Annual Report (Form 10-K), fiscal year 1994

ITEM 1 BUSINESS
GENERAL
Founded in 1767 and incorporated in the state of Connecticut in 1914, Dexter produces specialty materials for customers in five major strategic global markets: aerospace, automotive, electronics, food packaging, and medical. The financial information in the hereinafter mentioned pages and sections should be read in conjunction with the Financial Statements contained on pages 24 through 28, Quarterly Financial Information on page 28, Analysis of Financial Condition and Operations contained on pages 29 through 39, and Analysis of Financial Position contained on pages 39 through 47 of the 1994 Annual Report. For a description of the business of Dexter, see pages 29 through 38 of the 1994 Annual Report which are incorporated herein by reference, which include acquisitions information and events, trends and vulnerabilities on page 29, segment information on pages 34, 35 and 38, and international operations information on pages 36 and 37.
CUSTOMERS AND MARKETING
Dexter's customers for most specialty material products are principally industrial manufacturers who convert or incorporate Dexter's products into their own final product. Biotechnology products are marketed directly to research laboratories, pharmaceutical and biotechnology companies, and other customers.
Most of the Company's products are sold by its own sales force of which approximately 229 are directly engaged in field sales (see page 35 of the 1994 Annual Report which is incorporated herein by reference), and the remainder are sold through agents or distributors. In general, each of the Company's product lines has its own sales force. In 1994, no single customer accounted for more than 5 percent of consolidated revenues, and the ten largest customers accounted for less than 20 percent. Dexter has no single customer contract for the sale of its products which it deems to be material to its business as a whole. Management believes that product research and development, close customer relations and strong technical service are important factors in Dexter's growth over the years.
RESEARCH AND DEVELOPMENT
Dexter engages in research and development with respect to new product development and product applications primarily for its own use, with only minor contract services provided for others.
The number of employees engaged in research and development and the expenditures related thereto are set forth on page 35 of the 1994 Annual Report which is incorporated herein by reference.
COMPETITION
No company is known to compete with Dexter in all of its major businesses, but in each market, competition is offered by a number of companies, including firms substantially larger and with greater financial resources than Dexter.
Dexter's management believes that Dexter is an important factor in each of its markets. All market segments are diverse and highly competitive and emphasize the quality of their products. The businesses of the Company are characterized by technological innovation and the continued introduction of new products and services.
Dexter continues to experience competition from imports in several of its domestic markets.
BACKLOG
Dexter continues to maintain a backlog of orders. Such backlog was approximately $70 million at December 31, 1994 and $73 million at December 31, 1993 and typically represents less than two months sales for businesses where backlog is applicable. The Company expects substantially all of the December 31, 1994 backlog to be shipped in 1995. Backlog was significant in all markets except at Life Technologies, which is part of the medical market, where backlog is not considered to be relevant to the business. Although backlog orders are reasonably firm, they may be subject to cancellation or delay and amounts are not necessarily indicative of future sales volume or profitability.
SUPPLIERS
Dexter buys materials for its products from many suppliers and is not dependent on any one supplier or group of suppliers for any significant raw materials purchased. There are, however, some specific raw materials which are available from only one supplier. If there were to be an interruption with the supply of these raw materials, future revenues could be diminished.
The materials bought include natural fibers such as hemp and wood; synthetic fibers such as glass, rayon and polyester; basic chemical materials (many of which are derived from petroleum products) for the manufacture of synthetic resins; resins produced by others, including polypropylene; rubber, solvents, additives and pigments; highly purified chemicals and products collected from natural sources for Life Technologies' products; and magnetic materials.
EMPLOYEES
Approximately 1,600 of the Company's 4,700 employees (see page 22 of the 1994 Annual Report which is incorporated herein by reference) are employed outside the United States. There has not been a significant work stoppage in recent years and management believes employee relations are good.
ENVIRONMENTAL REGULATION
The Company is subject to federal, state and legal requirements regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment. The Company does not believe that the continuing cost of complying with such regulations and other costs related to environmental matters will have a material adverse effect on the Company's financial position or results of operations. Capital expenditures for environmental control were $3 million for 1994 and are estimated to be $3-$4 million for 1995. For further discussion of other current environmental matters, see Events, Trends, and Vulnerabilities on page 29 and Environmental Liabilities on page 45 of the 1994 Annual Report which are incorporated herein, and refer to Item 3, Legal Proceedings, on page 4 of this filing, and Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, on page 6 of this filing.
ITEM 2



ITEM 2 PROPERTIES
For certain information on properties, see the sections entitled "Property, Plant and Equipment" on page 41 and "Principal Locations" on the inside back cover of the 1994 Annual Report, all of which are incorporated herein by reference.
The executive office of Dexter, located in Windsor Locks, Connecticut, is owned by the Company. In addition, the following general descriptions of Dexter's properties, including the locations of principal facilities, are presented by division. The capacity utilization percentage for Dexter's production facilities in 1994 was approximately 73%.
During 1994, the Aerospace Materials division operated three principal facilities, of which two are owned (approximately 150,000 square feet) and one is leased (approximately 61,000 square feet). These facilities, which are in excess of 25,000 square feet, are located in Pittsburg, California; Bassano, Italy; and Greenville, South Carolina. During 1994, the Aerospace Materials division continued construction of a 22,000 square-foot expansion at the Waukegan, Illinois site. When completed in early 1995, the expansion will consolidate
Dexter's domestic aerospace coatings operations into a single facility. The Aerospace Materials division capacity utilization percentage was approximately 65%.
During 1994, the Automotive Materials division operated five principal production facilities, owned by the Company, totaling approximately 359,000 square feet, located in Kansas City, Missouri; Seabrook, New Hampshire; Waukegan, Illinois; Birmingham, Alabama and Brownsville, Texas. It also operated a leased distribution center in Kansas City, Missouri (approximately 60,000 square feet). During 1994, the Automotive Materials division moved its production out of the leased facility in West Unity, Ohio to the Kansas City, Missouri facility. The capacity utilization percentage for the Automotive Materials division production facilities in 1994 was approximately 57%.
The Electronic Materials division, in 1994, operated six production facilities and laboratories in the United States, Germany and Japan, of which four are owned (approximately 447,000 square feet) and two are leased (approximately 55,000 square feet). Facilities of the Electronic Materials division in excess of 25,000 square feet are located in Olean, New York; Industry, California; Londonderry, New Hampshire; Lowell, Massachusetts; and Munich, Germany. During 1994, the Electronic Materials division completed construction and started operations in a 63,000 square-foot production and laboratories facility in Londonderry, New Hampshire and exited the facility it previously had been leasing. The Electronic Materials division capacity utilization percentage in 1994 was approximately 62%.
During 1994, the Magnetic Materials division operated four principal facilities, of which two are owned (approximately 100,000 square feet) and two are leased (approximately 90,000 square feet). These facilities, which are in excess of 25,000 square feet, are located in Fremont, California; Richardson, Texas; Elk Grove Village, Illinois and Hicksville, New York. The Magnetic Materials division capacity utilization percentage in 1994 was approximately 66%.
During 1994, the Packaging Products division operated five principal production facilities and laboratories located in Birmingham, Alabama; Hayward, California; Tournus, France; Deeside, Wales and Gruningen, Switzerland totaling approximately 375,000 square feet. All facilities are owned by the Company except the Birmingham plant, which has been capitalized as a lease-purchase financed by industrial development bonds. The Packaging Products division has offices and a laboratory located in Waukegan, Illinois (approximately 31,000 square feet), which the Company owns. The Packaging Products division also manages the operation of a multi-division production facility located in Singapore of approximately 92,000 square feet. This production facility is owned by the Company. The Packaging Products division had a capacity utilization percentage of approximately 78% in 1994.
The Nonwovens division, in 1994, operated production facilities in Windsor Locks, Connecticut (approximately 842,000 square feet); Chirnside, Scotland (approximately 202,000 square feet) and Stalldalen, Sweden (approximately 452,000 square feet), which the Company owns. The Nonwovens division also leases a production facility in Radcliffe, England totaling approximately 175,000 square feet. The Nonwovens division has a distribution facility located in Windsor Locks, Connecticut of approximately 250,000 square feet which is leased. The cogeneration facility located in Windsor Locks, Connecticut (approximately 42,000 square feet) is owned by the Company. The capacity utilization percentage for the Nonwovens division production facilities in 1994 was approximately 81%.
Dexter S.A., located in Tournus, France operated a production facility of approximately 162,000 square feet with a capacity utilization percentage of approximately 60% in 1994. This facility is owned by the Company.
During 1994 Life Technologies, Inc. operated production facilities in ten plants. Four are owned by Life Technologies, Inc. (approximately 223,000 square feet), and six are leased facilities (approximately 163,000 square feet). Life Technologies, Inc. has offices (approximately 45,000 square feet) and research and development facilities (approximately 30,000 square feet) in Gaithersburg, Maryland, which it leases. In addition, Life Technologies, Inc. leases twelve distribution centers and warehouses which total approximately 99,000 square feet and owns two distribution centers and warehouses which total approximately 40,000 square feet. Life Technologies, Inc. facilities in excess of 25,000 square feet are located in Gaithersburg, Maryland;
Frederick, Maryland; Grand Island, New York; Auckland, New Zealand and Paisley, Scotland. The capacity utilization percentage at Life Technologies, Inc. production facilities in 1994 was approximately 84%.
Dexter and Solvay S.A., of Belgium, operate an equally owned international joint venture. The joint venture operates two facilities for production and distribution in Grand Prairie, Texas. These facilities total approximately 180,000 square feet, of which approximately 90,000 square feet is owned and approximately 90,000 square feet is leased. Additionally, the joint venture operates an owned Automotive Applications Development Center facility in Auburn Hills, Michigan (approximately 47,000 square feet). During 1994, the joint venture began construction of a 140,000 square-foot production and laboratories facility in Mansfield, Texas. This facility will be completed in 1995.
ITEM 3

ITEM 3 LEGAL PROCEEDINGS
On September 16, 1987, employees of American National Can Company were allegedly exposed to an emission of ethyl acrylate from the Packaging Products division's adjacent plant in Birmingham, Alabama. The alleged incident is believed to involve only episodic exposure to a low level and concentration of the chemical, resulting in minor respiratory irritation. To date, approximately $38,000 in medical expenses is believed to have been incurred by the injured American National Can employees, as well as some lost production time. In July of 1989, an action was commenced in the Circuit Court for the Judicial District of Jefferson County, Alabama, by thirty-three employees of American National Can against the Company, Rohm and Haas Company, Liberty Mutual Insurance Company and certain other defendants, including certain employees of the Company's Packaging Products division. The suit alleges that the plaintiffs were exposed to an emission of ethyl acrylate from the Company's Packaging Products division's plant in Birmingham, Alabama, and suffered injury as a consequence thereof. The complaint seeks $10 million in damages from the defendants. Dexter's insurance carrier has been placed on notice and has agreed to provide the Company with a defense pursuant to the terms and conditions of their policy. While the outcome of this legal proceeding cannot be forecast with certainty, management believes that a settlement will be reached during the first half of 1995 and that, in any event, this legal proceeding will not have a material adverse effect on the Company's financial condition or results of operations.
Dexter is also engaged in other legal proceedings, none of which is expected to have a substantial effect on the earnings or financial condition of the Company. (See Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, of this Form 10-K, on page 6, for information on administrative proceedings arising under the Comprehensive Environmental Response, Compensation and Liability Act of 1980.)
ITEM 4

ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the security holders during the fourth quarter of fiscal year 1994.
ITEM 4A EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of The Dexter Corporation, together with the offices in The Dexter Corporation presently held by them, their other business experience since January 1, 1990, and their ages, are as follows:
The following changes in executive officers occurred during 1994:
Effective in March 1994, Harold T. Crutcher retired as Vice President and Senior Division President, Dexter Packaging Products Division. Effective in April 1994, T. Daniel Clark was appointed Senior Division President, Dexter Packaging Products Division and remained a Vice President of the Company. Further, John D. Thompson was appointed Vice President, Corporate Services, effective in April, 1994.
Effective in December 1994, Robert E. McGill, III, retired as Executive Vice President, Finance and Administration. Effective in January 1995, the following changes in executive officers occurred: Kathleen Burdett was appointed Vice President and Chief Financial Officer, George Collin was appointed Controller, and John D. Thompson was appointed Senior Vice President, Strategic and Business Development.
Pursuant to the Bylaws of the Company, each officer holds his/her office until death, resignation, removal from office or the election or appointment of his/her successor. The Bylaws provide that the Board of Directors shall elect a President and a Secretary each year at its first meeting following the annual meeting of shareholders and may at that time elect other officers of the Company, and it is expected that the Board of Directors will so act at its meeting scheduled for April 27, 1995. No family relationships exist between any of the executive officers of Dexter.
PART II
ITEM 5

ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
For information regarding the market for the registrant's common stock and related stockholder matters, see Summary of Financial Data on pages 22 and 23, Statement of Financial Position on pages 26 and 27, Statement of Changes in Shareholders' Equity on page 28, Shareholders' Equity footnote on page 45, Preferred Stock and Stock Plan footnotes on page 46, discussion of Stock Option Plans on page 47, and Shareholder Information on the inside back cover of the 1994 Annual Report which are incorporated herein by reference.
ITEM 6

ITEM 6 SELECTED FINANCIAL DATA
For information regarding selected financial data, see the Summary of Financial Data on pages 22 and 23 of the 1994 Annual Report which is incorporated herein by reference. For a discussion of this Financial Data, see the Quarterly Financial Information on page 28, Analysis of Financial Condition and Operations on pages 29 through 33, Market Segment Data on pages 34 and 35, and Life Technologies, Inc. on page 38 of the 1994 Annual Report which are incorporated herein by reference.
ITEM 7

ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For information required by this item, see the Management Statement on page 20 and the Summary of Financial Data on pages 22 and 23 of the 1994 Annual Report which are incorporated herein by reference. For information concerning results of operations, see Analysis of Financial Condition and Operations on pages 29 through 33, Market Segment Data on pages 34 and 35, Geographic Data on pages 36 and 37, Life Technologies, Inc. on page 38, and D & S Plastics International on page 39 of the 1994 Annual Report which are incorporated herein by reference. For information on liquidity, reference the Events, Trends, and Vulnerabilities and Liquidity footnotes in Analysis of Financial Condition and Operations on page 29, the Supplemental Statement of Financial Position on page 30, the Working Capital discussion on page 39, the Short-term Debt, the Property, Plant and Equipment, and the Long-term Debt footnotes on pages 40, 41, and 44, respectively, of the 1994 Annual Report which are incorporated herein by reference. For information on capital resources, reference the liquidity discussion in Analysis of Financial Condition and Operations on page 29, the Short-term Debt, the Property, Plant and Equipment, the Long-term Debt, and Shareholders' Equity footnotes on pages 40, 41, 44, and 45, respectively, of the 1994 Annual Report which are incorporated herein by reference. For the discussion of legal proceedings pertaining to the Company, see Item 3, Legal Proceedings on page 4 of this Form 10-K, and page 45 of the 1994 Annual Report which is incorporated herein by reference. For information on environmental matters, see the Environmental Liabilities footnote on page 45 of the 1994 Annual Report which is incorporated herein by reference.
Pursuant to authority granted under the "Comprehensive Environmental Response, Compensation and Liability Act of 1980" (CERCLA), the U.S. Environmental Protection Agency (USEPA) has issued a National Priority List of sites at which action is to be taken to mitigate the risk of release of hazardous substances into the environment. The Company is engaged in continuing negotiations with the USEPA and state authorities with regard to 14 of the over twelve hundred sites on the National Priority List. Due to the uncertainty of the remedial measures to be adopted at various sites and the fact that imposition of joint and several liability is possible under CERCLA, the liability of the Company with respect to any site at which remedial measures have not been completed cannot be established with certainty. Nevertheless, based upon the information available at this time, the Company believes it has properly provided for its best estimate of the liabilities and that the outcome of these matters will not have a material adverse effect upon its financial condition or results of operations in the future.
ITEM 8


ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the Summary of Financial Data contained on pages 22 and 23, Financial Statements contained on pages 24 through 28, Quarterly Financial Information on page 28, Analysis of Financial Condition and Operations contained on pages 29 through 39, and Analysis of Financial Position contained on pages 39 through 47 of the Company's 1994 Annual Report which are incorporated herein by reference.
ITEM 9

ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Within 24 months prior to the date of the most recent financial statements referred to above in Item 8, no Form 8-K under the Securities Exchange Act of 1934, as amended, reporting a change in accountants, has been required to be filed.
PART III
ITEM 10



ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information regarding directors of the Company, see the section entitled "Election of Directors" on pages 3 through 6, inclusive, of the Proxy Statement, which is incorporated herein by reference. Information regarding executive officers of the Company is included as Item 4a of Part I as required by Instruction 3 of Item 401(b) of Regulation S-K. For information required by Item 405 of Regulation S-K, see the section entitled "Certain Transactions and Legal Matters" on page 6 of the Proxy Statement, which is incorporated herein by reference.
ITEM 11

ITEM 11 EXECUTIVE COMPENSATION
For information required by this item, see the section entitled "Compensation of Executive Officers" on pages 7 through 16, inclusive, of the Proxy Statement, which is incorporated herein by reference.
ITEM 12

ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
For information regarding the beneficial ownership of shares of Common Stock of the Company by certain persons, see the section entitled "Share Ownership" on pages 1 and 2 of the Proxy Statement, which is incorporated herein by reference.
ITEM 13

ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information regarding certain relationships and related transactions of directors, see the section entitled "Election of Directors" on pages 3 through 6, inclusive, of the Proxy Statement, which is incorporated herein by reference.
No other member of executive management or other individual as outlined in Item 404 of Regulation S-K was otherwise directly or indirectly involved in relationships or related transactions with the registrant in which the executive officer or other individual had a material interest.
Life Technologies, Inc., a majority-owned subsidiary, borrowed up to $3.1 million and $4.5 million in 1994 and 1993, respectively, from the Company under a revolving line of credit to finance short-term working capital needs. The line of credit was at current market interest rates and was repaid at December 31, 1994 and 1993.
PART IV
ITEM 14

ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
Long-term debt of the registrant or various of its subsidiaries is outstanding under numerous instruments. No such instrument authorizes an amount of securities thereunder in excess of 10% of the total assets of the registrant and its subsidiaries on a consolidated basis. The registrant agrees that it will furnish a copy of any such instrument to the Securities and Exchange Commission upon its request.
(b) Reports on Form 8-K No reports on Form 8-K were filed during the last quarter of the period covered by this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated March 9, 1995
THE DEXTER CORPORATION (Registrant)
By: /s/ Kathleen Burdett ------------------------------------ Kathleen Burdett Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on March 9, 1995:
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
------------------------------------------
Schedules other than those listed above are omitted for the reason that the information required on such schedules is contained in the Company's 1994 Annual Report to Shareholders, elsewhere in Form 10-K or they are not required or are not applicable.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of The Dexter Corporation
We have audited the consolidated financial statements and the financial statement schedule of The Dexter Corporation listed in the index on page of this Form 10-K. These financial statements and financial statement schedule are the responsibility of The Dexter Corporation's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Dexter Corporation as of December 31, 1994, 1993 and 1992, and the consolidated results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein.
In 1994, the Corporation, as more fully described in the accompanying financial review, adopted Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities. In 1993, the Corporation, as more fully described in the accompanying financial review, adopted SFAS No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions; SFAS No. 109, Accounting for Income Taxes; and SFAS No. 112, Employers' Accounting for Postemployment Benefits.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P. Springfield, Massachusetts February 2, 1995
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (IN THOUSANDS)
- --------------- (a) In accordance with the Securities and Exchange Commission's "Staff Accounting Bulletin No. 92," an estimated $5.6 million of claims payable by third-party insurance companies were included in the reserve at year-end 1993, and the related receivables from insurance companies of $5.6 million were included as assets of the company.
(b) Due to acquisitions.
(c) Includes a payment of $13 million for fines and civil penalties as a part of the settlement of the lawsuit involving the company's nonwovens facility in Windsor Locks, Connecticut.