PROFIT                                             309,157             314,449             284,142
  AS % OF SALES                                             33.0%               34.6%               33.5%
LIFO CHARGE (CREDIT)
  INCLUDED IN COST OF SALES                                 (173)              1,100              (4,063)
MARKETING AND ADMINISTRATIVE EXPENSES                    198,334             191,656             168,935
  AS % OF SALES                                             21.2%               21.1%               19.9%
RESEARCH AND DEVELOPMENT EXPENSES                         42,056              39,880              37,359
  AS % OF SALES                                              4.5%                4.4%                4.4%
INTEREST EXPENSE                                          16,800              17,484              10,926
INCOME BEFORE TAXES                                       11,192              77,407              77,643
  AS % OF SALES                                              1.2%                8.5%                9.1%
TAX RATE                                                   109.5%               37.0%               38.0%
INCOME (LOSS) BEFORE MINORITY INTERESTS                   (1,059)             48,766              48,139
  AS % OF SALES                                             (0.1%)               5.4%                5.7%
INCOME (LOSS) BEFORE CHANGE IN ACCOUNTING PRINCIPLE       (7,119)             42,150              42,977
  AS % OF SALES                                             (0.8%)               4.6%                5.1%
CUMULATIVE EFFECT OF CHANGE IN
  ACCOUNTING PRINCIPLES
NET INCOME (LOSS)                                       $ (7,119)        $     42,150         $   42,977
  AS % OF SALES                                             (0.8%)               4.6%                5.1%
RETURN ON:
  AVERAGE SHAREHOLDERS' EQUITY                              (2.2%)              12.6%               13.6%
  AVERAGE TOTAL CAPITAL                                      0.7%               11.0%               11.6%
INCOME (LOSS) PER SHARE - DILUTED:
  BEFORE CHANGE IN ACCOUNTING PRINCIPLES              $     (.30)        $      1.71          $     1.70
  CUMULATIVE EFFECT OF CHANGE IN
   ACCOUNTING PRINCIPLES
  NET INCOME (LOSS) - DILUTED                         $     (.30)        $      1.71          $     1.70
CASH DIVIDENDS DECLARED PER SHARE                     $      .88         $       .88          $      .82
RATE OF DIVIDEND PAYOUT*                                      -                   51%                 47%
* BEFORE CUMULATIVE EFFECT OF 1993 CHANGE IN
  ACCOUNTING PRINCIPLES.
--------------------------------------------------------------------------------------------------------

FINANCIAL POSITION
WORKING CAPITAL                                       $  193,873         $   215,410          $  189,006
PROPERTY, PLANT AND EQUIPMENT, NET                       299,342             274,147             252,895
TOTAL ASSETS                                             784,471             762,383             694,490
LONG-TERM DEBT                                           188,702             160,478             130,834
SHAREHOLDERS' EQUITY                                  $  313,782         $   343,698          $  325,281
PERCENT LONG-TERM DEBT TO CAPITAL                           37.6%               31.8%               28.7%
EQUITY PER SHARE AT YEAR END                          $    12.99         $     14.24          $    13.14

--------------------------------------------------------------------------------------------------------
OTHER DATA
CAPITAL EXPENDITURES                                  $   61,749         $     43,910         $   33,119
DEPRECIATION AND AMORTIZATION                         $   34,095         $     30,272         $   26,243
SHARES OUTSTANDING AT YEAR END (000)                      24,149               24,136             24,761
AVERAGE SHARES OUTSTANDING (000)                          24,145               24,282             24,877
MARKET PRICE PER SHARE - HIGH                         $   26 1/8         $     24 1/2         $   34 3/4
                       - LOW                          $   18 1/2         $         18         $   20 1/8
                       - CLOSE                        $   21 5/8         $         21         $   21 7/8
PRICE-EARNINGS RATIO RANGE*                                -                    14-10              20-12
NUMBER OF SHAREHOLDERS AT YEAR END                         4,300                4,400              4,500
NUMBER OF EMPLOYEES AT YEAR END**                          5,600                5,500              5,400
% PAYROLL AND BENEFITS TO SALES**                             25%                  24%                23%
% RAW MATERIAL COSTS TO SALES**                               41%                  42%                46%
*    BEFORE CUMULATIVE EFFECT OF 1993 CHANGE IN
     ACCOUNTING PRINCIPLES.
**   FROM CONTINUING OPERATIONS.

--------------------------------------------------------------------------------------------------------
INFLATION ADJUSTED DATA
NET SALES*                                            $1,147,026           $1,157,639        $1,140,654
  % INCREASE (DECREASE)                                       (1%)                  1%               (2%)
CASH DIVIDENDS DECLARED PER SHARE*                    $     1.08           $     1.12        $     1.10
MARKET PRICE PER SHARE AT YEAR END**                  $   26 3/8           $   26 3/8        $   29 1/4
</TABLE>
*   STATED IN AVERAGE 1999 DOLLARS USING THE CONSUMER PRICE INDEX.
**  STATED IN YEAR-END 1999 DOLLARS USING THE CONSUMER PRICE INDEX.
--------------------------------------------------------------------------------

                                       17
<PAGE>   4
STATEMENT OF INCOME                                         DEXTER CORPORATION

<TABLE>
<CAPTION>
                                                                YEARS ENDED DECEMBER 31
IN THOUSANDS OF DOLLARS                            ---------------------------------------------------
(EXCEPT PER SHARE AMOUNTS)                             1999                 1998               1997
------------------------------------------------------------------------------------------------------
<S>                                                 <C>                 <C>                <C>
REVENUES
NET SALES                                           $ 1,041,673         $ 1,168,037        $ 1,147,055
EQUITY IN NET INCOME OF AFFILIATES                          405               3,319              4,461
OTHER INCOME                                              8,078               8,099              7,550
                                                    --------------------------------------------------
                                                      1,050,156           1,179,455          1,159,066

EXPENSES
COST OF SALES                                           635,824             741,288            735,367
MARKETING AND ADMINISTRATIVE                            251,244             246,911            238,401
RESEARCH AND DEVELOPMENT                                 49,711              56,656             54,021
INTEREST                                                 20,910              18,210             20,192
PROVISION FOR CONTRACT SETTLEMENT                         3,870
CHARGE FOR RESTRUCTURING BUSINESSES                       2,430
GAIN ON DIVESTITURE OF PRODUCT LINES                    (95,011)
TRANSACTION COSTS OF LIFE TECHNOLOGIES, INC.                                 5,335
ACQUIRED IN-PROCESS RESEARCH AND
  DEVELOPMENT COSTS                                                         24,508
                                                    --------------------------------------------------

INCOME BEFORE TAXES                                     181,178              86,547            111,085
INCOME TAXES                                             61,605              40,147             39,991
                                                    --------------------------------------------------
INCOME BEFORE MINORITY INTERESTS                        119,573              46,400             71,094
MINORITY INTERESTS                                       12,074              14,696             14,667
                                                    --------------------------------------------------
NET INCOME                                          $   107,499         $    31,704        $    56,427
                                                    ==================================================
NET INCOME PER SHARE - BASIC                        $      4.71         $      1.38        $      2.45
NET INCOME PER SHARE - DILUTED                      $      4.67         $      1.35        $      2.41

DIVIDENDS DECLARED PER SHARE                        $      1.04         $      1.02        $       .96
------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying financial review.


                                       18
<PAGE>   5
STATEMENT OF CASH FLOWS                                      DEXTER CORPORATION

<TABLE>
<CAPTION>

                                                                             YEARS ENDED DECEMBER 31
                                                               -----------------------------------------------
IN THOUSANDS OF DOLLARS                                             1999              1998             1997
--------------------------------------------------------------------------------------------------------------
<S>                                                              <C>               <C>               <C>
OPERATIONS
NET INCOME                                                       $ 107,499         $  31,704         $  56,427
  NONCASH ITEMS:
   DEPRECIATION                                                     36,212            38,696            37,453
   AMORTIZATION                                                     19,243            11,661             7,988
   GAIN ON DIVESTITURE OF PRODUCT LINES                            (95,011)
   CHARGE FOR RESTRUCTURING BUSINESSES                               2,430
   ACQUIRED IN-PROCESS RESEARCH & DEVELOPMENT COSTS                                   24,508
   INCOME TAXES (PAID) NOT DUE                                      (7,575)            4,926            (5,660)
   MINORITY INTERESTS                                               12,074            14,696            14,667
   LIFO INVENTORY CHARGE (CREDIT)                                      188            (1,411)           (1,037)
   EQUITY IN NET INCOME OF AFFILIATES                                 (405)           (3,319)           (4,461)
   OTHER                                                            (5,332)            3,299              (978)
OPERATING WORKING CAPITAL (INCREASE) DECREASE                      (34,440)          (26,781)          (19,778)
                                                               -----------------------------------------------
                                                                    34,883            97,979            84,621
                                                               -----------------------------------------------
INVESTMENTS
PROPERTY, PLANT AND EQUIPMENT                                      (56,844)          (54,198)          (62,989)
ACQUISITIONS                                                       (18,767)         (217,963)          (68,517)
DIVESTITURES                                                       257,935                              41,539
JOINT VENTURES                                                                         2,543             2,643
NOTES RECEIVABLE                                                                                           750
PROCEEDS FROM SALE OF INVESTMENTS                                    1,482               677               838
PROCEEDS FROM EXERCISE OF LTI STOCK OPTIONS                          3,258            27,051             4,052
OTHER                                                               (8,200)           (3,539)            1,061
                                                               -----------------------------------------------
                                                                   178,864          (245,429)          (80,623)
                                                               -----------------------------------------------
FINANCING
NEW LONG-TERM DEBT                                                  60,702           246,000            20,000
REPAYMENT OF LONG-TERM DEBT                                       (231,553)          (37,844)          (47,185)
SHORT-TERM DEBT, NET                                               (31,436)            4,234            30,611
DIVIDENDS PAID                                                     (23,820)          (22,990)          (21,728)
LTI DIVIDENDS PAID TO MINORITY INTEREST SHAREHOLDERS                (1,346)           (2,278)           (1,859)
PURCHASE OF TREASURY STOCK                                         (10,126)                            (20,517)
PROCEEDS FROM EXERCISE OF DEXTER STOCK OPTIONS                       2,543             1,996             4,315
OTHER                                                                 (514)             (268)             (359)
                                                               -----------------------------------------------
                                                                  (235,550)          188,850           (36,722)
                                                               -----------------------------------------------
(DECREASE) INCREASE IN CASH AND SHORT-TERM SECURITIES            $ (21,803)        $  41,400         $ (32,724)
                                                               ===============================================

CHANGES IN MAJOR ELEMENTS WHICH INCREASE
  (DECREASE) OPERATING WORKING CAPITAL
ACCOUNTS RECEIVABLE, NET                                         $  26,382         $   9,571         $  13,713
INVENTORIES AT FIFO                                                 11,393            11,764            14,857
PREPAID AND DEFERRED EXPENSES                                          802               458             2,908
ACCOUNTS PAYABLE                                                    (6,205)            3,663            (6,448)
ACCRUED LIABILITIES AND EXPENSES                                     2,068             1,325            (5,252)
                                                               -----------------------------------------------
                                                                 $  34,440         $  26,781         $  19,778
                                                               ===============================================

RECONCILIATION OF (DECREASE) INCREASE IN
  CASH AND SHORT-TERM SECURITIES
CASH AND SHORT-TERM SECURITIES AT BEGINNING OF YEAR              $ 111,049         $  68,306         $ 103,420
CASH AND SHORT-TERM SECURITIES AT END OF YEAR                       86,850           111,049            68,306
                                                               -----------------------------------------------
(DECREASE) INCREASE IN CASH AND SHORT-TERM SECURITIES PER
  STATEMENT OF FINANCIAL POSITION                                  (24,199)           42,743           (35,114)
CURRENCY TRANSLATION EFFECTS                                         2,396            (1,343)            2,390
                                                               -----------------------------------------------
                                                                 $ (21,803)        $  41,400         $ (32,724)
                                                               ===============================================

INTEREST PAID                                                    $  20,716         $  18,284         $  20,407
TAXES PAID                                                       $  69,180         $  35,221         $  45,651
</TABLE>


Investment in property, plant and equipment for the year ended December 31, 1998
includes $4.6 million related to the exercise of an option to purchase land
under a capital lease by LTI.
-------------------------------------------------------------------------------
See accompanying financial review.

                                       19
<PAGE>   6
                                                              DEXTER CORPORATION


STATEMENT OF FINANCIAL POSITION

<TABLE>
<CAPTION>
                                                                        DECEMBER 31
                                                     ---------------------------------------------------
IN THOUSANDS OF DOLLARS                                   1999              1998                    1997
--------------------------------------------------------------------------------------------------------
<S>                                                  <C>                 <C>                 <C>
ASSETS
CURRENT ASSETS:
  CASH                                               $     9,043         $     8,566         $    11,273
  SHORT-TERM SECURITIES                                   77,807             102,483              57,033
  ACCOUNTS RECEIVABLE, NET                               181,726             203,872             185,257

  INVENTORIES:
   MATERIALS AND SUPPLIES                                 56,451              65,180              61,233
   IN PROCESS AND FINISHED GOODS                         122,551             129,175             117,467
   LIFO RESERVE                                          (15,507)            (17,388)            (18,799)
                                                     ---------------------------------------------------
                                                         163,495             176,967             159,901


  CURRENT DEFERRED TAX ASSETS                             23,176              14,874              17,107
  PREPAID AND DEFERRED EXPENSES                            9,307              10,768               9,881
                                                     ---------------------------------------------------
                                                         464,554             517,530             440,452
PROPERTY, PLANT AND EQUIPMENT:
  LAND                                                    27,594              30,879              28,501
  BUILDINGS AND IMPROVEMENTS                             175,551             193,594             184,388
  MACHINERY AND EQUIPMENT                                457,314             509,406             474,079
  CONSTRUCTION IN PROGRESS                                25,260              22,302              25,157
                                                     ---------------------------------------------------
                                                         685,719             756,181             712,125
  LESS ACCUMULATED DEPRECIATION                         (357,573)           (395,725)           (363,953)
                                                     ---------------------------------------------------
                                                         328,146             360,456             348,172
INVESTMENTS OF WHOLLY OWNED CAPTIVE
  INSURANCE COMPANIES                                      5,972               8,248               9,056
INVESTMENT IN UNCONSOLIDATED AFFILIATES                      286               9,861               8,704
PATENTS, TECHNOLOGY, TRADEMARKS AND COVENANTS            113,800             118,152              29,489
EXCESS OF COST OVER NET ASSETS OF
  BUSINESSES ACQUIRED                                    112,191             156,989              97,507
OTHER ASSETS                                              49,179              37,132              28,396
                                                     ---------------------------------------------------
                                                     $ 1,074,128         $ 1,208,368         $   961,776
                                                     ===================================================
---------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying financial review.



                                       20
<PAGE>   7
STATEMENT OF FINANCIAL POSITION                               DEXTER CORPORATION

<TABLE>
<CAPTION>
                                                                             DECEMBER 31
                                                       ---------------------------------------------------
IN THOUSANDS OF DOLLARS                                     1999                1998                 1997
---------------------------------------------------------------------------------------------------------
<S>                                                    <C>                 <C>                 <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
  SHORT-TERM DEBT                                      $     8,578         $    39,810         $    35,361
  ACCOUNTS PAYABLE                                          68,494              91,718              91,155
  DIVIDENDS PAYABLE                                          5,929               5,989               5,505
  ACCRUED AND DEFERRED INCOME TAXES                         29,496              18,590              21,153
  ACCRUED LIABILITIES AND EXPENSES                          76,500              76,837              70,022
  CURRENT INSTALLMENTS OF LONG-TERM DEBT                    10,670              17,230              13,340
                                                       ---------------------------------------------------
                                                           199,667             250,174             236,536

LONG-TERM DEBT                                             218,132             382,163             180,030
DEFERRED ITEMS                                              42,095              36,160              31,913
LONG-TERM DEFERRED INCOME TAXES                             47,413              53,481              22,284
LONG-TERM ENVIRONMENTAL LIABILITIES                         11,668              13,501              13,726
MINORITY INTERESTS - PRINCIPALLY
  LIFE TECHNOLOGIES, INC.                                   92,517              84,340             104,426

SHAREHOLDERS' EQUITY
  COMMON STOCK, PAR VALUE $1 PER SHARE
    (AUTHORIZED 100,000,000 SHARES; ISSUED
    24,983,907 SHARES IN 1999, 1998 AND 1997)               24,984              24,984              24,984
  ADDITIONAL PAID-IN CAPITAL                                18,613              17,689              17,482
  TREASURY STOCK, AT COST
    (1,943,068 SHARES IN 1999, 1,702,704 SHARES
    IN 1998 AND 1,814,035 SHARES IN 1997)                  (59,385)            (51,512)            (52,216)
  UNEARNED COMPENSATION                                     (2,424)             (2,418)             (4,308)
  RETAINED EARNINGS                                        501,813             418,074             409,844
  ACCUMULATED OTHER COMPREHENSIVE INCOME:
    CURRENCY TRANSLATION EFFECTS                           (20,971)            (17,857)            (22,475)
    UNREALIZED GAINS (LOSSES) ON INVESTMENTS                    17                (390)               (426)
    MINIMUM PENSION LIABILITY                                  (11)                (21)                (24)
                                                       ---------------------------------------------------
                                                           (20,965)            (18,268)            (22,925)
                                                       ---------------------------------------------------
     TOTAL SHAREHOLDERS' EQUITY                            462,636             388,549             372,861
                                                       ---------------------------------------------------
                                                       $ 1,074,128         $ 1,208,368         $   961,776
                                                       ===================================================
----------------------------------------------------------------------------------------------------------
</TABLE>


See accompanying financial review.



                                       21
<PAGE>   8
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY                 DEXTER CORPORATION

<TABLE>
<CAPTION>
                                                               ACCUMULATED
                                                                     OTHER              ADDITIONAL     UNEARNED
IN THOUSANDS OF DOLLARS                      COMPREHENSIVE   COMPREHENSIVE  RETAINED       PAID-IN     COMPEN-     COMMON
(EXCEPT PER SHARE AMOUNTS)                          INCOME          INCOME  EARNINGS       CAPITAL     SATION      STOCK
---------------------------------------------------------------------------------------------------------------------------
<S>                                          <C>              <C>           <C>         <C>            <C>         <C>
DECEMBER 31, 1996                                                 $(2,565)  $375,480       $14,669     $(2,780)    $24,984
COMPREHENSIVE INCOME
  NET INCOME                                    $ 56,427                      56,427
  OTHER COMPREHENSIVE
   INCOME (LOSS), NET OF TAX:
   FOREIGN CURRENCY TRANSLATION ADJUSTMENTS      (20,288)
   UNREALIZED LOSS ON INVESTMENTS                   (252)
   MINIMUM PENSION LIABILITY ADJUSTMENT              180
                                                 -------
  OTHER COMPREHENSIVE INCOME (LOSS)              (20,360)         (20,360)
                                                 -------
COMPREHENSIVE INCOME                            $ 36,067
                                                ========
DIVIDENDS - $.96 PER SHARE                                                   (22,063)
STOCK PURCHASES
STOCK OPTIONS                                                                                  892
RESTRICTED STOCK                                                                             1,920      (1,528)
POOLING TAX BENEFITS                                                                             1
                                                                  --------------------------------------------------------
DECEMBER 31, 1997                                                 (22,925)   409,844        17,482      (4,308)     24,984
COMPREHENSIVE INCOME
  NET INCOME                                   $ 31,704                       31,704
  OTHER COMPREHENSIVE INCOME, NET OF TAX:
   FOREIGN CURRENCY TRANSLATION ADJUSTMENTS       4,618
   UNREALIZED GAIN ON INVESTMENTS                    36
   MINIMUM PENSION LIABILITY ADJUSTMENT               3
                                              ---------
  OTHER COMPREHENSIVE INCOME                      4,657             4,657
                                               --------
COMPREHENSIVE INCOME                           $ 36,361
                                               ========
DIVIDENDS - $1.02 PER SHARE                                                  (23,474)
STOCK OPTIONS                                                                                 464
RESTRICTED STOCK                                                                             (259)       1,890
POOLING TAX BENEFITS                                                                            2
                                                                  --------------------------------------------------------
DECEMBER 31, 1998                                                 (18,268)   418,074       17,689       (2,418)    24,984
COMPREHENSIVE INCOME
  NET INCOME                                   $107,499                      107,499
  OTHER COMPREHENSIVE
   INCOME (LOSS), NET OF TAX:
   FOREIGN CURRENCY TRANSLATION ADJUSTMENTS,
     NET OF RECLASSIFICATION ADJUSTMENTS (A)     (3,114)
   UNREALIZED GAIN ON INVESTMENTS,
     NET OF RECLASSIFICATION ADJUSTMENTS (B)        407
   MINIMUM PENSION LIABILITY ADJUSTMENT              10
                                               --------
  OTHER COMPREHENSIVE INCOME (LOSS)              (2,697)          (2,697)
                                               --------
COMPREHENSIVE INCOME                           $104,802
                                               ========
DIVIDENDS - $1.04 PER SHARE                                                  (23,760)
STOCK PURCHASES
STOCK OPTIONS                                                                                  525
RESTRICTED STOCK                                                                               398          (6)
POOLING TAX BENEFITS                                                                             1
                                                                                                 -
                                                                ---------------------------------------------------------
DECEMBER 31, 1999                                               $(20,965)   $501,813       $18,613     $(2,424)   $24,984
                                                                =========================================================

DISCLOSURE OF RECLASSIFICATION AMOUNTS
(A) CURRENCY TRANSLATION EFFECTS               $(11,688)
   PLUS: RECLASSIFICATION ADJUSTMENTS FOR
   LOSSES INCLUDED IN NET INCOME DUE TO
   DIVESTITURES                                   8,574
                                               --------
NET CURRENCY TRANSLATION EFFECTS               $ (3,114)
                                               ========

(B) UNREALIZED LOSSES ON INVESTMENTS           $   (441)
   PLUS: RECLASSIFICATION ADJUSTMENTS FOR
   LOSSES INCLUDED IN NET INCOME                    848
                                               --------
NET UNREALIZED GAIN ON INVESTMENT              $    407
                                               ========
</TABLE>


<TABLE>
<CAPTION>


                                                         TOTAL
                                                        SHARE-
IN THOUSANDS OF DOLLARS                 TREASURY       HOLDERS'
(EXCEPT PER SHARE AMOUNTS)                 STOCK        EQUITY
-----------------------------------------------------------------
<S>                                         <C>         <C>
DECEMBER 31, 1996                           $(35,673)   $ 374,115
COMPREHENSIVE INCOME
  NET INCOME                                               56,427
  OTHER COMPREHENSIVE
   INCOME (LOSS), NET OF TAX:
   FOREIGN CURRENCY TRANSLATION ADJUSTMENTS               (20,288)
   UNREALIZED LOSS ON INVESTMENTS                            (252)
   MINIMUM PENSION LIABILITY ADJUSTMENT                       180
  OTHER COMPREHENSIVE INCOME (LOSS)
COMPREHENSIVE INCOME
DIVIDENDS - $.96 PER SHARE                                (22,063)
STOCK PURCHASES                              (20,517)     (20,517)
STOCK OPTIONS                                  2,490        3,382
RESTRICTED STOCK                               1,484        1,876
POOLING TAX BENEFITS                                            1
                                            ---------------------
DECEMBER 31, 1997                            (52,216)     372,861
COMPREHENSIVE INCOME
  NET INCOME                                               31,704
  OTHER COMPREHENSIVE INCOME, NET OF TAX:
   FOREIGN CURRENCY TRANSLATION ADJUSTMENTS                 4,618
   UNREALIZED GAIN ON INVESTMENTS                              36
   MINIMUM PENSION LIABILITY ADJUSTMENT                         3
  OTHER COMPREHENSIVE INCOME
COMPREHENSIVE INCOME
DIVIDENDS - $1.02 PER SHARE                               (23,474)
STOCK OPTIONS                                  1,403        1,867
RESTRICTED STOCK                                (699)         932
POOLING TAX BENEFITS                                            2
                                            ---------------------
DECEMBER 31, 1998                            (51,512)     388,549
COMPREHENSIVE INCOME
  NET INCOME                                              107,499
  OTHER COMPREHENSIVE
   INCOME (LOSS), NET OF TAX:
   FOREIGN CURRENCY TRANSLATION ADJUSTMENTS,
     NET OF RECLASSIFICATION ADJUSTMENTS (A)               (3,114)
   UNREALIZED GAIN ON INVESTMENTS,
     NET OF RECLASSIFICATION ADJUSTMENTS (B)                  407
   MINIMUM PENSION LIABILITY ADJUSTMENT                        10
  OTHER COMPREHENSIVE INCOME (LOSS)
COMPREHENSIVE INCOME
DIVIDENDS - $1.04 PER SHARE                               (23,760)
STOCK PURCHASES                              (10,126)     (10,126)
STOCK OPTIONS                                  1,728        2,253
RESTRICTED STOCK                                 525          917
POOLING TAX BENEFITS                                            1
                                            ---------------------
DECEMBER 31, 1999                           $(59,385)   $ 462,636
                                            =====================

-------------------------------------------------------------------
</TABLE>


See accompanying financial review.


                                       22
<PAGE>   9
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)                  DEXTER CORPORATION
<TABLE>
<CAPTION>
                            IN MILLIONS OF DOLLARS                                                               MARKET PRICE
                     --------------------------------------                                                -------------------------
                                                               NET INCOME     NET INCOME
                                                        NET    (LOSS) PER     (LOSS) PER
                          NET            COST       INCOME        SHARE -        SHARE -    DIVIDENDS
QUARTER                 SALES        OF SALES        (LOSS)          BASIC        DILUTED   PER SHARE          HIGH             LOW
------------------------------------------------------------------------------------------------------------------------------------
<S>                  <C>             <C>            <C>        <C>            <C>           <C>          <C>        <C>
1997
FIRST                $  272.3          $175.3        $ 12.9         $  .55         $  .54      $  .24    $32   1/8        $28   3/4
SECOND                  293.2           187.2          16.0            .70            .69         .24     33   1/2         29   1/8
THIRD                   286.9           182.8          14.2            .62            .61         .24     40  3/16         31   1/2
FOURTH                  294.7           190.1          13.3            .58            .57         .24     43 15/16         38 15/16
                     --------------------------------------------------------------------------------
YEAR                 $1,147.1          $735.4        $ 56.4         $ 2.45         $ 2.41      $  .96        CLOSE     $43 3/16
                     ===============================================================================================================
------------------------------------------------------------------------------------------------------------------------------------
1998*
FIRST                $  289.9          $184.6        $ 14.2         $  .62         $  .61      $  .24    $43   3/8         $37  1/2
SECOND                  302.6           191.8          16.4            .71            .70         .26     42 15/16          31 9/16
THIRD                   283.4           179.2          14.2            .62            .61         .26     33  5/16          23  7/8
FOURTH                  292.1           185.7         (13.1)          (.57)          (.57)        .26     32   7/8          23  1/2
                     --------------------------------------------------------------------------------
YEAR                 $1,168.0          $741.3        $ 31.7         $ 1.38         $ 1.35      $ 1.02        CLOSE     $31 7/16
                     ===============================================================================================================
</TABLE>


*The third and fourth quarters' pretax income included charges incurred by LTI
of $0.3 million and $5 million, respectively, for transaction costs related to
Dexter's increased ownership. Additionally, the fourth quarter pretax income
included a charge of $24.5 million for the write-off of acquired in-process
research and development costs.

<TABLE>
------------------------------------------------------------------------------------------------------------------------------------
<S>                  <C>               <C>           <C>            <C>            <C>         <C>     <C>          <C>
1999**
FIRST                $  279.9          $176.1        $ 68.8         $ 2.99         $ 2.98      $  .26    $32  5/16        $26 11/16
SECOND                  256.1           153.8          13.8            .60            .60         .26     41   5/8         31   7/8
THIRD                   250.3           151.0          11.0            .48            .48         .26     41   3/8         35 15/16
FOURTH                  255.4           154.9          13.9            .61            .61         .26     41 13/16         32  9/16
                     ----------------------------------------                      ------------------
YEAR                 $1,041.7          $635.8        $107.5         $ 4.71         $ 4.67      $ 1.04        CLOSE     $39 3/4
                     ===============================================================================================================


**The first quarter pretax income included a $91.4 million gain primarily due to
the divestiture of the company's Packaging Coatings business. The third quarter
pretax income included a $2.4 million charge for restructuring businesses. The
fourth quarter pretax income included a $3.7 million gain resulting from the
sale of the company's printed wiring board product line.
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       23
<PAGE>   10
ANALYSIS OF FINANCIAL CONDITION AND OPERATIONS


PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the
accounts of all majority owned subsidiaries. All consolidated subsidiaries are
wholly owned except Life Technologies, Inc. (hereinafter referred to as "LTI")
and a few other subsidiaries, primarily outside the United States, in which
aggregate minority interests are not significant. Intercompany accounts,
transactions and profits have been eliminated in the consolidated financial
statements. Companies owned 20% to 50% are accounted for by the equity method.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting periods. Actual results could differ from those estimates. Certain
amounts for prior years have been reclassified to conform to and be consistent
with the 1999 presentation.

FORWARD-LOOKING STATEMENTS Matters discussed in this 1999 Annual Report that are
not historical facts are forward-looking statements, as that term is defined
under Federal Securities Laws and are subject to risks and uncertainties and
other factors which could cause actual results to differ materially from those
stated in such statements. These forward-looking statements include, but are not
limited to, statements about (i) future growth in the company's revenues and
earnings and (ii) improvements in the markets served by the company. Actual
results could differ materially from such forward-looking statements because of,
among other things, the following factors: unit volume growth substantially
different from the company's targeted range; the impact of competitive products
and pricing; changes in the prices of raw materials; fluctuations in foreign
currency rates; changes in laws and regulations; the possibility of adverse
rulings by, or adverse developments in negotiations with, the government, and
other risks identified below in the section entitled "Events, Trends and
Vulnerabilities."

EVENTS, TRENDS AND VULNERABILITIES Dexter is subject to a multitude of events
and trends that influence its business prospects, profitability, and liquidity.
Many of these events and trends are outside the control of the company. However,
the consequent effects need to be managed as part of the ongoing business
environment.

During 1999, selling prices and raw material costs were relatively stable with
each decreasing approximately 1%. Although efforts to raise prices and gain full
value for our product offerings continued in 1999, excess worldwide capacity
made it increasingly difficult to maintain selling prices at their previous
levels especially in the nonwovens segment. Overall decreases in raw material
costs did not fully offset the impact of lower selling prices. We expect overall
raw material costs to remain relatively stable in the short term. However, any
substantial increases in future demand for the materials the company purchases,
provided no additional production capacity is built, will likely result in
higher levels of cost to Dexter. This type of pressure may impact the Nonwoven
Materials business in the year 2000 as it relates to woodpulp. LTI is subject to
volatility in the cost of fetal bovine serum, which stems from a fundamental
limit of supply. Further, for less critical applications, additional competition
can be expected consequent to the development of substitute products for cell
culture, which do not depend on traditional raw materials.

Unit volume growth of sales of 5% and divestiture of lower gross margin
businesses supported gross margin expansion in 1999. To the extent that the unit
volume growth rate decreases in the future as a result of some weakness in
domestic or international economies, revenue and earnings growth may be
negatively impacted. The recovery of the Asian economy in 1999 had a favorable
impact on the sales and margins of the Electronic Materials business and LTI. It
is expected that the Asian economic environment will continue to improve in
2000. However, further volatility in demand for the company's products or the
inability of customers to remain viable in the region may impact the growth
potential in this area. The consequences of domestic interest rate changes and
tax policy may also influence total demand in our served markets.

Since approximately 50% of Dexter's profits are derived from products sold
outside the United States, any weakening of international currencies against the
U.S. dollar could have a negative effect on the company's results. Additionally,
the volatility of several Asian and Latin American currencies could create
exposures and losses for the company. Geographical expansion will continue to
provide opportunities and challenges as the company endeavors to create
profitable growth in developing countries.

There will continue to be costs incurred by the need to respond to heightened
regulatory pressures. Such costs may be significant in areas of environmental,
health, social and administrative regulation. Heightened worldwide environmental
concerns have led to greater capital requirements and increased operating
expenses. While the company, based on known facts and circumstances, has
provided substantial environmental reserves as shown at year end in the
Statement of Financial Position, the ultimate cost of compliance and remediation
cannot be ascertained and, therefore, there is no assurance that such reserves
will prove to be adequate over time.

In 2000, the company will continue to be required to spend substantial amounts
for outside resources in connection with an unsolicited merger proposal. These
costs are incremental to those required for the routine operation of the
businesses and, therefore, have had and will continue to have a negative impact
on the operating results of the company. In February 2000, the Board of
Directors authorized the company's management to explore all strategic
alternatives that may be available to Dexter to maximize shareholder value in
the short term.

National and local deficits, as well as ongoing economic issues in several parts
of the world, may dictate the need for greater tax receipts or significant
reductions in government spending. Future increases in taxes by countries,
states, and localities in which we operate may be the ultimate outcome of this
imbalance. Lower government spending may adversely affect LTI by reducing the
overall availability of government funding for life science research.

Other areas which will have an important impact on the future of the company
will be the increasing rate of technological change, a continued universal move
toward higher quality products, shortened product life cycles and further
globalization of our customers and competitors. Technology is the lifeblood of
the corporation. In order to remain competitive we must, successfully and
rapidly, introduce new products that not only replace our current products but
also those of our competitors; otherwise, we are potentially exposed to reduced
margins and loss of business.

The general aging of the U.S. population creates challenges with respect to the
availability of employees as well as amplifying trends in increased health care
costs. Dexter's ability to hire and retain a qualified workforce around the
world will be fundamental to our growth and success. Increased training and
developmental needs will require additional resources to maintain and improve
our overall competencies.


                                       24
<PAGE>   11
The company has not experienced any significant system failures or other
negative impacts related to the Year 2000 transition. The company will continue
to monitor its systems, equipment, and business processes for Year 2000 related
issues. However, there can be no assurance that the company or its customers and
suppliers will not experience Year 2000 problems in the future that could affect
the company's business. See Item 7, Management's Discussion and Analysis and
Financial Condition and Results of Operations, in the 1999 Form 10-K for further
information regarding the Year 2000 date change.

The complexities of ever-changing worldwide events and trends including the
international political environment, the global marketplace, proliferation of
E-business, and the advancement of technology generate numerous vulnerabilities
and challenges. The company believes that it will successfully face these
challenges with continued innovation and increased productivity.

ACQUISITIONS AND DIVESTITURES On November 2, 1998, Dexter commenced a tender
offer for LTI common stock it did not own and on December 22, 1998, Dexter
completed its tender offer. Approximately 5.5 million shares representing
approximately 22% of all issued and outstanding LTI shares were tendered and
purchased by Dexter for a total of $222.1 million including transaction costs.
As a result of the acquisition of these shares and open market purchases during
1999, Dexter owned approximately 71.5% of the total number of issued and
outstanding shares of LTI as of December 31, 1999. Since year-end 1999, Dexter
purchased additional shares of LTI, increasing Dexter's ownership of LTI to
approximately 75%.

The acquisition was accounted for as a purchase, and accordingly, the purchase
price has been allocated to the identified tangible and intangible assets based
upon Dexter's proportionate interest in the estimated fair market value of those
assets.

The following unaudited pro forma information presents the results of operations
of the company as if the 1998 acquisition had taken place on January 1, 1998,
and January 1, 1997, respectively.

<TABLE>
<CAPTION>
                                   Years ended December 31
In thousands of dollars            -----------------------
(except per share amounts)          1998                1997
--------------------------------------------------------------
<S>                             <C>                 <C>
Net Sales                       $1,168,037          $1,147,055
Net Income                      $   23,460          $   21,276
Net Income per share-diluted    $     1.00          $      .89
--------------------------------------------------------------
</TABLE>

These unaudited pro forma results have been prepared for comparative purposes
only and include certain adjustments, such as, the charges for acquired
in-process research and development and transaction costs, additional
amortization expense, and increased interest expense on acquisition debt. They
do not purport to be indicative of the results of operations which actually
would have resulted had the acquisition occurred on the date indicated, or which
may result in the future.

In January 1999, Dexter divested its 40% interest in Akzo Dexter Aerospace
Finishes VoF, a joint venture between Dexter Corporation and Akzo Nobel NV to
Akzo Nobel NV for approximately book value. As a result of this divestiture,
Dexter announced its intention to expand its existing network as a worldwide
supplier of aerospace coatings technologies, continuing to operate from its
OEM-approved manufacturing facilities in Bassano, Italy and Waukegan, Illinois.

In February 1999, Dexter completed the sale of its Packaging Coatings business,
including Dexter SAS, its French industrial coatings subsidiary for total
proceeds of $225 million. The sale of this business resulted in a pretax gain of
$91.1 million, or $2.53 per share diluted for the company in the first quarter
of 1999.

In May 1999, LTI acquired the process chromatography and research products
businesses of BioSepra Inc. in an all cash transaction for $11.6 million.

In November 1999, Dexter divested its printed wiring board product line that was
part of the Electronic Materials business. The effect of this divestiture
resulted in a pretax gain of $3.7 million, or $.08 per share diluted for the
company in the fourth quarter of 1999.

LIQUIDITY The company's liquidity is strong and ample lines of credit are
available to the company and its subsidiaries. The current ratio (current assets
divided by current liabilities) is 2.3 to 1, and the quick ratio (cash,
short-term securities and accounts receivable divided by current liabilities) is
1.3 to 1. As shown in the Statement of Cash Flows, cash provided from operations
of $34.9 million and investing activities of $178.9 million were exceeded by
cash needed for financing activities of $235.6 million, thereby decreasing
year-end cash and short-term securities by $21.8 million.

Net income, after adjustments for the pretax gain on the divestiture of product
lines, in addition to depreciation, amortization, and minority interests, were
the principal source of cash from operations in 1999 totaling $80 million.
Working capital increases of $34.4 million was the principal use of cash from
operations. Investment activity in 1999 included cash received from divestitures
of $257.9 million. Also included in investment activity for 1999 were capital
expenditures of $56.8 million and cash expenditures for acquisitions of $18.8
million, primarily related to LTI's acquisition of a process chromatography and
research products business. Financing activities in 1999 included cash outflows
principally used for the net repayment of long-term debt of $170.9 million,
which was primarily related to the borrowings in 1998 for the acquisition of an
additional 22% of LTI. Financing activities also included the repayment of $31.4
million of short-term debt, the purchase of 344,500 shares of the company's
outstanding common stock for $10.1 million and dividend payments of $23.8
million.

Excluding LTI, the current ratio is 1.7 to 1 and the quick ratio is 1 to 1.
Excluding LTI, cash provided from investments of $219 million were exceeded by
cash needed for financing activities of $232.6 million and operations of $7.4
million, resulting in a decrease in cash and short-term securities of $21
million in 1999.

The company plans to meet its future working capital and capital expenditure
needs with funds provided from operations, the reduction of short-term
securities and, as needed, short-term and long-term borrowings.


                                       25
<PAGE>   12
ANALYSIS OF OPERATIONS

1999 COMPARED WITH 1998

REVENUES Net sales in 1999 were $1.04 billion, a decrease of $126.4 million, or
11%, compared with sales of $1.17 billion in 1998. Volume increases of 5% were
more than offset by a 15% decrease due to the net effect of divestitures and
acquisitions and price decreases averaging 1%.

Equity in net income of affiliates decreased $2.9 million to $0.4 million in
1999. This decrease was attributable to the divestiture of Dexter's 40% interest
in its aerospace coatings joint venture.

EXPENSES Cost of sales decreased as a percentage of sales in 1999, thereby
increasing consolidated gross margins by 2.5 percentage points to 39% of sales
in 1999 from 36.5% in 1998. Excluding charges incurred in 1999 relating to
Dexter's increased ownership in LTI, which unfavorably impacted gross margins by
0.7 percentage points, gross margins would have improved 3.2 percentage points.
These improvements were the result of increased volume, a favorable product mix
at LTI, and the divestiture of the company's lower gross margin Packaging
Coatings business.

Marketing and administrative expenses increased $4.3 million, or 2%, in 1999
compared with 1998 primarily due to increased costs at LTI and corporate
expenses, partially offset by reduced expense resulting from the divestiture of
the Packaging Coatings business. Research and development expenses decreased
$6.9 million, or 12%, principally due to the Packaging Coatings divestiture.

Interest expense increased $2.7 million, or 15%, in 1999 compared with 1998
primarily due to higher average borrowings in the first quarter of 1999
following the acquisition of an additional 22% ownership in LTI in December
1998. These borrowings were repaid in March 1999 with proceeds received from the
divestiture of the Packaging Coatings business. The company does not capitalize
interest on facilities under construction. If interest had been capitalized,
there would have been no impact on earnings per share in 1999 and 1998.

In 1999, pretax income included a charge of $3.9 million representing a
voluntary refund LTI offered to the Department of Veterans Affairs ("VA")
related to its supply schedule contract with the VA. Also included in 1999
pretax income was a gain on divestiture of product lines of $95 million. This
gain included $91.1 million due to the divestiture of the company's Packaging
Coatings business and $3.7 million due to the divestiture of the company's
printed wiring board product line. In addition, 1999 pretax income included a
$2.4 million charge for restructuring activities in its specialty polymers and
nonwovens segments for a plant closure and other business realignments, which
resulted in the elimination of approximately 60 full-time positions. In 1998,
pretax income included a charge of $24.5 million, which represented the
write-off of acquired in-process research and development costs arising from the
acquisition of an additional 22% of LTI in December 1998 and $5.3 million of
transaction costs incurred by LTI related to Dexter's increased ownership.

INCOME TAXES The effective tax rate was 34% in 1999 compared with 46.4% in 1998.
The higher tax rate in 1998 was the result of the nondeductability of acquired
in-process research and development costs and certain transaction costs at LTI.
Excluding these costs, the effective tax rate on earnings from operations for
1998 was 35%.

MINORITY INTEREST Income attributed to minority interest shareholders decreased
18% from 1998 due to Dexter increasing its ownership of LTI to 71.5% effective
in December 1998. This decrease was somewhat offset by the transaction costs
incurred by LTI which reduced 1998 minority interest expense.

NET INCOME Earnings from operations for the 1999 year, excluding gains on
divestiture of product lines and restructuring costs, were $48.8 million, or
$2.12 per share on a diluted basis compared with $58.4 million, or $2.50 per
share diluted for 1998. Included in 1999 earnings from operations is the
negative impact of $.40 per share due to noncash amortization charges resulting
from Dexter's increased ownership of LTI, and the net impact of divestitures and
acquisitions. Also included in 1999 are costs associated with an unsolicited
merger proposal, a one-time pretax charge of $3.9 million representing a
voluntary refund LTI has offered to the VA related to its supply schedule
contract with the VA and a $2.3 million favorable income tax settlement between
LTI and the Internal Revenue Service. The net effect of these items resulted in
a net unfavorable impact of $.02 per share on 1999 earnings from operations. Net
income for the 1999 year was $107.5 million, or $4.67 per share diluted.
Included in 1999 net income are gains from the divestiture of product lines of
$2.62 per share and a charge for restructuring activities of $.07 per share.
This compares with net income of $31.7 million, or $1.35 per share diluted for
1998 which included the net pretax costs of $29.8 million, or $1.15 per share,
due to the write-off of the acquired in-process research and development costs
and transaction costs incurred by LTI.

1998 COMPARED WITH 1997

REVENUES Net sales were $1.17 billion in 1998, an increase of $21 million, or
2%, over 1997 sales of $1.15 billion. The 2% increase in sales was due to unit
volume increases of 2% and a 2% increase due to the effect of acquisitions,
partially offset by selling price decreases averaging 1% and a 1% decrease due
to the effect of lower currency translation rates on international sales.

Equity in net income of affiliates decreased $1.1 million to $3.3 million in
1998. This decrease was primarily due to no 1998 equity earnings from D & S
Plastics International, which was divested effective April 1, 1997.

EXPENSES Cost of sales decreased as a percentage of sales in 1998, thereby
increasing consolidated gross margins by 0.6 percentage points to 36.5% of sales
from 35.9% in 1997. Gross margin, excluding LTI, increased 0.3 percentage
points, primarily due to productivity improvements and cost containment
activities. The remaining favorable impact in gross margin was primarily
attributable to increased sales volume at LTI.

Marketing and administrative expenses increased $8.5 million, or 4%, in 1998
compared with 1997 principally due to increased marketing and administrative
expenses at LTI. Research and development expenses increased $2.6 million, or
5%, primarily due to costs associated with acquired Dexter businesses in the
fourth quarter of 1997 and increased research and development expense in the
nonwovens segment and at LTI.

Interest expense decreased $2 million, or 10%, in 1998 compared with 1997
primarily due to lower average long-term borrowings in 1998. If interest had
been capitalized, there would have been no impact on earnings per share in 1998
and earnings per share would have increased by $.02 per share in 1997.

Pretax income included a charge of $24.5 million, which represents the write-off
of acquired in-process research and development costs arising from the
acquisition of an additional 22% of LTI in December 1998 and $5.3 million of
transaction costs incurred by LTI related to Dexter's increased ownership. There
were no such charges in 1997.


                                       26
<PAGE>   13
INCOME TAXES In 1998, the effective tax rate was 35% from operations, excluding
one-time charges. Due to the nondeductibility of acquired in-process research
and development costs and certain transaction costs at LTI, the consolidated
effective tax rate in 1998 was 46.4% compared with 36% in 1997.

MINORITY INTEREST Income attributed to minority interest shareholders remained
largely unchanged in 1998 compared with 1997 as increases in LTI income from
operations were offset by $5.3 million of transaction costs.

NET INCOME Net income from operations, excluding one-time charges, for the year
1998 was $58.4 million, or $2.50 per share on a diluted basis. This represents a
4% increase in earnings and diluted earnings per share from operations compared
with results for 1997 of $56.4 million, or $2.41 per share diluted. Including
the acquired in-process research and development costs and transaction costs
which totaled $29.8 million, or $1.15 per share diluted, 1998 net income was
$31.7 million, or $1.35 per share diluted, compared with $2.41 per share diluted
in 1997.

1997 COMPARED WITH 1996

REVENUES Net sales were $1.15 billion in 1997, an increase of $46.9 million, or
4% over 1996 sales. The 4% increase in sales was due to unit volume increases of
7% partially offset by a 3% decrease due to the effect of lower translation
rates on international sales. Selling prices remained largely unchanged versus
1996. The net effect of acquisitions and divestitures in 1996 and 1997 accounted
for an increase in sales of $3.7 million in 1997.

Equity in net income of affiliates decreased $0.3 million to $4.5 million in
1997. This decrease was primarily due to lower equity earnings resulting from
the divestiture of D & S Plastics International, which was effective April 1,
1997.

EXPENSES Cost of sales decreased as a percentage of sales in 1997, thereby
increasing consolidated gross margins by 1.4 percentage points to 35.9% of sales
from 34.5% in 1996. Gross margin, excluding LTI, increased 1.2 percentage
points, primarily due to strong volume increases, favorable product mix and
productivity improvements. The remaining improvement was attributable to LTI.

Marketing and administrative expenses increased $14.6 million, or 7%, in 1997
compared with 1996, principally due to costs associated with acquired Dexter
businesses in 1997 and increased marketing and administrative expenses at LTI.
Research and development expenses increased $2.5 million, or 5%, primarily due
to increases at LTI.

Interest expense decreased $0.3 million, or 2%, in 1997 compared with 1996,
primarily due to lower average long-term borrowings throughout the year. If
interest had been capitalized, earnings per share would have increased by $.02
per share in 1997 and there would have been no impact on earnings per share in
1996.

In 1996, there was a gain on divestiture of product lines of $2.7 million. This
included $2.6 million due to the receipt of proceeds from a note related to the
sale of LTI's molecular diagnostic product line in 1990 and the net effect of
the sale of the company's acoustic materials business and a small powder
coatings business in 1996.

INCOME TAXES The effective tax rate was 36% in 1997 compared with 35.5% in 1996.

MINORITY INTEREST Income attributed to minority interest shareholders remained
largely unchanged in 1997 compared with 1996. Higher minority interest expense
attributed to increased profits at LTI in 1997 was principally offset by lower
minority interest expense resulting from other majority owned entities.

NET INCOME Net income for the year 1997 was $56.4 million, or $2.41 per share on
a diluted basis. This represents an 18% increase in net income and a 21%
increase in diluted earnings per share, compared with results for 1996 of $47.7
million, or $1.99 per share diluted, excluding the net gain from the 1996
disposal of product lines. Including the $.04 per share gain on divested product
lines, the 1996 earnings were $48.7 million, or $2.03 per share diluted.
Comparing the total amounts for 1996, the increases for 1997 in earnings and
diluted earnings per share were 16% and 19%, respectively.
--------------------------------------------------------------------------------
TAXES The effective income tax rate was 34% in 1999, 46.4% in 1998, and 36% in
1997. The tax rate is currently expected to be in the range of 34% to 35% in
2000. The income tax rate differs from the statutory U.S. federal income tax
rate as shown below:

<TABLE>
<CAPTION>
                                        1999     1998    1997
                                        ---------------------
<S>                                   <C>      <C>     <C>
U.S. FEDERAL RATE                       35.0%    35.0%   35.0%
STATE TAXES, NET OF FEDERAL BENEFIT      2.9      2.1     1.7
INTERNATIONAL TAXATION DIFFERENCES      (3.6)    (4.6)   (3.1)
ACQUIRED IN-PROCESS RESEARCH AND
  DEVELOPMENT COSTS                               9.9
ACQUISITION BASIS DIFFERENCES            1.1      3.4     1.2
OTHER                                   (1.4)      .6     1.2
                                        ---------------------
EFFECTIVE INCOME TAX RATE               34.0%    46.4%   36.0%
                                        =====================
</TABLE>
--------------------------------------------------------------------------------
Pretax income from international operations, excluding gains on divestiture of
product lines, amounted to $43.1 million in 1999, $57.3 million in 1998, and
$54.6 million in 1997. Income taxes have not been provided on undistributed
earnings of $149.5 million from international subsidiaries since it is the
company's intention to permanently reinvest such earnings or to distribute them
only when it is tax efficient to do so. It is impracticable to estimate the
total tax liability, if any, which would be caused by the future distribution of
these earnings.

-----------------------------------------------------------
<TABLE>
<CAPTION>
TAXES, OTHER THAN SALES TAXES
IN THOUSANDS OF DOLLARS          1999       1998       1997
-----------------------------------------------------------
<S>                           <C>        <C>        <C>
INCOME TAXES
  CURRENT:
   U.S. FEDERAL               $51,827    $22,055    $22,527
   U.S. STATE                   9,224      2,601      2,235
   INTERNATIONAL               13,324     11,956     12,673
                               ----------------------------
                               74,375     36,612     37,435
                               ----------------------------
  DEFERRED:
   U.S. FEDERAL               (11,118)     2,105      1,514
   U.S. STATE                  (1,949)       209        206
   INTERNATIONAL                  297      1,221        836
                              -----------------------------
                              (12,770)     3,535      2,556
                              -----------------------------

TOTAL INCOME TAXES             61,605     40,147     39,991

PAYROLL TAXES                  18,340     20,982     20,420
PROPERTY TAXES                  4,064      4,333      4,313
OTHER TAXES                     1,028        704        662
                              -----------------------------
   TOTAL                      $85,037    $66,166    $65,386
                              =============================
</TABLE>
-----------------------------------------------------------


                                       27
<PAGE>   14
DEFERRED INCOME TAXES The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax liabilities at
December 31, 1999, 1998 and 1997 are as follows:

<TABLE>
<CAPTION>
IN THOUSANDS OF DOLLARS                   1999             1998              1997
----------------------------------------------------------------------------------
<S>                                     <C>              <C>              <C>
DEFERRED TAX ASSETS:
  EXPENSES NOT CURRENTLY
   DEDUCTIBLE                           $ 13,241         $  7,931         $  8,229
  PENSION BENEFITS                         7,650            7,342            5,683
  POSTRETIREMENT HEALTH BENEFITS           7,398            8,698            8,852
  RESERVES FOR INSURANCE                   6,655            6,448            6,028
  ENVIRONMENTAL RESERVES                   6,192            5,004            4,865
  INVENTORY, PRINCIPALLY
   VALUATION RESERVES                      6,087            5,111            5,450
  LOSS CARRYFORWARDS                       5,398            3,610            4,944
  NONCOMPETITION AGREEMENTS                4,115              782              818
  OTHER                                    6,953            7,993            8,373
                                        ------------------------------------------
   GROSS DEFERRED TAX ASSETS            $ 63,689         $ 52,919         $ 53,242
                                        ------------------------------------------
DEFERRED TAX LIABILITIES:
  FIXED ASSETS, PRINCIPALLY
   DEPRECIATION                         $(39,507)        $(44,879)        $(46,274)
  TECHNOLOGY AND TRADEMARKS              (30,964)         (32,032)
  OTHER                                   (5,616)         (11,519)          (7,557)
                                        ------------------------------------------
   GROSS DEFERRED TAX
     LIABILITIES                        $(76,087)        $(88,430)        $(53,831)
                                        ------------------------------------------
NET DEFERRED TAX LIABILITY
  BEFORE VALUATION
  ALLOWANCE                             $(12,398)        $(35,511)        $   (589)
VALUATION ALLOWANCE                       (2,560)          (1,316)          (2,277)
                                        ------------------------------------------
NET DEFERRED TAX LIABILITY
  AFTER VALUATION
  ALLOWANCE                             $(14,958)        $(36,827)        $ (2,866)
                                        ==========================================
----------------------------------------------------------------------------------
</TABLE>
Valuation allowances of $2.6 million at December 31, 1999, $1.3 million at
December 31, 1998, and $2.3 million at December 31, 1997, reduced the deferred
tax asset attributable to foreign loss carryforwards to an amount that, based
upon all available information, is more likely than not to be realized. Reversal
of the valuation allowance is contingent upon the recognition of future taxable
income and capital gains in specific foreign countries or changes in
circumstances which cause the recognition of the benefits of the loss
carryforwards to become more likely than not. The increase of $1.3 million in
the valuation allowance during 1999 was due principally to the acquired net
operating loss carryforward of BioSepra SA, a subsidiary of LTI.

The components of deferred taxes at December 31, 1999, 1998 and 1997 are as
follows:

<TABLE>
<CAPTION>
IN THOUSANDS OF DOLLARS                          1999             1998             1997
---------------------------------------------------------------------------------------
<S>                                           <C>              <C>              <C>
CURRENT DEFERRED TAX ASSETS                   $ 23,176         $ 14,874         $ 17,107
LONG-TERM DEFERRED TAX ASSETS                    9,834            4,343            3,856
  (INCLUDED IN OTHER ASSETS)
CURRENT DEFERRED TAX LIABILITIES                  (555)          (2,563)          (1,545)
  (INCLUDED IN ACCRUED
  AND DEFERRED INCOME TAXES)
LONG-TERM DEFERRED TAX
   LIABILITIES                                 (47,413)         (53,481)         (22,284)
                                              ------------------------------------------
NET DEFERRED TAX LIABILITY                    $(14,958)        $(36,827)        $ (2,866)
                                              ==========================================
----------------------------------------------------------------------------------------
</TABLE>

EARNINGS PER SHARE Earnings in 1999 were $4.67 per share diluted which includes
gains from the divestiture of product lines of $2.62 per share and a charge of
$.07 per share for restructuring activities. This compares with earnings in 1998
of $1.35 per share diluted which included the net loss of $1.15 per share due to
the write-off of acquired in-process research and development costs and
transaction costs incurred by LTI.

Earnings from operations in 1999, excluding gains on divestiture of product
lines and restructuring costs, were $2.12 per share diluted compared with $2.50
per share diluted in 1998. Dexter's increased ownership of LTI created noncash
amortization charges, which together with the net impact of divestitures and
acquisitions, reduced earnings in 1999 by $.40 per share. Included in 1999 are
costs associated with an unsolicited merger proposal and two nonrecurring events
at LTI that resulted in a net unfavorable impact of $.02 per share on 1999
earnings from operations.

Basic earnings per share is calculated by dividing net income by the weighted
average number of shares of common stock outstanding during the year. The
reconciliation between basic earnings per share and diluted earnings per share
is presented below:

<TABLE>
<CAPTION>
                                                YEARS ENDED DECEMBER 31
AMOUNTS IN THOUSANDS                   ---------------------------------------------
(EXCEPT PER SHARE DATA)                     1999              1998              1997
------------------------------------------------------------------------------------
EARNINGS PER SHARE - BASIC:
<S>                                    <C>               <C>               <C>
  NET INCOME                           $ 107,499         $  31,704         $  56,427
  WEIGHTED AVERAGE SHARES
   OUTSTANDING                            22,842            23,007            23,010
  EARNINGS PER SHARE - BASIC           $    4.71         $    1.38         $    2.45

EARNINGS PER SHARE - DILUTED:
  NET INCOME                           $ 107,499         $  31,704         $  56,427
  EFFECT OF SUBSIDIARY DILUTIVE
   OPTIONS ON NET INCOME                     (94)             (337)             (546)
                                       ---------------------------------------------
                                       $ 107,405         $  31,367         $  55,881
                                       =============================================

  WEIGHTED AVERAGE SHARES
   OUTSTANDING                            22,842            23,007            23,010
  WEIGHTED AVERAGE EFFECT OF
   COMMON STOCK EQUIVALENTS                  160               179               217
                                       ---------------------------------------------
                                          23,002            23,186            23,227
                                       =============================================

  EARNINGS PER SHARE - DILUTED         $    4.67         $    1.35         $    2.41
</TABLE>


At December 31, 1999, 489,499 options were outstanding at a weighted average
exercise price of $39.68 that were not included in the computation of diluted
earnings per share because the exercise price of the options was greater than
the average market price of the company's common stock for the year. At December
31, 1998, 279,950 options were outstanding at a weighted average exercise price
of $41.42, and at December 31, 1997, 10,000 options were outstanding at an
exercise price of $41.22 that were not included in the computation of diluted
earnings per share.
-------------------------------------------------------------------------------

LIFE TECHNOLOGIES, INC.

On September 1, 1983, Dexter's GIBCO subsidiary merged with Bethesda Research
Laboratories, Inc. The resulting freestanding company was renamed Life
Technologies, Inc. ("LTI") and at December 31, 1999 was owned 71.5% by Dexter,
with the remainder owned by the public. LTI's common stock is currently
available for quotation on the OTC Bulletin Board.

LTI is reported in the life sciences segment, although LTI, as a publicly owned
company, issues its own annual report including audited financial statements.
These statements follow in condensed form.

Net sales of LTI increased $45.5 million, or 13%, in 1999. Net sales increased
$40.7 million, or 13%, from sales of products other than fetal bovine serum
("FBS"), $4.3 million from a business acquired in 1999, and $2.3 million from
FBS sales. Currency translation rates unfavorably impacted net sales by $1.8
million.

Gross margin for 1999 was 54.2% of net sales compared with 53.6% in 1998. Gross
margin improved mainly due to increased volume, lower unit costs and a favorable
product mix.


                                       28
<PAGE>   15


Marketing and administrative expenses increased 17% to $138.8 million, or 34.1%
of net sales in 1999, compared with $118.6 million, or 32.8% of net sales in
1998. The increase in expenses was principally due to an acquisition, legal
expenses, new business initiatives and strategy assessment. Research and
development expenses increased 9% to $23.8 million, or 5.9% of net sales in
1999, compared with $21.9 million, or 6% of net sales in 1998.

In 1999, LTI expensed $3.9 million representing a voluntary refund offered to
the Department of Veterans Affairs ("VA") related to a federal supply schedule
contract with the VA. In 1998, LTI reported $5.3 million of expenses related to
Dexter's acquisition of additional shares of LTI.

The effective tax rate was 30.9% in 1999 compared with 37.5% in 1998. The 1999
effective tax rate reflected the impact of a favorable income tax settlement.
The 1998 effective tax rate reflected limited income tax benefits for certain
one-time charges. Excluding these items, the effective tax rate was 35% in 1999
and 34.5% in 1998.

Net income was $38.3 million in 1999 and $31.3 million in 1998. Excluding
one-time items, net income increased 6% in 1999 compared with 1998. LTI declared
quarterly dividends totaling $.10 per share in 1999 and $.20 per share in 1998.
LTI discontinued its regular quarterly dividends in July 1999.

After the deduction of minority interests, LTI contributed $27.3 million to
Dexter's net income, or $1.18 per share on a diluted basis, in 1999, compared
with $16.3 million, or $.69 per share in 1998. Excluding one-time items, in
1999, LTI contributed $27.5 million to Dexter's net income, or $1.19 per share
on a diluted basis, compared with $18.8 million, or $.80 per share in 1998.
LTI's net contribution in 1999 excludes pretax charges of $20 million, or $.60
per share, for amortization costs and interest expense related to Dexter's
increased ownership in LTI. Dexter's portion of LTI shareholders' equity, per
share of Dexter, increased to $9.72 at December 31, 1999, from $8.56 at year-end
1998.

At year-end 1999, LTI had $51.5 million in cash and short-term securities,
$188.1 million in other current assets and $67.9 million of current liabilities.

In 1999, LTI spent $30.7 million on capital expenditures and was self-funding.
Capital expenditures in 2000 are expected to range between $30 and $35 million.
It is expected that LTI will continue to be self-funding in 2000.


-----------------------------------------------------------------
CONDENSED STATEMENT OF INCOME


<TABLE>
<CAPTION>
                                          YEARS ENDED DECEMBER 31
                                         ------------------------
IN THOUSANDS OF DOLLARS                      1999            1998
-----------------------------------------------------------------
<S>                                      <C>             <C>
REVENUES
NET SALES                                $407,199        $361,726
NET ROYALTIES                               2,410           2,480
                                         ------------------------
                                          409,609         364,206
                                         ------------------------
EXPENSES
COST OF SALES                             186,667         167,862
MARKETING AND ADMINISTRATIVE              138,795         118,620
RESEARCH AND DEVELOPMENT                   23,836          21,880
PROVISION FOR CONTRACT SETTLEMENT           3,870
TRANSACTION COSTS                                           5,335
                                         ------------------------
                                          353,168         313,697
                                         ------------------------
OTHER INCOME, NET                             493             606
                                         ------------------------
INCOME BEFORE INCOME TAXES                 56,934          51,115
INCOME TAXES                               17,583          19,168
                                         ------------------------
INCOME BEFORE MINORITY INTERESTS           39,351          31,947
MINORITY INTERESTS                          1,074             644
                                         ------------------------
NET INCOME                               $ 38,277        $ 31,303
                                         ========================
</TABLE>

-----------------------------------------------------------------
CONTRIBUTION OF LTI TO DEXTER NET INCOME

<TABLE>
<CAPTION>
                                                    YEARS ENDED DECEMBER 31
IN THOUSANDS OF DOLLARS                           ----------------------------
(EXCEPT PER SHARE AMOUNTS)                           1999              1998
------------------------------------------------------------------------------
<S>                                                  <C>             <C>
NET INCOME OF LTI                                    $ 38,277        $ 31,303
PORTION ATTRIBUTABLE TO
  MINORITY INTERESTS                                   10,934          14,998
                                                     ------------------------
DEXTER'S PORTION OF NET INCOME OF LTI                $ 27,343        $ 16,305
                                                     ========================
NET INCOME PER SHARE - BASIC
  OF DEXTER*                                          $  1.20        $    .71
NET INCOME PER SHARE - DILUTED
  OF DEXTER*                                          $  1.18        $    .69
</TABLE>


*   1999 excludes amortization costs and interest expense of $.60 per share
    related to Dexter's increased ownership in LTI.
------------------------------------------------------------------------------
CONDENSED STATEMENT OF FINANCIAL POSITION

<TABLE>
<CAPTION>
                                                  DECEMBER 31
                                            ----------------------
IN THOUSANDS OF DOLLARS                       1999            1998
--------------------------------------------------------------------
ASSETS
<S>                                         <C>             <C>
CASH AND SHORT-TERM SECURITIES              $ 51,489        $ 56,047
TRADE ACCOUNTS RECEIVABLE, NET                79,301          67,797
INVENTORIES                                   82,946          74,319
OTHER CURRENT ASSETS                          25,875          21,992
PROPERTY, PLANT AND EQUIPMENT, NET           128,827         107,374
INVESTMENTS AND OTHER ASSETS                  22,973          15,392
EXCESS OF COST OVER NET ASSETS OF
  BUSINESSES ACQUIRED                         11,560          10,666
                                            ------------------------
   TOTAL ASSETS                             $402,971        $353,587
                                            ========================


LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES                         $ 67,851        $ 59,752
OTHER LIABILITIES                             25,025          17,727
SHAREHOLDERS' EQUITY                         310,095         276,108
                                            ------------------------
  TOTAL LIABILITIES AND
   SHAREHOLDERS' EQUITY                     $402,971        $353,587
                                            ========================
</TABLE>
--------------------------------------------------------------------
CONTRIBUTION OF LTI TO DEXTER BOOK VALUE

<TABLE>
<CAPTION>
                                        DECEMBER 31
IN THOUSANDS OF DOLLARS          ----------------------
(EXCEPT PER SHARE AMOUNTS)        1999             1998
-------------------------------------------------------
<S>                             <C>             <C>
LTI SHAREHOLDERS' EQUITY        $310,095        $276,108
PORTION ATTRIBUTABLE TO
  MINORITY INTERESTS              88,386          78,880
                                ------------------------
DEXTER'S PORTION OF LTI
  SHAREHOLDERS' EQUITY          $221,709        $197,228
                                ========================
BOOK VALUE PER SHARE OF
  DEXTER STOCK                  $   9.72        $   8.56

</TABLE>


-----------------------------------------------------------------------
<TABLE>
<CAPTION>
CONDENSED STATEMENT OF CASH FLOWS

                                                YEARS ENDED DECEMBER 31
                                              --------------------------
IN THOUSANDS OF DOLLARS                           1999             1998
------------------------------------------------------------------------
<S>                                           <C>              <C>
OPERATIONS
NET INCOME                                    $ 38,277         $ 31,303
NONCASH ITEMS:
  DEPRECIATION AND AMORTIZATION                 15,650           14,330
  OTHER                                          1,926            9,020
OPERATING WORKING CAPITAL
  INCREASE                                     (13,615)         (12,541)
                                               ------------------------
                                                42,238           42,112
                                               ------------------------

INVESTMENTS
PROPERTY, PLANT AND EQUIPMENT                  (30,667)         (25,359)
ACQUISITIONS AND JOINT VENTURES                (12,682)          (1,047)
OTHER                                               (5)             585
                                               ------------------------
                                               (43,354)         (25,821)
                                               ------------------------

FINANCING
DIVIDENDS PAID                                  (3,740)          (4,711)
EXERCISE OF STOCK OPTIONS                        3,258           27,051
SHORT-TERM BORROWINGS                           (1,943)            (971)
LONG-TERM LOAN BORROWINGS (REPAYMENTS)             381              (23)
                                               ------------------------
                                                (2,044)          21,346
                                               ------------------------
EFFECT OF TRANSLATION RATE CHANGES
  ON CASH AND SHORT-TERM SECURITIES             (1,398)            (666)
                                               ------------------------

TOTAL (DECREASE) INCREASE IN CASH
  AND SHORT-TERM SECURITIES                   $ (4,558)        $ 36,971
                                              =========================
</TABLE>
-----------------------------------------------------------------------



                                       29
<PAGE>   16
SEGMENT DATA


In 1998, the company adopted SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information, which changed the way the company reports
information about its operating segments. Dexter is a global specialty materials
supplier with three operating segments: life sciences, nonwovens, and specialty
polymers. The specialty polymers segment includes businesses whose product
offerings are based on polymer technologies serving the aerospace, electronics,
and industrial assembly markets.

1999 COMPARED WITH 1998

Sales in the life sciences segment increased $45.5 million, or 13%, in 1999. The
effect of acquired businesses increased net sales by $4.3 million, or 1%. Net of
acquired businesses, sales increased 12% due to unit volume increases. Operating
income was $48.4 million in 1999 compared with $26 million in 1998. Operating
income in 1999 included noncash amortization charges of $8.1 million recorded by
Dexter related to Dexter's increased ownership of LTI and a $3.9 million charge
for a voluntary refund LTI offered to the Department of Veterans Affairs ("VA")
related to its supply schedule contract with the VA. Included in 1998 operating
income were one-time charges for the write-off of acquired in-process research
and development costs of $24.5 million recorded by Dexter and transaction costs
of $5.3 million recorded by LTI related to Dexter's increased ownership in LTI.
Excluding these charges, operating income in 1999 increased $4.5 million, or 8%,
due to favorable product mix and higher sales volume partially offset by
increased marketing and administrative expenses.

Sales in the nonwovens segment increased $5.3 million, or 2%, in 1999. A 5%
increase in unit volume was partially offset by price decreases averaging 3%.
Sales of wet wipes and other specialty products were stronger in 1999 compared
with 1998, while sales of food packaging products were weaker due to lower
pricing in 1999. Operating income decreased $6.7 million, or 16%, in 1999
primarily due to lower gross margins resulting from price decreases, an
unfavorable product mix, increased marketing expenses, and a charge for
restructuring activities of $0.8 million. These decreases in operating income
were partially offset by lower raw material costs.

Sales in the specialty polymers segment decreased $177.2 million, or 34%, in
1999. The net effect of divested businesses decreased sales by $183.3 million,
or 35%. Sales of ongoing businesses in the specialty polymers segment increased
$11.1 million, or 4%, in 1999 compared with 1998. Operating income was $131.2
million in 1999 and $46.4 million in 1998. The net effect of divested businesses
decreased operating income by $11.3 million. Operating income in 1999 included
gains from the divestiture of product lines of $95 million, including a gain of
$91.1 million due to the divestiture of the company's Packaging Coatings
business and a gain of $3.7 million due to the divestiture of the company's
printed wiring board product line. Also included in 1999 operating income was a
charge for restructuring activities of $1.6 million for a plant closure and
other business realignments. Operating income from ongoing businesses increased
$3.2 million, or 9%, due to higher operating income in the Electronic Materials
business resulting from increased sales volume.

1998 compared with 1997

Sales in the life sciences segment increased $30.8 million, or 9%, in 1998. A
12% increase in unit volume was somewhat offset by a 2% unfavorable effect of
currency translation rates and selling price decreases averaging 1%. Operating
income decreased $24.9 million, or 49%, in 1998 due to one-time charges for the
write-off of acquired in-process research and development costs of $24.5 million
recorded by Dexter and transaction costs of $5.3 million recorded by LTI related
to Dexter's increased ownership in LTI. Excluding these charges, operating
income increased $4.9 million due to the favorable impact on margins of the
higher sales volume.

Sales in the nonwovens segment decreased $2.2 million, or 1%, in 1998. A 1%
increase in unit volume was more than offset by price decreases averaging 1% and
a 1% unfavorable currency translation effect. Sales of medical products and wet
wipes were stronger in 1998 compared with 1997, while sales of food packaging
products and other specialty products were weaker. Operating income decreased
$3.3 million, or 8%, in 1998 primarily due to lower gross margins resulting from
an unfavorable product mix, as well as, increased marketing and administrative
expenses, and increased research and development expenses.

Sales in the specialty polymers segment decreased $7.5 million, or 1%, in 1998.
The effect of acquired businesses increased 1998 net sales by $19.8 million, or
4%. Net of acquired businesses, sales decreased 5% due to a 3% decrease in unit
volume, unfavorable currency translation effects of 1%, and selling price
decreases averaging 1%. Lower volume in the Electronic Materials business
related to the slowdown in the electronics market, especially in the Asian
sector, and lower sales of beer and beverage can coatings were partially offset
by higher sales in both the aerospace market and food and specialty can coatings
serving international markets. Operating income decreased $4.1 million, or 8%,
in 1998 primarily due to lower gross margins in the Electronic Materials
business resulting from sales volume decreases. This negative effect was
partially offset by higher operating income in the Adhesive & Coating Systems
business resulting from increased sales volume and continued productivity
improvements.




                                       30
<PAGE>   17
SEGMENT DATA

<TABLE>
<CAPTION>
IN THOUSANDS OF DOLLARS                                                             1999             1998                1997
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>               <C>                <C>
NET SALES
LIFE SCIENCES                                                                    $  407,199        $  361,726         $  330,967
NONWOVENS                                                                           285,265           279,951            282,180
SPECIALTY POLYMERS                                                                  349,209           526,360            533,908
                                                                                 -----------------------------------------------
  CONSOLIDATED                                                                   $1,041,673        $1,168,037         $1,147,055
                                                                                 ===============================================
--------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED OPERATING INCOME
LIFE SCIENCES*                                                                   $   48,382        $   26,001         $   50,938
NONWOVENS                                                                            34,069            40,735             44,061
SPECIALTY POLYMERS                                                                  131,152            46,391             50,526
                                                                                 -----------------------------------------------
  CONSOLIDATED OPERATING INCOME                                                     213,603           113,127            145,525
OTHER INCOME, NET                                                                     7,874             7,696              6,014
INTEREST EXPENSE                                                                    (20,910)          (18,210)           (20,192)
GENERAL CORPORATE EXPENSE                                                           (19,389)          (16,066)           (20,262)
                                                                                 -----------------------------------------------
  CONSOLIDATED INCOME BEFORE TAXES                                               $  181,178        $   86,547         $  111,085
                                                                                 ===============================================
</TABLE>

* Life Sciences 1999 operating income includes $8.1 million of amortization
charges associated with Dexter's increased ownership of LTI.

<TABLE>
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>               <C>                <C>
CREDIT (CHARGE) INCLUDED IN OPERATING INCOME
LIFE SCIENCES:
  WRITE-OFF OF ACQUIRED IN-PROCESS
   RESEARCH AND DEVELOPMENT COSTS                                                                  $  (24,508)
  TRANSACTION COSTS                                                                                    (5,335)
  PROVISION FOR CONTRACT SETTLEMENT                                              $   (3,870)
                                                                                 -----------------------------------------------
   TOTAL LIFE SCIENCES                                                           $   (3,870)       $  (29,843)
NONWOVENS:
  CHARGE FOR RESTRUCTURING BUSINESSES                                            $     (800)
SPECIALTY POLYMERS:
  CHARGE FOR RESTRUCTURING BUSINESSES                                            $   (1,630)
  GAIN ON DIVESTITURE OF PRODUCT LINES                                               95,011
                                                                                 -----------------------------------------------
    TOTAL SPECIALTY POLYMERS                                                     $   93,381
                                                                                 -----------------------------------------------
     CONSOLIDATED                                                                $   88,711        $  (29,843)
                                                                                 ===============================================
--------------------------------------------------------------------------------------------------------------------------------

DEPRECIATION AND AMORTIZATION
LIFE SCIENCES                                                                    $   23,762        $   14,330         $   12,508
NONWOVENS                                                                            16,485            15,462             14,987
SPECIALTY POLYMERS                                                                   14,608            20,320             17,434
GENERAL CORPORATE                                                                       600               245                512
                                                                                 -----------------------------------------------
  CONSOLIDATED                                                                   $   55,455        $   50,357         $   45,441
                                                                                 ===============================================
--------------------------------------------------------------------------------------------------------------------------------

ASSETS AT YEAR END
LIFE SCIENCES                                                                    $  351,481        $  297,540         $  261,198
NONWOVENS                                                                           224,115           218,473            210,084
SPECIALTY POLYMERS                                                                  236,045           417,985            412,920
                                                                                 -----------------------------------------------
  CONSOLIDATED OPERATING ASSETS                                                     811,641           933,998            884,202
GENERAL CORPORATE*                                                                  262,487           274,370             77,574
                                                                                 -----------------------------------------------
   CONSOLIDATED                                                                  $1,074,128        $1,208,368         $  961,776
                                                                                 ===============================================
</TABLE>
* Corporate assets consist primarily of cash, securities and investments, and,
in addition, corporate assets of LTI.
<TABLE>
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>               <C>                <C>
CAPITAL EXPENDITURES
LIFE SCIENCES                                                                    $   28,895        $   17,210         $   23,257
NONWOVENS                                                                            15,971            15,924             17,430
SPECIALTY POLYMERS                                                                    8,033            15,202             18,351
GENERAL CORPORATE                                                                        63                98                 49
                                                                                 -----------------------------------------------
  CONSOLIDATED                                                                   $   52,962        $   48,434         $   59,087
                                                                                 ===============================================
--------------------------------------------------------------------------------------------------------------------------------

GEOGRAPHIC INFORMATION

NET SALES
UNITED STATES                                                                    $  613,687        $  629,129         $  615,746
UNITED KINGDOM                                                                      121,158           135,206            141,220
OTHER COUNTRIES                                                                     306,828           403,702            390,089
                                                                                 -----------------------------------------------
  CONSOLIDATED                                                                   $1,041,673        $1,168,037         $1,147,055
                                                                                 ===============================================
LONG-LIVED ASSETS
UNITED STATES                                                                    $  478,099        $  495,097         $  357,882
UNITED KINGDOM                                                                       62,734            60,550             40,757
OTHER COUNTRIES                                                                      58,908           130,848            118,829
                                                                                 -----------------------------------------------
  CONSOLIDATED                                                                   $  599,741        $  686,495         $  517,468
                                                                                 ===============================================
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       31
<PAGE>   18
ANALYSIS OF FINANCIAL POSITION


WORKING CAPITAL Total working capital, including cash and short-term securities,
decreased $2.5 million from 1998. Operating working capital decreased $15.4
million to $225 million at year-end 1999. The sum of cash, short-term
securities, and accounts receivable exceeded total current liabilities at
December 31, 1999. The following is a summary of the changes in operating and
total working capital during 1999:

<TABLE>
----------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN OPERATING WORKING CAPITAL AND TOTAL WORKING CAPITAL IN 1999
<CAPTION>
                                                               BUSINESS                                      CHANGE IN
                                                       ACQUISITIONS AND                     CURRENCY      CONSOLIDATED
                                               CASH          ACCOUNTING      DIVESTED    TRANSLATION           ACCOUNT
IN THOUSANDS OF DOLLARS                     CHANGES            ACCRUALS    BUSINESSES        EFFECTS          BALANCES
----------------------------------------------------------------------------------------------------------------------
<S>                                         <C>        <C>                 <C>           <C>              <C>
ACCOUNTS RECEIVABLE, NET                    $26,382            $  7,975      $(51,558)       $(4,945)         $(22,146)
INVENTORIES AT FIFO                          11,393                 542       (24,470)        (2,818)          (15,353)
PREPAID AND DEFERRED EXPENSES                   802                 196        (2,339)          (120)           (1,461)
ACCOUNTS PAYABLE                             (6,205)              1,472        26,017          1,940            23,224
ACCRUED LIABILITIES AND EXPENSES              2,068               1,002        (3,103)           370               337
                                            --------------------------------------------------------------------------
  OPERATING WORKING CAPITAL                  34,440              11,187       (55,453)        (5,573)          (15,399)
                                            --------------------------------------------------------------------------
CASH                                          7,340                  72        (6,885)           (50)              477
SHORT-TERM SECURITIES                       (22,330)                                          (2,346)          (24,676)
LIFO RESERVE                                   (188)                            2,069                            1,881
CURRENT DEFERRED TAX ASSETS                                       8,302                                          8,302
SHORT-TERM DEBT                              31,436                (156)           65           (113)           31,232
OTHER CURRENT LIABILITIES AND TAXES          (5,390)               (487)        1,773           (182)           (4,286)
                                            --------------------------------------------------------------------------
   WORKING CAPITAL                          $45,308             $18,918      $(58,431)       $(8,264)        $  (2,469)
                                            ==========================================================================
----------------------------------------------------------------------------------------------------------------------
</TABLE>

CASH AND SHORT-TERM SECURITIES Cash principally comprises in-transit funds in
the United States and amounts in operating bank accounts in other countries.

Short-term securities have maturities of less than 90 days when purchased and
represent cash awaiting use in the business, funds available for future
investment, and partial offsets of net nonlocal currency exposures relating to
current accounts payable and accounts receivable. Short-term securities are held
in interest-bearing overnight instruments, time deposits, prime commercial paper
and other fixed income investments. The carrying value of short-term securities
approximates fair value because of the short maturity of these instruments. At
December 31, 1999, there were $77.8 million in short-term securities, of which
$29.8 million were directly available to Dexter and $48 million were maintained
separately by LTI due to its different shareholder constituency. Of these
amounts, $6.5 million for Dexter and $10.4 million for LTI were held outside the
United States. Of the $29.8 million for Dexter, $23.3 million was held by
Dexter's captive insurance companies.

ACCOUNTS RECEIVABLE Gross accounts receivable was $189.3 million at December 31,
1999, $213.6 million at December 31, 1998 and $195.7 million at December 31,
1997. Gross receivables were reduced by allowances of $7.6 million, $9.7 million
and $10.4 million at December 31, 1999, 1998 and 1997, respectively. Included in
accounts receivable are non-trade accounts receivable of $25.3 million, $18.3
million and $11 million at December 31, 1999, 1998 and 1997, respectively. These
amounts principally comprise tax receivables. Net accounts receivable decreased
in 1999 primarily due to the divestiture of product lines. Currency translation
effects also decreased net accounts receivable by $4.9 million in 1999. The
collection period for accounts receivable was approximately 54 days at December
31, 1999, 58 days at December 31, 1998 and 53 days at December 31, 1997.

INVENTORIES Inventories are valued at the lower of cost or market. Inventories
located in the United States represented 55% of total inventories. The LIFO
(last-in, first-out) method was used for determining the cost of 59% of U.S.
inventories in 1999 and 1998 and 58% in 1997. The FIFO (first-in, first-out)
method was used for determining the cost of the remaining 41% of inventories in
the United States and the 45% of total inventories which were located outside
the United States. The reduction in levels of LIFO valued inventories (LIFO
liquidation) was not significant in 1999, 1998 or 1997. Inventories at December
31 were as follows:

<TABLE>
<CAPTION>
IN THOUSANDS OF DOLLARS         1999         1998        1997
--------------------------------------------------------------
<S>                          <C>          <C>         <C>
MATERIALS AND SUPPLIES       $ 56,451     $ 65,180    $ 61,233
WORK-IN-PROCESS                20,821       19,101      17,664
FINISHED GOODS                101,730      110,074      99,803
                             ---------------------------------
   TOTAL FIFO COST            179,002      194,355     178,700
LIFO RESERVE                  (15,507)     (17,388)    (18,799)
                             ---------------------------------
                             $163,495     $176,967    $159,901
                             =================================
--------------------------------------------------------------
</TABLE>

FIFO inventories decreased $15.4 million in 1999 to $179 million, primarily due
to the divestiture of product lines in 1999. This decrease was partially offset
by higher inventories at LTI to support increased sales levels.



                                       32
<PAGE>   19
PROPERTY, PLANT AND EQUIPMENT Capital expenditures on the accrual basis were $53
million in 1999, $48.4 million in 1998 and $59.1 million in 1997. Capital
expenditures in 2000 are currently estimated to range between $55 million and
$65 million.

For financial reporting purposes, the company records property, plant and
equipment at cost on the date of acquisition and uses the straight-line method
of computing depreciation on plant and equipment. This method charges the cost
to income evenly over the useful lives of the assets, principally 20 to 50 years
for buildings, 16 years for nonwovens related machinery and equipment, and 3 to
15 years for all other machinery and equipment. For tax purposes, the company
uses shorter lives and accelerated depreciation methods. Capital investment
incentive grants are recorded as a reduction of the cost of assets, which
spreads the benefits over the lives of the related assets through reduced
depreciation. Management evaluates, on an ongoing basis, the carrying value of
property, plant and equipment and makes a specific provision against an asset
when impairment is identified. Property, plant and equipment is written down
when the asset has become redundant or the remaining book value exceeds its
anticipated future productive asset value.

Maintenance and repairs are charged to operations as incurred and amounted to
$17 million in 1999, $18.9 million in 1998 and $18.3 million in 1997.
Betterments and major renewals are capitalized. The cost of assets sold or
retired and the related amounts of accumulated depreciation are eliminated from
the accounts and the resulting gains or losses are included in net income.

The cost and accumulated depreciation of property, plant and equipment at
December 31, were as follows:

<TABLE>
<CAPTION>
IN THOUSANDS OF DOLLARS             1999          1998          1997
----------------------------------------------------------------------
<S>                              <C>           <C>           <C>
LAND                             $  27,594     $  30,879     $  28,501
BUILDINGS AND IMPROVEMENTS         175,551       193,594       184,388
MACHINERY AND EQUIPMENT            457,314       509,406       474,079
CONSTRUCTION IN PROGRESS            25,260        22,302        25,157
                                 -------------------------------------
   TOTAL COST                      685,719       756,181       712,125
LESS ACCUMULATED DEPRECIATION     (357,573)     (395,725)     (363,953)
                                 -------------------------------------
PROPERTY, PLANT AND
  EQUIPMENT, NET                 $ 328,146     $ 360,456     $ 348,172
                                 =====================================
----------------------------------------------------------------------
</TABLE>

Changes in property, plant and equipment for the past three years were as
follows:

<TABLE>
<CAPTION>
IN THOUSANDS OF DOLLARS                      1999          1998          1997
--------------------------------------------------------------------------------
<S>                                       <C>           <C>           <C>
JANUARY 1                                 $ 360,456     $ 348,172     $ 334,266
CAPITAL EXPENDITURES                         52,962        48,434        59,087
ASSETS OF BUSINESSES ACQUIRED                 4,303           282         4,271
ASSETS OF BUSINESSES DIVESTED               (47,582)                       (893)
WRITE-DOWN OF ASSET VALUES                   (1,189)                       (470)
DEPRECIATION                                (36,212)      (38,696)      (37,453)
CURRENCY EFFECTS                             (4,592)        2,264       (10,636)
                                          --------------------------------------
DECEMBER 31                               $ 328,146     $ 360,456     $ 348,172
                                          ======================================
--------------------------------------------------------------------------------
</TABLE>

PATENTS, TECHNOLOGY, TRADEMARKS AND COVENANTS Patents, technology, trademarks
and covenants not to compete are stated at cost less accumulated amortization of
$24.7 million, $22.6 million and $19.9 million at December 31, 1999, 1998 and
1997, respectively. Such items that have been acquired by purchase or merger are
capitalized and amortized on a straight-line basis over periods ranging from 5
to 30 years. Patents, technology, trademarks and covenants decreased in 1999
primarily due to $5.3 million of amortization costs. This decrease was partially
offset by $0.8 million related to the net impact of businesses acquired and
divested. During 1998, the company acquired approximately $91.5 million of such
items as a result of the acquisition of an additional 22% of LTI. Research and
development costs and any costs associated with internally developed patents or
other proprietary technology are expensed in the year incurred.

EXCESS ACQUISITION COST Excess acquisition cost was $112.2 million at year-end
1999, $157 million at year-end 1998 and $97.5 million at year-end 1997. Excess
acquisition cost decreased in 1999 primarily due to $37.3 million related to the
net impact of businesses divested and acquired and $7.6 million of amortization
cost. Excess acquisition cost increased in 1998 primarily due to $63.4 million
resulting from the increase in ownership of LTI and $1.9 million due to currency
translation effects. This increase was partially offset by $6.9 million of
amortization costs. The excess of cost over the net asset value of businesses
acquired prior to 1991 is amortized on a straight-line basis over 25 to 40
years. Excess acquisition cost of businesses acquired after 1990 is amortized
over periods ranging from 5 to 30 years. Accumulated amortization amounted to
$26.7 million, $31.2 million and $23.8 million at December 31, 1999, 1998 and
1997, respectively. Management evaluates, on an ongoing basis, the carrying
value of excess acquisition cost and makes a specific provision against the
asset when impairment is identified. When a loss is expected from the proposed
sale of a business or product line, a diminution in the value of the excess of
cost over the net asset value of the business acquired is identified. In the
instance of an ongoing business, such a diminution is recognized when there has
been a history of the business' inability to generate operating income after the
amortization of goodwill and, in management's judgment, the business will not
recover from this position in the future. There were no impairment charges in
1999, 1998 or 1997.

SHORT-TERM DEBT Short-term borrowings were denominated principally in U.S.
dollars and Japanese yen and had maturities of three months or less. The company
uses short-term borrowings of less than three-month maturity to partially offset
net nonlocal currency exposures relating to current accounts receivable and
accounts payable. It can be expected that short-term borrowings will continue to
be utilized for this purpose. The $8.6 million short-term borrowings outstanding
at year-end 1999 included $0.4 million of short-term debt of LTI. The weighted
average interest rate on short-term borrowings outstanding was 7.2% at December
31, 1999, 6% at December 31, 1998, and 6.1% at December 31, 1997.

In December 1998, the company entered into a $300 million, 364-day revolving
credit agreement with a syndicate of U.S. and international banks. In February
1999, the company reduced the aggregate commitment under this revolving credit
agreement from $300 million to $100 million. In September 1999, the company
extended the 364-day revolving credit agreement for another year. This revolving
credit agreement carries a facility fee that is based on the credit ratings of
the company. At December 31, 1999, the facility fee on the revolving credit
agreement was 0.06% per annum. A utilization fee of up to 0.10% per annum will
also be charged if the utilization of the revolving credit agreement exceeds
certain contractual levels. This revolving credit agreement has a minimum
consolidated net worth provision and a maximum leverage ratio. At December 31,
1999, the company was in compliance with these provisions. There were no
borrowings under the 364-day revolving credit agreement as of December 31, 1999.
The company has available additional short-term lines of credit of approximately
$85 million at December 31, 1999.

The company had outstanding letters of credit at December 31, 1999 totaling
$11.8 million for liabilities already reflected in the Statement of Financial
Position. In addition to its 364-day revolving credit facility, the company has
authorized the borrowing of up to $100 million under short-term lines of credit
and commercial paper. There was no commercial paper issued during 1999.


                                       33
<PAGE>   20
ACCRUED LIABILITIES AND EXPENSES Accrued liabilities and expenses at December 31
were as follows:

<TABLE>
<CAPTION>
IN THOUSANDS OF DOLLARS                1999       1998       1997
------------------------------------------------------------------
<S>                                  <C>        <C>        <C>
SALARIES, WAGES AND BENEFITS         $16,021    $18,130    $17,381
PROVISIONS FOR CLAIMS, WARRANTIES
  AND CONTRACT SETTLEMENT             13,142      3,759      5,789
PENSION AND PROFIT SHARING             9,670     12,826     13,265
ROYALTIES                              4,785      6,120      3,482
TAXES, OTHER THAN INCOME TAXES         4,230      3,774      3,529
DEFERRED INCOME                        3,156      1,192        855
PROFESSIONAL SERVICES                  2,723      2,894      4,351
LTI TRANSACTION COSTS                  2,300      7,349
DEFERRED PURCHASE AND
  CONSTRUCTION PAYMENTS                1,429      1,252      1,580
ENVIRONMENTAL LIABILITIES              1,327      1,815      2,099
INTEREST                               1,282      1,088      1,162
RESTRUCTURING RESERVES                 1,231        471         34
CUSTOMER REBATES AND VOLUME
  DISCOUNTS                            1,164      2,083      2,482
COMMISSIONS                              990      1,242      1,455
OTHER, PRINCIPALLY ACCRUALS
  FOR UNBILLED OBLIGATIONS            13,050     12,842     12,558
                                     -----------------------------
                                     $76,500    $76,837    $70,022
                                     =============================
------------------------------------------------------------------
</TABLE>

LEASES The company leases facilities, vehicles, computers, and other equipment
under long-term operating leases with varying terms and expiration dates. Some
leases contain renewal provisions, purchase options, and escalation clauses.

At December 31, 1999, LTI had a capital lease in the amount of $2.9 million
resulting from its acquisition in 1999. Obligations under capital leases were
not significant at December 31, 1998. At December 31, 1997, LTI had a capital
lease in the amount of $4.7 million for a parcel of land on which they
constructed a new corporate R&D center and other administrative offices,
including their headquarters. In 1998, LTI exercised their option to purchase
this parcel of land.

Aggregate future minimum lease payments under noncancelable operating leases as
of December 31, 1999, were as follows:

<TABLE>
<CAPTION>
IN THOUSANDS OF DOLLARS                      OPERATING LEASES
-------------------------------------------------------------
<S>                                          <C>
FOR THE YEARS ENDING:
2000                                                  $13,338
2001                                                    9,475
2002                                                    5,969
2003                                                    3,391
2004                                                    2,452
Later years                                            18,410
                                                      -------
Total minimum lease payments                          $53,035
                                                      =======
-------------------------------------------------------------
</TABLE>

Total rent expense incurred under noncancelable leases, net of minor sublease
rentals, amounted to $15.1 million in 1999, $15.5 million in 1998 and $11.5
million in 1997. The company has no contingent rentals.

MINORITY INTERESTS Minority interests increased by $8.2 million in 1999 to $92.5
million. The increase in 1999 was principally due to $10.9 million of net income
attributable to the minority interest shareholders of LTI and $1.2 million due
to the exercise of stock options at LTI. Somewhat offsetting these increases
were cash dividends paid by LTI to minority interest shareholders of $1.3
million, $1.2 million due to the divestiture of the Packaging Coatings business,
currency translation effects of $1 million, and $0.7 million from purchases of
additional LTI shares. At year-end 1998, minority interests were $84.3 million,
a decrease of $20.1 million from 1997 minority interests of $104.4 million. The
decrease in 1998 was due principally to the company's increased ownership of
LTI. In December of 1998, the company acquired approximately 22% of all the
issued and outstanding LTI shares. As a result, Dexter's ownership in LTI
increased to approximately 71.5% and the corresponding minority interest
ownership decreased to 28.5%. This resultant decrease of approximately $61.7
million was partially offset by $15 million of net income attributable to the
minority interest shareholders of LTI, $27.2 million due to the exercise of
stock options at LTI and currency translation effects of $1.6 million. Somewhat
offsetting these increases were quarterly cash dividends paid by LTI to minority
interest shareholders totaling $2.3 million. Minority interest in LTI's equity
represented $88.4 million and $78.9 million at December 31, 1999 and 1998,
respectively.

CONTINGENCIES 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 December 31, 1999, $0.3 million of current and $4.9 million of
long-term receivables from third-party insurance companies are included as
assets of the company. Equal and offsetting payables to third parties are
included as liabilities of the company. Estimated amounts for claims that are
probable and are not covered by third-party insurance are properly reflected 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 offered
to provide a refund to the government in the amount of $3.9 million. LTI
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.



                                       34
<PAGE>   21
ENVIRONMENTAL LIABILITIES Environmental expenditures attributed to ongoing
operations of the company are expensed or capitalized as appropriate.
Environmental expenditures attributed to previously owned properties and third
party off-site facilities are expensed. Environmental liabilities are recorded
and expensed when incurrence of the liability is probable and the expenses can
be reasonably estimated. Generally, the incurrence of such liability is deemed
probable when an environmental condition for which the company is likely to be
legally responsible is determined to exist. Probable expenses are estimated, on
an ongoing basis, as facts become available that indicate the scope of the
condition to be addressed and the likely response measures for addressing it.
Due to such factors as the wide discretion of regulatory authorities regarding
cleanup levels and uncertain allocation of liability at multiple party sites,
estimates made prior to approval of a formal plan of action represent
management's best judgment as to estimates of reasonably foreseeable expenses
based upon comparison to similar activities at other sites. Based upon the
information available at this time, the company believes that it has properly
provided for its best estimate of the liabilities and that the outcome of these
matters will not have a material adverse effect upon its financial condition,
results of operations or cash flows in the future.

Environmental reserves at December 31, 1999, with respect to 19 matters, were
$13 million, including current reserves of $1.3 million, which are expected to
be spent in 2000, and long-term reserves of $11.7 million. Environmental
reserves at December 31, 1998 were $15.3 million and at year-end 1997 were $15.8
million. Such reserves, which are not discounted, included, at year-end, the
following estimated amounts for claims accepted and payable by third-party
insurers: $2.5 million in 1999, $2.8 million in 1998 and $2.7 million in 1997.
The related receivables from insurance companies of $2.5 million, $2.8 million
and $2.7 million were included as assets of the company at year-end 1999, 1998
and 1997, respectively. The reserves were decreased during 1999 by expenditures
of $1.3 million.

Dexter Environmental Assurance, Ltd. ("DEAL"), a wholly owned Bermuda company,
was established in 1993. DEAL provides coverage to all wholly owned operations
of Dexter against environmental liabilities arising from occurrences prior to
December 31, 1999.

CURRENCY EXCHANGE EFFECTS Assets and liabilities of those operations whose
functional currency is other than the U.S. dollar are translated at end of
period currency exchange rates and fluctuations due to changes in exchange rates
are accounted for as a component of shareholders' equity, "Currency Translation
Effects." Results of operations are translated at average monthly currency
exchange rates during the period.

Currency translation effects decreased shareholders' equity in 1999 by $3.1
million, including $2.6 million of translation effects and a $0.5 million
related tax effect. This decrease was the result of a net strengthening of the
U.S. dollar against currencies of countries in which the company operates.
Currency translation effects increased shareholders' equity by $4.6 million in
1998, including $3.6 million of translation effects and a $1 million related tax
effect.

Many of the company's operations conduct a portion of their business in nonlocal
currencies. These transactions give rise to nonlocal currency receivables or
payables. Changes in the exchange rates between the functional currency and the
nonlocal currency in which the transaction is denominated result in currency
transaction gains and losses that are included in the results of operations. In
1999, currency exchange losses were $2 million. Currency gains and losses
realized on nonlocal currency transactions were not significant in 1998 and
1997.

The company utilizes forward exchange contracts to hedge nonlocal currency
transactions and commitments. Gains and losses on forward exchange contracts
that hedge specific commitments are deferred and recognized in income in the
same period as the hedged transaction. Such deferred unrealized gains and losses
at December 31, 1999, 1998 and 1997 were not significant. Gains and losses on
forward contracts that do not hedge an identifiable commitment are included in
income as the gain or loss arises. Forward exchange contracts outstanding at
year-end 1999 were short-term in nature and related to nonlocal currency
transactions of the company's U.S., European and Asian operations. Excluding
LTI, the equivalent U.S. dollar purchase amounts of forward contracts
outstanding were $5.9 million, $1.3 million, and $0.8 million as of December 31,
1999, 1998 and 1997, respectively. The equivalent U.S. dollar sale amounts of
forward contracts outstanding were $14.1 million, $13.8 million, and $9.6
million as of December 31, 1999, 1998 and 1997, respectively. For LTI, the
equivalent U.S. dollar purchase amounts of forward contracts outstanding were
$4.2 million, $3 million, and $2.9 million as of December 31, 1999, 1998 and
1997, respectively. The equivalent U.S. dollar sale amount of forward contracts
outstanding was $18.5 million as of December 31, 1999. There were no sale
amounts outstanding as of December 31, 1998 and 1997 for LTI.

The market risk associated with forward exchange contracts is caused by
fluctuations in exchange rates subsequent to entering into the forward exchange
contracts. Credit risk associated with forward exchange contracts is caused by
nonperformance by the counterparties to these financial instruments. The company
does not believe there is significant risk of nonperformance by the
counterparties to these financial instruments.

The company had short-term borrowings at December 31, 1999 of $8.6 million of
which $1.6 million related to nonlocal currency transaction exposure management.



                                       35
<PAGE>   22
POSTRETIREMENT BENEFITS Effective December 31, 1998, the company adopted SFAS
No. 132, Employers' Disclosures about Pensions and Other Postretirement
Benefits. The provisions of SFAS No. 132 standardize the disclosure requirements
for pensions and other postretirement benefits and do not change the measurement
or accounting of these plans.

The company has pension (defined benefit) or deferred profit sharing (defined
contribution) plans for substantially all U.S. employees. Retirement benefits
for most employees of international operations are provided by
government-sponsored or insured programs and, in certain countries, by defined
benefit plans.

The components of net periodic pension cost for the years ended December 31,
1999, 1998 and 1997 were:

<TABLE>
<CAPTION>
                                             1999                               1998                               1997
-----------------------------------------------------------------------------------------------------------------------------------
                                   DOMESTIC     INTERNATIONAL          DOMESTIC    INTERNATIONAL          DOMESTIC    INTERNATIONAL
IN THOUSANDS OF DOLLARS               PLANS             PLANS             PLANS            PLANS             PLANS            PLANS
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                <C>                <C>              <C>               <C>              <C>              <C>
SERVICE COST                       $  5,694           $ 1,808          $  5,588          $ 1,761          $  4,811         $  1,066
INTEREST COST                         6,797             2,402             6,485            2,643             5,756            1,963
EXPECTED RETURN ON PLAN ASSETS       (8,522)           (2,263)           (7,639)          (2,438)           (6,457)          (1,943)
AMORTIZATION OF:
  TRANSITION OBLIGATION (ASSET)          24               (61)               24              (64)               24              (63)
  PRIOR SERVICE COST                    632                70               493               73               444               81
  ACTUARIAL (GAIN) LOSS                (736)              484              (329)             658              (132)              74
                                   ------------------------------------------------------------------------------------------------
NET PERIODIC PENSION COST          $  3,889           $ 2,440          $  4,622          $ 2,633          $  4,446         $  1,178
                                   ================================================================================================
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

The following table provides a summary of the projected benefit obligation, plan
assets and funded status of the company's pension plans:


<TABLE>
<CAPTION>
                                                 1999                            1998                            1997
--------------------------------------------------------------------------------------------------------------------------------
                                       DOMESTIC    INTERNATIONAL      DOMESTICS    INTERNATIONAL      DOMESTICS    INTERNATIONAL
IN THOUSANDS OF DOLLARS                   PLANS            PLANS          PLANS             PLAN          PLANS            PLANS
--------------------------------------------------------------------------------------------------------------------------------
<S>                                   <C>          <C>                <C>          <C>                <C>          <C>
CHANGE IN PROJECTED BENEFIT
  OBLIGATION
PROJECTED BENEFIT OBLIGATION
  AT JANUARY 1                        $ 110,170        $  40,744      $  93,284        $  37,247      $  85,275        $  27,656
SERVICE COST                              5,694            1,808          5,588            1,761          4,811            1,066
INTEREST COST                             6,797            2,402          6,485            2,643          5,756            1,963
PLAN PARTICIPANTS' CONTRIBUTIONS                             792                             735                             645
AMENDMENTS                                                                1,567                             565              (70)
ACTUARIAL (GAIN) LOSS                   (22,606)             832          7,598           (1,731)           754            8,210
DIVESTITURE                                               (1,358)
CURTAILMENT GAIN                         (4,131)            (670)
SETTLEMENT                                                  (462)
BENEFITS PAID                            (7,998)          (1,143)        (4,223)            (552)        (3,466)            (926)
EXPENSES PAID                              (108)                           (129)                           (411)
FOREIGN CURRENCY EXCHANGE RATE
  CHANGES                                                 (1,008)                            641                          (1,297)
                                       -----------------------------------------------------------------------------------------
PROJECTED BENEFIT OBLIGATION
  AT DECEMBER 31                      $  87,818        $  41,937      $ 110,170        $  40,744      $  93,284        $  37,247
                                       =========================================================================================
CHANGE IN PLAN ASSETS
FAIR VALUE OF PLAN ASSETS
  AT JANUARY 1                        $  95,966        $  30,822      $  86,489        $  27,646      $  73,164        $  23,270
ACTUAL RETURN ON PLAN ASSETS             18,053            5,176         13,051              389         15,175            3,950
DIVESTITURE                                               (2,039)
EMPLOYER CONTRIBUTION                       592            1,977            778            2,162          2,027            1,717
PLAN PARTICIPANTS' CONTRIBUTIONS                             792                             735                             645
BENEFITS PAID                            (7,998)          (1,143)        (4,223)            (552)        (3,466)            (926)
EXPENSES PAID                              (108)                           (129)                           (411)
FOREIGN CURRENCY EXCHANGE RATE
  CHANGES                                                   (721)                            442                          (1,010)
                                      ------------------------------------------------------------------------------------------
FAIR VALUE OF PLAN ASSETS AT
  DECEMBER 31                         $ 106,505        $  34,864      $  95,966        $  30,822      $  86,489        $  27,646
                                      ==========================================================================================

FUNDED STATUS                         $  18,687        $  (7,073)     $ (14,204)       $  (9,922)     $  (6,795)       $  (9,601)
UNRECOGNIZED ACTUARIAL
  (GAIN) LOSS                           (37,287)           7,396         (5,868)           9,987         (8,382)          10,179
UNRECOGNIZED PORTION OF
  NET OBLIGATION AT TRANSITION               47             (304)            70             (388)            94             (454)
UNRECOGNIZED PRIOR SERVICE COST           4,171              739          4,809              840          3,734              895
                                      ------------------------------------------------------------------------------------------
NET AMOUNT RECOGNIZED                 $ (14,382)       $     758      $ (15,193)       $     517      $ (11,349)       $   1,019
                                      ==========================================================================================
AMOUNTS RECOGNIZED
  IN THE STATEMENT OF
  FINANCIAL POSITION CONSIST OF:
PREPAID PENSION COST                                   $     897                       $   1,576                       $   1,856
ACCRUED PENSION LIABILITY             $ (15,354)            (349)     $ (17,816)          (1,233)     $ (13,115)            (994)
INTANGIBLE ASSETS                           961              210          2,602              174          1,742              157
INCLUDED IN ACCUMULATED OTHER
  COMPREHENSIVE INCOME                       11                              21                              24
                                      ------------------------------------------------------------------------------------------
NET AMOUNT RECOGNIZED                 $ (14,382)       $     758      $ (15,193)       $     517      $ (11,349)       $   1,019
                                      ==========================================================================================
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>



                                       36
<PAGE>   23
For pension plans where the accumulated benefit obligation exceeded the plan's
assets, the projected benefit obligations, accumulated benefit obligations, and
fair value of plan assets were $12 million, $10.2 million, and $1.4 million,
respectively, as of December 31, 1999; $13.5 million, $11.3 million, and $1
million, respectively, as of December 31, 1998; and $11.4 million, $9.2 million,
and $0.8 million, respectively, as of December 31, 1997.

The assets in the plans included stock of Dexter Corporation in the amount of
$6.6 million, $5.3 million, and $7.2 million at December 31, 1999, 1998 and
1997, respectively.


<TABLE>
<CAPTION>
                                                   1999*       1998       1997
--------------------------------------------------------------------------------
<S>                                                <C>         <C>        <C>
WEIGHTED AVERAGE ASSUMPTIONS
  AS OF DECEMBER 31
DISCOUNT RATE
  DOMESTIC                                         7.83%       6.58%      6.82%
  INTERNATIONAL                                    6.24%       5.93%      7.01%
EXPECTED RETURN ON PLAN ASSETS
  DOMESTIC                                         9.00%       9.00%      9.00%
  INTERNATIONAL                                    7.29%       7.16%      8.55%
RATE OF COMPENSATION INCREASE
  DOMESTIC                                         4.93%       4.95%      4.95%
  INTERNATIONAL                                    4.45%       4.09%      5.50%
</TABLE>


* In February 1999, the company recognized a $2.7 million curtailment gain
  resulting from the sale of its Packaging Coatings business. In November 1999,
  the company recognized a $1.4 million curtailment gain resulting from the sale
  of its printed wiring board product line and the Dexter Pension Plan was
  remeasured using a 7.75% discount rate.
--------------------------------------------------------------------------------

The company sponsors deferred profit sharing plans for substantially all
domestic employees not covered under pension plans. Contributions and cost are
determined based on a percentage of each covered employees' pay and totaled $7.4
million in 1999, $7.2 million in 1998 and $8.1 million in 1997.

In addition to providing pension benefits, Dexter's wholly owned domestic
businesses provide some healthcare and life insurance benefits for retired
employees. Dexter has funded trusts for future payment of such benefits. These
funds are expected to achieve long-term returns in excess of 10%.

The components of net periodic postretirement benefit income for the years ended
December 31, 1999, 1998 and 1997 were:

<TABLE>
<CAPTION>
IN THOUSANDS OF DOLLARS                       1999          1998          1997
--------------------------------------------------------------------------------
<S>                                         <C>           <C>           <C>
SERVICE COST                                $ 1,333       $ 1,136       $   828
INTEREST COST                                 1,922         1,801         1,596
EXPECTED RETURN ON PLAN ASSETS               (4,537)       (4,074)       (3,328)
AMORTIZATION OF:
  PRIOR SERVICE COST                           (286)         (337)         (470)
  ACTUARIAL GAIN                               (418)         (455)         (237)

NET PERIODIC POSTRETIREMENT                 ------------------------------------
  BENEFIT INCOME                            $(1,986)      $(1,929)      $(1,611)
                                            ====================================
</TABLE>

--------------------------------------------------------------------------------
The following provides a reconciliation of accumulated benefit obligation, plan
assets and funded status of the company's postretirement health benefit plan:

<TABLE>
<CAPTION>
IN THOUSANDS OF DOLLARS                      1999          1998          1997
--------------------------------------------------------------------------------
<S>                                        <C>           <C>           <C>
CHANGE IN ACCUMULATED
  BENEFIT OBLIGATION
ACCUMULATED POSTRETIREMENT
   BENEFIT OBLIGATION
   AT JANUARY 1                            $ 30,203      $ 27,154      $ 23,192
SERVICE COST                                  1,333         1,136           828
INTEREST COST                                 1,922         1,801         1,596
PLAN PARTICIPANTS' CONTRIBUTIONS                240           217           242
AMENDMENTS                                                                1,467
CURTAILMENT GAIN                             (3,550)
ACTUARIAL (GAIN) LOSS                        (4,780)        1,066         1,163
BENEFITS PAID                                (1,133)       (1,171)       (1,334)
                                           ------------------------------------
ACCUMULATED POSTRETIREMENT
  BENEFIT OBLIGATION AT
  DECEMBER 31                              $ 24,235      $ 30,203      $ 27,154
                                           ====================================

CHANGE IN PLAN ASSETS
FAIR VALUE OF PLAN ASSETS AT
  JANUARY 1                                $ 45,015      $ 41,209      $ 33,709
ACTUAL RETURN ON PLAN ASSETS                  9,195         4,617         8,413
EMPLOYER CONTRIBUTION                                         143           179
PLAN PARTICIPANTS' CONTRIBUTIONS                240           217           242
BENEFITS PAID                                (1,133)       (1,171)       (1,334)
                                           -------------------------------------
FAIR VALUE OF PLAN ASSETS AT
  DECEMBER 31                              $ 53,317      $ 45,015      $ 41,209
                                           =====================================

FUNDED STATUS                              $ 29,082      $ 14,812      $ 14,055
UNRECOGNIZED ACTUARIAL GAIN                 (15,786)       (6,767)       (7,746)
UNRECOGNIZED PRIOR SERVICE COST                (830)       (1,489)       (1,826)
                                           -------------------------------------
PREPAID POSTRETIREMENT
  BENEFIT COST RECOGNIZED
  IN THE STATEMENT OF
  FINANCIAL POSITION                       $ 12,466      $  6,556      $  4,483
                                           =====================================
</TABLE>
--------------------------------------------------------------------------------
The discount rates used in determining the accumulated postretirement benefit
obligation were 7.75%, 6.5% and 6.75% at December 31, 1999, 1998 and 1997,
respectively. In February 1999, the company recognized a $1.4 million
curtailment gain resulting from the sale of its Packaging Coatings business. In
November 1999, the company recognized a $2.5 million curtailment gain resulting
from the sale of its printed wiring board product line and the accumulated
postretirement benefit obligation was remeasured using a 7.75% discount rate.

The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 9% in 1999, declining gradually to 5% in
2007 and remaining level thereafter.

Assumed health care cost trend rates have a significant effect on the amounts
reported for the postretirement health benefit plan. A one-percentage point
change in assumed healthcare cost trend rates would have the following effects:


<TABLE>
<CAPTION>
                                                ONE-PERCENTAGE    ONE-PERCENTAGE
IN THOUSANDS OF DOLLARS                         POINT DECREASE    POINT INCREASE
--------------------------------------------------------------------------------
<S>                                                <C>               <C>
EFFECT ON TOTAL OF SERVICE
  AND INTEREST COST
  COMPONENTS                                       $  (670)          $   150
EFFECT ON THE ACCUMULATED
  POSTRETIREMENT
  BENEFIT OBLIGATION                               $(3,800)          $ 1,800
--------------------------------------------------------------------------------
</TABLE>

As with pension benefits, the assumptions utilized in these calculations are
periodically reviewed and adjusted as deemed appropriate.


                                       37
<PAGE>   24
LONG-TERM DEBT Long-term debt at December 31, 1999, consisted of promissory
notes, revolving credit borrowings, and a capitalized lease. In December 1999,
Dexter refinanced 500 million yen debt at an annual rate of 1.784%. The total
borrowing of 500 million yen (equivalent to approximately $4.9 million) is
scheduled to mature in the year 2002.

In May 1999, LTI acquired the process chromatography and research products
business of BioSepra Inc., resulting in the acquisition of a capital lease and
certain promissory notes. At December 31, 1999, the capital lease and promissory
notes had balances of French franc 18.8 million and French franc 5.3 million,
respectively.

In December 1998, the company entered into a $300 million, five-year revolving
credit agreement with a syndicate of U.S. and international banks. This
revolving credit agreement replaced the $100 million multi-currency revolving
credit agreement in effect during 1998 and 1997 and carries a facility fee that
is based on the credit ratings of the company. At December 31, 1999, the
facility fee on the revolving credit agreement was 0.08% per annum. A
utilization fee of up to 0.10% per annum will also be charged if the utilization
of the revolving credit agreement exceeds certain contractual levels. This
revolving credit agreement has a minimum consolidated net worth provision and a
maximum leverage ratio. At December 31, 1999, the company was in compliance with
these provisions. As of December 31, 1999, the company had borrowings under the
five-year revolving credit agreement of $60 million at an annual rate of 6.72%.

In March 1998, the company entered into a $10 million floating rate promissory
note due in the year 2001. The company also entered into an interest rate swap
agreement expiring in the year 2001 in order to limit the exposure to interest
rate volatility on the $10 million floating rate promissory note. The swap
agreement resulted in a fixed annual rate of 6.315%. At December 31, 1999, the
impact from the termination of the swap agreement would not be significant.

In March 1998, the company borrowed the Swiss franc denominated equivalent of
approximately $20 million under a floating rate promissory note due in the year
2003. The company also entered into an interest rate swap agreement expiring in
the year 2003 to limit exposure to interest rate volatility on the Swiss franc
floating rate promissory note. Upon the divestiture of certain Swiss franc net
assets in the first quarter of 1999, the company redenominated its Swiss franc
floating rate debt to Euro floating rate debt equivalent of approximately $18.8
million; there was no other change in terms and conditions from the original
Swiss franc debt. The company also cancelled the Swiss franc interest rate swap
agreement resulting in no gain or loss. Payments of 9.4 million Euro are due in
the years 2002 and 2003. The company entered into an interest rate swap
agreement expiring in the year 2003 to limit exposure to interest rate
volatility on the 18.7 million Euro floating rate promissory note. The swap
agreement resulted in a fixed annual rate of 4.395%. At December 31, 1999,
termination of the swap agreement would result in a gain of $0.3 million.

In 1996, LTI capitalized a lease for a parcel of land on which a new R&D center
and other administrative offices were constructed. In March 1998, LTI exercised
their option under the lease to purchase the land.

In November 1993, Dexter privately placed with The Prudential Insurance Company
of America, $35 million, 20-year senior unsecured notes at an annual rate of
6.21% due in the year 2013. Required prepayments began in 1994 and are scheduled
to continue with installments of $1.75 million per year through the year 2013.
In December 1993, Dexter privately placed with The Prudential Insurance Company
of America the equivalent of $15 million, 15-year senior unsecured notes
denominated in Swiss francs at an annual rate of 4.86% due in the year 2008.
Upon divestiture of certain Swiss franc net assets in the first quarter of 1999,
the company entered into a currency swap with The Prudential Insurance Company
of America, swapping the remaining 11.6 million Swiss franc debt to $7.8 million
at an annual rate of 8.69%. Required payments began in December 1999 and are
scheduled to continue with installments of approximately $1 million per year
through the year 2004, decreased to approximately $0.5 million per year through
the year 2008. At December 31, 1999, termination of the swap agreement would
result in a loss of $0.5 million.

In November 1991, Dexter privately placed with The Prudential Insurance Company
of America, $50 million, 20-year senior unsecured notes at an annual rate of
8.96% due in the year 2011. Required prepayments of $2.5 million per year began
in 1998 and will continue through the year 2000. The installments increase to
$3.5 million per year from 2001-2010, with a final lump sum payment of $7.5
million due at maturity.

In July 1990, Dexter privately placed with The Prudential Insurance Company of
America, $75 million, 20-year senior unsecured notes at a rate of 9.72% due in
the year 2010. Required prepayments began in 1996 and are scheduled to continue
with installments of $5 million per year through maturity.

In December 1986, the company sold publicly $50 million, 9.25% sinking fund
debentures due in 2016. The sinking fund payments commenced in 1997 and were
designed to retire 95% of the debt prior to maturity. During 1997, Dexter
redeemed $30 million of the 9.25% sinking fund debentures in advance of their
maturities at a redemption price of 104.625%. Also, in December 1997 and
December 1998, Dexter made optional sinking fund payments of $5 million on these
debentures in addition to the scheduled, mandatory sinking fund payments of $2.5
million. In December 1999, the company redeemed all remaining debentures with a
mandatory $2.5 million sinking fund payment and a $2.5 million optional sinking
fund payment. The redemption price of the optional and mandatory sinking fund
payments was 100%.


                                       38
<PAGE>   25
'The company monitors the risk of default on swap agreements and does not
anticipate nonperformance by the counterparties. The company has $50 million of
authorized and unissued medium-term notes.

Long-term debt represented 32% of total capital at December 31, 1999. The
weighted average interest rate of long-term debt outstanding at December 31,
1999 was 7.56%.

Certain long-term debt agreements include provisions that restrict the amount of
future dividend increases if consolidated equity falls below $175 million. There
are also provisions placing limits on the amount of additional debt the company
may incur without amendment of the agreements. At December 31, 1999, the company
was in compliance with these provisions.

LTI has guaranteed approximately $0.3 million of bank loans to others.

At December 31, 1999, 1998 and 1997, the fair value of net long-term debt was
$223 million, $391 million, and $188 million, respectively, compared with the
carrying value of $218 million, $382 million, and $180 million, respectively.
The fair value of long-term debt is based on quoted market prices for similar
issues or on the current rates offered to the company for debt of the same
remaining maturities. In 1999, the fair value of long-term debt exceeded the
carrying value by $5 million due to the net reduction in interest rates
subsequent to the issuance of the long-term debt and the consequent increase in
fair value. The company is only obligated to repay the amounts reflected in the
carrying value of this debt.
--------------------------------------------------------
DEBT OUTSTANDING

<TABLE>
<CAPTION>
                                                      DECEMBER 31
                                        ----------------------------------------
IN THOUSANDS OF DOLLARS                    1999           1998           1997
--------------------------------------------------------------------------------
<S>                                     <C>            <C>            <C>
PROMISSORY NOTES                        $ 165,918      $ 178,393      $ 155,792
REVOLVING CREDIT BORROWINGS                60,000        216,000         19,720
SINKING FUND DEBENTURES                                    5,000         12,500
CAPITALIZED LEASE                           2,884                         4,658
INDUSTRIAL DEVELOPMENT BONDS                                                700
                                        ---------------------------------------
                                          228,802        399,393        193,370
LESS:
PAYMENTS DUE WITHIN ONE YEAR              (10,670)       (17,230)       (13,340)
                                        ---------------------------------------
NET LONG-TERM DEBT                      $ 218,132      $ 382,163      $ 180,030
                                        =======================================
--------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
DEBT MATURITIES BY CURRENCY AND TYPE

AMOUNTS IN THOUSANDS


<TABLE>
<CAPTION>
                                                      MULTI-CURRENCY PROMISSORY NOTES
                                       --------------------------------------------------------------
                         CAPITALIZED
                               LEASE                                                            TOTAL          TOTAL        WEIGHTED
           CAPITALIZED   U.S. DOLLAR                               JAPANESE     FRENCH    U.S. DOLLAR    U.S. DOLLAR         AVERAGE
                 LEASE    EQUIVALENT   U.S. DOLLAR        EURO          YEN      FRANC     EQUIVALENT     EQUIVALENT   INTEREST RATE
------------------------------------------------------------------------------------------------------------------------------------
<S>        <C>           <C>           <C>           <C>          <C>         <C>         <C>            <C>           <C>
2000         FF  1,269      $    195      $ 10,230                            FF 1,596      $  10,475       $ 10,670           8.77%
2001             1,336           205        21,230                                 923         21,372         21,577           7.70
2002             1,405           216        11,230   EUR  9,358   Y 500,000        844         25,679         25,895           5.88
2003             1,479           227        71,230        9,358                    836         80,783         81,010           6.74
2004             1,556           239        11,230                                 803         11,354         11,593           8.72
2005             1,637           251        10,740                                 301         10,785         11,036           8.73
2006             1,723           264        10,740                                             10,740         11,004           8.76
2007             1,813           278        10,740                                             10,740         11,018           8.75
2008             1,908           293        10,740                                             10,740         11,033           8.75
2009             2,007           308        10,250                                             10,250         10,558           8.74
2010-2013        2,657           408        23,000                                             23,000         23,408           8.22
             -------------------------------------------------------------------------------------------------------
TOTAL        FF 18,790      $  2,884      $201,360   EUR 18,716   Y 500,000   FF 5,303      $ 225,918      $ 228,802           7.56%
             =======================================================================================================================
RATES OF
INTEREST           4.4%                  6.21-9.72%       4.395%      1.784%   3.9-5.8%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       39
<PAGE>   26
SHAREHOLDERS' EQUITY Shareholders' equity increased by $74.1 million in 1999 to
$462.6 million representing a book value of $20.29 per share. Net income
increased shareholders' equity by $107.5 million. The exercise of stock options
along with the impact of restricted stock awards added $3.2 million to
shareholders' equity in 1999. Offsetting these increases were reductions due to
dividends declared of $23.8 million, the repurchases of the company's common
stock of $10.1 million, and a $2.7 million reduction related to other
comprehensive income.

In 1996, the Board of Directors authorized the repurchase of up to 1,000,000
shares of the company's outstanding common stock and, in 1996, the company
purchased 160,400 shares of its outstanding common stock at an average cost of
$32.54 per share under this plan. In 1997, the company purchased 671,200 shares
of its outstanding common stock at an average cost of $30.57 per share under the
1996 plan. In 1999, the Board of Directors authorized the repurchase of an
additional 1,000,000 shares of the company's outstanding common stock. In 1999,
the company purchased the remaining 168,400 shares of its outstanding common
stock under the 1996 plan and 176,100 shares of its outstanding common stock
under the 1999 plan at an average cost of $29.39 per share. At the end of 1999,
there were 1,943,068 shares held in treasury compared with 1,702,704 shares at
the end of 1998 and 1,814,035 shares at the end of 1997.

In 1998, the company adopted SFAS No. 130, Reporting Comprehensive Income. This
statement establishes rules for the reporting of comprehensive income and its
components. Comprehensive income consists primarily of net income and foreign
currency translation adjustments and is presented in the Statement of Changes in
Shareholders' Equity. The adoption of SFAS No. 130 has no impact on total
shareholders' equity.

PREFERRED STOCK The company has the following classes of preferred stock,
without par value, as of December 31, 1999:

<TABLE>
<CAPTION>
   CLASS                                                 AUTHORIZED AND UNISSUED
<S>                                                      <C>
PREFERRED STOCK                                               150,000 SHARES
PREFERRED STOCK, CLASS I                                      500,000 SHARES
PREFERRED STOCK, CLASS II                                     500,000 SHARES
PREFERRED STOCK, SERIES A                                     250,000 SHARES
</TABLE>

PREFERRED STOCK, SERIES A - PURCHASE RIGHTS In August 1996, the company
authorized and declared a dividend distribution of one right for each share of
common stock of the company outstanding at the close of business on November 17,
1996, and authorized the issuance of one right for each share of common stock of
the company issued between November 17, 1996 and the distribution date. Each
right entitles the holder to purchase one two-hundredth of a share of Series A
Preferred Stock of the company at a purchase price of $90 per right. The rights
will trade with the common stock and not be exercisable or transferable apart
from the common stock until 10 days following the acquisition of, or tender
offer for, 20% or more of the outstanding shares of the common stock.

In October 1999, the Board of Directors of the company amended the rights plan
to reduce the beneficial ownership percentage threshold to become an acquiring
person from 20% to 11%. The amendment to the rights plan excludes schedule 13G
reporting persons and certain related entities and plans from the definition of
an acquiring person if any such person beneficially owns less than 20% of the
company's common stock then outstanding.

In February 2000, the Board of Directors of the company amended the rights plan
pursuant to which the definitions of "Acquiring Person" and "Qualifying Offer"
were amended such that the rights will not be triggered by and the plan will
pose no obstacle for any offer to our stockholders for all shares which Dexter's
financial advisors opines is fair from a financial point of view, is supported
by liquid funds on hand or by fully committed financing, is substantially
unconditional and has been open to Dexter stockholders for at least 60 calendar
days.

The rights plan also provides that if the company merges with or into another
entity or sells or otherwise transfers more than 50% of the assets or earning
power of the company, the holder of each right shall have the right to receive,
upon exercise, shares of common stock having a value equal to two times the
exercise price.

The rights, which do not have voting privileges, are redeemable under certain
circumstances at a redemption price of $.01 per right and will expire, unless
earlier redeemed, on August 31, 2006. The company has authorized 250,000 shares
of Series A Preferred Stock for issuance upon exercise of the rights.

STOCK COMPENSATION PLANS The company applies APB Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations in accounting for its
stock-based compensation plans described below. Accordingly, no compensation
cost has been recognized for its fixed stock option plans. Compensation expense
for its restricted stock plans has been adjusted on a quarterly basis to reflect
changes in the market price of the stock. The compensation cost that has been
charged against income for its restricted stock plans was $1.2 million in 1999,
$1.1 million in 1998 and $2.1 million in 1997. Had compensation cost for the
company's stock-based compensation plans been determined in accordance with SFAS
No. 123, Accounting for Stock-Based Compensation, the company would have
expensed $2.1 million for its fixed stock option plans, offset by income of
approximately $0.1 million for its restricted stock plans in 1999. As a result,
1999 net income would have decreased by $1.3 million, or $.06 per share. In
1998, the net impact of SFAS No. 123 would have decreased the company's net
income by $1.1 million, or $.05 per share. The net impact of SFAS No. 123 on the
company's net income and earnings per share was not significant in 1997.

The SFAS No. 123 method of accounting has not been applied to options or
restricted stock granted prior to January 1, 1995. As a result, compensation
cost may not be representative of that to be expected in future years.

The weighted average fair value at date of grant for options granted during
1999, 1998 and 1997 was $9.98, $8.47 and $6.90 per option, respectively. The
fair value of options at date of grant was estimated using the Black-Scholes
model with the following weighted average assumptions:

<TABLE>
<CAPTION>
                                             1999           1998           1997
--------------------------------------------------------------------------------
<S>                                          <C>            <C>            <C>
EXPECTED LIFE (YEARS)                        5.9            6.5            5.9
INTEREST RATE                                6.6%           4.7%           5.7%
VOLATILITY                                    21%            20%            18%
DIVIDEND YIELD                               2.5%           2.9%           2.4%
--------------------------------------------------------------------------------
</TABLE>


                                       40
<PAGE>   27
STOCK PLANS

Dexter has three stock compensation plans for certain key management of the
company. The 1988 Stock Option Plan provides for the awarding of up to 1,000,000
shares of the company's common stock for incentive and nonqualified stock
options. The 1994 Long-Term Incentive Plan provided for awarding up to 1,200,000
shares of the company's common stock for restricted stock and stock options
grants. The 1999 Long-Term Incentive Plan provides for the awarding up to
1,500,000 shares of the company's common stock for restricted stock and stock
option grants plus the number of shares available for new awards under the 1994
Long-Term Incentive Plan. Restricted stock grants and stock option grants have
been awarded under the 1994 and 1999 Plans. Under the 1994 and 1999 Plans there
were 1,900,907 shares available for future grant at December 31, 1999. At
December 31, 1998, there were 629,314 shares available for future grants under
the 1994 Plan.

RESTRICTED STOCK

Restricted stock awards are granted at no cost to the recipient. As of the grant
date, restricted stock participants have the rights of shareholders, including
the right to receive any cash dividends and the right to vote the shares.
Restricted stock awards are subject to forfeiture provisions including the lapse
of time and the achievement of certain performance targets and have restrictions
limiting the sale or transfer of shares during the restriction periods defined
in the Plans. The expense relating to restricted stock awarded under the Plans
is amortized over the restriction period. The weighted average fair value at
date of grant for restricted stock granted during 1999, 1998 and 1997 was
$37.77, $41.09 and $29.94, respectively, which in each case was equal to the
market value of the company's common stock at the date of grant. The shares
outstanding are summarized as follows:

<TABLE>
<CAPTION>
                                                          DECEMBER 31
                                            ------------------------------------
                                              1999          1998          1997
                                            ------------------------------------
                                                       NUMBER OF SHARES
                                            ------------------------------------
<S>                                         <C>           <C>           <C>
OUTSTANDING AT BEGINNING OF YEAR            240,640       231,758       202,487
AWARDED                                      60,000        58,800        74,800
EARNED AND DISTRIBUTED                      (31,254)      (32,158)      (20,154)
CANCELLED                                   (34,391)      (17,760)      (25,375)
                                            ------------------------------------
OUTSTANDING AT END OF YEAR                  234,995       240,640       231,758
                                            ====================================
</TABLE>

STOCK OPTIONS

Options granted under the 1988 Plan have an exercise price not less than 100% of
the fair market value on the date of the grant for incentive options and not
less than 80% of the market value on the date of grant for nonqualified options.
There have been no nonqualified options issued under the 1988 Plan at less than
fair market value; therefore, no charges against income have been made. Options
granted under the 1994 and 1999 Plans have an exercise price not less than 100%
of the fair market value on the date of grant. Options generally become
exercisable at the rate of 33 1/3% of the shares each year starting one year
after the date of grant. Each option lapses ten years after the date it was
granted, or earlier, as outlined under the provisions of the Plans.

<TABLE>
<CAPTION>
                                                                   DECEMBER 31
                                      ----------------------------------------------------------------------
                                              1999                     1998                     1997
                                      ----------------------------------------------------------------------
                                                  WEIGHTED                 WEIGHTED                 WEIGHTED
                                                   AVERAGE                  AVERAGE                  AVERAGE
                                                  EXERCISE                 EXERCISE                 EXERCISE
1988 PLAN                               SHARES       PRICE       SHARES       PRICE       SHARES       PRICE
                                      ----------------------------------------------------------------------
<S>                                    <C>        <C>           <C>        <C>          <C>         <C>
OUTSTANDING AT BEGINNING OF YEAR       481,506      $27.55      560,603      $26.60      492,241      $24.42
GRANTED                                                          11,079      $42.03      202,700      $30.49
EXERCISED                             (101,001)     $24.81      (86,155)     $23.20     (125,265)     $24.26
EXPIRED OR CANCELLED                   (10,637)     $29.08       (4,021)     $28.91       (9,073)     $27.49
                                      --------                  -------                 --------
OUTSTANDING AT END OF YEAR             369,868      $28.25      481,506      $27.55      560,603      $26.60
                                      ========                  =======                 ========

EXERCISABLE OPTIONS AT END OF YEAR     306,492      $27.49      323,970      $25.89      322,531      $24.25

SHARES AVAILABLE FOR FUTURE GRANT       12,938                    2,301                    9,359
</TABLE>

At December 31, 1999, there were 348,789 options outstanding with a range of
exercise prices of $24.13 - $29.94 and a weighted average remaining contractual
life of approximately 3 years. The remaining 21,079 options outstanding had a
range of exercise prices of $41.22 - $42.78 and a weighted average remaining
contractual life of approximately 5 years.

<TABLE>
<CAPTION>
                                                              DECEMBER 31
                                            ---------------------------------------------
                                                   1999                      1998
                                            ---------------------------------------------
                                                       WEIGHTED                  WEIGHTED
                                                        AVERAGE                   AVERAGE
                                                       EXERCISE                  EXERCISE
1994 AND 1999 PLANS                          SHARES       PRICE        SHARES       PRICE
                                            ---------------------------------------------
<S>                                         <C>          <C>          <C>        <C>
OUTSTANDING AT BEGINNING OF YEAR            275,871      $40.80
GRANTED                                     238,750      $37.75       276,921      $40.80
EXERCISED                                    (1,490)     $31.47
EXPIRED OR CANCELLED                        (35,952)     $39.02        (1,050)     $41.41
                                            -------                   -------
OUTSTANDING AT END OF YEAR                  477,179      $39.44       275,871      $40.80
                                            =======                   =======
EXERCISABLE OPTIONS AT END OF YEAR           95,019      $41.17
</TABLE>

At December 31, 1999 the options outstanding under the 1994 and 1999 Plans have
a range of exercise prices of $31.47 - $41.41. The weighted average remaining
contractual life of options outstanding under the 1994 and 1999 Plans is 5
years.

--------------------------------------------------------------------------------


                                       41

<PAGE>   28
<TABLE>
<S>                                                                             <C>
NOTICE OF ANNUAL MEETING                                                        DEXTER CORPORATION

You are cordially invited to attend Dexter Corporation Annual Meeting of        One Elm Street
Shareholders beginning at 10:00 a.m., Thursday, April 27, 2000, at The          Windsor Locks, CT 06096-2334
Hartford Club, 46 Prospect Street, Hartford, Connecticut.                       Tel: 860.292.7675
                                                                                Fax: 860.292.7673
                                                                                www.dexter.com

NOTICE OF FORM 10-K ANNUAL REPORT
                                                                                STOCK EXCHANGE
The Form 10-K Annual Report of Dexter Corporation filed with the
Securities and Exchange Commission, as well as the Form 10-K Annual             Listing: New York Stock Exchange
Report of Life Technologies, Inc., are available without charge after           Stock Symbol: DEX
March 31 of each year to shareholders and prospective investors. Please
contact the Corporate Communications Department in Windsor Locks,
Connecticut, at 860.292.7615.

                                                                                REGISTRAR

SHAREHOLDERS' STOCK SAVINGS PLAN/INQUIRIES                                      ChaseMellon Shareholder Services, L.L.C.
                                                                                Ridgefield Park, NJ
Dexter shareholders can reinvest their dividends automatically in additional
shares of Dexter common stock at the market price. Participants can also
invest up to an additional $3,000 in Dexter shares each quarter through this    TRANSFER AGENT
service.
                                                                                ChaseMellon Shareholder Services, L.L.C.
Also, if you have any questions concerning your account as a shareholder,       Ridgefield Park, NJ, and New York, NY
such as name and address changes, inquiries regarding dividend checks,
stock certificates, or if you need tax information regarding your account,
please contact:                                                                 INVESTOR RELATIONS

ChaseMellon Shareholder Services, L.L.C.                                        Kathleen Burdett
Overpeck Centre                                                                 Vice President and Chief Financial Officer
85 Challenger Road                                                              Tel: 860.292.7620
Ridgefield Park, NJ 07660                                                       Fax: 860.292.7669
Tel: 800.288.9541
www.chasemellon.com                                                             John D. Thompson
                                                                                Senior Vice President,
                                                                                Strategic and Business Development
TDD SERVICE AVAILABLE                                                           Tel: 860.292.7640
                                                                                Fax: 860.292.7669
Dexter shareholders with hearing or speech disabilities can get information
about their accounts through TDD services offered by ChaseMellon
Shareholder Services, L.L.C. at 800.231.5469.                                   CORPORATE COMMUNICATIONS/
                                                                                MEDIA CONTACT

                                                                                Ellen M. Miles
                                                                                Corporate Communications Manager
                                                                                Tel: 860.292.7686
                                                                                Fax: 860.292.7627
</TABLE>



                                       42
<PAGE>   29
BUSINESS AND SUBSIDIARY HEADQUARTERS
<TABLE>
<S>                                    <C>                              <C>
Dexter                                 Dexter                           Dexter
Adhesive & Coating Systems             Electronic Materials             Nonwoven Materials

2850 Willow Pass Road                  15051 East Don Julian Road       Two Elm Street
Bay Point, CA 94565-3299               Industry, CA 91746-3398          Windsor Lock, CT 06096-2335
Tel: 925.458.8000                      Tel: 626.968.6511                Tel: 860.654.8300
Jeffrey W. McClelland                  Ronald C. Benham                 A. Duncan Middleton
President                              President                        President

Life Technologies, Inc.
(majority-owned)

9800 Medical Center Drive
Rockville, MD 20850-6482
Tel: 301.610.8000
J. Stark Thompson, Ph.D.
President and Chief Executive Officer
</TABLE>