<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONPRIVATE ~
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to ______________
Commission File No. 1-12825
MORTON INTERNATIONAL, INC.
------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Indiana 36-4140798
- ---------------------------------------- ------------------------------------
(State of Incorporation or Organization) (I.R.S. Employer Identification No.)
100 North Riverside Plaza, Chicago, Illinois 60606-1596
- -------------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number (312) 807-2000
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Class Outstanding at March 31, 1999
- ----------------------------- -----------------------------
Common Stock, $1.00 par value 121,128,867 shares
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MORTON INTERNATIONAL, INC.
QUARTERLY REPORT ON FORM 10-Q
INDEX
PAGE
-----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Income and Retained
Earnings - Three months and Nine months ended
March 31, 1999 and 1998 3
Consolidated Balance Sheets - March 31, 1999
and June 30, 1998 4
Consolidated Statements of Cash Flows -
Nine months ended March 31, 1999 and 1998 5
Notes to Consolidated Financial Statements -
March 31, 1999 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-13
PART II. OTHER INFORMATION
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURE 15
2
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
- -----------------------------------------
MORTON INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (UNAUDITED)
(IN MILLIONS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31 March 31
-------------------------- ------------------------
1999 1998 1999 1998
----------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Net sales $ 746.9 $ 660.5 $ 1,981.3 $ 1,926.7
Interest, royalties and sundry income 8.5 9.0 24.1 27.1
----------- ------------ ----------- ----------
755.4 669.5 2,005.4 1,953.8
Deductions from income:
Cost of products sold 507.9 451.5 1,352.5 1,312.2
Selling, administrative and general expense 112.8 98.6 320.2 299.0
Research and development expense 15.8 16.0 46.5 46.0
Interest expense 7.5 5.8 21.6 17.4
Amortization of goodwill 3.6 3.0 10.2 9.0
----------- ------------ ----------- ----------
647.6 574.9 1,751.0 1,683.6
----------- ------------ ----------- ----------
Income before income taxes 107.8 94.6 254.4 270.2
Income taxes 38.8 34.1 91.6 97.3
----------- ------------ ----------- ----------
Net income 69.0 60.5 162.8 172.9
Retained earnings at beginning of period 1,901.4 1,780.4 1,840.3 1,706.0
Cash dividends: $.13 and $.12 per share for the
three months ended March 31, 1999 and 1998,
respectively; $.39 and $.36 per share for the nine months
ended March 31, 1999 and 1998, respectively (15.7) (15.7) (47.8) (47.7)
Exercise of stock options (3.2) (2.3) (3.8) (8.3)
----------- ------------ ----------- ----------
Retained earnings at end of period $ 1,951.5 $ 1,822.9 $ 1,951.5 $ 1,822.9
=========== ============ =========== ==========
Basic earnings per share $ .57 $ .47 $ 1 .33 $ 1 .31
=========== ============ =========== ==========
Diluted earnings per share $ .56 $ .46 $ 1 .32 $ 1 .29
=========== ============ =========== ==========
Shares used in computation (in thousands)
Basic earnings per share 122,265 132,415
=========== ==========
Diluted earnings per share 123,594 134,444
=========== ==========
</TABLE>
See notes to consolidated financial statements.
3
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MORTON INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
<TABLE>
<CAPTION>
March 31 June 30
1999 1998
--------------- ---------------
(Unaudited)
<S> <C> <C>
ASSETS
Current
assets
Cash and cash equivalents $ 179.9 $ 138.0
518.4 468.6
Receivables
338.6 381.0
Inventories
Prepaid expenses and other 127.6 125.4
--------------- ---------------
Total current assets 1,164.5 1,113.0
--------------- ---------------
Other assets
Cost in excess of net assets of businesses
acquired, less amortization 367.0 357.4
Investments in affiliates 75.3 73.9
122.1 121.9
Miscellaneous
--------------- ---------------
564.4 553.2
--------------- ---------------
Property, plant and equipment, at cost 1,831.7 1,773.1
Less allowances for depreciation 953.4 891.4
--------------- ---------------
878.3 881.7
--------------- ---------------
$ 2,607.2 $ 2,547.9
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
liabilities
Notes payable and current portion of long-term debt $ 114.7 $ 22.6
Accounts payable 210.7 215.6
Accrued salaries, wages and other compensation 66.4 52.1
Other accrued expenses 142.3 159.3
Income 30.3 22.1
taxes
--------------- ---------------
Total current liabilities 564.4 471.7
--------------- ---------------
Long-term debt, less current portion 221.2 222.5
Deferred income taxes 54.5 60.9
Accrued postretirement benefits other than pensions 159.5 157.9
Other noncurrent liabilities 104.7 103.8
--------------- ---------------
Total noncurrent liabilities 539.9 545.1
--------------- ---------------
Shareholders' equity
Preferred Stock (par value $1.00 per share) Authorized - 25.0 shares, none
issued
Common Stock (par value $1.00 per share) Authorized - 500.0 shares
Issued-140.1 shares at March 31, 1999 and
June 30, 1998 140.1 140.1
Retained earnings 1,951.5 1,840.3
Accumulated other comprehensive income (27.1) (19.2)
Unamortized restricted stock award ( .3) ( .7)
--------------- ---------------
2,064.2 1,960.5
Less cost of common stock in treasury- 19.0 shares
at March 31, 1999 and 13.3 shares at June 30, 1998 561.3 429.4
--------------- ---------------
Total shareholders' equity 1,502.9 1,531.1
--------------- ---------------
$ 2,607.2 $ 2,547.9
=============== ===============
</TABLE>
See notes to consolidated financial statements.
4
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MORTON INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN MILLIONS)
<TABLE>
<CAPTION>
Cash Provided (Used)
Nine Months Ended
March 31
--------------------------------------
1999 1998
--------------- --------------
<S> <C> <C>
Operating Activities
Net income $ 162.8 $
172.9
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 105.3
97.9
Deferred income taxes 6.0 .3
Undistributed earnings of affiliates (3.5)
(1.7)
Changes in operating assets and liabilities net of effects of businesses
acquired:
Receivables
(39.6) (28.3)
Inventories and prepaid expenses 39.3
(27.0)
Accounts payable and accrued expenses (12.7)
(54.7)
Accrued income taxes 10.8
3.6
Other - net (5.2)
2.8
--------------- --------------
Net cash provided by operating activities
263.2 165.8
--------------- --------------
Investing Activities
Purchase of property, plant and equipment (85.0)
(102.5)
Proceeds from property and other asset disposals 3.8
5.3
Cash invested in businesses acquired (34.1) (18 .1)
Investment in affiliates ( .8)
(4.7)
--------------- --------------
Net cash used for investing activities
(116.1) (120.0)
--------------- --------------
Financing Activities
Purchase of common stock for treasury (145.8)
(326.8)
Net increase of short-term notes payable 91.1
42.2
Repayment of long-term debt (2 .8) ( .3)
Stock option transactions 8.7
8.4
Dividends paid (47.8)
(47.7)
--------------- --------------
Net cash used by financing activities
(96.6) (324.2)
--------------- --------------
Effect of foreign exchange rate changes on cash
and cash equivalents (8.6)
4.8
--------------- --------------
Increase (decrease) in cash and cash equivalents 41.9
(273.6)
Cash and cash equivalents at beginning of year 138.0
430.3
--------------- --------------
Cash and cash equivalents at end of period $ $
179.9 156.7
=============== ==============
</TABLE>
See notes to consolidated financial statements.
5
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MORTON INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Basis of Presentation
- ---------------------
The interim financial statements have been prepared in accordance with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X and therefore, do not
include all information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the nine months
ended March 31, 1999 are not necessarily indicative of the results to be
expected for the fiscal year ending June 30, 1999. It is suggested that the
financial statements be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's Annual Report to
Shareholders and Annual Report on Form 10-K for the fiscal year ended June 30,
1998.
Earnings Per Share
- ------------------
The numerators for the earnings per share disclosures on the accompanying
unaudited Consolidated Statements of Income and Retained Earnings are the same
as the income numbers shown on that Statement. Following is the computation of
the denominator for the basic and diluted earnings per share calculations:
Nine months ended
March 31
-------------------------
(in thousands)
1999 1998
------- -------
Denominator for basic earnings per share 122,265 132,415
-weighted average shares outstanding
Dilutive effect of employee stock options 1,329 2,029
------- -------
Denominator for diluted earnings per share 123,594 134,444
Comprehensive Income
- --------------------
As of July 1, 1998, the Company adopted the Financial Accounting Standards Board
Statement No. 130, "Reporting Comprehensive Income." Statement 130 establishes
new rules for the reporting and display of comprehensive income and its
components; however, the adoption of this Statement had no impact on the
Company's net income. Statement 130 requires unrealized gains or losses on the
Company's foreign currency translation adjustments, which prior to adoption were
reported separately in shareholders' equity, to be included in other
comprehensive income. The June 30, 1998 Consolidated Balance Sheet has been
reclassified to conform to the requirements of Statement 130.
6
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The components of comprehensive income, net of tax, for the three and nine month
periods ended March 31, 1999 and 1998 are as follows:
Three Months Ended Nine Months Ended
March 31 March 31
------------------ -----------------
1999 1998 1999 1998
---- ---- ---- ----
(in millions)
Net income $69.0 $60.5 $162.8 $172.9
Foreign currency translation adjustments (21.2) (4.9) (7.9) (9.0)
----- ----- ----- -----
Comprehensive income $47.8 $55.6 $154.9 $163.9
===== ===== ====== ======
Accumulated other comprehensive income on the accompanying Consolidated Balance
Sheets is net of deferred income tax benefits of $21.6 million and $16.7 million
at March 31, 1999 and June 30, 1998, respectively.
Inventories
- -----------
Inventories are stated at the lower of cost (principally last-in, first-out
method) or market. Components of inventories are as follows:
March 31 June 30
1999 1998
-------- --------
Finished products and work-in-process $253.6 $294.6
Materials and supplies 85.0 86.4
-------- --------
$338.6 $381.0
Intangible Assets
- -----------------
The Company reviews the recoverability of the carrying amount of goodwill by
assessing significant changes in the extent or manner in which an asset is used
and considers a significant physical change in the asset and significant adverse
changes in legal factors or the business climate that could affect the value of
the asset. The company also considers current period operating and cash flow
losses or a projection or forecast that demonstrates continuing losses
associated with an asset used for producing revenue. Goodwill and associated
long-lived assets are considered impaired to the extent the carrying amount of
the asset exceeds its fair market value.
Item 2. Management's Discussion and Analysis of Financial Condition
- --------------------------------------------------------------------
and Results of Operations
-------------------------
Merger
- ------
On February 1, 1999, the Company and Rohm and Haas Company announced that the
companies had entered into a definitive merger agreement. Under that agreement,
Rohm
7
<PAGE>
and Haas would acquire the Company in a cash and stock transaction valued at
$4.9 billion including debt assumption through a two-step transaction, the first
step of which was a tender offer for up to 80,916,766 shares of Company common
stock at $37.125 per share. When the tender offer was unsuccessful, in
accordance with the terms of the merger agreement, Rohm and Haas withdrew its
tender offer, and proceeded to seek to complete its acquisition of the Company
through a single-step merger under which the Company's shareholders would
receive a mixture of cash and Rohm and Haas common stock for their shares of
Company common stock.
Subject to the approval by the Company's and Rohm and Haas' shareholders and
other customary conditions, the Company will merge with a subsidiary of Rohm and
Haas Company and will be the surviving corporation in the merger. The required
regulatory clearances have been received, and the Company currently expects to
complete the merger by the end of June 1999.
The Company has set a record date of May 4, 1999 for a special meeting of
shareholders to approve the merger agreement. Shareholders of record at the
close of business on that date will be entitled to attend the meeting to be held
on a date to be announced in the notice for the meeting and vote on the merger
proposal.
Results of Operations
- ---------------------
Net income for the third quarter of fiscal 1999 was $69.0 million, up 14 percent
from $60.5 million for the third quarter of fiscal 1998. Sales of $746.9 million
for the third quarter of the current fiscal year showed a 13 percent increase
from the third quarter of fiscal 1998. The salt business turned in the strongest
results, benefiting from excellent ice control sales both in North America and
Europe. Comparisons for the salt business were aided by last year's El Nino
weather pattern, which reduced ice control salt demand; however, severe winter
storms in several of Morton's key markets in this year's third quarter also
meant a substantial amount of ice control salt was sold. Many of the specialty
chemicals product lines also had strong performances, which helped overcome
disappointing results from the electronic materials product lines. Earnings per
share were up 21 percent and 22 percent to 57 cents and 56 cents for the quarter
on a basic and diluted basis, respectively.
For the nine month period ending March 31, 1999, sales were approximately $2.0
billion, 3 percent above the same period in the prior year. Net income for the
first nine months of fiscal 1999 was $162.8 million versus $172.9 million for
the first nine months of fiscal 1998, a 6 percent decrease. Basic earnings per
share were $1.33 for the first nine months of fiscal 1999 compared to $1.31 for
the same period of fiscal 1998. Fully diluted earnings per share increased 2
percent from $1.29 in the first nine months of fiscal 1998 to $1.32 in the same
period of fiscal 1999.
In the third quarter of fiscal 1999, specialty chemical sales were up 2 percent
to $437.8 million versus $429.4 million in the same period of fiscal 1998.
Volume and price both declined by 1 percent in the quarter versus last year's
third quarter, but positive foreign
8
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exchange comparisons and the results of three recent acquisitions more than
offset the declines. The electronic materials group was down as a result of both
volume and price declines. Third quarter operating earnings for specialty
chemicals were $62.7 million, up 1 percent from the third quarter of fiscal
1998. The increase was related to adhesives and polymers and chemical
specialties. Operating margins for the quarter were 14.3 percent versus 14.5
percent in last year's third quarter.
Product lines which had good sales growth in the third quarter included
packaging adhesives, industrial adhesives, performance chemicals, plastic
additives, dyes and industrial, automotive and powder coatings. The combined
sales of these product lines contributed 76 percent of the group's total sales
and grew 11 percent over the third quarter of fiscal 1998. The sales improvement
in packaging adhesives and chemical specialties benefited from acquisitions
earlier in the fiscal year. Morton's breakthrough Lamineer( powder coatings
product had increased sales in the quarter. Product lines with positive earnings
comparisons in the quarter were packaging adhesives, industrial adhesives,
waterbased polymers, thermoplastic polyurethanes, performance chemicals, plastic
additives, polysulfide sealants, dyes and automotive coatings. Earnings for
these product lines constituted 83 percent of the group's total earnings and
collectively showed a 25 percent improvement over the third quarter of fiscal
1998. Electronic materials sales during the quarter were almost 20 percent below
last year's third quarter; the business group also showed a small operating
loss. Excluding electronic materials results, chemical earnings and margins
improved by 15 percent and 140 basis points, respectively.
Specialty chemical sales for the first nine months of fiscal 1999 were $1.3
billion, flat with the same period last year. Electronic materials was the only
group which showed negative sales comparisons. Results for the first nine months
of fiscal 1999 were favorably impacted by $41.1 million increased sales from the
three acquisitions subsequent to the second quarter of fiscal 1998. Operating
earnings for the specialty chemicals group for the nine months of fiscal 1999
declined by 7 percent to $182.7 million from $195.6 million for the first nine
months of fiscal 1998. The most significant earnings declines were in electronic
materials and industrial coatings. Chemical operating margins for the first nine
months were 14.2 percent versus 15.2 percent for the prior year.
Among the product lines that had good sales improvement during the first nine
months of fiscal 1999 were packaging adhesives, industrial adhesives,
performance chemicals, plastic additives, dyes and automotive and powder
coatings. Cumulatively, they contributed 64 percent to chemical group sales and
improved 7 percent from the first nine months of fiscal 1998. These product
lines contributed 86 percent of total operating earnings and had a 5 percent
earnings improvement from fiscal 1998 to fiscal 1999 in the first nine months.
Morton's salt business had sales of $309.1 million in the third quarter of
fiscal 1999, a 34 percent increase compared to sales of $231.1 million in the
year ago third quarter. North American sales were up 33 percent and European
salt sales were up 35 percent. Ice control salt and most other salt product
lines contributed to the increase in North America,
9
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while ice control salt volume was the primary contributor to the increase in
Europe. Salt operating earnings in the third quarter were $64.8 million, a 30
percent increase compared to last year's third quarter of $50.0 million. Overall
operating margins for the same period came in at 21.0 percent against last
year's 21.6 percent. North American salt operating margins were almost 300 basis
points below last year due to lower ice control pricing while European salt
operating margins were up dramatically to almost 18 percent.
For the nine month period ending March 31, 1999, salt sales were $693.3 million
or 9 percent greater than $637.0 million recorded in the prior year. The sales
increase reflected an 8 percent increase in North America and a 13 percent
increase in Europe. The increase was caused by the same products noted above for
the third quarter. Operating earnings for the same period of fiscal 1999 were
$125.3 million, flat with operating earnings in the nine months ended March 31,
1998. Reasons include the lack of early fill up orders due to last year's El
Nino impact on ice control inventories and pricing plus mild winter weather in
the second quarter.
Morton's corporate costs for the third quarter of fiscal 1999 were up 12 percent
compared to the same period of the prior year. The majority of the increase was
caused by increased net interest expense resulting from the company's stock
repurchase program. For the first nine months of fiscal 1999, corporate costs
were up 7 percent. An increase in net interest cost exceeded the reduction in
corporate administrative expenses and other costs.
In the fourth quarter of fiscal year 1998, the company announced its plans to
divest two businesses: highway traffic marking and injected colorants for
plastics. The injected colorants business was sold in March 1999, and a
definitive agreement was entered into for the sale of the highway traffic
marking business. In April 1999, the company sold its global latex floor care
product line. These sales will not have a material impact on the company's
results of operations.
Liquidity and Capital Resources
- -------------------------------
Operating activities were a source of cash in the nine month periods ended March
31, 1999 and 1998, providing $263.2 million and $165.8 million, respectively.
Net income was $162.8 million during the first nine months of fiscal 1999 versus
$172.9 million for the same period of fiscal 1998. In the first nine months of
the current fiscal year, depreciation and amortization provided $7.4 million
more funds than during the same period of the prior year. Changes in operating
assets and liabilities resulted in a use of $7.4 million in the first nine
months of fiscal 1999 compared to a $103.6 million use of funds last year. In
the first nine months of fiscal 1999, inventories and prepaid expenses provided
funds of $39.3 million versus a $27.0 million use for the same period of the
prior year. Accounts payable and accrued expenses were a $12.7 million and $54.7
million use of funds for the first nine months of fiscal years 1999 and 1998,
respectively. Nine month changes in inventories and prepaid expenses and
accounts payable and accrued expenses were significantly influenced by a
reduction in inventory and increased payables and accrued
10
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expenses at March 31, 1999 due to increased ice control sales in the third
quarter of fiscal 1999 versus the same period in fiscal 1998.
Investing activities in the first nine months of fiscal 1999 were primarily the
result of capital spending, which used $85.0 million of cash compared to $102.5
million in the same period in fiscal 1998, and $34.1 million cash invested in
businesses acquired in fiscal 1999 compared to $18.1 million in fiscal 1998.
Expansion related to certain chemical products as well as basic upkeep of the
salt and chemical manufacturing facilities continue to be the major areas of
capital spending. Cash invested in businesses acquired in the first nine months
of fiscal 1999 was for the acquisition of two small Italian chemical companies.
Financing activities for the nine month period ending March 31, 1999 were a
$96.6 million use of funds compared to a $324.2 million use of funds during the
same period in the prior year. The common stock repurchase program resulted in a
use of funds of $145.8 million in the first nine months of fiscal 1999 and
$326.8 million during the same period of last year. Since the spinoff in May
1997, Morton has repurchased 20.4 million shares as of March 31, 1999 bringing
the shares outstanding to 121.1 million at that date. On October 22, 1998, the
Company's Board of Directors approved the repurchase of an additional 8.0
million shares of which .4 million shares were repurchased at March 31, 1999.
Short-term notes payable resulted in a source of funds of $91.1 million for the
first nine months of fiscal 1999 versus a source of funds of $42.2 million for
the same period of fiscal 1998. This increase was primarily related to the
short-term financing of the stock repurchases. Dividends paid were $47.8 million
and $47.7 million at the end of the first nine months of fiscal 1999 and 1998,
respectively.
The Company's current ratio was 2.1 at March 31, 1999, versus a 2.4 ratio at
June 30, 1998. Total debt as a percentage of total capitalization at March 31,
1999 was 17.7 percent compared to 13.3 percent at June 30, 1998.
As of March 31, 1999, the Company had unexpended authorizations for fixed asset
spending of $103.6 million. These authorizations related primarily to chemical
facility expansion, product improvements, and facility upgrades on a
company-wide basis.
Estimated cash flow from operations and current financial resources, including
financing capacity, are expected to be adequate to fund the Company's
anticipated working capital requirements, fixed asset spending, dividend
payments, business acquisitions and share repurchases in the foreseeable future.
11
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Year 2000 Compliance
- --------------------
In 1997 management initiated a comprehensive study and program to prepare the
Company's computer, manufacturing and facility systems, and the related systems
applications, for the Year 2000. The Company is utilizing both internal and
external resources to identify, correct or reprogram and test the systems for
Year 2000 compliance. The Company expected these efforts to be completed
primarily by December 31, 1998, and most of the target systems are now
compliant. The few remaining systems will be completed on a timely basis. Some
operations are already running successfully on Year 2000 compliant systems that
were purchased and installed more than three years ago.
Maintenance or modification costs are expensed as incurred, while the costs of
new software are capitalized and amortized over the software's useful life. The
Company currently does not expect the cost of such modifications to exceed $5
million, of which over sixty percent has been spent through March 31, 1999.
The Company engaged various consultants to review certain aspects of Year 2000
readiness at selected manufacturing locations. In addition, the Company has and
continues to test its systems software for Year 2000 readiness. As a result of
these reviews, no significant issues were identified.
The Company also has communicated with its major and critical suppliers and
large customers, as well as many others, to determine the extent and steps they
are taking to be Year 2000 compliant. Such communications included initial
letters, second requests to non-respondents and phone calls and site visits to
selected critical customers and suppliers. To date no significant issues have
been identified; however, there can be no guarantee that the systems of other
companies on which the Company's businesses rely will be converted in a timely
manner or that the failure to be timely converted would not have an adverse
effect on the Company's businesses. The Company expects the communications
process to be completed by June 30, 1999. In addition, the Company is
identifying and qualifying alternative sources of supply and, where practicable,
will stockpile selected materials and supplies. This contingency plan will be
completed during the second half of 1999.
Although the Company believes its internal systems will be Year 2000 ready, the
Company could experience a loss of access to services from public utilities as a
result of the utilities' failure to be Year 2000 compliant. In the worst case
scenario, the Company's access to power sources could be cut-off at major
facilities for an extended period. The Company believes this scenario is
unlikely and any form of alternative power replacement for an extended period
would be cost prohibitive. Accordingly, no contingency plan has been developed.
The costs of the project and the date on which the Company believes it will
complete the Year 2000 modifications are based on management's current best
estimates, which
12
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were derived utilizing numerous assumptions of future events, including the
continued availability of certain resources, third-party modification plans and
other factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel trained in this area, the
ability to locate and correct all relevant computer codes, the availability of
new software and the ability of our customers and suppliers to be Year 2000
compliant.
Euro Conversion
- ---------------
The euro was introduced on January 1, 1999, at which time the conversion rates
between existing sovereign currencies ("legacy currencies") and the euro were
set for the participating European Monetary Union states. However, the legacy
currencies in those states will continue to be used as legal tender through
January 1, 2002. Thereafter, the legacy currencies will be canceled and euro
bills and coins will be used in the participating states.
Transition to the euro creates a number of issues for the Company. Business
issues that must be addressed include product pricing policies and ensuring the
continuity of business and financial contracts. Finance and accounting issues
include the conversion of accounting systems, statutory records, tax books and
payroll systems to the euro, as well as conversion of bank accounts and other
treasury and cash management activities.
The Company is addressing these transition issues and currently does not expect
the transition to the euro and the costs to be incurred to have a material
effect on its liquidity, financial condition or results of operations.
Forward Looking-Cautionary Statement
- ------------------------------------
Except for the historical information and discussions contained herein,
statements contained in this Form 10-Q may constitute "forward looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. These statements reflect management's current expectations and involve
a number of risks and uncertainties. Actual results could differ materially
depending on a variety of factors, including the risks and uncertainties
discussed in the Company's Annual Report on Form 10-K filed with the Securities
and Exchange Commission on September 21, 1998.
13
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(1) Exhibits (numbered in accordance with Item 601 of Regulation S-K)
(10)(a) Employment Agreement, dated as of January 31, 1999, by and among
Rohm and Haas Company, Morton International, Inc. and S. Jay
Stewart, incorporated by reference to Exhibit 5 to the Company's
Schedule 14D-9 filed February 5, 1999.
(10)(b) Amendment, dated as of January 31, 1999, by and among Morton
International, Inc., Rohm and Haas Company and William E.
Johnston, to Employment Agreement, dated as of March 22, 1990, by
and between the Company and William E. Johnston, incorporated by
reference to Exhibit 6 to the Company's Schedule 14D-9 filed
February 5, 1999.
(27)(a) Financial Data Schedules for the third quarter of fiscal 1999.
(2) Reports on Form 8-K.
During the quarter, the Company filed the following current
report on Form 8-K: Dated February 1, 1999, Agreement and Plan of
Merger among the Company, Rohm and Haas Company, a Delaware
corporation, and Gershwin Acquisition Corp. (now known as Morton
Acquisition Corp.), an Indiana corporation and a wholly-owned
subsidiary of Rohm and Haas Company.
14
<PAGE>
*************************************
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MORTON INTERNATIONAL, INC.
----------------------------------
(Registrant)
Date: April 29, 1999 BY: /s/ L. N. Liszt
--------------------------- --------------------------------
L. N. Liszt
Controller
(Principal Accounting Officer)
15
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<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> MAR-31-1999
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0
0
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