<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended June 30, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the Transition period from ______________ to ______________
Commission file number 1-10270
MORTON INTERNATIONAL, INC.
<TABLE>
<S> <C>
Incorporated in the State of Indiana IRS Employer Identification
No. 36-3640053
</TABLE>
Principal Executive Offices:
100 North Riverside Plaza, Chicago, Illinois 60606-1596
Telephone Number: (312) 807-2000
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------------------ --------------------------
<S> <C>
Common Stock, par value New York Stock Exchange
$1.00 per share Chicago Stock Exchange
Common Stock Purchase Rights New York Stock Exchange
Chicago Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: NONE
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of registrant's voting stock held by non-affiliates,
based upon the closing price of said stock on the New York Stock
Exchange-Composite Transaction Listing on August 31, 1994 ($29.50 per share):
$4,320,396,039.
Number of shares of Common Stock outstanding as of August 31, 1994:
147,743,826
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of Annual Report to Shareholders for the fiscal year ended June
30, 1994: Parts II and IV.
2. Portions of definitive Proxy Statement dated September 15, 1994: Parts
III and IV.
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<PAGE>
PART I
ITEM 1. BUSINESS
BUSINESS SEGMENTS
The Company* operates in three business segments: Specialty Chemicals, Salt,
and Automotive Safety Products, manufacturing and marketing a wide range of
products for industrial and consumer use, in the United States ("U.S.") and
internationally. The Company's international business is subject to those risks
inherent in carrying on business outside of the U.S., including currency
fluctuations, possible nationalization, expropriation, price controls or other
restrictive government action.
SPECIALTY CHEMICALS
The specialty chemicals segment manufactures a wide variety of high
technology and specialized chemical products for a multitude of customer
applications. It conducts chemical operations directly and through fifteen
directly or indirectly wholly-owned subsidiaries and four joint venture
arrangements which are between 5% and 50% owned. Specialty chemical products are
marketed throughout the world directly to customers and indirectly through
distributors and agents. The specialty chemicals segment is divided into four
product groups: Adhesives & Specialty Polymers, Coatings, Electronic Materials
and Specialty Chemical Products.
ADHESIVES & SPECIALTY POLYMERS GROUP
A major product line for this group is adhesives used for flexible packaging
materials and industrial applications. Laminating adhesives are used primarily
in food packaging to bond paper, film, or foil. Industrial adhesives are used
for bonding rigid substrates, such as rubber to metal or panels used in
construction. The other major product lines manufactured by the group includes
thermoplastic polyurethanes, waterbased polymers, extrudable resins, and product
lines with diverse applications. Its Advanced Materials subsidiary employs the
chemical vapor deposition process to manufacture crystalline substrates for
lenses used in lasers and optical devices.
COATINGS GROUP
This group manufactures and markets industrial coatings, including coil
coatings, highway marking systems and other general industrial coatings. Its
Automotive Coatings subsidiary manufactures and sells customized performance
liquid coatings, principally for use on plastic substrates in the automotive
market. The group also manufactures protective and decorative powder coatings
for metal substrates.
ELECTRONIC MATERIALS GROUP
This group manufactures and markets chemicals for the electronics market,
including principally dry film photoresists used as part of a process to image
circuit patterns on printed circuit boards as well as photo-imageable solder
masks for circuit boards and multichip modules.
SPECIALTY CHEMICAL PRODUCTS GROUP
This group manufactures liquid dyes to color petroleum products for
identification purposes and other dyes and coloring products used in printing
and writing inks, and in plastics; sodium borohydride, a reducing agent used
principally as a bleaching chemical in paper manufacturing; polysulfide polymers
used in the production of sealants, rubber products, coatings and solid rocket
fuel; sealants for insulating glass and aircraft; heat stabilizers and
lubricants used in rigid polyvinyl chloride ("PVC") applications in the
construction industry, principally for pipe and siding; industrial biocides for
the protection of plastic products; and magnesium compounds.
- - - - - ------------------------
* The term "Company" as used herein refers to Morton International, Inc. and
its subsidiaries, unless otherwise indicated.
1
<PAGE>
ITEM 1. BUSINESS--(Continued)
SALT
The salt segment produces and sells salt, principally in the U.S. and
Canada, under the MORTON and WINDSOR trademarks, respectively, for human and
animal consumption, water conditioning, and highway ice melting, as well as for
industrial and chemical uses.
Table salt is sold under the MORTON and WINDSOR brands and under private
labels. Sales of MORTON brand table salt in the U.S. are approximately equal to
the aggregate sales of all other table salts. Salt for water conditioning is
compressed or coarse grade and is sold principally for residential use, mostly
in packages. Some coarse grade is sold in bulk for municipal and industrial
water conditioning. Salt for industrial and chemical use is sold in bulk and in
packages, and is used for food and meat processing and in a wide variety of
chemical applications. Salt for ice melting on streets and highways is sold
mostly in bulk form to government agencies, with some ice melting salt being
sold in packages under the SAFE-T-SALT brand.
Sales of salt are made through the Company sales force, as well as through
independent distributors, agents and brokers. Regional sales offices and
customer service facilities are maintained throughout the U.S. and Canada.
Total salt production by the Company in fiscal year 1994 was approximately
11.7 million tons in the aggregate. Rock salt and brine well reserves vary, but
all facilities have sufficient reserves to satisfy anticipated production
requirements for the foreseeable future. Salt reserves for solar evaporation
facilities are regarded as unlimited.
AUTOMOTIVE SAFETY PRODUCTS
The automotive safety products segment, located in Utah, designs, develops,
manufactures and sells gas generators ("inflators") and modules for use in
driver-side and passenger-side automotive airbag passive restraint systems. A
module comprises an inflator, airbag and cover. This includes inflators and
modules for side impact airbag systems.
Department of Transportation regulations (the "Regulations") require all
model year 1990 and later cars sold in the U.S. to be equipped with a passive
restraint system for the driver and front seat passenger. Adoption of the
Regulations has resulted in a significant increase in marketing activities,
additional capital investment and expansion of manufacturing capabilities. Since
1988, many automated assembly lines for production of inflators and modules have
been added. Sales are made to North American, European and Asian automobile
manufacturers and their suppliers.
The Company has formed a 50% owned joint venture (known as "Morton Bendix")
with the Bendix Safety Restraints Group of Allied-Signal Inc. for the purpose of
assembling passenger-side airbag modules. Such modules are marketed directly to
applicable automobile manufacturers by the Company and the Bendix Safety
Restraints Group. Morton Bendix has a module assembly facility in Maryville,
Tennessee, which commenced operations in April 1992. The Company has a 50%
interest in United Airbag Systems GmbH, a joint venture with Robert Bosch GmbH
of Stuttgart, Germany for the marketing and joint development of various airbag
systems, including conventional, compact, side impact and SmartTM systems.
The Company markets automotive safety products throughout the world directly
to automobile manufacturers. In addition, the Company markets driver and
passenger inflators to some Japanese automobile manufacturers through a 50%
owned joint venture in Japan.
In May 1991, the Company entered into a Teaming Agreement with OEA, Inc. of
Denver, Colorado for the joint development and production of hybrid inflators
for air bag modules. The hybrid inflator is an alternate inflator design which
utilizes Argon gas stored at 3,000 p.s.i. and a propellant charge.
2
<PAGE>
ITEM 1. BUSINESS--(Continued)
During and shortly after fiscal 1994, in anticipation of rapid growth in the
European airbag market, the Company acquired production facilities,
respectively, in Braunschweig, Germany, and Amsterdam, The Netherlands. Both
facilities will be used for the assembly of airbag modules, and The Netherlands
facility will also be used for the assembly of hybrid inflators.
COMPETITION
The majority of the specialty chemicals segment's business is highly
competitive. The Company is the only U.S. producer of polysulfide polymers, but
there is substantial competition from a foreign producer and a variety of
alternative materials. The specialty chemicals segment is the world's largest
producer of sodium borohydride, and has a majority share of the markets for
biocides for incorporation into plastics and hydride chemicals. Principal
methods of competition include technical service for specialized customer
requirements, price and quality.
All areas in which the salt segment operates are highly competitive.
Although the salt segment is a major factor in the salt industry, its market
share varies widely, depending on the geographic area and the type of product
involved. This segment uses price, quality, service, product performance, and
technical, advertising and promotional support as its principal methods of
competition.
Currently, the automotive safety products segment competes with a number of
other firms, some of which are large, well-qualified and possess sufficient
resources to compete effectively for the business of a relatively small number
of automobile manufacturers selling large numbers of cars in the U.S., Europe
and Japan. The airbag business is an emerging one, so it is difficult to assess
the amount of competition that may develop in such business and the effect
thereof. The continuing rapid expansion of the automotive airbag industry has
led and is likely to continue to lead to a number of new entrants into the
market.
RESEARCH AND DEVELOPMENT
Expenses incurred for research and development activities related to Company
businesses were $66.1 million, $68.6 million, and $61.3 million for fiscal 1994,
1993 and 1992, respectively.
ENVIRONMENTAL PROTECTION
Federal, state and local environmental laws and regulations are increasing
in number, complexity and stringency. Public perception of risk to health,
safety and the environment has become the driving force behind many new
regulations. It is the Company's policy to comply with these requirements, and
the Company believes that as a general matter its policies, practices and
procedures are properly designed to prevent unreasonable risk of environmental
damage, and of resulting financial liability, in connection with its businesses.
Some risk of environmental damage is, however, inherent in particular operations
and products of the Company, as it is with other companies engaged in similar
businesses.
The Company is and has been engaged in the handling, manufacture, use and
disposal of many substances which are classified as hazardous or toxic by one or
more regulatory agencies. The Company believes that its handling, manufacture,
use and disposal of such substances have generally been in accord with
environmental laws and regulations. It is possible, however, that future
knowledge or other developments, such as improved capability to detect
substances in the environment, increasingly strict environmental laws and
standards and enforcement policies thereunder, could bring into question the
Company's handling, manufacture, use or disposal of such substances.
Among other environmental requirements, the Company is subject to the
federal Superfund law, and similar state laws, under which the Company has been
named a potentially responsible party and under which it may be liable for
cleanup costs associated with approximately 60 inactive waste disposal sites.
The Company's cleanup expenditures totaled approximately $7.8 million in fiscal
1994. Although, under some court interpretations of these laws, there is a
possibility that a responsible party might have to bear more
3
<PAGE>
ITEM 1. BUSINESS--(Continued)
than its proportional share of the cleanup costs if it is unable to obtain
appropriate contribution from other responsible parties, the Company has not had
to bear significantly more than its proportional share in multiparty situations
taken as a whole.
Although the level of future expenditures for environmental matters cannot
be determined with any degree of certainty, based on the facts presently known
to it, management does not believe that such costs will have a material effect
on the Company's financial position, results of operations or liquidity. Capital
expenditures related to environmental matters were $7.9 million for fiscal 1994
and are estimated at $11.9 million for fiscal 1995.
EMPLOYEES
The number of employees of the Company at June 30, 1994 was approximately
13,100, compared to 11,900 at June 30, 1993.
RAW MATERIALS
The Company's businesses use many raw materials in the manufacture of their
products, all of which are generally bought from a large number of qualified
suppliers. The Company's businesses have experienced little difficulty in
obtaining raw materials.
SEASONALITY; BACKLOG
Sales of highway ice control salt are quite seasonal, and vary with winter
weather conditions in areas where that product is used. In keeping with industry
practice, ice control salt is stockpiled both by the salt segment and by its
customers in sufficient quantities to meet estimated requirements for the next
season.
Sales of products by the specialty chemicals and automotive safety products
segments do not exhibit significant seasonal fluctuations. There are no material
backlogs in the Company's businesses.
PATENTS AND TRADEMARKS
The Company's businesses conduct comprehensive research and development
programs to enable them to maintain their competitive position. The Company owns
approximately 2,600 patents and patent applications which expire on varying
dates through the year 2014.
The Company's businesses are engaged in research and development and own
patents and patent applications in the fields of photochemicals for the printed
circuit board industry, sodium borohydride reducing and bleach generating agents
and other products, industrial biocides, heat stabilizers for PVC, asphalt
additives, chemically vapor deposited lenses, polysulfide polymers, sealants and
other polymers, specialty and powdered coatings, adhesives, dyes, salt and brine
products, airbag inflators, modules and gas generants.
The Company believes that its present commercial position in these fields is
enhanced by the patents it owns as well as the technical expertise, know-how,
and trade secrets it has developed.
The Company has about 1,900 U.S. and foreign trademarks and trademark
applications which are generally renewable while the marks remain in use.
CUSTOMERS
Neither the specialty chemicals nor salt segments is dependent upon any
single customer, or any single group of customers, the loss of any one of which
would have a material adverse effect on such business segment. However, the loss
of certain existing customers of the automotive safety products segment
currently could have a material adverse effect on such business.
4
<PAGE>
ITEM 2. PROPERTIES
The Company considers the condition of its plants, warehouses and other
properties to be generally good and adequate for the needs of its businesses.
The table below sets forth the locations and approximate sizes of certain
principal properties leased or owned by the Company and its subsidiaries:
<TABLE>
<CAPTION>
LAND (ACRES) BUILDINGS (SQ. F.) LEASE
-------------------- -------------------- EXPIRES
DOMESTIC LOCATIONS OWNED LEASED OWNED LEASED ON DESCRIPTION
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<S> <C> <C> <C> <C> <C> <C>
I. CORPORATE HEADQUARTERS
CHICAGO, IL
100 N. Riverside................ 301,834 3/31/2055 Corporate Headquarters
110 North Wacker, Inc.
110 N. Wacker Dr................ 1.0 201,000 3/31/2055 Former Corporate Headquarters
II. SPECIALTY CHEMICALS
ADHESIVES & SPECIALTY POLYMERS GROUP
Woburn, MA........................ 22,100 6/30/95 Office & Research
Weeks Island, LA.................. 50.0 44,810 Manufacturing
Ringwood, IL*..................... 118.3 202,114 6,885 2/28/96 Manufacturing
Elk Grove Village, IL............. 3.9 51,986 Manufacturing
Greenville, SC.................... 78.0 97,315 Manufacturing
Stamford, CT...................... 3.1 21,540 Manufacturing
West Alexandria, OH............... 8.4 73,702 1,248 4/14/96 Manufacturing
Seabrook, NH...................... 5.5 40,438 Manufacturing
Seabrook, NH...................... 10,239 9/30/96 Office
Woodstock, IL..................... 66.5 101,150 Research
COATINGS GROUP
Warsaw, IN........................ 7.5 101,878 Manufacturing
Wytheville, VA.................... 23.7 60,000 Manufacturing
Reading, PA....................... 3.1 34,080 Office & Research
Reading, PA....................... 10.1 93,830 Manufacturing
Batavia, IL....................... 11.2 65,600 Manufacturing
Los Angeles, CA................... 1.2 25,350 Manufacturing
Colton, CA........................ 6.7 46,800 Manufacturing
Columbus, OH...................... 3,517 12/31/95 Research
Chicopee, MA...................... 7.3 58,150 Manufacturing
Decatur, AL....................... 10.2 89,635 Manufacturing
Dixon, CA......................... 2.0 14,802 Manufacturing
Salem, OR......................... 11.8 82,586 Manufacturing
Salem, OR......................... 2.2 31,288 9/30/98 Manufacturing
Mt. Angel, OR..................... .8 4,400 Manufacturing
Orrville, OH...................... 5.0 54,620 Manufacturing
N. Brunswick, NJ.................. 3.8 44,148 12/31/95 Manufacturing
N. Brunswick, NJ.................. 3.6 40,626 12/31/95 Office & Warehousing
Chicago Heights, IL............... 6.0 60,000 Manufacturing
Lansing, IL....................... 14.9 171,000 Office, Manufacturing &
Research
Lansing, IL....................... 4.1 40,400 3/31/95 Storage & Manufacturing
Rochester Hills, MI............... 6.5 58,900 Pilot Plant & Research
ELECTRONIC MATERIALS GROUP
Tustin, CA........................ 7.0 122,500 Office, Manufacturing &
Research
Moss Point, MS.................... 39.7 111,325 Manufacturing
Spartanburg, SC................... 3.2 69,876 6/30/2004 Manufacturing
</TABLE>
5
<PAGE>
ITEM 2. PROPERTIES--(Continued)
<TABLE>
<CAPTION>
LAND (ACRES) BUILDINGS (SQ. F.) LEASE
-------------------- -------------------- EXPIRES
DOMESTIC LOCATIONS OWNED LEASED OWNED LEASED ON DESCRIPTION
- - - - - -------------------------------------- --------- --------- --------- --------- ----------- ------------------------------
SPECIALTY CHEMICAL PRODUCTS GROUP
<S> <C> <C> <C> <C> <C> <C>
Beverly, MA....................... 4.1 58,948 Manufacturing & Research
Elma, WA.......................... 26.6 40,000 Manufacturing
Chicago, IL....................... 2.4 37,330 Manufacturing
Manistee, MI...................... 76.8 59,208 Manufacturing (Leased from
Salt Group)
Cincinnati, OH.................... 31.9 170,296 Manufacturing
Danvers, MA*...................... 63.2 151,880 Manufacturing
Moss Point, MS.................... 511.1 185,000 Manufacturing
Paterson, NJ...................... 6.3 63,546 Manufacturing
Garden Grove, CA.................. 25,300 7/31/95 Manufacturing
North Andover, MA................. 33,406 6/30/2009 Office & Lab
III. SALT
Fairport, OH...................... 152.1 5,000.0 100,222 12/31/2008 Mine Operation
Grand Saline, TX.................. 560.4 216,293 Mine & Brine Operation
Hutchinson, KS.................... 444.6 172,414 Brine Operation
Long Beach, CA.................... 5.2 20,000 7/31/2005 Warehouse & Bagging
Manistee, MI...................... 352.0 242,882 Brine Operation
Newark, CA........................ 26.3 138,638 Brine Operation
Perth Amboy, NJ................... 5.3 40,320 4/30/98 Warehouse & Bagging
Port Canaveral, FL................ 3.5 19,195 8/31/2009 Warehouse & Bagging
Rittman, OH....................... 1,113.3 500,962 Brine Operation
Grantsville, UT................... 15,193.0 5,560.8 99,067 6/30/2017 Evaporation Pond Operation
Silver Springs, NY................ 806.9 189,695 Brine Operation
Weeks Island, LA.................. 891.3 867.8 329,732 12/5/2070 Mine & Brine Operation
Chicago, IL....................... 4.1 121,033 Warehouse & Bagging
Chicago, IL....................... 13.3 28,050 Stockpile Operation
Glendale, AZ...................... 108.3 42,600 5/31/2005 Evaporation Pond
Glendale, AZ...................... 41.2 12/12/2015 Operation
IV. AUTOMOTIVE SAFETY PRODUCTS
Ogden, UT......................... 19.5 103,740 Headquarters & Manufacturing
Ogden, UT......................... 87.7 251,000 Manufacturing
Ogden, UT......................... 4.6 49,500 11/30/96 Manufacturing
Promontory, UT.................... 526.3 227,000 Manufacturing
Brigham City, UT.................. 92.0 585,000 Manufacturing
Maryville, TN**................... 4.1 70,000 Manufacturing
Rochester Hills, MI............... 12,720 5,100 3/17/99 Research, Development &
Testing
<FN>
*Includes Adhesives & Specialty Polymers and Specialty Chemical Products
**Owned by Morton Bendix, a partnership in which the Company has a 50% equity interest
</TABLE>
<TABLE>
<CAPTION>
FOREIGN LOCATIONS
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<S> <C> <C> <C> <C> <C> <C>
I. SPECIALTY CHEMICALS
Morton International
G.m.b.H.
Germany
Dietzenbach (EM)................ 1.0 21,500 Warehouse, Lab & Office
Bremen (A)...................... 7.2 137,500 Manufacturing
Osnabruck (A)................... 7.0 78,500 Manufacturing
Strullendorf (C)................ 7.6 59,718 Manufacturing, Research &
Office
Morton International S.p.A
Italy
Varese (EM)..................... 2.2 38,000 Assembly & Distribution
Pavia (A)....................... .4 14,500 Manufacturing
Mozzate (A)..................... 9.0 45,000 Manufacturing
Garlasco (A).................... 4.8 24,562 Manufacturing & Office
</TABLE>
6
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ITEM 2. PROPERTIES--(Continued)
<TABLE>
<CAPTION>
LAND (ACRES) BUILDINGS (SQ. F.) LEASE
-------------------- -------------------- EXPIRES
FOREIGN LOCATIONS OWNED LEASED OWNED LEASED ON DESCRIPTION
- - - - - -------------------------------------- --------- --------- --------- --------- ----------- ------------------------------
Morton International B.V.
The Netherlands
<S> <C> <C> <C> <C> <C> <C>
Amersfoort (A).................. 3.6 55,000 Manufacturing
Delfzijl (SC)................... 14.8 18,639 12/31/2036 Manufacturing
N.V. Morton International S.A.
Belgium
Brussels (SC)................... 5,692 6/30/98 Office
753 5/31/95 Research
Kontich (EM).................... 3.5 15,171 Warehouse & Office
Morton International
Limited
England
Warrington (EM)................. 4.9 76,245 3/4/2106 Manufacturing, Warehouse &
Office
Hounslow (SC)................... 7.0 (vacant) Former Manufacturing
14,375 4/12/98 Office
Coventry (SC)................... 1.0 12,000 3/30/2108 Office & Research
Dewsbury (A, SC)................ 19.6 50,500 Manufacturing
Morton International S.A.
France
Semoy (A)....................... 1.1 82,723 Office, Manufacturing,
Warehouse, Research
Igny (EM)....................... .2 5,000 Office & Warehouse
Jouy en Josas (C)............... 3,600 5/31/2000 Warehouse & Office
Morton International, Ltd.
Canada
Ajax, Ontario (A, C)............ 5.6 17,490 Manufacturing
Morton International S.A.
de C.V., Mexico
Mexico City (A, C).............. .8 25,000 Manufacturing
Morton Japan, Ltd
Japan
Kodama (EM)..................... 1.7 21,381 Manufacturing, Warehouse,
Office & Lab
II. SALT
The Canadian Salt
Company Ltd.
Canada
Pointe Claire, Quebec........... 14,250 2/28/2004 Company Headquarters
Lindbergh, Alberta.............. 103.6 112,000 Brine Operation
Ojibway, Ontario................ 250.0 143,000 Mine Operation
Pugwash, Nova Scotia............ 161.4 131,000 Mine Operation
Regina-Belle Plaine,
Saskatchewan.................. 17.0 113,000 Brine Operation
Windsor, Ontario................ 19.3 264,000 Brine Operation
Magdalen Islands,
Quebec........................ 25.0 64,583 Mine Operation
Morton Bahamas Ltd.
Bahamas
Inagua.......................... 51,541.5 12,000 Evaporation Pond Operation
III. AUTOMOTIVE SAFETY PRODUCTS
Morton International
G.m.b.H.
Germany
Braunschweig.................... 12.3 70,000 Manufacturing
<FN>
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KEY:
A: Adhesives & Specialty Polymers Group EM: Electronic Materials Group
C: Coatings Group SC: Specialty Chemical Products Group
</TABLE>
7
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
LITIGATION AND REGULATION
NEW JERSEY DEPARTMENT OF ENVIRONMENTAL PROTECTION V. VENTRON CORPORATION, ET
AL., Superior Court of Bergen County, New Jersey, filed on March 31, 1976. After
a 55-day trial held in 1979 and unsuccessful appeals to the Appellate Division
and to the Supreme Court of New Jersey, Ventron (a corporate predecessor of the
Company) and its co-defendant, Velsicol Corporation, were each held jointly and
severally liable for the cost of remediation necessary to correct mercury
related environmental problems associated with a former mercury processing plant
located in Wood-Ridge, New Jersey. Subsequent to the liability holding, Ventron,
Velsicol and the State of New Jersey entered into a consent order under which
Ventron and Velsicol agreed, subject to certain conditions and limitations, to
share the costs of a technical study to determine the appropriate remedy for
environmental problems associated with the former Wood-Ridge operation. In
October 1989, the Company and Velsicol filed suit in the United States District
Court for the District of New Jersey alleging that the 35 defendants named
therein were additionally responsible, at least in part, for the costs of such
technical study and any remedial action that may be required. Defendants were
present and former owners or operators of neighboring industrial facilities and
waste disposal sites, as well as others believed to share responsibility for
environmental problems attributed to the Company and Velsicol. With the consent
of all parties, this action was later dismissed without prejudice pending
completion of negotiations among the Company, Velsicol, and New Jersey
authorities leading to a consent order modification (or an arrangement pursuant
to the existing order) permitting, among other things, the technical study of
the Wood-Ridge plant site to proceed separately and providing for an independent
but coordinated regional technical study of the Berry's Creek Drainage Basin,
performed in due course by the Company, Velsicol and other potentially
responsible parties (estimated to number in excess of 100). In July 1993, the
Supreme Court of New Jersey ruled in an action styled Morton International, Inc.
v. General Accident Insurance Company of America, et al that the Company was not
entitled to indemnity under various comprehensive general liability policies for
environmental cleanup and related expenses resulting from Ventron's operation of
the mercury plant. Because of the absence of site specific data, the unique
nature of mercury plant wastes, and the complex characteristics of the
Wood-Ridge plant site and Berry's Creek Drainage Basin, no reliable estimate can
presently be made of the Company's liability (or range of exposure) until the
technical studies are sufficiently completed to permit such determination. It is
anticipated that the Wood-Ridge plant site technical study will begin in fiscal
1995 and will be completed in approximately 42 months. Study of the Berry's
Creek Drainage Basin should begin after commencement of the plant site study on
a timetable yet to be determined. The Company's ultimate exposure will also
depend upon the continued participation of Velsicol and on the results of both
formal and informal attempts to spread liability to others believed to share
responsibility. Such attempts will include negotiations or litigation with
potentially responsible parties, and additionally in the case of the Berry's
Creek Drainage Basin, the anticipated use of administrative enforcement
mechanisms by New Jersey authorities to influence other potentially responsible
parties to join in a coordinated regional study and remediation.
EPA ADMINISTRATIVE COMPLAINT--RINGWOOD PLANT. On December 16, 1992, the EPA
served an administrative complaint on the Company seeking $1.587 million in
civil penalties. The complaint alleges that the Company violated regulatory
requirements of the Toxic Substances Control Act by failing to file
premanufacture notices before manufacturing three new chemical products at the
Ringwood, Illinois facility. Production of such products was discontinued in
1987. The Company is contesting the complaint and the penalties, which the EPA
subsequently proposed be reduced to $1.323 million. In a case involving similar
issues, the Court of Appeals for the District of Columbia held on March 4, 1994
that a federal five year statute of limitations applies to TSCA violations, and
begins to run when violations are committed, not when discovered by the EPA (3M
CO. V. BROWNER, CA DC NO. 92-1126). While the Ringwood complaint remains
pending, the 3M ruling may bar all or a substantial portion of the civil
penalties sought by the EPA, and the complaint may ultimately be dismissed or
settled on favorable terms.
8
<PAGE>
ITEM 3. LEGAL PROCEEDINGS--(Continued)
SUBPOENA DUCES TECUM--NEW YORK STATE ATTORNEY GENERAL'S OFFICE. On March 3,
1994 a subpoena was served on the Company requiring production of a wide range
of documents relating to the Salt Group's de-icing salt business. The subpoena
was issued in connection with an investigation by the New York State Attorney
General's office into possible state and federal antitrust violations and
violations of New York consumer protection laws. The Company is cooperating
fully with this investigation, which involves others in the de-icing salt
industry as well. Document production in response to the subpoena is essentially
complete. While the particulars of the investigation have not been disclosed,
the Company believes that it was initiated in response to well-publicized
shortages of de-icing salt experienced during the unusually harsh winter of
1993-94.
SUBPOENA DUCES TECUM--U.S. DEPARTMENT OF JUSTICE, ANTITRUST DIVISION. On
March 8, 1994 a subpoena was served on the Company by the Antitrust Division of
the U.S. Department of Justice requiring production of a wide range of documents
relating to the Salt Group's de-icing salt business. The subpoena was one of
several issued in connection with a bid-rigging and price fixing investigation
being conducted by a Grand Jury of the United States District Court, Western
District of Pennsylvania, sitting in Pittsburgh. The Company is cooperating
fully with this investigation, the particulars of which have not been disclosed.
Document production in response to the subpoena is essentially complete.
MISCELLANEOUS. The Company is involved in a number of additional pending
legal and administrative proceedings which are not expected, individually or in
the aggregate, to be material to its business or financial condition. There are
governmental agencies with authority to limit or prohibit distribution of some
of the Company's products should they formally conclude that continued
distribution is unsafe to the population or the environment. There are currently
no challenges pending, the resolution of which would have a material effect upon
the Company's operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT (AS REQUIRED BY INSTRUCTION 3. TO ITEM
401(B) OF REGULATION S-K)
Generally, officers are elected by the Board of Directors at its first
meeting following the Annual Meeting of Shareholders, and they serve for the
succeeding year until the next such meeting, or until their successors are
elected and qualify. The next Annual Meeting of Shareholders will be held on
October 27, 1994.
Listed below are the executive officers of the Company as of the date
hereof:
<TABLE>
<CAPTION>
NAME AND AGE *POSITION
- - - - - ----------------------------------- -------------------------------------------
<S> <C>
S. Jay Stewart (55)................ Chairman of the Board, Chief Executive
Officer and Director
William E. Johnston (53)........... Executive Vice President, Administration
Walter W. Becky II (51)............ Group Vice President and President, Salt
Group
Daniel D. Feinberg (51)............ Group Vice President and President,
Electronic Materials Group
James J. Fuerholzer (58)........... Group Vice President and President,
Specialty Chemical Products Group
Stephen A. Gerow (51).............. Group Vice President and President,
Coatings Group
</TABLE>
9
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT--(Continued)
<TABLE>
<CAPTION>
NAME AND AGE *POSITION
- - - - - ----------------------------------- -------------------------------------------
<S> <C>
Kenneth D. Holmgren (64)........... Group Vice President and President,
Automotive Safety Products Group
Thomas S. Russell (49)............. Group Vice President and President,
Adhesives & Specialty Polymers Group
John C. Hedley (64)................ Vice President, Human Resources
Nancy A. Hobor (48)................ Vice President, Communications and Investor
Relations
Donald L. Kidd (63)................ Vice President, Management Information and
Services
Thomas F. McDevitt (54)............ Vice President Finance and Chief Financial
Officer
P. Michael Phelps (61)............. Vice President and Secretary
James R. Stanley (62).............. Vice President for Legal Affairs and
General Counsel
Bruce G. Wolfe (51)................ Treasurer
Lisa F. Zumbach (38)............... Controller
<FN>
- - - - - ------------------------
* With the exception of Mr. Gerow, who joined the Company in 1990, all of the
executive officers have held senior management or professional positions with
the Company for more than the past five years. From 1987 to 1990, Mr. Gerow
was a Group Vice President (Parker+Amchem Group) of Henkel Corporation.
</TABLE>
10
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Information concerning the market for the Company's common equity and
related security holder matters is included on page 33 of the Company's Annual
Report to Shareholders for fiscal 1994, and is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data for the ten fiscal years ended June 30, 1994 are
included on pages 38-39 of the Company's Annual Report to Shareholders for
fiscal 1994, and are incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
Management's Discussion and Analysis of Financial Condition and Results of
Operation for the three fiscal years ended June 30, 1994, is included on pages
35-37 of the Company's Annual Report to Shareholders for fiscal 1994, and is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated balance sheets of the Company as of June 30, 1994 and 1993,
and the consolidated statements of income and cash flows for each of the three
years in the period ended June 30, 1994, and notes to consolidated financial
statements which are included on pages 21-32 of the Company's Annual Report to
Shareholders for fiscal 1994 are incorporated herein by reference. Quarterly
results of operations on page 33 of the Annual Report to Shareholders are
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the directors and nominees for director of the
Company is included on pages 2-4 of the Company's definitive Proxy Statement
dated September 15, 1994, and is incorporated herein by reference.
Information concerning the executive officers of the Company is included on
pages 9-10, Part I hereof.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning executive compensation for fiscal 1994 is included on
pages 7-17 of the Company's definitive Proxy Statement dated September 15, 1994,
and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information concerning beneficial ownership of the Company's common stock is
included on pages 5-6 of the Company's definitive Proxy Statement dated
September 15, 1994, and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relationships and related transactions is
included on page 6-7 of the Company's definitive Proxy Statement dated September
15, 1994, under the caption "Compensation Committee Interlocks and Insider
Participation," and is incorporated herein by reference.
11
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) DOCUMENTS FILED AS PART OF THIS REPORT
1. FINANCIAL STATEMENTS
The following consolidated financial statements of the Company and its
subsidiaries, included on pages 21-32 of the Company's Annual Report to
Shareholders for the fiscal year ended June 30, 1994, are incorporated herein by
reference:
Consolidated Statements of Income--Years ended June 30, 1994, 1993 and 1992
Consolidated Balance Sheets--June 30, 1994 and 1993
Consolidated Statements of Cash Flows--Years ended June 30, 1994, 1993 and
1992
Notes to Consolidated Financial Statements
2. FINANCIAL STATEMENT SCHEDULES
The following consolidated financial information for the fiscal years 1994,
1993 and 1992 is submitted herewith:
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
Report of Independent Auditors............................................................ F-1
Schedule V --Property, Plant and Equipment......................................... F-2
Schedule VI --Accumulated Depreciation, Depletion and Amortization of Property,
Plant and Equipment................................................... F-4
Schedule VIII --Valuation and Qualifying Accounts..................................... F-5
Schedule IX --Short-Term Borrowings................................................. F-6
Schedule X --Supplementary Income Statement Information............................ F-7
</TABLE>
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
3. INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION METHOD OF FILING
- - - - - --------- ------------------------------------------------------ ------------------------------------------------------
<S> <C> <C> <C> <C>
(3) Articles of incorporation and by-laws
(a) Restated Articles of Incorporation of the Company. Incorporated by reference to Exhibit 3.2 to
Registration Statement No. 33-28803
(b) By-laws of the Company amended through January 24, Incorporated by reference to Exhibit (3)(b) to the
1991. Company's Report on Form 10-K for fiscal 1991
(4) Instruments defining the rights of security holders, including
indentures
(a) Amendment dated January 24, 1991, to Rights Agreement Incorporated by reference to Exhibit (4)(a) to the
dated June 12, 1989 between the Company and The First Company's Report on Form 10-K for fiscal 1991
National Bank of Chicago.
(b) Amendment No. 2 dated August 11, 1994, to Rights Incorporated by reference to the Company's Report on
Agreement dated June 12, 1989 between the Company and Form 8-A12B/A
The First National Bank of Chicago.
(c) See Exhibits (3)(a) and (3)(b) above
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION METHOD OF FILING
- - - - - --------- ------------------------------------------------------ ------------------------------------------------------
(10) Material contracts
<S> <C> <C> <C> <C>
(a) * Key Executive Long-Term Incentive Program effective Filed herewith electronically
for fiscal 1995.
(b) * Key Executive Annual Bonus Program (Program 1) Filed herewith electronically
effective for fiscal 1995.
(c) Staff Executive Annual Bonus Program (Program 2) Filed herewith electronically
effective for fiscal 1995.
(d) * 1989 Incentive Plan, renamed by amendment effective Filed herewith electronically
June 23, 1994.
(e) * Morton Thiokol, Inc. Survivor Income Benefits Plan, Incorporated by reference to Exhibit 10.14 to
amended through March 24, 1983, assumed by the Registration Statement No. 33-28803
Company.
(f) * Morton International, Inc. Executive Post-Retirement Incorporated by reference to Exhibit (10)(f) to the
Life Insurance Plan. Company's Report on Form 10-K for fiscal 1992
(g) * Arrangements whereby the Company compensates its N/A
independent auditors for tax services to certain key
executives, concerning which arrangements there is no
written document.
(h) ** Form of Employment Agreement between the Company and Incorporated by reference to Exhibit (10)(g) to the
certain of its executive officers (including the five Company's Report on Form 10-K for fiscal 1990
most highly compensated, except S. J. Stewart).
(i) ** Executive Employment Agreement, dated April 1, 1994, Filed herewith electronically
between the Company and S. J. Stewart
(j) * Supplemental Executive Retirement Program. Incorporated by reference to Exhibits 10.15 and 10.16
to Registration Statement No. 33-28803
(11) Statement re computation of per share earnings
(a) Statement re computation of per share earnings of the Filed herewith electronically
Company and subsidiaries, for the three years ended
June 30, 1994, 1993 and 1992.
(13) Annual report to security holders
(a) Annual Report to Shareholders of the Company for Filed herewith electronically
fiscal 1994 (financial information only: pages
21-39).
(22) Subsidiaries of the registrant
(a) Subsidiaries of the Company. Filed herewith electronically
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION METHOD OF FILING
- - - - - --------- ------------------------------------------------------ ------------------------------------------------------
<S> <C> <C> <C> <C>
(27) Financial data schedule for year ended June 30, Filed herewith electronically
1994
<FN>
- - - - - ------------------------
*Exhibits 10(a), (b), (d), (e), (f), (g), and (j) consist of compensation plans
or arrangements in which all of the Company's five most highly compensated
executive officers currently participate, except that only W. E. Johnston
participates in Exhibit 10(j). These plans and, where applicable, the
foregoing individuals' current benefits under each (except Exhibit 10(g)) are
described in the section captioned "Executive Compensation" beginning on page
7 of the Company's definitive Proxy Statement dated September 15, 1994, which
descriptions are incorporated herein by reference.
**Descriptions of these employment agreements are set forth on page 15 of the
Company's definitive Proxy Statement dated September 15, 1994, which
descriptions are incorporated herein by reference.
</TABLE>
(b) REPORTS ON FORM 8-K
Not applicable
14
<PAGE>
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, AS OF THE 25TH DAY OF
AUGUST, 1994.
MORTON INTERNATIONAL, INC.
(REGISTRANT)
By /s/ T. F. MCDEVITT
------------------------------------
T. F. MCDEVITT
VICE PRESIDENT FINANCE 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, AS OF THE 25TH DAY OF AUGUST, 1994.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- - - - - -------------------------------------- ----------------------------------------------------------
<S> <C>
Chairman of the Board, Chief Executive Officer
/s/ S. J. STEWART and Director (Principal Executive Officer)
- - - - - --------------------------------------
S. J. STEWART
Vice President Finance and Chief Financial Officer
/s/ T. F. MCDEVITT (Principal Financial Officer)
- - - - - --------------------------------------
T. F. MCDEVITT
Controller
/s/ L. F. ZUMBACH (Principal Accounting Officer)
- - - - - --------------------------------------
L. F. ZUMBACH
/s/ R. M. BARFORD Director
- - - - - --------------------------------------
R. M. BARFORD
/s/ W. T. CRESON Director
- - - - - --------------------------------------
W. T. CRESON
/s/ D. C. FILL Director
- - - - - --------------------------------------
D. C. FILL
/s/ F. W. LUERSSEN Director
- - - - - --------------------------------------
F. W. LUERSSEN
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
- - - - - -------------------------------------- ----------------------------------------------------------
<S> <C>
/s/ C. A. SANDERS Director
- - - - - --------------------------------------
C. A. SANDERS
/s/ G. A. SCHAEFER Director
- - - - - --------------------------------------
G. A. SCHAEFER
/s/ R. W. STONE Director
- - - - - --------------------------------------
R. W. STONE
/s/ R. C. TOWER Director
- - - - - --------------------------------------
R. C. TOWER
</TABLE>
16
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and
Board of Directors
Morton International, Inc.
We have audited the consolidated financial statements of Morton
International, Inc. and subsidiaries listed in the Index at Item 14(a)(1) of the
annual report on Form 10-K of Morton International, Inc. for the year ended June
30, 1994. Our audits also included the financial statement schedules listed in
the Index at Item 14(a)(2). These financial statements and schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedules 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Morton International, Inc. and subsidiaries at June 30, 1994 and 1993, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended June 30, 1994, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedules, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
As discussed in the notes to the consolidated financial statements, the
Company changed its method of accounting for postretirement benefits other than
pensions and postemployment benefits in 1993.
ERNST & YOUNG LLP
Chicago, Illinois
July 28, 1994
F-1
<PAGE>
SCHEDULE V--PROPERTY, PLANT AND EQUIPMENT
MORTON INTERNATIONAL, INC. AND SUBSIDIARIES
(IN THOUSANDS)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E COL. F
BALANCE AT OTHER CHANGES-- BALANCE AT
BEGINNING ADDITIONS ADD (DEDUCT)-- END OF
CLASSIFICATION OF PERIOD AT COST RETIREMENTS DESCRIBE PERIOD
<S> <C> <C> <C> <C> <C>
Year ended June 30, 1994:
Land........................................... $ 33,079 $ 357 $ 108 $ 215(B) $ 33,885
342(D)
Buildings and Improvements..................... 455,790 45,720 5,100 111(B) 496,244
(145)(D)
(132)(E)
Machinery and Equipment........................ 893,550 173,578 22,273 (326)(B) 1,038,275
267(C)
(938)(D)
(5,583)(E)
Construction in Progress....................... 187,989 230(A) -- 587(D) 188,806
------------ ----------- ----------- --------------- ------------
$1,570,408 $219,885 $27,481 $ (5,602) $1,757,210
------------ ----------- ----------- --------------- ------------
------------ ----------- ----------- --------------- ------------
Year ended June 30, 1993:
Land........................................... $ 33,166 $ 519 $-- $ 135(B) $ 33,079
40(C)
(781)(D)
Buildings and Improvements..................... 430,824 38,014 3,840 122(B) 455,790
140(C)
(9,470)(D)
Machinery and Equipment........................ 787,381 138,630 13,971 (257)(B) 893,550
170(C)
(18,303)(D)
(100)(E)
Construction in Progress....................... 165,359 24,196(A) -- (1,566)(D) 187,989
------------ ----------- ----------- --------------- ------------
$1,416,730 $201,359 $17,811 $(29,870) $1,570,408
------------ ----------- ----------- --------------- ------------
------------ ----------- ----------- --------------- ------------
</TABLE>
F-2
<PAGE>
SCHEDULE V--PROPERTY, PLANT AND EQUIPMENT--(CONTINUED)
MORTON INTERNATIONAL, INC. AND SUBSIDIARIES
(IN THOUSANDS)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E COL. F
BALANCE AT OTHER CHANGES-- BALANCE AT
BEGINNING ADDITIONS ADD (DEDUCT)-- END OF
CLASSIFICATION OF PERIOD AT COST RETIREMENTS DESCRIBE PERIOD
<S> <C> <C> <C> <C> <C>
Year ended June 30, 1992:
Land........................................... $ 30,858 $ 1,285 $ 68 $ 320(C) $ 33,166
1,063(D)
(292)(E)
Buildings and Improvements..................... 387,893 41,365 308 (653)(B) 430,824
1,120(C)
6,389(D)
(1,135)(E)
(3,847)(F)
Machinery and Equipment........................ 688,326 114,019 9,419 653(B) 787,381
1,500(C)
10,870(D)
(3,640)(E)
(14,928)(F)
Construction in Progress....................... 120,258 43,416(A) -- 1,037(C) 165,359
648(D)
------------ ----------- ----------- --------------- ------------
$1,227,335 $200,085 $ 9,795 $ (895) $1,416,730
------------ ----------- ----------- --------------- ------------
------------ ----------- ----------- --------------- ------------
<FN>
- - - - - ------------------------
Note A--Additions for the year at cost, less transfers of completed units to
other classifications.
Note B--Reclassification among property, plant, and equipment accounts.
Note C--Assets of businesses acquired.
Note D--Foreign currency translation adjustment.
Note E--Assets of businesses sold.
Note F--Reclassification to "Assets Held for Disposition" included in
miscellaneous other assets.
</TABLE>
F-3
<PAGE>
SCHEDULE VI--ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT
MORTON INTERNATIONAL, INC. AND SUBSIDIARIES
(IN THOUSANDS)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E COL. F
ADDITIONS
CHARGED
BALANCE AT TO COSTS OTHER CHANGES-- BALANCE AT
BEGINNING AND ADD (DEDUCT)-- END OF
DESCRIPTION OF PERIOD EXPENSE RETIREMENT DESCRIBE PERIOD
<S> <C> <C> <C> <C> <C>
Year ended June 30, 1994:
Buildings and Improvements....................... $170,123 $ 23,681 $ 4,410 $ 38(A) $188,319
(1,104)(B)
(9)(C)
Machinery and Equipment.......................... 486,022 99,991 18,044 (38)(A) 563,980
(988)(B)
(2,963)(C)
---------- ---------- ---------- --------------- ----------
$656,145 $123,672 $22,454 $ (5,064) $752,299
---------- ---------- ---------- --------------- ----------
---------- ---------- ---------- --------------- ----------
Year ended June 30, 1993:
Buildings and Improvements....................... $154,125 $ 22,021 $ 2,750 $ (3,273)(B) $170,123
Machinery and Equipment.......................... 427,443 80,974 11,266 (11,106)(B) 486,022
(23)(C)
---------- ---------- ---------- --------------- ----------
$581,568 $102,995 $14,016 $(14,402) $656,145
---------- ---------- ---------- --------------- ----------
---------- ---------- ---------- --------------- ----------
Year ended June 30, 1992:
Buildings and Improvements....................... $134,499 $ 20,377 $ 165 $ (108)(A) $154,125
1,153(B)
(577)(C)
(1,054)(D)
Machinery and Equipment.......................... 370,547 70,912 7,900 108(A) 427,443
5,418(B)
(2,102)(C)
(9,540)(D)
---------- ---------- ---------- --------------- ----------
$505,046 $ 91,289 $ 8,065 $ (6,702) $581,568
---------- ---------- ---------- --------------- ----------
---------- ---------- ---------- --------------- ----------
<FN>
- - - - - ------------------------
Note A--Reclassification among property, plant and equipment account.
Note B--Foreign currency translation adjustment.
Note C--Businesses sold.
Note D--Reclassification to "Assets Held for Disposition" included in
miscellaneous other assets.
Note E--The annual provisions for depreciation have been computed
principally in accordance with the following rates:
Building and improvements 2% to 20%
Machinery and equipment 5% to 33%
</TABLE>
F-4
<PAGE>
SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS
MORTON INTERNATIONAL, INC. AND SUBSIDIARIES
(IN THOUSANDS)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
ADDITIONS
---------------------------------
(1) (2)
BALANCE AT CHARGED TO
BEGINNING CHARGED TO COSTS OTHER ACCOUNTS DEDUCTIONS BALANCE AT
DESCRIPTION OF PERIOD AND EXPENSES --DESCRIBE --DESCRIBE END OF PERIOD
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended June 30, 1994.................. $9,025 $3,124 -- $1,868(A) $10,539
(258)(B)
Year ended June 30, 1993.................. 8,426 3,419 -- 2,114(A) 9,025
706(B)
Year ended June 30, 1992.................. 7,370 3,871 -- 3,015(A) 8,426
(681)(B)
481(C)
</TABLE>
- - - - - ------------------------
Note A--Represents write-offs less recoveries.
Note B--Foreign currency translation adjustment.
Note C--Businesses sold.
F-5
<PAGE>
SCHEDULE IX--SHORT-TERM BORROWINGS
MORTON INTERNATIONAL, INC. AND SUBSIDIARIES
(IN THOUSANDS)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E COL. F
MAXIMUM AVERAGE WEIGHTED
WEIGHTED AMOUNT AMOUNT AVERAGE
BALANCE AVERAGE OUTSTANDING OUTSTANDING INTEREST RATE
CATEGORY OF AGGREGATE AT END OF INTEREST DURING THE DURING THE DURING THE
SHORT-TERM BORROWINGS PERIOD RATE PERIOD PERIOD PERIOD(C)
<S> <C> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1994:
Notes Payable to Bank....... $ 48,375 5.8% $ 150,950 $ 91,202(A) 6.5%
Commercial Paper............ -- -- 139,700 22,483(B) 3.3
YEAR ENDED JUNE 30, 1993:
Notes Payable to Bank....... 52,546 7.9 134,057 106,208(A) 7.4
Commercial Paper............ 52,695 3.5 52,695 16,592(A) 3.2
YEAR ENDED JUNE 30, 1992:
Notes Payable to Bank....... 77,060 8.3 100,545 80,750(A) 9.6
Commercial Paper............ -- -- 9,989 1,512(A) 4.7
<FN>
- - - - - ------------------------
Note A--The average amount outstanding during the period was computed by
dividing the total of month-end outstanding principal balances by
13.
Note B--The average amount outstanding during the period was computed by
dividing the total of the daily outstanding principal balances by
360.
Note C--The weighted average interest rate during the period was computed by
dividing the actual interest expense by the average short-term debt
outstanding.
</TABLE>
F-6
<PAGE>
SCHEDULE X--SUPPLEMENTARY INCOME STATEMENT INFORMATION
MORTON INTERNATIONAL, INC. AND SUBSIDIARIES
(IN THOUSANDS)
<TABLE>
<CAPTION>
COL. A COL. B
CHARGED TO COSTS
ITEM AND EXPENSES
<S> <C>
Year ended June 30, 1994:
Maintenance and repairs..................................... $ 75,438
Year ended June 30, 1993:
Maintenance and repairs..................................... 67,503
Year ended June 30, 1992:
Maintenance and repairs..................................... 62,383
<FN>
- - - - - ------------------------
Note--Disclosure of amortization of intangible assets, advertising, taxes
other than payroll and income taxes and royalty charges has been
omitted for each year because such amounts do not exceed one percent
of sales for each year, respectively.
</TABLE>
F-7
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
Number 33-29194 on Form S-8, Registration Statement Number 33-29195 on Form S-8,
Registration Statement Number 33-30147 on Form S-8, and Registration Statement
Number 33-44170 on Form S-8 of our report dated July 28, 1994, with respect to
the consolidated financial statements and schedules of Morton International,
Inc. and subsidiaries, included or incorporated by reference in the Annual
Report (Form 10-K) for the year ended June 30, 1994.
ERNST & YOUNG LLP
Chicago, Illinois
September 21, 1994
<PAGE>
EXHIBIT (10) (a)
06/30/94
MORTON INTERNATIONAL, INC.
FISCAL 1995-97
KEY EXECUTIVE LONG-TERM INCENTIVE PROGRAM
This Program, which has been adopted pursuant to paragraph 4(d)(i) of the
Company's 1989 Incentive Plan (formerly the 1989 Stock Awards Plan), provides
cash incentive opportunities to Senior Corporate Officers, Group Vice Presidents
and key Business Unit Executives for achieving long-term growth oriented
performance goals.
A. OBJECTIVE
The objective of this Program is to further the growth of the Company by
rewarding key executives for achieving long-term growth oriented
performance goals, benefiting the shareholders.
B. TIMING
The Program will operate over a three-year performance period covering
fiscal 1995, 1996 and 1997.
C. ELIGIBILITY AND PARTICIPATION
The Program covers the following executive positions:
Chief Executive Officer
Corporate Officers reporting to the Chief Executive Officer
or Executive Vice President Administration
Business Unit Executives, in salary grade 23 or above,
reporting to a Group Vice President
Eligibility will be by position. Participation approval, however, will be
only by position and incumbent.
Positions must be nominated for participation prior to the start of the
performance period. Participation requires the approval of the Chief
Executive Officer and the Compensation Committee of the Board.
D. PROGRAM FUNDING
The Chief Financial Officer, at the direction of the Chief Executive
Officer, will reserve appropriate funds during the course of the fiscal
year to provide incentive payments. Any such reserved funds shall remain
the property of the Company and no participant shall have a right or claim
to any such funds unless the right or claim has specifically accrued under
the Program.
<PAGE>
Fiscal 1995-97 Key Executive Long-Term Incentive Program
Page 2
E. PERFORMANCE CRITERIA
Criteria used to measure performance for the performance period are:
PARTICIPANT GROUP APPLICABLE PERFORMANCE CRITERIA
----------------- -------------------------------
CEO and Corporate Growth in Company Earnings Per
Share
Staff Officers ("EPS")
Group Vice Presidents Growth in Pre-Tax Group Profit
Business Unit Executives Growth in Pre-Tax Business Unit
Profit
F. ESTABLISHMENT OF PERFORMANCE OBJECTIVES
For the performance period, growth objectives have been established by the
Compensation Committee of the Board based upon recommendation by the Chief
Executive Officer.
These objectives include a threshold level at which partial incentives may
be earned, the desired objective for the period at which target incentives
may be earned, and an optimum level at which maximum incentives may be
earned, as follows:
Threshold - 5% growth compounded annually
Objective - 10% growth compounded annually
Optimum - 20% growth compounded annually
G. ADJUSTMENTS TO PROFIT OBJECTIVES
Profit objectives will be adjusted by action of the Compensation Committee
(in accordance with calculations confirmed by the Company's independent
auditors) so that the degree to which the objectives are achieved will not
be affected by any of the following which occur after the objectives are
initially established: changes in (or in the application of) accounting
principles; changes in tax laws; any material acquisition, divestiture or
joint venture; extraordinary items as defined under generally accepted
accounting principles; and any other non-recurring items which the
Company's press releases or SEC filings note and take into account in
explaining what the Company's or a business unit's profits would have been
on a comparable basis from period to period.
H. TARGET INCENTIVE AMOUNTS
A specific dollar incentive target for each participant will be established
by the Compensation Committee based on a recommendation from the CEO. The
dollar target will be computed as a percentage of the participant's base
salary immediately before the beginning of the performance period. The
percentage to be applied will vary depending on the participant's assigned
salary grade as follows:
<PAGE>
Fiscal 1995-97 Key Executive Long-Term Incentive Program
Page 3
ASSIGNED SALARY GRADE PERCENTAGE TARGET APPLIED TO SALARY
--------------------- -----------------------------------
33 100%
31 100%
28 80%
27 80%
26 80%
25 70%
24 70%
23 60%
22 60%
The dollar value of the incentive targets, computed in accordance with the
above schedule, may be adjusted by the Compensation Committee based on the
recommendation of the CEO, within a guideline range of plus or minus 20% to
provide a degree of flexibility in determining individual incentive
amounts. The Compensation Committee may use the same guideline range of
plus or minus 20% to determine an adjusted incentive target for the CEO.
I. ACTUAL INCENTIVE AWARDS
Actual incentive awards require the approval of the CEO and Compensation
Committee and will be based upon pre-established payout schedules
reflecting achievement of performance objectives for the performance
period.
The payout schedules are presented below by participant group. For results
between the growth rates shown, linear interpolation will be used to
compute the percentage of the target incentive which may be earned.
1. CHIEF EXECUTIVE OFFICER AND CORPORATE STAFF OFFICERS
In this group, actual incentive awards will be based on attainment of
EPS growth objectives as follows:
Percent of Target
EPS Growth Which May Be Earned
---------- -------------------
Threshold (e.g. 5% growth compounded annually) 50%
Objective (e.g. 10% growth compounded annually) 100%
Optimum (e.g. 20% growth compounded annually) 200%
2. GROUP VICE PRESIDENTS
Incentive awards for this group of participants will be based on
attainment of the applicable Pre-Tax Group Profit growth objectives in
accordance with the following schedule:
Percent of Target
Pre-Tax Group Profit Growth Which May Be Earned
--------------------------- -------------------
Threshold (e.g. 5% growth compounded annually) 50%
Objective (e.g. 10% growth compounded annually) 100%
Optimum (e.g. 20% growth compounded annually) 200%
<PAGE>
Fiscal 1995-97 Key Executive Long-Term Incentive Program
Page 4
3. BUSINESS UNIT EXECUTIVES
Incentive awards for this group of participants will be based on
attainment of the applicable Pre-Tax Business Unit Profit growth
objectives in accordance with the following schedule:
Percent of Target
Pre-Tax Business Unit Profit Growth Which May Be Earned
----------------------------------- -------------------
Threshold (e.g. 5% growth compounded annually) 50%
Objective (e.g. 10% growth compounded annually) 100%
Optimum (e.g. 20% growth compounded annually) 200%
J. INCENTIVE PAYMENTS
Any incentive payments made under the Program will be made in the form of
cash and will normally be paid in the month of August following the end of
the three-year performance period. No incentive award is earned until the
date the Compensation Committee approves such payment.
K. TERMINATION OF EMPLOYMENT OR CESSATION OF ELIGIBILITY
Because incentive awards are not earned until the date the Compensation
Committee approves payment, if termination of employment occurs or the
participant ceases to be eligible for benefits under the Program before
such date (whether or not the performance period has ended), no such
terminated or ineligible employee is entitled to any incentive payment.
Under certain circumstances, as detailed below, a terminated participant
who completed one-third of the performance period and whose employment
terminates by reason other than resignation or involuntary termination may
be considered for an incentive award. Consideration of such awards will be
at the sole discretion of the Compensation Committee and require approval
based upon the Chief Executive Officer's recommendation according to the
following schedule:
Reason for Termination Incentive Award Eligibility
---------------------- ---------------------------
Retirement or Death Pro rata share of incentive award,
payable to retiree or heirs/estate after
the end of the performance period
subject to the achievement of goals for
the entire performance period.
Long-Term Disability Pro rata share of incentive award,
payable after the end of the performance
period subject to the achievement of
goals for the entire performance period.
Resignation or No incentive award even if termination
Involuntary Termination occurs after the end of the performance
period but before the
Compensation Committee approves payment
of awards.
<PAGE>
Fiscal 1995-97 Key Executive Long-Term Incentive Program
Page 5
L. ADMINISTRATION
The Program will be administered by the Compensation Committee assisted by
the Company's Human Resources staff.
M. CHANGE IN CONTROL
Anything in this Program to the contrary notwithstanding, upon the
occurrence of a Change in Control of the Company (as defined from time to
time in Section 5(c) of the 1989 Incentive Plan), the performance periods
with respect to all outstanding incentive awards shall terminate as of such
date and the related incentive awards shall be payable as of such date.
The amount payable with respect to any award shall be equal to the percent
of the target determined as follows: The sum of (x) the product of (i) the
greater of (a) the percent of target that would have been earned and
payable pursuant to Section I above if the performance period had ended as
of the last day of the fiscal quarter immediately prior to such Change in
Control of the Company or (b) 100 and (ii) the number of full quarters
elapsed in the performance period (the "Elapsed Quarters") divided by
twelve and (y) the product of (i) 100 and (ii) the quotient obtained by
dividing (a) twelve minus the number of Elapsed Quarters by (b) twelve.
94LT6-15
<PAGE>
EXHIBIT (10) (b)
06/30/94
MORTON INTERNATIONAL, INC.
FISCAL 1995
KEY EXECUTIVE ANNUAL BONUS PROGRAM
This Program, which has been adopted pursuant to paragraph 4(d) (i) of the
Company's 1989 Incentive Plan (formerly the 1989 Stock Awards Plan), provides
annual cash bonus opportunities depending on performance of Corporate Officers,
Group Vice Presidents and Business Unit Executives.
A. OBJECTIVE
The objective of this Program is to reward key executives who have a direct
influence on annual profits for outstanding performance in this regard.
B. TIMING
The Program Year for purposes of this Program will correspond to the
Company's 1995 fiscal year.
C. ELIGIBILITY AND PARTICIPATION
This Program covers the following executive positions:
Chief Executive Officer
Corporate Officers reporting to the Chief Executive Officer, Chief
Operating Officer or Executive Vice President Administration
Business Unit Executives, in salary grade 23 or above, reporting to a
Group Vice President
Eligibility will be by position. Participation approval, however, will be
only by position and incumbent.
Positions must be nominated for participation prior to the start of the
Program Year. Participation requires the approval of the Chief Executive
Officer and the Compensation Committee of the Board.
D. PROGRAM FUNDING
A fund will be calculated for the Program Year. The fund will be
determined by multiplying the individual participant's June 30, 1994 salary
by the target bonus percent for each participant's salary grade (see
Paragraph H). The sum of these amounts times 1.6 is the maximum fund.
The Chief Financial Officer, at the direction of the Chief Executive
Officer, will reserve appropriate funds during the course of the fiscal
year to provide bonus awards. Any such reserved funds shall remain the
property of the Company and no participant shall have a right or claim to
any such funds unless the right or claim has specifically accrued under the
Program.
E. PERFORMANCE CRITERIA
Criteria used to measure performance for the Program Year are:
<PAGE>
Fiscal 1995 Key Executive Annual Bonus Program
Page 2
Applicable Performance
Participant Group Criteria
----------------- ----------------------
CEO and Corporate Staff Officers Attainment of Company Earnings
Per Share ("EPS") Goal
Group Vice Presidents Attainment of EPS Goal and
Group Profit Results
Business Unit Executives Attainment of Group Profit
Results, Business Unit Profit
Results and Strategic Goals
F. ESTABLISHMENT OF SPECIFIC PERFORMANCE OBJECTIVES
For the Program Year, EPS and Group and Business Unit profit objectives
have been established by the Compensation Committee of the Board upon
recommendation by the Chief Executive Officer.
The EPS objective includes the threshold level at which a bonus may be
earned, the target objective for the year, and a maximum limit beyond which
additional bonus amounts may not be earned with respect to EPS as follows:
Threshold - 6% Below Budget
Target - Budget
Maximum - 8% Above Budget
Strategic objectives for Business Unit Executives will be developed and
reviewed by appropriate levels of management. These objectives may be
financial or non-financial in nature. They may be weighted to reflect
relative importance. The objectives will also embody measurement criteria
so that the degree of accomplishment can be determined. Where objectives
encompass more than one year, milestones will be used to reflect expected
progress each year.
G. ADJUSTMENTS TO PROFIT OBJECTIVES
Profit objectives will be adjusted by action of the Compensation Committee
(in accordance with calculations confirmed by the Company's independent
auditors) so that the degree to which the objectives are achieved will not
be affected by any of the following which occur after the objectives are
initially established: changes in (or in the application of) accounting
principles; changes in tax laws; any material acquisition, divestiture or
joint venture; extraordinary items as defined under generally accepted
accounting principles; and any other non-recurring items which the
Company's press releases or SEC filings note and take into account in
explaining what the Company's or a Business Unit's profits would have been
on a comparable basis from period to period.
H. ANNUAL BONUS TARGETS
A dollar bonus target will be established for each participant. The dollar
bonus target will be computed as a percentage of the participant's base
salary on June 30th preceding the start of the Program Year. The
percentage to be applied will vary depending on the participant's assigned
salary grade as follows:
<PAGE>
Fiscal 1995 Key Executive Annual Bonus Program
Page 3
Assigned Salary Percentage Applied To Salary
Grade Earnings To Determine Target Bonus
--------------- ----------------------------------
33 75.00
31 68.75
28 62.50
27 62.50
26 56.25
25 50.00
24 43.75
23 37.50
22 37.50
I. ACTUAL BONUS AWARDS
Actual bonus awards for the Program Year will be based on payout schedules
reflecting achievement of performance objectives. Payments of bonus awards
require the approval of the Chief Executive Officer and the Compensation
Committee.
The payout schedules are presented below by participant group. No bonus
shall be earned based upon EPS attainment if the EPS does not exceed that
for the prior year. For results between the performance indicators, linear
interpolation will be used to compute the percent of the target bonus which
may be earned.
1. CHIEF EXECUTIVE OFFICER AND CORPORATE STAFF OFFICERS
In this group, actual bonus awards will be based on relative
attainment of the EPS objective.
The EPS threshold for minimum bonus awards to be allocated will be 6
percentage points below the EPS goal at 100%. The EPS objective for
the bonus awards to be allocated at maximum will be 8 percentage
points above the EPS goal at 100%.
EPS Percent Of Target
Attainment Bonus Which May Be Earned
---------- -------------------------
6% below 52%
5% below 60%
4% below 68%
3% below 76%
2% below 84%
1% below 92%
EPS Goal 100%
5% above 140%
8% above 160%
In total, the annual bonus award for a participant in this group
cannot exceed 160 percent of the participant's target bonus.
2. GROUP VICE PRESIDENTS
Actual bonus awards for this group of participants will depend on
relative attainment of the EPS objective as well as the appropriate
Group Profit objective.
The specific payout schedule based on EPS and the applicable Group
Profit is as follows:
<PAGE>
Fiscal 1995 Key Executive Annual Bonus Program
Page 4
EPS GROUP PROFIT
-------------------------------- --------------------------------
Percent of Target Actual Profit Percent of Target
EPS Bonus Which As Percent Bonus Which
Attainment May Be Earned of Budget May Be Earned
---------- ----------------- ------------- -----------------
6% below 4% 85% 40%
5% below 6% 90% 48%
4% below 9% 95% 60%
3% below 11% 100% 80%
2% below 14% 105% 92%
1% below 16% 110% 104%
EPS Goal 20% 115% 120%
5% above 30% 120% 140%
8% above 36%
In total, the annual bonus award for a participant in this group
cannot exceed 160 percent of the participant's target bonus.
3. BUSINESS UNIT EXECUTIVES
Actual bonus awards for this group of participants will be based on
attainment of the applicable Group profit results compared to budget
or the applicable Group and Business Unit's profit results compared to
budget. In addition, up to 20 percent of a participant's target bonus
can be earned for achievement of specific strategic goals.
The bonus award schedule based on the applicable Group Profit and the
applicable Business Unit Profit is as follows:
----------------------------------------------------------------------
----------------------------------------------------------------------
Percent of Target Which May Be Earned
Based On Unit Measurement:
-----------------------------------------------------
Actual Profit Group Business
as Percent Profit OR Group AND Unit
of Budget Only Profit Profit
----------------------------------------------------------------------
----------------------------------------------------------------------
85% 28% 8% 20%
90% 40% 12% 28%
95% 56% 16% 40%
100% 80% 20% 60%
105% 97% 25% 72%
110% 114% 30% 84%
115% 134% 34% 100%
120% 160% 40% 120%
----------------------------------------------------------------------
----------------------------------------------------------------------
The additional bonus for achievement of strategic goals will be
determined as a percentage of the participant's original target bonus
up to a maximum of 20 percent.
In total, the annual bonus award for a participant in this group
cannot exceed 160 percent of the participant's target bonus, including
any discretionary fund payout (see Paragraph J).
<PAGE>
Fiscal 1995 Key Executive Annual Bonus Program
Page 5
J. DISCRETIONARY BONUS AWARD
Under this Program, special discretionary cash bonus awards can be made for
one-time outstanding achievements by Business Unit Executives. Such awards
must be recommended by the Chief Executive Officer and approved by the
Compensation Committee of the Board. The Chief Executive Officer,
Corporate Staff Officers and Group Vice Presidents are not eligible for
discretionary awards.
K. BONUS AWARD PAYMENTS
Any bonus award payments made under the Program will be made in the form of
cash and will normally be paid in the month of August following the end of
the fiscal year. No bonus award is earned until the date the Compensation
Committee approves such payment.
L. TERMINATION OF EMPLOYMENT OR CESSATION OF ELIGIBILITY
Because bonus awards are not earned until the date the Compensation
Committee approves payment, if termination of employment occurs or the
participant ceases to be eligible for benefits under the Program before
such date (whether or not the applicable fiscal year has ended), no such
terminated or ineligible employee is entitled to any bonus payment. Under
certain circumstances, as detailed below, a terminated participant whose
employment terminates after December 31 by reason other than resignation or
involuntary termination may be considered for a bonus award. Consideration
of such awards will be at the sole discretion of the Compensation Committee
and require approval based upon the Chief Executive Officer's
recommendation according to the following schedule:
Reason for Termination Bonus Award Eligibility
---------------------- -----------------------
Death or Retirement Pro rata share of bonus award,
payable to retiree, heirs/estate
Long-Term Disability Pro rata share of bonus award
Resignation or No bonus award even if termination
Involuntary Termination occurs after June 30 but before
Compensation Committee approves payment
of awards.
M. ADMINISTRATION
The Program will be administered by the Compensation Committee assisted by
the Company's Human Resources staff.
94EB6-9
<PAGE>
EXHIBIT (10) (c)
07/19/94
MORTON INTERNATIONAL, INC.
FISCAL 1995
CORPORATE STAFF EXECUTIVE ANNUAL BONUS PROGRAM
This Program provides annual cash bonus opportunities depending on performance
of key Corporate staff executives.
A. OBJECTIVE
The objective of this Program is to reward staff executives who can
significantly affect operating results through cost reduction, improved
efficiency, or profit improvement for outstanding performance in these
areas.
B. TIMING
The Program Year for purposes of this Program will correspond to the
Company's 1995 fiscal year.
C. ELIGIBILITY AND PARTICIPATION
The Corporate Staff Executive Annual Bonus Program covers key Corporate
staff executive positions in salary grades 19 and above.
Eligibility will be by position. Participation approval will be by
position and incumbent.
Positions must be nominated for participation prior to the start of each
Program Year. Participation requires the approval of the Corporate Officer
in charge of the functional area involved and the Corporate Vice President,
Human Resources.
The Chief Executive Officer will review any nomination involving a position
or incumbent to be added to this Program for the first time.
D. PROGRAM FUNDING
A fund will be calculated for each Program Year. The fund will be
determined by multiplying the individual participant's January 1, 1995
salary by the target bonus percent for each participant's salary grade (see
Paragraph H). The sum of these amounts times 1.75 is the maximum fund.
The Chief Financial Officer, at the direction of the Chief Executive
Officer, will reserve appropriate funds during the course of the fiscal
year to provide bonus awards. Any such reserved funds shall remain the
property of the Company and no participant shall have a right or claim to
any such funds unless the right or claim has specifically accrued under the
Program.
E. PERFORMANCE CRITERIA
Criteria used to measure performance for the Program Year are:
Attainment of Company Earnings Per Share ("EPS") Goal
Attainment of Strategic Goals
Individual Performance
<PAGE>
Fiscal 1995 Corporate Staff Executive Annual Bonus Program
Page 2
F. ESTABLISHMENT OF SPECIFIC PERFORMANCE OBJECTIVES
PROFIT GOALS
For the Program Year, the EPS objective has been established by the
Compensation Committee of the Board upon recommendation by the Chief
Executive Officer.
This objective includes the minimum level at which a bonus may be earned,
the desired objective for the year, and a maximum limit beyond which
additional bonus amounts may not be earned.
STRATEGIC GOALS
Strategic goals are other financial or non-financial objectives. These
objectives will be designed to have an impact that is beyond the
participant's day to day position responsibilities. They may be weighted
to reflect relative importance. The objectives will also embody
measurement criteria so that the degree of accomplishment can be
determined. Where objectives encompass more than one year, milestones will
be used to reflect progress for the Program Year.
Strategic goals will be closely reviewed by appropriate levels of
management.
INDIVIDUAL PERFORMANCE OBJECTIVES
Individual performance objectives will be established by each participant
and the supervising Corporate Officer. These objectives are to be set at
the beginning of the Program Year, and will be directed toward individual
improvements in performance, productivity, efficiencies, cost savings,
profitability and other position responsibilities. After the close of the
Program Year, each participant's individual performance will be rated by
the participant's manager against those pre-established objectives.
Objectives may be weighted according to relative importance. Individual
performance for bonus purposes should be consistent with the participant's
merit increase recommendation.
G. ADJUSTMENTS TO PROFIT OBJECTIVES
Profit objectives will be adjusted by action of the Compensation Committee
(in accordance with calculations confirmed by the Company's independent
auditors) so that the degree to which the objectives are achieved will not
be affected by any of the following which occur after the objectives are
initially established: changes in (or in the application of ) accounting
principles; changes in tax laws; any material acquisition, divestiture or
joint venture; extraordinary items as defined under generally accepted
accounting principles; and any other non-recurring items which the
Company's press releases or SEC filings note and take into account in
explaining what the Company's or a Business Unit's profits would have been
on a comparable basis from period to period.
<PAGE>
Fiscal 1995 Corporate Staff Executive Annual Bonus Program
Page 3
H. ANNUAL BONUS TARGETS
A dollar bonus target will be established at the start of the Program Year
for each participant. The dollar bonus target will be computed as a
percentage of the participant's base salary on January 1st of the Program
Year. The percentage to be applied will vary depending on the
participant's assigned salary grade as follows:
PERCENTAGE APPLIED TO SALARY
ASSIGNED SALARY EARNINGS TO DETERMINE
GRADE TARGET BONUS
--------------- ----------------------------
23 30%
22 30%
21 25%
20 22%
19 18%
I. ACTUAL BONUS AWARDS
Actual bonus awards for the Program Year will be based on payout schedules
reflecting achievement of performance objectives. Payments of bonus awards
require the approval of the Chief Executive Officer.
PROFIT GOALS
The EPS threshold for minimum bonus awards to be allocated will be 6
percentage points below the EPS goal. The EPS objective for the bonus
awards to be allocated at maximum will be 7.5 percentage points above the
EPS goal.
EPS PERCENT OF TARGET
ATTAINMENT BONUS WHICH MAY BE EARNED
---------- -------------------------
6% below 15%
5% below 25%
4% below 35%
3% below 45%
2% below 55%
1% below 65%
EPS Goal 75%
5% above 125%
7.5% above 150%
No bonus shall be earned based upon EPS attainment if the EPS does not
exceed that for the prior year. For results between the EPS rates shown,
linear interpolation will be used to compute the percentage of the target
bonus which may be earned.
STRATEGIC GOALS
The additional award for achievement of strategic goals will be determined
as a percentage of the participant's original target bonus up to a maximum
of 25 percent. The guidelines for measuring achievement of strategic goals
are:
<PAGE>
Fiscal 1995 Corporate Staff Executive Annual Bonus Program
Page 4
PERCENT OF TARGET
ACHIEVEMENT BONUS WHICH MAY BE EARNED
----------- -------------------------
Not Met 0%
Minimum Achievement 1% - 14%
Substantially Met 15%
All Met 25%
INDIVIDUAL PERFORMANCE
The resulting award for each participant is then subject to adjustment
based on the participant's individual performance compared to pre-
established objectives. The individual performance rating guidelines are
as follows:
RANGE OF ADJUSTMENT
PERCENTAGES TO BE APPLIED TO
RATING EPS/STRATEGIC GOAL-DERIVED BONUS
------ --------------------------------
1 - Marginal - Did not meet most objectives 0%
2 - Good - Substantially met most objectives 50% - 84%
3 - Exceeds Expectations - Met all objectives 85% - 114%
4 - Outstanding - Clearly exceeded most or 115% - 150%
all objectives
In aggregate, however, bonus awards for participants in a functional area
cannot exceed the pool established as a result of EPS and strategic goal
attainment for all participants in the functional area. This will require
a leveling back of the individual performance adjustments on a pro rata
basis.
J. BONUS AWARD LIMITATIONS
Bonuses earned under this Program will be limited to no more than 175
percent of the aggregate target bonus amounts for all participants in a
Corporate functional area. This limit does not apply to any discretionary
fund awards covered in Paragraph K below.
K. DISCRETIONARY BONUS AWARD
Under this Program, special discretionary cash bonus awards can be made for
one-time outstanding achievements. Such awards must be recommended by the
Chief Executive Officer and approved by the Compensation Committee of the
Board.
L. BONUS AWARD PAYMENTS
Any bonus award payments made under the Program will be made in the form of
cash and will normally be paid in the month of August following the end of
the fiscal year. No bonus award is earned until the date the Compensation
Committee has reviewed the CEO's approval of such payment.
M. TERMINATION OF EMPLOYMENT OR CESSATION OF ELIGIBILITY
Because bonus awards are not earned until the date on which the
Compensation Committee reviews the CEO's approval of payment, if
termination of employment occurs or the participant ceases to be eligible
for benefits under the Program before such date (whether or not the
applicable fiscal year has ended), no
<PAGE>
Fiscal 1995 Corporate Staff Executive Annual Bonus Program
Page 5
such terminated or ineligible employee is entitled to any bonus payment.
Under certain circumstances, as detailed below, a terminated participant
whose employment terminates after December 31 by reason other than
resignation or involuntary termination may be considered for a bonus award.
Consideration of such awards will be at the sole discretion of the
Compensation Committee and require approval based upon the Chief Executive
Officer's recommendation according to the following schedule:
REASON FOR TERMINATION BONUS AWARD ELIGIBILITY
---------------------- -----------------------
Death or Retirement Pro rata share of bonus award, payable
to retiree, heirs/estate
Long-Term Disability Pro rata share of bonus award
Resignation or No bonus award even if termination
Involuntary Termination occurs after June 30 but before
Compensation Committee reviews the CEO's
approval of award payments.
N. ADMINISTRATIVE PROVISIONS
The Program will be administered by the appropriate supervising Corporate
Officer and the Corporate Vice President, Human Resources.
New participants and exceptional situations will be referred to the Chief
Executive Officer for review. Monitoring reports prepared by the Corporate
Human Resources staff will be distributed to the Chief Executive Officer
and the Compensation Committee of the Board for informational purposes.
It is the intention that this Program remain in effect in future years.
However, as with any special compensation plan, senior management and the
Board reserve the right to modify, revise, or terminate the Program at any
time.
94EB6-18
<PAGE>
EXHIBIT (10)(d)
MORTON INTERNATIONAL, INC.
1989 INCENTIVE PLAN
(FORMERLY 1989 STOCK AWARDS PLAN)
AS AMENDED EFFECTIVE JUNE 23, 1994
1. PURPOSE. The purpose of the Morton International, Inc. 1989 Incentive
Plan (the "Plan") is to promote the long term financial interests and growth of
Morton International, Inc. (the "Company") by (a) attracting and retaining
executive personnel, (b) motivating executive personnel by means of
growth-related incentives, (c) providing incentive compensation opportunities
that are competitive with those of other major corporations; and (d) furthering
the identity of interests of participants with those of the shareholders of the
Company.
2. DEFINITIONS. The following definitions are applicable to the Plan:
"Affiliate" means any entity in which the Company has a direct or
indirect equity interest which is so designated by the Committee.
"Code" means that the Internal Revenue Code of 1986, as amended, and any
successor statute.
"Committee" means a committee of three or more directors of the Company
who are "disinterested persons" as such term is used in Rule 16b-3.
"common stock" means the common stock, $1.00 par value, of the Company
or such other securities as may be substituted therefor pursuant to
paragraph 5(c).
"Distribution" means the distribution of shares of common stock of the
Company to the shareholders of Morton Thiokol, Inc.
the "fair market value" of the common stock shall be determined in
accordance with procedures established by the Committee.
"participant" means any key employee of the Company or an Affiliate
selected by the Committee.
"Rule 16b-3" means such rule adopted under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or any successor rule.
3. LIMITATION ON AGGREGATE SHARES. The number of shares of common stock with
respect to which awards may be granted under the Plan and which may be issued
upon the exercise or payment thereof shall not exceed, in the aggregate, a
number of shares equal to 4,425,000, which amount includes the number of shares
subject to options to purchase shares of common stock of Morton Thiokol, Inc.
which are exchanged for options to purchase common stock of the Company in
connection with the Distribution; provided, however, that to the extent any
awards expire unexercised or unpaid or are cancelled, terminated or forfeited in
any manner without the issuance of shares of common stock thereunder, or if the
Company receives any shares of common stock as the exercise price of any award
(up to a maximum of 442,500 shares so received by the Company), such shares
shall again be available under the Plan. Such shares of common stock may be
either authorized and unissued shares, treasury shares, or a combination
thereof, as the Committee shall determine.
4. AWARDS. The Committee may grant to participants, in accordance with this
paragraph 4 and the other provisions of the Plan, stock options, stock
appreciation rights ("SARs"), restricted stock and other awards.
(a) OPTIONS.
(i) Options granted under the Plan may be incentive stock options ("ISOs")
within the meaning of Section 422A of the Code or any successor provision, or in
such other form, consistent with the Plan, as the Committee may determine.
(ii) The option price per share of common stock shall be fixed by the
Committee at not less than (A) 100% of the fair market value of a share of
common stock on the date of grant as to ISOs and (B) the par value of a share of
common stock as to other options.
(iii) Options shall be exercisable at such time or times as the Committee
shall determine at or subsequent to grant.
(iv) Options shall be exercised in whole or in part by written notice to the
Company (to the attention of the Corporate Secretary) and payment in full of the
option price. Payment of the option price may be made, at the
<PAGE>
discretion of the optionee, and to the extent permitted by the Committee, (A) in
cash (including check, bank draft, or money order), (B) in common stock (valued
at the fair market value thereof on the date of exercise), (C) by a combination
of cash and common stock or (D) with any other consideration.
(b) SARS.
(i) An SAR shall entitle its holder to receive from the Company, at the time
of exercise of such right, an amount equal to the excess of the fair market
value (at the date of exercise) of a share of common stock over a specified
price fixed by the Committee multiplied by the number of shares as to which the
holder is exercising the SAR. SARs may be in tandem with any previously or
contemporaneously granted option or independent of any option. The specified
price of a tandem SAR shall be the option price of the related option. The
amount payable may be paid by the Company in common stock (valued at its fair
market value on the date of exercise), cash or a combination thereof, as the
Committee may determine, which determination shall be made after considering any
preference expressed by the holder.
(ii) An SAR shall be exercised by written notice to the Company (to the
attention of the Corporate Secretary) at any time prior to its stated
expiration. To the extent a tandem SAR is exercised, the related option will be
cancelled and, to the extent the related option is exercised, the tandem SAR
will be cancelled.
(iii) Notwithstanding any other provision of the Plan, the Committee may in
its discretion grant limited tandem SARs entitling option holders to receive, in
connection with a Change in Control (as defined in paragraph 5(c)), cash
payments in cancellation of their options, which payments will be equal to the
number of shares covered by the cancelled options multiplied by the excess over
the option price of the options of the value of a share of common stock,
determined pursuant to a formula established by the Committee in the option
agreement. Such formula shall be based upon the trading price of the common
stock at the time of the Change in Control or such trading price during a period
(established by the Committee in the option agreement) prior to the Change in
Control or the price or prices per share of common stock paid in a Corporate
Transaction (as defined in paragraph 5(c)) which results in the Change in
Control (with the value of any non-cash consideration paid in such Corporate
Transaction to be determined by the Incumbent Board (as defined in paragraph
5(c)) in its sole discretion) or the highest of any of such prices. Such limited
SARs may, as determined in the discretion of the Committee, be exercisable by
the holder for such period as the Committee may determine or automatically
exercised upon a Change in Control.
(c) RESTRICTED STOCK.
(i) The Committee may award to any participant shares of common stock,
subject to this paragraph 4(c) and such other terms and conditions as the
Committee may prescribe (such shares being called "restricted stock"). Each
certificate for restricted stock shall be registered in the name of the
participant and deposited, together with a stock power endorsed in blank, with
the Company.
(ii) There shall be established for each restricted stock award a
restriction period (the "restriction period") of such length as shall be
determined by the Committee. Shares of restricted stock may not be sold,
assigned, transferred, pledged or otherwise encumbered, except as hereinafter
provided, during the restriction period. Except for such restrictions on
transfer and such other restrictions as the Committee may impose, the
participant shall have all the rights of a holder of common stock as to such
restricted stock. The Committee, in its sole discretion, may permit or require
the payment of cash dividends to be deferred and, if the Committee so
determines, reinvested in additional restricted stock or otherwise invested. At
the expiration of the restriction period, the Corporation shall redeliver to the
participant (or the participant's legal representative or designated
beneficiary) the certificates deposited pursuant to this paragraph.
(iii) Except as provided by the Committee at the time of grant or otherwise,
upon a termination of employment for any reason during the restriction period
all shares still subject to restriction shall be forfeited by the participant.
(d) OTHER AWARDS.
(i) Other awards, including, without limitation, performance shares,
convertible debentures, other convertible securities and other forms of awards
measured in whole or in part by the value of shares, the performance of the
participant or the performance of the Company, may be granted under the Plan.
Such awards may be payable in common stock, cash or both, and shall be subject
to such restrictions and conditions, as the
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Committee shall determine. At the time of such an award, the Committee shall, if
applicable, determine a performance period and performance goals to be achieved
during the performance period, subject to such later revisions as the Committee
shall deem appropriate to reflect significant unforeseen events such as changes
in laws, regulations or accounting practices, unusual or non-recurring items or
occurrences. Following the conclusion of each performance period, the Committee
shall determine the extent to which performance goals have been attained or a
degree of achievement between maximum and minimum levels during the performance
period in order to evaluate the level of payment to be made, if any.
(ii) A participant may elect to defer all or a portion of any such award in
accordance with procedures established by the Committee. Deferred amounts will
be subject to such terms and conditions and shall accrue such yield thereon
(which may be measured by the fair market value of the common stock and
dividends thereon) as the Committee may determine. Payment of deferred amounts
may be in cash, common stock or a combination thereof, as the Committee may
determine. Deferred amounts shall be considered an award under the Plan. The
Committee may establish a trust to hold deferred amounts or any portion thereof
for the benefit of participants.
(e) CASH PAYMENTS. SARs and options which are not ISOs may, in the
Committee's discretion, provide that in connection with exercises thereof the
holders will receive cash payments in amounts necessary to reimburse holders for
their income tax liability resulting from such exercise and the payment made
pursuant to this paragraph 4(e).
(f) FOREIGN ALTERNATIVES. Without amending and notwithstanding the other
provisions of the Plan, in the case of any award to be held by any participant
who is employed outside the United States or who is a foreign national the
Committee may specify that such award shall be made on such terms and conditions
different from those specified in the Plan, as may, in the judgment of the
Committee, be necessary or desirable to further the purposes of the Plan.
5. MISCELLANEOUS PROVISIONS.
(a) ADMINISTRATION. The Plan shall be administered by the Committee. Subject
to the limitations of the Plan, the Committee shall have the sole and complete
authority: (i) to select participants in the Plan, (ii) to make awards in such
forms and amounts as it shall determine, (iii) to impose such limitations,
restrictions and conditions upon such awards as it shall deem appropriate, (iv)
to interpret the Plan and to adopt, amend and rescind administrative guidelines
and other rules and regulations relating to the Plan, (v) to correct any defect
or omission or to reconcile any inconsistency in the Plan or in any award
granted hereunder and (vi) to make all other determinations and to take all
other actions necessary or advisable for the implementation and administration
of the Plan. The Committee's determinations on matters within its authority
shall be conclusive and binding upon the Company and all other persons. All
expenses associated with the Plan shall be borne by the Company, subject to such
allocation to its Affiliates and operating units as it deems appropriate. The
Committee may, to the extent that any such action will not prevent the Plan from
complying with Rule 16b-3, delegate any of its authority hereunder to such
persons as it deems appropriate.
(b) NON-TRANSFERABILITY. Subject to provisions of paragraph 5(f), no award
under the Plan, and no interest therein, shall be transferable by the
participant otherwise than by will or the laws of descent and distribution. All
awards shall be exercisable or received during the participant's lifetime only
by the participant or the participant's legal representative. Any purported
transfer contrary to this provision will nullify the award.
(c) ADJUSTMENTS UPON CERTAIN CHANGES. In the event of a reorganization,
recapitalization, spinoff, stock dividend or stock split, or combination or
other increase or reduction in the number of issued shares of common stock, the
Board of Directors or the Committee may, in order to prevent the dilution or
enlargement of rights under awards, make such adjustments in the number and type
of shares authorized by the Plan, the number and type of shares covered by, or
with respect to which payments are measured under, outstanding awards and the
exercise prices specified therein as may be determined to be appropriate and
equitable. The Committee may provide in the agreement evidencing any award for
adjustments to such award in order to prevent the dilution or enlargement of
rights thereunder or to provide for acceleration of benefits thereunder in the
event of a change in control, merger, consolidation, reorganization,
recapitalization, sale or exchange of substantially all assets or dissolution
of, or spinoff or similar transaction by, the Company.
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Notwithstanding any other provision of the Plan to the contrary, in the
event of a Change in Control: (i) any SARs and options outstanding as of the
date such Change in Control is determined to have occurred and not then
exercisable and vested shall become fully exercisable and vested to the full
extent of the original grant; provided, however, that, in the case of the holder
of SARs who is actually subject to Section 16(b) of the Exchange Act, such SARs
shall become fully exercisable and vested on the date on which they have been
outstanding for six months if such date is later than the date such Change in
Control is determined to have occurred; and (ii) the restrictions applicable to
any restricted stock shall lapse, and such restricted stock shall become free of
all restrictions and become fully vested and transferable to the full extent of
the original grant.
For purposes of the Plan, a "Change in Control" shall mean the happening of
any of the following events:
(i) An acquisition by any individual, entity or group (with the meaning of
Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of 20% or more of either (1) the then outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock") or (2) the combined voting
power of the then outstanding voting securities of the Company entitled to vote
generally in the election of directors (the "Outstanding Company Voting
Securities"); excluding, however, the following: (1) any acquisition directly
from the Company, other than an acquisition by virtue of the exercise of a
conversion privilege unless the security being so converted was itself acquired
directly from the Company, (2) any acquisition by the Company, (3) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any subsidiary of the Company or (4) any
acquisition of the Company by any corporation pursuant to a reorganization,
merger, consolidation or similar corporate transaction (in each case referred to
in this clause (4), a "Corporate Transaction"), if, pursuant to such Corporate
Transaction, the conditions described in clauses (1), (2) and (3) of
subparagraph (iii) below are satisfied; or
(ii) A change in the composition of the Board of Directors such that the
individuals who, as of September 1, 1991, constitute the Board of Directors
(such Board of Directors shall be hereinafter referred to as the "Incumbent
Board") cease for any reason to constitute at least a majority of the Board of
Directors; provided, however, for purposes of this subparagraph, that any
individual who becomes a member of the Board of Directors subsequent to
September 1, 1991, whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of those individuals
who are members of the Board of Directors and who were also members of the
Incumbent Board (or deemed to be such pursuant to this proviso) shall be
considered as though such individual were a member of the Incumbent Board; but,
provided further, that any such individual whose initial assumption of office
occurs as a result of either an actual or threatened election contest (as such
terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange
Act) or other actual or threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board of Directors shall not be so considered
as a member of the Incumbent Board; or
(iii) The approval by the shareholders of the Company of a Corporate
Transaction or, if consummation of such Corporate Transaction is subject, at the
time of such approval by shareholders, to the consent of any government or
governmental agency, the obtaining of such consent (either explicitly or
implicitly by consummation); excluding, however, such a Corporate Transaction
pursuant to which (1) all or substantially all of the individuals and entities
who are the beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to such
Corporate Transaction will beneficially own, directly or indirectly, more than
60% of, respectively, the outstanding shares of common stock of the corporation
resulting from such Corporate Transaction and the combined voting power of the
outstanding voting securities of such corporation entitled to vote generally in
the election of directors, in substantially the same proportions as their
ownership, immediately prior to such Corporate Transaction, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities, as the case may
be, (2) no Person (other than the Company, any employee benefit plan (or related
trust) of the Company or such corporation resulting from such Corporate
Transaction or any Person beneficially owning, immediately prior to such
Corporate Transaction, directly or indirectly, 20% or more of the Outstanding
Company Common Stock or Outstanding Company Voting Securities, as the case may
be) will beneficially own, directly or indirectly, 20% or more of, respectively,
the outstanding shares of common stock of the corporation resulting from such
Corporate Transaction or the combined voting power of the outstanding securities
of such corporation entitled to vote generally in
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the election of directors and (3) individuals who were members of the Incumbent
Board will constitute at least a majority of the members of the board of
directors of the corporation resulting from such Corporate Transaction; or
(iv) The approval by the shareholders of the Company of (1) a complete
liquidation or dissolution of the Company or (2) the sale or other disposition
of all or substantially all of the assets of the Company; excluding, however,
such a sale or other disposition to a corporation, with respect to which
following such sale or other disposition, (A) more than 60% of, respectively,
the outstanding shares of common stock of such corporation and the combined
voting power of the outstanding voting securities of such corporation entitled
to vote generally in the election of directors will be beneficially owned,
directly, or indirectly, by all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately prior
to such sale or other disposition in substantially the same proportion as their
ownership, immediately prior to such sale or other disposition, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be, (B) no Person (other than the Company and any employee benefit
plan (or related trust) of the Company or such corporation and any Person
beneficially owning, immediately prior to such sale or other disposition,
directly or indirectly, 20% or more of the Outstanding Company Common Stock or
Outstanding Company Voting Securities, as the case may be) will beneficially
own, directly or indirectly, 20% or more of, respectively, the outstanding
shares of common stock of such corporation and the combined voting power of the
outstanding securities of such corporation entitled to vote generally in the
election of directors and (c) individuals who were members of the Incumbent
Board will constitute at least a majority of the members of the board of
directors of such corporation.
(d) TAX WITHHOLDING. The Committee shall have the power to withhold, or
require a participant to remit to the Company, an amount sufficient to satisfy
any withholding or other tax due with respect to any amount payable and/or
shares issuable under the Plan, and the Committee may defer such payment or
issuance unless indemnified to its satisfaction. Subject to the consent of the
Committee, a participant may make an irrevocable election to have shares of
common stock otherwise issuable under an award withheld, tender back to the
Company shares of common stock received pursuant to an award or deliver to the
Company previously-acquired shares of common stock having a fair market value
sufficient to satisfy all or part of the participant's estimated tax obligations
associated with the transaction. Such election must be made by a participant
prior to the date on which the relevant tax obligation arises. The Committee may
disapprove of any election and may limit, suspend or terminate the right to make
such elections.
(e) LISTING AND LEGAL COMPLIANCE. The Committee may suspend the exercise or
payment of any award so long as it determines that securities exchange listing
or registration or qulification under any securities laws is required in
connection therewith and has not been completed on terms acceptable to the
Committee.
(f) BENEFICIARY DESIGNATION. Subject to paragraph 5(b), participants may
name, from time to time, beneficiaries (who may be named contingently or
successively) to whom benefits under the Plan are to be paid in the event of
their death before they receive any or all of such benefit. Each designation
will revoke all prior designations by the same participant, shall be in a form
prescribed by the Committee, and will be effective only when filed by the
participant in writing with the Committee during the participant's lifetime. In
the absence of any such designation, benefits remaining unpaid at the
participant's death shall be paid to the participant's estate.
(g) RIGHTS OF PARTICIPANTS. Nothing in the Plan shall interfere with or
limit in any way the right of the Company to terminate any participant's
employment at any time, nor confer upon any participant any right to continue in
the employ of the Company for any period of time or to continue his or her
present or any other rate of compensation. No employee shall have a right to be
selected as a participant, or, having been so selected, to be selected again as
a participant.
(h) AMENDMENT, SUSPENSION AND TERMINATION OF PLAN. The Board of Directors or
the Committee may suspend or terminate the Plan or any portion thereof at any
time and may amend it from time to time in such respects as the Board of
Directors or the Committee may deem advisable; provided, however, that no such
amendment shall be made, without stockholder approval to the extent such
approval is required by law, agreement or the rules of any exchange upon which
the common stock is listed. No such amendment,
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suspension or termination shall impair the rights of participants under
outstanding awards without the consent of the participants affected thereby or
make any change that would disqualify the Plan, or any other plan of the Company
intended to be so qualified, from the exemption provided by Rule 16b-3.
The Committee may amend or modify any award in any manner to the extent that
the Committee would have had the authority under the Plan to initially grant
such award. No such amendment or modification shall impair the rights of any
participant under any award without the consent of such participant.
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EXHIBIT (10) (i)
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT (hereinafter referred to as "this
Agreement"), made and entered into as of the 1st day of April, 1994, by and
between MORTON INTERNATIONAL, INC., an Indiana corporation (hereinafter referred
to as "the Company"), and S. JAY STEWART of Lake Forest, Illinois (hereinafter
referred to as "the Executive").
WITNESSETH:
WHEREAS, the Executive has been employed by the Company and its corporate
predecessors in various management and supervisory capacities since 1973, most
recently as the Company's President and Chief Operating Officer; and
WHEREAS, on March 24, 1994 the Board of Directors of the Company (the
"Board") elected the Executive to the office of Chairman and Chief Executive
Officer, effective April 1, 1994; and
WHEREAS, the Executive desires and is willing to accept and perform the
responsibilities of that office; and
WHEREAS, it is in the Company's best interests to encourage the Executive's
continued availability, dedication and loyalty by assuring him of fair treatment
during the employment relationship and upon eventual termination of that
relationship.
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and understandings herein contained, the parties agree as follows:
<PAGE>
1. POSITION AND DUTIES. Effective April 1, 1994, the Company shall employ the
Executive and the Executive shall serve the Company as its Chairman and Chief
Executive Officer. The Executive shall report only to the Board of Directors of
the Company ("the Board"), and shall have supervision and control over, and
responsibility for, the general management and operation of the Company. The
Executive shall have such other powers and duties as may from time to time be
prescribed by the Board, provided that such duties are consistent with the
Executive's position as the senior executive officer in charge of the general
management of the Company. The Executive shall devote substantially all his
working time and efforts to the business and affairs of the Company.
2. EMPLOYMENT TERM. The term of this Agreement shall begin on April 1, 1994
and, provided at least three (3) years' advance written notice is given by the
Company to the Executive, shall end on March 31, 1999. In the absence of such
notice, the term of this Agreement shall automatically extend in yearly
increments initially to March 31, 2000 and thereafter to each successive
anniversary of that date until such three (3) years' notice is given or until
September 30, 2003 (the date the Executive is required to retire under the
Company's mandatory retirement policy, hereinafter referred to as the "Mandatory
Retirement Date"), when this Agreement shall automatically expire. The term of
this Agreement including extensions, if any, is hereinafter referred to as the
"Employment Term".
3. PLACE OF PERFORMANCE. In connection with his employment by
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the Company, the Executive shall be based at the Company's principal executive
offices in Chicago, Illinois, and shall be required to be absent therefrom on
travel status or otherwise only to the extent reasonably necessary to discharge
his duties hereunder.
4. COMPENSATION.
(a) BASE SALARY. The Executive shall receive base salary ("Base Salary" or
"the Executive's Base Salary") at an initial annual rate of $600,000.00. The
Compensation Committee of the Board (the "Committee") shall review the
Executive's Base Salary for possible increase effective September 1, 1994 and on
each anniversary of that date during the Employment Term. Any increase in Base
Salary or other compensation during the Employment Term shall in no way limit or
reduce any other obligation of the Company, and once established at an increased
rate the Executive's Base Salary shall not thereafter be reduced. Base Salary
shall be payable during the Employment Term in substantially equal semi-monthly
installments.
(b) INCENTIVE COMPENSATION. In addition to Base Salary, the Executive
shall be entitled to such incentive compensation payments as the Committee may
determine pursuant to the Company's Annual Executive Bonus Program (the "Annual
Bonus Program") and Key Executive Long-Term Incentive Plan (the "LTIP"). While
his employment continues under this Agreement, the Executive shall participate
in each Annual Bonus Program or LTIP cycle initiated or established by the
Company for its senior executive officers. The
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amount of any additional compensation payable to the Executive pursuant to this
subsection (b) will be as reasonably determined by the Committee in accordance
with the performance criteria of the Annual Bonus Program or LTIP, as the case
may be.
(c) STOCK OPTIONS. The Executive shall be entitled to receive such stock
option awards ("Stock Options") accompanied by limited stock appreciation rights
and supplemental cash payment rights as the Committee may determine pursuant to
the Company's 1989 Stock Awards Plan and any successor plan.
(d) EXPENSES. During the Employment Term, the Executive shall be entitled
to receive prompt reimbursement for all reasonable expenses incurred by him (in
accordance with the policies and procedures established for the Company's senior
executive officers) in performing services hereunder, provided that the
Executive properly accounts therefor in accordance with Company policy.
(e) WELFARE AND FRINGE BENEFITS. The Executive shall be entitled to
continue to participate in or receive benefits under all the Company's employee
benefit plans and arrangements in effect on the date hereof or as hereafter
modified or added, or plans or arrangements providing the Executive with
benefits in the aggregate no less favorable than those made available by the
Company in the future to its senior executive officers. In addition, the
Executive shall be entitled to participate in or receive benefits under any
pension plan, profit-sharing plan, savings plan, life insurance, health and
accident plan or arrangement made available
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by the Company in the future to its senior executive officers, subject to and on
a basis consistent with the terms, conditions and overall administration of such
plans and arrangements. Nothing paid to the Executive under any plan or
arrangement presently in effect or made available in the future shall be deemed
to be in lieu of compensation to the Executive hereunder.
(f) VACATIONS. The Executive shall be entitled to the number of paid
vacation days in each calendar year determined by the Company from time to time
for its senior executive officers, but not less than five weeks in any calendar
year or portion thereof during which the Executive is employed. The Executive
shall also be entitled to all paid holidays given by the Company to its senior
executive officers.
(g) PERQUISITES. The Executive shall be entitled to receive all
perquisites appertaining to the office of the Chairman of the Board and Chief
Executive Officer of the Company as the Committee may determine from time to
time.
5. UNAUTHORIZED DISCLOSURE; INVENTIONS.
(a) The Executive shall not, without the written consent of the Board
or a person authorized thereby, use for his own purposes or disclose to any
person, other than an employee of the Company or a person to whom disclosure is
reasonably necessary or appropriate in connection with the performance by the
Executive of his duties hereunder, any confidential information obtained by him
while in the employ of the Company including, without limitation, confidential
information with respect to any of the Company's
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products, improvements, formulas, designs or styles, processes, customers,
methods of distribution or methods of manufacture; provided, however, that
confidential information shall not include any information known generally to
the public (other than as a result of unauthorized disclosure by the Executive)
or any information of a type not otherwise considered confidential by persons
engaged in the same business or a business similar to that conducted by the
Company.
(b) INVENTIONS. Any and all inventions made, developed or created by
the Executive (whether at the request or suggestion of the Company or otherwise,
whether alone or in conjunction with others, and whether during regular hours of
work or otherwise) during the Employment Term, which may be directly or
indirectly useful in, or relate to, the business of or tests being carried out
by the Company or any of its subsidiaries or affiliates, will be promptly and
fully disclosed by the Executive to an appropriate executive officer of the
Company and shall be the Company's exclusive property as against the Executive,
and the Executive will promptly deliver to an appropriate officer of the Company
all papers, drawings, models, data and other material relating to any invention
made, developed or created by him as aforesaid.
The Executive will, upon the Company's request and without any payment
therefor, execute any document necessary or advisable in the opinion of the
Company's counsel to direct issuance of patents to the Company with respect to
such inventions as are to be the Company's exclusive property as against the
Executive under this
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<PAGE>
subsection (b) or to vest in the Company title to such inventions as against the
Executive, the expense of securing any patent, however, to be borne by the
Company.
(c) The foregoing provisions of this Section 5 shall be subject to
and modified by any applicable law providing employee ownership of or rights in
inventions under certain circumstances, and shall be binding upon the
Executive's heirs, successors and legal representatives.
6. TERMINATION.
(a) BY THE COMPANY.
(1) FOR CONVENIENCE. The Board may terminate the Executive's
employment for convenience of the Company at any time during the Employment
Term.
(2) DEATH. The Employment Term shall terminate automatically
upon the Executive's death.
(3) DISABILITY. The Board may terminate the Executive's
employment if, as a result of the Executive's incapacity due to physical or
mental illness, the Executive shall be absent from his duties hereunder on a
full-time basis for six consecutive months, and shall qualify for long-term
disability benefits under the Company's long-term disability plan.
(4) CAUSE. The Board may terminate the Executive's employment
for Cause at any time during the Employment Term. For purposes of this
Agreement, the Board shall have "Cause" to terminate the Executive's employment
upon (A) the willful failure by the Executive to substantially perform his
duties hereunder,
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other than any such failure resulting from the Executive's incapacity due to
physical or mental illness, or (B) the willful engaging by the Executive in
gross misconduct materially and demonstrably injurious to the Company, (C) the
willful violation by the Executive of the provisions of Section 5 hereof
provided that such violation results in demonstrably material injury to the
Company. For purposes of this subsection (a) (4), no act, or failure to act, on
the Executive's part shall be considered "willful" unless done, or omitted to be
done, by him not in good faith and without reasonable belief that his action or
omission was in the best interest of the Company. Notwithstanding the
foregoing, the Executive shall not be deemed to have been terminated for Cause
unless and until there shall have been delivered to the Executive a copy of a
resolution, duly adopted by the affirmative vote of not less than a majority of
the entire membership of the Board at a meeting of the Board called and held for
that purpose (after reasonable notice to the Executive and an opportunity for
him, together with his counsel, to be heard before the Board), finding that in
the good faith opinion of the Board, the Executive was guilty of conduct set
forth in clause (A), (B) or (C) of the first sentence of this subsection (a) (4)
and specifying the particulars thereof in detail.
(b) BY THE EXECUTIVE.
(1) VOLUNTARILY - WITHOUT CONSENT. Upon at least six (6)
month's advance written notice, the Executive may voluntarily terminate his
employment hereunder without the consent
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of the Board.
(2) VOLUNTARILY - WITH CONSENT. Subject to advance written
consent of the Board, the Executive may voluntarily terminate his employment at
any time during the Employment Term.
(3) DISABILITY. The Executive may terminate his employment if
his health should become impaired to an extent that makes the continued
performance of his duties hereunder hazardous to his physical or mental health
or his life.
(4) GOOD REASON. The Executive may terminate his employment
during the Employment Term for Good Reason. For purposes of this Agreement,
"Good Reason" shall mean, (A) a change in control of the Company (as defined in
Appendix A hereto), (B) any assignment to the Executive of any duties
inconsistent with those contemplated by Section 1, (C) any removal of the
Executive from or any failure to re-elect the Executive to any of the positions
indicated in Section 1, (D) failure by the Company to comply with Section 3, (E)
a reduction in the Executive's rate of compensation, or a reduction in the
Executive's fringe benefits which is inconsistent with the provisions of Section
4(e), above, or any other failure by the Company to comply with Section 4, (F)
failure by the Company to obtain the assumption of this Agreement by any
successor as contemplated in Section 9(a), or (G) any purported termination by
the Company of the Executive's employment which is not pursuant to Section 2 or
subsection (a), above, or is not effected pursuant to a Notice of Termination
satisfying the requirements of subsection (c) (and, if applicable, subsection
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<PAGE>
(a)(4)).
(c) NOTICE OF TERMINATION. Any termination of the Executive's
employment by the Board or by the Executive (other than termination at the
Mandatory Retirement Date, which shall be automatic and shall require no notice)
shall be communicated by written Notice of Termination to the other party
hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated. To be valid, any Notice of Termination which is
based upon facts and circumstances claimed to provide a basis for termination of
the Executive's employment, including without limitation termination by the
Executive for Good Reason or by the Company for Cause, must be given no later
than one (1) year following the commencement or initial occurrence of such facts
and circumstances.
(d) DATE OF TERMINATION. "Date of Termination" shall mean: (1) the
end of the Employment Term if the Executive's employment terminates or is
terminated pursuant to Section 2; (2) if the Executive's employment is
terminated by his death (subsection (a)(2)), the date of his death; (3) if the
Executive terminates his employment voluntarily and without the consent of the
Board (subsection (b)(1)), six (6) months after Notice of Termination is given;
and (4) if the Executive's employment is
- 10 -
<PAGE>
terminated for any other reason, thirty (30) days after Notice of Termination is
given; provided that, if within 30 days after any Notice of Termination is
given, the party receiving such Notice of Termination notifies the other party
that a bonafide dispute exists concerning the termination, the Date of
Termination shall be the date as determined either by mutual written agreement
of the parties or by a binding and final arbitration award or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected). Any
payment due the Executive which is delayed pending resolution of a bonafide
dispute shall bear interest from the Date of Termination as finally determined.
Such interest shall accrue at the Prime Rate as published in the Wall Street
Journal on the Date of Termination (or on the last business day prior thereto),
and shall be compounded annually.
7. COMPENSATION ETC. UPON TERMINATION.
(a) DEATH. If the Executive's employment shall terminate by reason
of his death (Section 6(a)(2)), the Company shall pay to such person as he may
have designated in a notice filed with the Company, or, if no such person shall
have been designated, to his estate, any earned and unpaid compensation to the
Date of Termination including any payments due according to the terms of the
Annual Bonus Program and outstanding LTIPs (hereinafter referred to in the
aggregate as the "Accrued Compensation"). This compensation shall be exclusive
of and in addition to any payments the Executive's widow, beneficiaries or
- 11 -
<PAGE>
estate may be entitled to receive pursuant to any pension or employee benefit
plan or life insurance policy maintained by the Company on the date hereof or as
may be subsequently improved by the Company.
(b) DISABILITY. If the Executive's employment is terminated as a
result of incapacity due to physical or mental illness (Sections 6(a)(3) or
6(b)(3)), the Executive shall be paid the Accrued Compensation. With respect to
periods following the Date of Termination, the Executive shall receive those
benefits provided under the Company's disability policies and programs as in
effect on the date hereof or as may be subsequently improved by the Company.
(c) AT END OF EMPLOYMENT TERM; VOLUNTARILY - WITHOUT CONSENT. At the
end of the Employment Term, or if the Executive terminates his employment
voluntarily without consent of the Board (Section 6(b)(1)), the Company shall
pay the Executive the Accrued Compensation. Following the Employment Term or
the Date of Termination, as the case may be, the Executive shall be entitled to
participate in or receive benefits under any pension plan, profit sharing plan,
savings plan, life insurance, health and accident plan or arrangement which is
made generally available by the Company to its former and/or retired employees
subject to and on a basis consistent with the terms, conditions and overall
administration of such plans and arrangements.
(d) FOR CONVENIENCE; GOOD REASON. If the Board terminates the
Executive's employment for convenience of the
- 12 -
<PAGE>
Company (Section 6(a)(1)), or if the Executive terminates his employment for
Good Reason (Section 6(b)(4)), then the following provisions shall apply:
(1) The Company shall pay to the Executive no later than the
thirtieth day following the Date of Termination a lump sum payment equal to the
sum of the amounts calculated pursuant to subsections (A), (B) and (C), below:
(A) The aggregate amount of Base Salary to which the Executive
would have been entitled assuming that such termination had not occurred and
that the Executive had remained in the employ of the Company through the end of
the then current Employment Term (the last day of the Employment Term under such
assumed circumstances being hereinafter referred to as the "Final Compensation
Date"); and
(B) The product of the Bonus (as hereinafter defined) and the
number of years extending from the first day of the period covered by the Annual
Bonus Program in effect as of the Date of Termination (or the first day of the
period covered by the preceding Annual Bonus Program if payment pursuant thereto
had not been made as of the Date of Termination) through the Final Compensation
Date (any partial year to be expressed as a fraction of 365). "Bonus" shall
mean the higher of (i) the highest award under the Annual Bonus Program or any
predecessor program granted to the Executive for any fiscal year during the
Employment Term commencing prior to the Date of Termination or (ii) the highest
target award applicable to the Executive's salary grade for any
- 13 -
<PAGE>
fiscal year during the Employment Term commencing prior to the Date of
Termination; and
(C) The aggregate amount of anticipated payments under
prospective LTIPs ("Prospective LTIPs") calculated on the basis of the following
assumptions (irrespective of whether or not the same ultimately prove to be
true);
(i) The Company adopts Prospective LTIPs with performance periods
beginning in each fiscal year scheduled to commence prior to the Final
Compensation Date. Each Prospective LTIP has a three-year performance period,
and is substantially the same as the most recently adopted LTIP, which covers a
performance period consisting of fiscal years 1994, 1995, and 1996 (the "Latest
LTIP").
(ii) The Executive participates in each Prospective LTIP on the same
basis (target percentage and incentive opportunity stated in dollar amounts) as
his participation in the Latest LTIP (or if the Executive participates on a more
favorable basis in a LTIP or LTIPs adopted subsequent to the Latest LTIP, on
such more favorable basis).
(iii) The Company achieves the target objectives of each Prospective
LTIP, and the Executive is entitled to payment of target amounts, subject to
proration as provided below.
Payments under Prospective LTIPs with performance periods ending after the
Final Compensation Date shall be prorated by multiplying each full incentive
target amount by a fraction, the numerator of which is the number of months (or
partial months) from
- 14 -
<PAGE>
the beginning of the performance period of the prospective LTIP through the
Final Compensation Date and the denominator of which is 36.
If the Executive participates in a LTIP or LTIPs adopted by the Company
subsequent to the Latest LTIP, the amount to be calculated under this subsection
(C) shall omit provision for any Prospective LTIP covering the same performance
period or periods, and the terms and conditions of the actual LTIP or LTIPs
shall apply to the exclusion of this subsection (C).
(2) Until the Final Compensation Date or such longer period as any
plan, program, practice or policy may provide, the Company shall continue
welfare and fringe benefits and perquisites to the Executive and/or the
Executive's family at least equal in value to those which would have been
provided in accordance with the plans, programs, practices and policies
described in Sections 4(e) and 4(g) of this Agreement if the Executive's
employment had not been terminated, in accordance with the most favorable plans,
practices, programs or policies of the Company applicable to the Executive or
other senior executive officers of the Company and their families during the 90-
day period immediately preceding the earlier of the Date of Termination or the
date of a change in control of the Company or, if more favorable to the
Executive, as in effect at any time thereafter with respect to other senior
executive officers of the Company and their families. Except as modified in the
next sentence, for purposes of determining the Executive's age and length of
service as of the Date of Termination
- 15 -
<PAGE>
(which in turn is determinative of the Executive's eligibility for retiree
benefits and benefit levels under such plans, practices, programs and policies
including, without limitation, the Company's Pension Plan and Excess Pension
Plan), the Executive shall be considered to have remained employed until the
Final Compensation Date and to have terminated employment on such date. If the
Executive's continued participation is not possible under the terms of any such
plans, practices, programs and policies (including, without limitation, the
Company's Pension Plan and Excess Pension Plan), the Company shall arrange to
provide the Executive with alternative welfare and fringe benefits and
perquisites substantially similar in nature and amount to those provided under
such plans, practices, programs and policies.
(3) The Company shall pay (or reimburse the Executive from time to
time promptly upon invoice) all legal fees and expenses incurred by the
Executive as a result of such termination (including all such fees and expenses,
if any, incurred in contesting or disputing in good faith any such termination
or in seeking to obtain or enforce any right or benefit provided by this
Agreement).
The Executive shall not be required to mitigate the amount of any payment,
benefit or perquisite provided for in this subsection (d) by seeking other
employment or otherwise, nor shall the amount of any payment, benefit or
perquisite provided for in this subsection (d) be reduced by any compensation
earned by the Executive as the result of employment by another employer after
the
- 16 -
<PAGE>
Date of Termination, or otherwise.
(e) VOLUNTARILY - WITH CONSENT. If the Executive terminates his
employment voluntarily with consent of the Board (Section 6(b)(2)), the
termination shall be governed by such terms and conditions as may be acceptable
to the Board in its sole discretion.
(f) CAUSE. If the Executive's employment is terminated for Cause
(Section 6(a)(4)), the Company shall pay the Executive the Accrued Compensation.
Further entitlement on the part of the Executive, if any, shall be as provided
under the terms of any plans, programs, practices and policies of the Company,
or as determined by the Board in its sole discretion.
8. GROSS-UP OF GOLDEN PARACHUTE TAX.
(a) Anything in this Agreement to the contrary notwithstanding, in
the event it shall be determined that any payment or distribution by the Company
to or for the benefit of the Executive (whether paid or payable or distributed
or distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
8) (a "Payment") would be subject to the excise tax imposed by Section 4999 of
the Internal Revenue Code of 1986, as amended (the "Code") or any interest or
penalties are incurred by the Executive with respect to such excise tax (such
excise tax, together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then the Executive shall be
entitled to receive an additional payment (a "Gross-Up
- 17 -
<PAGE>
Payment") in an amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(b) Subject to the provisions of subsection (c), all determinations
required to be made under this Section 8, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by Ernst & Young
(the "Accounting Firm") which shall provide detailed supporting calculations
both to the Company and the Executive within 15 business days of the receipt of
notice from the Executive that there has been a Payment, or such earlier time as
is requested by the Company. In the event that the Accounting Firm is serving
as accountant or auditor for the individual, entity or group effecting the
change in control of the Company, the Executive shall appoint another nationally
recognized accounting firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting Firm hereunder).
All fees and expenses of the Accounting Firm shall be borne solely by the
Company. Any Gross-up Payment, as determined pursuant to this Section 8, shall
be paid by the Company to the Executive within five days of the receipt of the
Accounting Firm's determination.
- 18 -
<PAGE>
If the Accounting Firm determines that no Excise Tax is payable by the
Executive, it shall furnish the Executive with a written opinion that failure to
report the Excise Tax on the Executive's applicable federal income tax return
would not result in the imposition of a negligence or similar penalty. Any
determination by the Accounting Firm shall be binding upon the Company and the
Executive. As a result of the uncertainty in the application of Section 4999 of
the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-up Payments which will not have been made
by the Company should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that the Company
exhausts its remedies pursuant to subsection (c) and the Executive thereafter is
required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive.
(c) The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-Up Payment. Such notification shall be given as soon
as practicable but no later than ten business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is required to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it
- 19 -
<PAGE>
gives such notice to the Company (or such shorter period ending on the date that
any payment of taxes with respect to such claim is due). If the Company
notifies the Executive in writing prior to the expiration of such period that it
desires to contest such claim, the Executive shall:
(1) give the Company any information reasonably requested by the
Company relating to such claims,
(2) take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company,
(3) cooperate with the Company in good faith in order effectively
to contest such claim, and
(4) permit the Company to participate in any proceedings relating
to such claim; provided, however, that the Company shall bear and pay directly
all costs and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the Executive
harmless, on an after-tax basis, for any Excise Tax or income tax (including
interest and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without limitation on the
foregoing provisions of this subsection (c), the Company shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or forego any and all administrative appeals, proceedings, hearings,
- 20 -
<PAGE>
and conferences with the taxing authority in respect of such claim and may, at
its sole option, either direct the Executive to pay the tax claimed and sue for
a refund or contest the claim in any permissible manner, and the Executive
agrees to prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more appellate
courts, as the Company shall determine; provided, however, that if the Company
directs the Executive to pay such claim and sue for a refund, the Company shall
advance the amount of such payment to the Executive, on a interest-free basis
and shall indemnify and hold the Executive harmless, on an after-tax basis, from
any Excise Tax or income tax (including interest or penalties with respect
thereto) imposed with respect to such advance or with respect to any imputed
income with respect to such advance; and further provided that any extension of
the statute of limitations relating to payment of taxes for the taxable year of
the Executive with respect to which such contested amount is claimed to be due
is limited solely to such contested amount. Furthermore, the Company's control
of the contest shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and the Executive shall be entitled to settle
or contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
(d) If, after the receipt by the Executive of any amount advanced by
the Company pursuant to subsection (c), the Executive becomes entitled to
receive any refund with respect to such claim,
- 21 -
<PAGE>
the Executive shall (subject to the Company's complying with the requirements of
subsection (c)) promptly pay to the Company the amount of such refund (together
with any interest paid or credited thereon after taxes applicable thereto). If,
after the receipt by the Executive of an amount advanced by the Company pursuant
to subsection (c), a determination is made that the Executive shall not be
entitled to any refund with respect to such claim and the Company does not
notify the Executive in writing of its intent to contest such denial or refund
prior to the expiration of 30 days after such determination, then such advance
shall be forgiven and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.
9. SUCCESSOR; BINDING AGREEMENT.
(a) The company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive, to expressly assume and agree
to perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
As used in this Agreement, "Company" shall mean the Company as hereinbefore
defined and any successor to its business and/or assets as aforesaid which
executes and delivers the agreement provided for in this Section 9 or which
otherwise becomes bound by all the terms and provisions of this Agreement by
- 22 -
<PAGE>
operation of law.
(b) This Agreement and all rights of the Executive hereunder shall
inure to the benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive should die while any amounts would
still be payable to him hereunder if he had continued to live, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to the Executive's devisee, legatee, or other designee or, if
there be no such designee, to the Executive's estate.
10. NOTICE. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered in person or when mailed by United
States registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Executive: S. Jay Stewart
1086 Lake Road
Lake Forest, Illinois 60045
If to the Company: Morton International, Inc.
100 N. Riverside Plaza
Chicago, Illinois 60606
Attn: Corporate Secretary
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
11. MISCELLANEOUS. This Agreement cancels any prior
- 23 -
<PAGE>
employment agreement between the parties and constitutes the entire
understanding between the Executive and the Company on the subject matter
herein. No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing signed by
the Executive and such officer as may be designated by the Board. No waiver of
any condition or provision of this Agreement shall be deemed a waiver of similar
or dissimilar provisions or conditions at the same or at any prior or subsequent
time. No agreements or representations, oral or otherwise, express or implied,
with respect to the subject matter hereof have been made by either party which
are not set forth expressly in this Agreement. The validity, interpretation,
construction and performance of this Agreement shall be governed by the
substantive laws of the State of Illinois.
12. VALIDITY. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provisions of this Agreement, which shall remain in full force and
effect.
13. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
14. ARBITRATION. Except as otherwise provided in Section 8, above, any
dispute or controversy arising under or in connection with this Agreement shall
be settled exclusively by arbitration in accordance with the rules of the
American Arbitration Association
- 24 -
<PAGE>
then in effect. Judgment may be entered on the arbitrator's award in any court
having jurisdiction; provided, however, that the Company shall be entitled to
seek a restraining order or injunction in any court of competent jurisdiction to
prevent any continuation of any violation of Section 5 hereof. The costs of
arbitration shall be borne by the Company.
15. SURVIVAL OF CERTAIN PROVISIONS. All provisions of this Agreement
related to a change in control of the Company occurring during the Employment
Term and to the rights of the Executive upon the occurrence of such an event
shall survive any termination or purported termination of the Executive's
employment in contemplation of or as a result of a change in control of the
Company (as defined in Appendix A).
WITNESS the due execution hereof as of the day and year first above written.
MORTON INTERNATIONAL, INC.
BY: /s/ J. C. HEDLEY
----------------------------- ATTEST:
J. C. Hedley
Vice President Human Resources /s/ P. M. PHELPS
-----------------------------
P. M. Phelps, Secretary
/s/ S. J. STEWART
- - - - - ---------------------------------
S. J. Stewart
APPROVED:
/s/ DENNIS C. FILL
- - - - - ---------------------------------
Dennis C. Fill, Chairman
Compensation Committee
- 25 -
<PAGE>
APPENDIX A
For purposes of the Agreement to which this Appendix A is an attachment,
the term "change in control of the Company" shall mean: (W) the acquisition by
any individual, entity or group (within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")
(a "Person") of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20% or more of either (1) the then
outstanding shares of common stock of the Company (the "Outstanding Company
Common Stock") or (2) the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); provided, however, that
the following acquisitions shall not constitute a change in control of the
Company; (1) any acquisition directly from the Company (excluding an acquisition
by virtue of the exercise of a conversion privilege), (2) any acquisition by the
Company, (3) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation controlled by the
Company or (4) any acquisition by a corporation pursuant to a reorganization,
merger or consolidation, if, following such reorganization, merger or
consolidation, the conditions described in clauses (1), (2) and (3) of
subsection (Y) of this Appendix A are satisfied; or (X) individuals who, as of
the date hereof, constitute the Board (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board; provided, however, that
any individual becoming a director subsequent to the date
<PAGE>
hereof whose election, or nomination for election by the Company's shareholders,
was approved by a vote of a least a majority of the directors then comprising
the Incumbent Board shall be considered as though such individual were a member
of the Incumbent Board, but excluding for this purpose, any such individual
whose initial assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule 14a-11 of Regulation
14A promulgated under the Exchange Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board; or (Y) approval by the shareholders of the Company of a reorganization,
merger or consolidation in each case, unless, following such reorganization,
merger or consolidation, (1) more than 60% of, respectively, the then
outstanding shares of common stock of the corporation resulting from such
reorganization, merger or consolidation and the combined voting power of the
then outstanding voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and entities who were
the beneficial owners, respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such reorganization,
merger or consolidation in substantially the same proportions as their
ownership, immediately prior to such reorganization, merger or consolidation, of
the Outstanding Company Common Stock and Outstanding Company Voting
- 2 -
<PAGE>
Securities, as the case may be, (2) no Person (excluding the Company, any
employee benefit plan (or related trust) of the Company or such corporation
resulting from such reorganization, merger or consolidation and any Person
beneficially owning, immediately prior to such reorganization, merger or
consolidation, directly or indirectly, 20% or more of the Outstanding Company
Common Stock or Outstanding Company Voting Securities, as the case may be)
beneficially owns, directly or indirectly, 20% or more of, respectively, the
then outstanding shares of common stock of the corporation resulting from such
reorganization, merger or consolidation or the combined voting power of the then
outstanding voting securities of such corporation, entitled to vote generally in
the election of directors and (3) at least a majority of the members of the
board of directors of the corporation resulting from such reorganization, merger
or consolidation were members of the Incumbent Board at the time of the
execution of the initial agreement providing for such reorganization, merger or
consolidation; or (Z) approval by the shareholders of the Company of (1) a
complete liquidation or dissolution of the Company or (2) the sale or other
disposition of all or substantially all of the assets of the Company, other than
to a corporation, with respect to which following such sale or other
disposition, (A) more than 60% of, respectively, the then outstanding shares of
common stock of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote
- 3 -
<PAGE>
generally in the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and entities who were
the beneficial owners, respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such sale or other
disposition in substantially the same proportion as their ownership, immediately
prior to such sale or other disposition, of the Outstanding Company Common Stock
and Outstanding Company Voting Securities, as the case may be, (B) no Person
(excluding the Company and any employee benefit plan (or related trust) of the
Company or such corporation and any Person beneficially owning, immediately
prior to such sale or other disposition, directly or indirectly, 20% or more of
the Outstanding Company Common Stock or Outstanding Company Voting Securities,
as the case may be) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of such corporation
and the combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors and (C) at
least a majority of the members of the board of directors of such corporation
were members of the board of directors of such corporation were members of the
Incumbent Board at the time of the execution of the initial agreement or action
of the Board providing for such sale or other disposition of assets of the
Company.
- 4 -
<PAGE>
EXHIBIT(11)(a)
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
MORTON INTERNATIONAL, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Income per common and common equivalent share:
Average number of shares of Common Stock
outstanding......................................... 147,095,571 145,828,995 145,287,795
Add:
Additional shares assuming exercise of dilutive
stock options--based on treasury stock method
using average market prices....................... 2,994,012 2,284,200 1,852,641
----------- ----------- -----------
Total Shares...................................... 150,089,583 148,113,195 147,140,436
----------- ----------- -----------
----------- ----------- -----------
Income from (000 omitted):
Operations.......................................... $ 226,514 $ 126,875 $ 144,512
Cumulative effect of change in accounting for
postemployment and postretirement benefits other
than pensions, net of taxes....................... -- (94,405) --
----------- ----------- -----------
Net income.......................................... $ 226,514 $ 32,470 $ 144,512
----------- ----------- -----------
----------- ----------- -----------
Earnings per share:
Operations.......................................... $ 1.51 $ .86 $ .98
Cumulative effect of change in accounting for
postemployment and postretirement benefits other
than pensions..................................... -- (.64) --
----------- ----------- -----------
Net income.......................................... $ 1.51 $ .22 $ .98
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
On June 23, 1994, the Company announced a 3-for-1 stock split of its common
stock. The stock split was in the form of a 200 percent stock dividend paid on
August 17, 1994 to shareholders of record on August 3, 1994. Average shares
outstanding and per share amounts have been restated to reflect the effects of
the stock split as of June 30, 1994.
S-1
<PAGE>
EXHIBIT (13)(a)
MORTON INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended June 30
------------------------------
(in millions, except per share data) 1994 1993 1992
- - - - - -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales............................................ $2,849.6 $2,309.8 $2,043.9
Interest, royalties, and sundry income............... 27.9 21.1 34.5
-------- --------- --------
2,877.5 2,330.9 2,078.4
Deductions from income
Cost of products sold.............................. 1,981.6 1,596.4 1,399.6
Selling, administrative and general expense........ 434.0 391.7 341.7
Research and development expense................... 66.1 68.6 61.3
Interest expense................................... 27.8 33.7 33.8
Amortization of goodwill........................... 10.4 10.7 10.8
Restructuring charges.............................. - 30.0 -
-------- --------- --------
2,519.9 2,131.1 1,847.2
-------- --------- --------
Income from operations before income taxes........... 357.6 199.8 231.2
Income taxes......................................... 131.1 72.9 86.7
-------- --------- --------
Income from operations............................... 226.5 126.9 144.5
Cumulative effect of change in accounting for post-
retirement and postemployment benefits, net
of taxes........................................... - (94.4) -
-------- --------- --------
Net income........................................... $ 226.5 $ 32.5 $ 144.5
-------- --------- --------
-------- --------- --------
Income per share (adjusted to reflect the effect
of the 3-for-1 stock split declared June 23, 1994):
Income from operations............................. $ 1.51 $ 0.86 $ 0.98
Cumulative effect of change in accounting for
postretirement and postemployment benefits....... - (0.64) -
-------- --------- --------
Net income......................................... $ 1.51 $ 0.22 $ 0.98
-------- --------- --------
-------- --------- --------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
MORTON INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(in millions)
<TABLE>
<CAPTION>
June 30
-------------------
1994 1993
-------- --------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents............................ $ 58.7 $ 45.3
Receivables, less allowances of $10.5 and $9.0....... 484.4 389.6
Deferred income tax benefits......................... 27.8 31.0
Inventories.......................................... 346.9 332.6
Prepaid expenses..................................... 78.6 67.3
-------- --------
Total Current Assets 996.4 865.8
-------- --------
Other Assets
Cost in excess of net assets of businesses acquired,
less amortization.................................. 333.1 344.5
Investments in affiliates............................ 65.6 54.6
Miscellaneous........................................ 62.6 59.6
-------- --------
461.3 458.7
-------- --------
Property, Plant and Equipment
Land................................................. 33.9 33.1
Buildings and improvements........................... 496.2 455.8
Machinery and equipment.............................. 1,038.3 893.5
Construction in progress ............................ 188.8 188.0
-------- --------
1,757.2 1,570.4
Less allowances for depreciation..................... 752.3 656.1
-------- --------
1,004.9 914.3
-------- --------
$2,462.6 $2,238.8
-------- --------
-------- --------
Liabilities and Shareholders' Equity
Current Liabilities
Notes payable and current portion of long-term debt.. $ 68.7 $ 107.8
Accounts payable..................................... 264.6 217.8
Accrued salaries, wages and other compensation....... 64.9 57.0
Other accrued expenses............................... 133.6 129.2
Income taxes......................................... 25.4 13.4
-------- --------
Total Current Liabilities 557.2 525.2
-------- --------
Noncurrent Liabilities
Long-term debt, less current portion................. 198.6 217.8
Deferred income taxes................................ 55.1 56.0
Accrued postretirement benefits other than pensions.. 146.2 140.8
Other noncurrent liabilities......................... 105.9 98.8
-------- --------
Total Noncurrent Liabilities 505.8 513.4
-------- --------
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 - 300.0 shares
Issued - 147.6 shares and 48.8 shares in
1994 and 1993............................. 147.6 48.8
Additional paid-in capital........................... 53.0 32.7
Retained earnings.................................... 1,188.6 1,115.4
Foreign currency translation adjustment.............. 10.8 4.1
Unamortized restricted stock award .................. (0.4) (0.8)
-------- --------
Total Shareholders' Equity 1,399.6 1,200.2
-------- --------
$2,462.6 $2,238.8
-------- --------
-------- --------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
MORTON INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
<TABLE>
<CAPTION>
Cash Provided (Used)
Year Ended June 30
---------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income .................................................. $ 226.5 $ 32.5 $ 144.5
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization............................ 137.6 116.8 104.7
Deferred income taxes.................................... 5.3 6.4 11.8
Postretirement and postemployment benefits-cumulative
effect................................................. - 94.4 -
Undistributed earnings of affiliates .................... (8.0) (4.7) (5.0)
Changes in operating assets and liabilities
net of effects of businesses acquired:
Increase in receivables.............................. (93.6) (41.2) (38.2)
Increase in inventories and prepaid expenses......... (25.4) (20.7) (39.9)
Increase in accounts payable and
accrued expenses................................... 58.4 57.3 19.6
Increase (decrease) in accrued income taxes.......... 15.7 (9.8) 17.7
Other-net............................................ 3.1 23.5 (1.3)
------- ------- -------
Net cash provided by operating activities......... 319.6 254.5 213.9
------- ------- -------
INVESTING ACTIVITIES
Purchase of property, plant and equipment.................... (219.9) (201.4) (200.1)
Proceeds from property and other asset
disposals.................................................. 16.4 4.8 27.5
Cash invested in businesses acquired......................... (7.0) (5.0) (3.8)
Other........................................................ (3.4) - (0.8)
------- ------- -------
Net cash used for investing activities............ (213.9) (201.6) (177.2)
------- ------- -------
FINANCING ACTIVITIES
Short-term (repayments) borrowings-net....................... (59.0) 33.7 (12.5)
Repayment of long-term debt.................................. (2.6) (37.7) (6.1)
Stock option transactions.................................... 20.7 12.2 7.7
Dividends paid............................................... (54.9) (46.6) (46.5)
------- ------- -------
Net cash used for financing activities............ (95.8) (38.4) (57.4)
------- ------- -------
Effect of foreign exchange rate changes on cash
and cash equivalents......................................... 3.5 (4.2) (5.2)
------- ------- -------
Increase (decrease) in cash and cash equivalents............... 13.4 10.3 (25.9)
Cash and cash equivalents at beginning of year................. 45.3 35.0 60.9
------- ------- -------
Cash and cash equivalents at end of year....................... $ 58.7 $ 45.3 $ 35.0
------- ------- -------
------- ------- -------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
MORTON INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION:
Investments in 50 percent or less owned companies and joint ventures are carried
on the equity basis. All intercompany accounts and transactions have been
eliminated from the consolidated financial statements.
CASH EQUIVALENTS:
The company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents. The carrying amount
reported in the balance sheet for cash and cash equivalents approximates its
fair value.
INVENTORIES:
Inventories are stated at the lower of cost or market. The cost of domestic
inventories for the Specialty Chemicals and Salt segments, (53% and 51% of
consolidated inventories at June 30, 1994 and 1993) is determined by the last-
in, first-out (LIFO) method, while the cost of foreign inventories and the
Automotive Safety Products inventories is determined by the first-in, first-out
(FIFO) method. If the FIFO method, which approximates replacement cost, had
been used for all inventories, the total amount for inventories would have been
increased by $26.0 million and $27.8 million at June 30, 1994 and 1993.
PROPERTY, PLANT AND EQUIPMENT:
The company provides for depreciation of property, plant and equipment, all of
which are recorded at cost, by annual charges to income, computed in part under
the straight-line method and in part under accelerated methods.
INTANGIBLE ASSETS:
Cost in excess of net assets of businesses acquired and other intangibles are
being amortized over periods not exceeding 40 years. The amount of such
accumulated amortization recorded as of June 30, 1994 and 1993, was $104.8
million and $92.2 million.
TRANSLATION OF FOREIGN CURRENCIES AND FOREIGN EXCHANGE CONTRACTS: All assets
and liabilities in the balance sheets of foreign subsidiaries whose functional
currency is other than the U.S. dollar are translated at year-end exchange rates
except shareholders' equity which is translated at historical rates.
Translation gains and losses are accumulated as a separate component of
shareholders' equity. Foreign currency transaction
<PAGE>
gains and losses are included in determining net income.
The company uses forward foreign exchange contracts primarily to offset the
effects of foreign currency fluctuations related to expected foreign denominated
receivables and payables transactions and also to hedge firm sales and purchase
commitments. Gains or losses on forward foreign exchange contracts which hedge
an identifiable foreign currency commitment are deferred and recognized as the
related transactions are settled. Gains or losses on all other forward foreign
exchange contracts are recognized in determining net income as incurred.
INVENTORIES
Components of inventories are as follows:
<TABLE>
<CAPTION>
June 30
-------
(in millions) 1994 1993
---- ----
<S> <C> <C>
Finished products and work-in-process $240.3 $244.0
Materials and supplies 106.6 88.6
------ ------
$346.9 $332.6
------ ------
------ ------
</TABLE>
FINANCING ARRANGEMENTS
The company has committed credit agreements with banks which expire in November
1994. In addition, lines of credit are available from domestic and foreign
banks which generally do not have termination dates but are reviewed annually
for renewal. Under these arrangements the company may borrow upon such terms
and conditions as the company and the banks may mutually agree. At June 30,
1994, such credit facilities amounted to approximately $387.9 million, and the
unused portions thereof were approximately $339.5 million.
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
June 30
-------
(in millions) 1994 1993
---- ----
<S> <C> <C>
Credit Sensitive Debentures (net of
unamortized discount of $1.5) $198.5 $198.5
Other 20.4 21.9
------ ------
218.9 220.4
Less current portion 20.3 2.6
------ ------
$198.6 $217.8
------ ------
------ ------
</TABLE>
The Credit Sensitive Debentures ("Debentures") due June 1, 2020, are unsecured
obligations of the company. The Debentures have an initial effective interest
rate of 9.335%, subject to adjustment on the calendar day that certain changes
in the debt rating of
<PAGE>
the Debentures occur as determined by Standard & Poor's Corporation or Moody's
Investor Service. No adjustment of the initial effective interest rate has
occurred.
The annual aggregate maturities of long-term debt through June 30, 1999, are as
follows (in millions): 1995 - $20.3; 1996 - $.1; 1997 through 1999 - $0.
Interest paid on borrowings in 1994, 1993 and 1992 was $28.4 million, $33.6
million and $35.3 million.
Notes payable at June 30, 1994, reflects borrowings from banks. Notes payable
at June 30, 1993, includes $52.7 million due to holders of commercial paper and
$52.5 million of bank borrowings.
The carrying amount of the company's borrowings in the form of notes payable
approximates its fair value. The fair value of the company's long-term debt is
estimated using discounted cash flow analyses, based on the company's current
incremental borrowing rates for similar types of borrowing arrangements.
The carrying amounts and fair value of the company's financial instruments at
June 30, 1994, are as follows:
<TABLE>
<CAPTION>
Carrying Fair
(in millions) Amount Value
-------- -------
<S> <C> <C>
Short-term debt $ 48.4 $ 48.4
Long-term debt $218.9 $243.3
</TABLE>
INCOME TAXES
The provisions for income taxes applicable to operations were as follows:
<TABLE>
<CAPTION>
(in millions) 1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $ 77.1 $ 40.0 $ 38.9
State 14.4 7.7 9.0
Foreign 34.3 18.8 27.0
----- ----- ------
125.8 66.5 74.9
----- ----- ------
Deferred:
Federal 3.9 4.9 7.1
State .3 .1 1.2
Foreign 1.1 1.4 3.5
----- ----- ------
5.3 6.4 11.8
----- ----- ------
$131.1 $ 72.9 $ 86.7
----- ----- ------
----- ----- ------
</TABLE>
<PAGE>
A reconciliation of the United States statutory rate to the effective income tax
rate applicable to operations follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Statutory rate 35.0% 34.0% 34.0%
Effect of:
State tax, net of federal
tax benefit 2.7 2.9 2.9
Depletion (1.4) (2.1) (1.4)
Net foreign items (.7) (3.0) (.2)
Additional accruals provided - 3.1 -
Other 1.1 1.6 2.2
---- --- ----
Effective rate 36.7% 36.5% 37.5%
---- ---- ----
---- ---- ----
</TABLE>
Deferred income taxes reflect the impact of temporary differences between the
valuation of assets and liabilities for financial reporting and their tax bases.
Significant components of the company's deferred tax balances at June 30, 1994
and 1993, were as follows:
<TABLE>
<CAPTION>
(in millions) 1994 1993
---- ----
<S> <C> <C>
Deferred tax benefits related to:
Postretirement and postemployment benefits $ 63.8 $ 60.2
Other 85.5 73.4
----- ------
149.3 133.6
----- ------
Deferred tax liabilities related to:
Tax over book depreciation 93.0 77.6
Pension liability 22.0 19.0
Other 66.7 68.0
------ ------
181.7 164.6
------ ------
Net deferred tax liability $ 32.4 $ 31.0
------ ------
------ ------
</TABLE>
No individual item included in other deferred tax benefits or deferred tax
liabilities above is material. Deferred income tax benefits at June 30, 1994
and 1993, include $5.1 million and $6.0 million of refundable income taxes.
Total income tax payments during fiscal years 1994, 1993 and 1992 were $104.4
million, $75.3 million and $52.2 million.
Components of the company's income from operations before income taxes are as
follows:
<TABLE>
<CAPTION>
(in millions) 1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Domestic $267.0 $125.5 $151.3
Foreign 90.6 74.3 79.9
------ ------ ------
$357.6 $199.8 $231.2
------ ------ ------
------ ------ ------
</TABLE>
<PAGE>
The Internal Revenue Service has completed its examination of the company's
federal income tax returns through fiscal year 1989, and has issued notices of
deficiency on certain issues, the most significant of which relate to the sale
of a discontinued business. The company disagrees with the proposed adjustments
and is taking appropriate action to contest such deficiency notices. Management
believes the ultimate resolution of these matters will not have a material
effect upon the company's financial condition, results of operations, or
liquidity.
<PAGE>
SHAREHOLDERS' EQUITY
Changes in shareholders' equity are summarized below:
<TABLE>
<CAPTION>
(in millions) Foreign
Common Stock Additional Currency Unamortized
------------------ Paid-in Retained Translation Restricted
Shares Amount Capital Earnings Adjustment Stock Award
------ -------- -------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance June 30, 1991 48.3 $ 48.3 $ 13.0 $1,031.5 $ 12.0 $ (1.4)
Net income - - - 144.5 - -
Cash dividends paid, $.96(1)
per share - - - (46.5) - -
Exercise of stock
options and related
income tax benefits .2 .2 7.5 - - -
Amortization and forfeitures
of restricted stock - - - - - .5
Translation adjustment - - - - 13.3 -
----- -------- -------- -------- ---------- --------
Balance June 30, 1992 48.5 48.5 20.5 1,129.5 25.3 (.9)
Net income - - - 32.5 - -
Cash dividends paid, $.96(1)
per share - - - (46.6) - -
Exercise of stock
options and related
income tax benefits .3 .3 12.2 - - -
Restricted stock granted - - - - - (.4)
Amortization and forfeitures
of restricted stock - - - - - .5
Translation adjustment - - - - (21.2) -
----- -------- -------- -------- ---------- --------
Balance June 30, 1993 48.8 48.8 32.7 1,115.4 4.1 (.8)
Net income - - - 226.5 - -
Cash dividends paid, $1.12(1)
per share - - - (54.9) - -
Exercise of stock
options and related
income tax benefits .4 .4 20.3 - - -
Amortization and forfeitures
of restricted stock - - - - - .4
Translation adjustment - - - - 6.7 -
3-for-1 stock split 98.4 98.4 - (98.4) - -
----- -------- -------- -------- ---------- --------
Balance June 30, 1994 147.6 $ 147.6 $ 53.0 $1,188.6 $ 10.8 $ (.4)
----- -------- -------- -------- ---------- --------
----- -------- -------- -------- ---------- --------
<FN>
(1) On a pre split basis.
</TABLE>
<PAGE>
On June 23, 1994, the company declared a 3-for-1 stock split of its common
stock. The stock split will be in the form of a 200 percent stock dividend,
payable on August 17, 1994 to shareholders of record on August 3, 1994. Share
and per share amounts have been restated to reflect the effect of the stock
split as of June 30, 1994.
In June 1989, the company declared a dividend distribution of one Preferred
Share Purchase Right for each outstanding common share. Until exercisable, the
Rights will not be transferable apart from the company's common stock. When
exercisable, each Right will entitle its holder to buy one three-hundredths of a
share of the company's new series of preferred stock at an exercise price of
$58.33 1/3 until July 1, 1999. The Rights will only become exercisable if a
person or group acquires or makes an offer to acquire 20% or more of the
company's common stock. In the event the company is acquired in a merger, each
Right entitles the holder to purchase common stock of the surviving company
having a market value of twice the exercise price of the Rights. In the event
any person or group acquires 20% or more of the company's common stock
(reducible to 15% under certain circumstances), each Right entitles the holder
(other than such acquirer) to purchase common stock of the company having a
market value of twice the exercise price of the Right. The Rights may be
redeemed by the company at the price of 1/3 cent per Right prior to the
acquisition of 20% of the outstanding shares of the company's common stock. At
June 30, 1994, 0.6 million shares of preferred stock were reserved for future
exercises of Preferred Share Purchase Rights.
BENEFIT PLANS
PENSIONS:
The company has noncontributory defined benefit pension plans covering employees
at most domestic operations. The benefits are based on an average of the
employee's earnings in the years preceding retirement and on credited service.
Certain supplemental unfunded plan arrangements also provide retirement benefits
to specified groups of participants. Most international subsidiaries also have
retirement plans.
The company's funding policy for the domestic plans is to contribute amounts
sufficient to meet the minimum funding requirements of the Employee Retirement
Income Security Act of 1974, plus any additional amounts which the company may
determine to be appropriate.
<PAGE>
The net pension expense for company-sponsored pension plans consists of the
following components:
<TABLE>
<CAPTION>
(in millions) 1994 1993 1992
---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Service cost--benefits earned
during the year $13.9 $12.2 $11.5
Interest cost on projected
benefit obligation 30.9 28.4 27.5
Return on plan assets:
Actual $(18.1) $(50.3) $(38.8)
Deferred portion (20.1) 14.8 4.7
------ ------ ------
Expected return (38.2) (35.5) (34.1)
Net amortization (1.4) (2.6) (3.4)
----- ----- -----
Net pension expense $ 5.2 $ 2.5 $ 1.5
----- ----- -----
----- ----- -----
</TABLE>
The reconciliation of the funded status of pension plans is as follows:
<TABLE>
<CAPTION>
June 30, 1994 June 30, 1993
--------------------------------- ----------------------------------
Plans in which Plans in which Plans in which Plans in which
Assets Exceed Accumulated Assets Exceed Accumulated
Accumulated Benefit Obligation Accumulated Benefit Obligation
(in millions) Benefit Obligation Exceeds Assets Benefit Obligation Exceeds Assets
------------------ -------------- ------------------ --------------
<S> <C> <C> <C> <C>
Plan assets at fair value $402.7 $ 3.4 $393.5 $ 3.0
Actuarial present value of projected
benefit obligations:
Accumulated benefit obligation
Vested 331.6 21.4 288.9 16.1
Non-vested 20.8 - 18.6 .1
Provision for future salary
increases 74.4 3.7 62.2 1.2
----- ------ ------ ------
426.8 25.1 369.7 17.4
----- ------ ------ ------
Plan assets (less than) in excess of
projected benefit obligation (24.1) (21.7) 23.8 (14.4)
Unrecognized net experience loss
since 7/1/86 115.3 10.5 56.3 6.4
Prior service cost not yet recognized
in net pension cost (1.1) 2.9 1.7 .6
Unrecognized net (asset) obligation
at 7/1/86 (30.8) .8 (35.2) 1.0
Adjustment to recognize minimum liability - (10.5) - (6.8)
----- ------ ------ ------
Net pension asset (liability) recognized
in the consolidated balance sheets $59.3 $(18.0) $ 46.6 $(13.2)
----- ------ ------ ------
----- ------ ------ ------
</TABLE>
<PAGE>
The weighted average of assumptions used in the determination of the projected
benefit obligation is:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Discount rate 7.8% 8.3% 8.6%
Rate of increases in
compensation level 5.2% 5.2% 5.3%
Expected long-term rate
of return on assets 9.5% 9.9% 9.9%
</TABLE>
The assets of the company-sponsored plans are invested primarily in equities and
bonds.
Certain pension plans contain restrictions on the use of excess pension plan
assets in the event of a change in control of the company.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS:
The company currently provides postretirement health care and life insurance
benefits to most U.S. and Canadian retirees. In general, U.S. employees who
retire after attaining age 55 with five years of service are eligible for
continued health care and life insurance coverage. Dependent health care and
life insurance coverage are also available. Most retirees contribute toward the
cost of health care coverage, with the contributions generally varying based on
service. In June 1993, the company adopted a provision which caps the level of
company subsidy at the amount in effect as of the year 2000 for most U.S.
employees who retire after December 31, 1992. In general, most Canadian
employees who retire after attaining age 55 and are entitled to a pension
benefit are eligible for continued retiree health and life insurance coverage.
Dependent health insurance is also generally available. The benefits are
provided on a noncontributory basis.
During fiscal year 1993, the company adopted FASB Statement No. 106, "Employers'
Accounting for Postretirement Benefits Other than Pensions." This statement
requires accrual of the expected cost of providing postretirement benefits
during the years an employee renders service. Prior to adoption of this
standard, the company recognized these benefits on a pay-as-you-go basis. As a
result of this adoption, the company recorded a one-time, pretax charge of
$142.3 million ($88.6 million after tax or $.60 per share) as the cumulative
effect of the accounting change as of July 1, 1992. The ongoing impact of this
change in accounting increased postretirement benefit costs by $6.2 million in
fiscal
<PAGE>
1994 and by $8.0 million in fiscal 1993. Postretirement benefit cost for fiscal
year ended June 30, 1992 which was recorded on a cash basis and has not been
restated, was $7.7 million.
Net periodic postretirement benefit cost includes the following components:
<TABLE>
<CAPTION>
(in millions) 1994 1993
---- ----
<S> <C> <C>
Service cost--benefits earned during the year $ 2.3 $ 2.7
Interest cost on accumulated postretirement
benefit obligation 11.9 12.2
Net amortization ( .7) -
----- -----
Net periodic postretirement benefit cost $13.5 $14.9
----- -----
----- -----
</TABLE>
At present, there is no prefunding of the postretirement benefits recognized
under FASB Statement No. 106. The following table presents the status of the
plans reconciled with amounts recognized in the consolidated balance sheet for
the company's postretirement benefits:
<TABLE>
<CAPTION>
(in millions) June 30
-------
1994 1993
------ ------
<S> <C> <C>
Accumulated postretirement
benefit obligation:
Retirees and dependents $100.9 $101.6
Fully eligible active plan participants 9.8 17.6
Other active plan participants 35.9 25.3
------ ------
146.6 144.5
Unrecognized prior period loss (1.4) (3.1)
Unamortized plan amendment 10.2 9.2
------ ------
Postretirement benefit liability recognized
in the consolidated balance sheet $155.4 $150.6
------ ------
------ ------
</TABLE>
For measurement purposes, the assumed weighted average annual rate of increase
per capita cost of health care benefits is 12.5 percent for 1994 and assumed to
decrease one percent per year to 6.5 percent in 2000 and remain constant
thereafter. As noted above, for U.S. employees retiring after December 31,
1992, the company's policy is to increase retiree contributions so that the
company's annual per capita cost contribution remains constant at the level
incurred in the year 2000. The weighted average discount rate used in
determining the accumulated postretirement benefit obligation was 7.8 percent at
June 30, 1994 and 8.3 percent at June 30, 1993. The rate of increase on
compensation levels assumed was 5 percent.
<PAGE>
A one percent increase in the annual health care cost trend rates would have
increased the accumulated postretirement benefit obligation at June 30, 1994, by
approximately $9.9 million and increased postretirement benefit expense for
fiscal 1994 by approximately $.7 million.
OTHER:
The company contributes to savings plans for eligible domestic employees.
Company contributions to the savings plans were $7.7 million, $6.4 million and
$5.4 million in 1994, 1993 and 1992.
In fiscal 1993, the company adopted FASB Statement No. 112, "Employers'
Accounting for Postemployment Benefits." This statement requires accrual of
postemployment benefits provided to former or inactive employees, their
beneficiaries and covered dependents after employment but before retirement.
The adoption of this standard impacted the company's accounting for certain
income replacement and medical benefits provided to eligible disabled employees
and their dependents. Prior to adoption of FASB Statement No. 112, the cost of
these benefits was charged against earnings as incurred. Adoption of this
standard in fiscal 1993 resulted in a pretax charge of $9.3 million ($5.8
million after tax or $.04 per share) as the cumulative effect of the accounting
change as of July 1, 1992. Aside from the one-time impact noted above, adoption
of FASB Statement No. 112 was not material to fiscal 1994 or 1993 results.
INCENTIVE PLAN
Under the company's 1989 Incentive Plan (formerly 1989 Stock Awards Plan),
grants may be made to key employees of stock options, stock appreciation rights,
shares of restricted stock, other awards valued by reference to the company's
common stock and cash. Under the 1982 Key Employees Stock Option and
Performance Unit Plan (the "Predecessor Plan"), grants could be made to key
employees of (a) stock options, (b) stock options with alternative appreciation
rights and (c) appreciation rights not related to any option. In addition,
options may provide for supplemental cash payments to optionees upon exercise
for the purpose of reimbursing them for the income tax liability incurred as a
result of such exercises. Stock option activity, adjusted to reflect the effect
of the 3-for-1 stock split declared on June 23, 1994, is summarized as follows:
<PAGE>
<TABLE>
<CAPTION>
Option Price
Shares Per Share
---------- -----------------
<S> <C> <C>
Options outstanding at
June 30, 1992 7,707,261 $ 6.71 to $18.40
Granted 2,640 18.02
Lapsed (42,720) 14.40 to 17.71
Exercised (838,101) 6.71 to 18.40
----------
Options outstanding at
June 30, 1993 6,829,080 7.28 to 18.08
Granted 978,480 28.29 to 35.13
Lapsed (25,920) 28.29
Exercised (1,711,374) 7.28 to 18.08
----------
Options outstanding at
June 30, 1994 (5,117,706
exercisable shares) 6,070,266 9.53 to 35.13
----------
</TABLE>
Options outstanding at June 30, 1994, have expiration dates ranging from June
23, 1995, to March 24, 2004. All stock options granted have an option price
equal to fair market value at date of grant and the number of options is fixed.
Therefore, the granting of such options does not result in a charge against
earnings. In addition, limited appreciation rights were outstanding covering
2,928,495 option shares. Limited appreciation rights are paid in cash in lieu
of the related options upon a change in control of the company, at which time a
charge to earnings would be recorded. As of June 30, 1994, supplemental cash
payment rights were outstanding with respect to 1,495,284 option shares, payable
upon exercise of options or limited appreciation rights. Supplemental cash
payment rights outstanding have been accrued based on the current fair market
value of the company's stock and current income tax rates.
Under the terms of the 1989 Incentive Plan, restricted stock award shares have
been granted to certain employees at no cost. The outstanding restricted stock
award shares vest from two to five years subsequent to their award dates. The
cost of restricted stock awards, based on the stock's fair market value at the
award dates, is charged to shareholders' equity and subsequently amortized
against earnings over the vesting period. At June 30, 1994, common shares of
85,152 were outstanding under restricted stock awards.
At June 30, 1994, common stock shares of 8,872,584 were reserved for both
outstanding and future grants of options and payment of appreciation rights and
other stock-based awards.
<PAGE>
ENVIRONMENTAL MATTERS
The company, like others in similar businesses, is subject to extensive Federal,
state and local environmental laws and regulations. Although company
environmental policies and practices are designed to ensure compliance with
these laws and regulations, future developments and increasingly stringent
regulation could require the company to make additional unforeseen environmental
expenditures.
Environmental accruals are routinely reviewed on an interim basis as events and
developments warrant and are subjected to a comprehensive review annually during
the fiscal fourth quarter.
The company has been named a potentially responsible party at approximately 60
inactive waste disposal sites where cleanup costs have been or may be incurred
under the Federal Comprehensive Environmental Response, Compensation and
Liability Act and similar state statutes. The company's potential exposure has
been evaluated on a site-by-site basis, and an accrual reflecting the company's
best estimate of the liability has been established to the extent sufficient
information is available to reasonably estimate costs which may be incurred.
However, at certain of these sites, the company is unable, due to a variety of
factors, to assess and quantify the ultimate extent of its responsibility for
study and remediation costs. The most significant of these sites is located in
Wood-Ridge, New Jersey, where, at present, the company and one other party have
been held jointly and severally liable for the cost of remediation necessary to
correct mercury related environmental problems associated with a former mercury
processing plant. Although the company has accrued for expected site study
costs and some remedial effort, no reliable estimate can presently be made of
the company's range of liability due to the absence of site specific data, the
unique nature of mercury plant wastes and the complex characteristics of the
plant site and adjacent areas. An estimate of the range of liability at Wood-
Ridge is not reasonably possible until technical studies are sufficiently
completed to permit such a determination. It is anticipated that the Wood-Ridge
plant site study will commence in fiscal 1995 and will be completed in
approximately 42 months. Study of the surrounding area should begin after
commencement of the plant site study on a timetable yet to be determined. The
company's ultimate exposure will also depend upon the continued participation of
the other party held liable and on the results of both formal and informal
attempts to spread liability to others believed to share responsibility.
<PAGE>
Where appropriate, the analysis to determine the company's liability, if any,
with respect to remedial costs at the above sites reflects an assessment of the
likelihood and extent of participation of other potentially responsible parties.
The possibility of recovery from insurance carriers is factored into accrual
determinations only when the company is reasonably assured that such recoveries
are probable of realization.
The company's cleanup expenditures totaled approximately $7.8 million, $7.7
million and $3.2 million for fiscal years 1994, 1993 and 1992. Amounts accrued
as of June 30, 1994 are generally expected to be paid out over a period of up to
15 years.
Although the level of future expenditures for environmental matters cannot be
determined with any degree of certainty, based on the facts presently known to
it, management does not believe that such costs will have a material effect on
the company's financial position, results of operations or liquidity.
<PAGE>
LITIGATION AND REGULATION
There are judicial and administrative claims pending or contemplated against the
company in addition to those of an environmental nature discussed in the
Environmental Matters note above. Management believes that the resolution of
those claims should not have a material effect upon the company's financial
condition, results of operations, or liquidity.
Various governmental agencies have authority to limit or prohibit distribution
of some of the company's products should they formally conclude that continued
distribution is unsafe to the population or the environment. There are
currently no challenges pending, the resolution of which would have a material
effect upon the company's operations.
LEASE COMMITMENTS
The company has commitments under operating leases primarily for building and
office space, railroad equipment and real estate. Rental expense charged in
1994, 1993 and 1992 was $34.6 million, $32.8 million and $27.8 million,
including insignificant amounts for contingent rentals and sublease income.
Renewal and purchase options are available on certain of these leases.
Future minimum rental commitments under operating leases having initial or
remaining non-cancelable terms in excess of one year as of June 30, 1994, are as
follows (in millions): 1995 - $25.1; 1996 - $22.1; 1997 - $20.7; 1998 - $12.8;
1999 - $10.6; thereafter - $326.2.
<PAGE>
MORTON INTERNATIONAL, INC.
BUSINESS SEGMENT INFORMATION
<TABLE>
<CAPTION>
Operations in different businesses Profit as a Percent
of Average
Sales and Profit Sales(1) Profit(2) Identifiable Assets
(in millions) --------------------------- ------------------------- -----------------------
1994 1993 1992 1994 (3) 1993 (3) 1992 1994 1993 1992
------- ------- ------- ------ ------ ----- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Specialty Chemicals................... $1,369.6 $1,274.3 $1,234.3 $ 193.6 $ 135.4 $165.3 14.7 % 10.6 % 13.2 %
Salt.................................. 541.5 511.5 480.7 119.3 102.3 92.9 37.8 32.1 28.6
Automotive Safety Products............ 938.5 524.0 328.9 164.0 78.0 48.1 30.5 18.7 16.5
-------- -------- -------- ------- ------- ------
Business totals....................... 2,849.6 2,309.8 2,043.9 476.9 315.7 306.3 21.9 15.7 16.4
General Corporate expense - net(4).... - - - (119.3) (115.9) (75.1)
-------- -------- -------- ------- ------- ------
Consolidated net sales and income from
operations before income taxes...... $2,849.6 $2,309.8 $2,043.9 $ 357.6 $ 199.8 $231.2
-------- -------- -------- ------- ------- ------
-------- -------- -------- ------- ------- ------
</TABLE>
<TABLE>
<CAPTION>
Assets, Capital Expenditures, Year End Capital Depreciation and
Depreciation and Amortization Identifiable Assets Expenditures Amortization
(in millions) ------------------- ----------------------- --------------------
1994 1993 1994 1993 1992 1994 1993 1992
-------- -------- ------- ------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Specialty Chemicals................... $1,370.2 $1,272.7 $ 87.5 $ 62.6 $ 58.3 $ 57.9 $ 56.1 $ 55.2
Salt.................................. 319.2 311.2 35.7 32.6 32.4 30.1 29.9 28.9
Automotive Safety Products............ 593.6 481.7 94.3 102.6 108.0 45.7 27.2 17.2
-------- -------- ------- ------- ------ ------ ------ ------
Business totals....................... 2,283.0 2,065.6 217.5 197.8 198.7 133.7 113.2 101.3
General Corporate(5).................. 179.6 173.2 2.4 3.6 1.4 3.9 3.6 3.4
-------- -------- ------- ------- ------ ------ ------ ------
Consolidated totals................... $2,462.6 $2,238.8 $ 219.9 $ 201.4 $200.1 $137.6 $116.8 $104.7
-------- -------- ------- ------- ------ ------ ------ ------
-------- -------- ------- ------- ------ ------ ------ ------
</TABLE>
<PAGE>
MORTON INTERNATIONAL, INC.
Operations in different geographic areas
<TABLE>
<CAPTION>
Year End
(in millions) Sales (1) Profit(2) Identifiable Assets
----------------------------- ---------------------------- ----------------------
1994 1993 1992 1994(3) 1993(3) 1992 1994 1993
--------- --------- --------- --------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
United States. . . . . . . . . $ 2,280.5 $ 1,750.6 $ 1,490.0 $ 384.3 $ 229.7 $ 214.9 $ 1,775.7 $ 1,605.9
Foreign Areas --
Canada and Bahamas . . . . 197.6 198.1 190.0 45.9 43.9 42.7 148.2 148.3
Europe . . . . . . . . . . 341.2 327.2 328.0 43.7 41.4 47.1 328.6 281.9
Others . . . . . . . . . . 30.3 33.9 35.9 3.0 0.7 1.6 30.5 29.5
--------- --------- --------- --------- --------- -------- --------- ---------
$ 2,849.6 $ 2,309.8 $ 2,043.9 $ 476.9 $ 315.7 $ 306.3 $ 2,283.0 $ 2,065.6
--------- --------- --------- --------- --------- -------- --------- ---------
--------- --------- --------- --------- --------- -------- --------- ---------
<FN>
(1) Export sales from the United States in fiscal year 1994 were 16% of sales to
unaffiliated customers, primarily to Canada, Europe and Japan, while in
fiscal years 1993 and 1992, such sales were 14% and 12%. Intersegment and
intergeographic area sales and transfers were insignificant. No country
within the European grouping contributed or represented 10% or more of
sales, profit, or identifiable assets. During fiscal 1994, a customer of the
Automotive Safety Products segment accounted for approximately 10.5% of
total sales.
(2) Business segment profit is before income taxes, interest income, interest
expense and allocation of certain corporate administrative expenses, but
includes foreign exchange (losses) gains of $(2.9) million, $.6 million and
$(.3) million in 1994, 1993 and 1992.
(3) Fiscal year 1994 profit for Specialty Chemicals, Salt and Automotive Safety
Products segments includes a charge for the incremental annual expense for
the accounting change related to postretirement benefits of $1.7 million,
$1.5 million and $2.7 million. Fiscal year 1993 Specialty Chemicals profit
includes charges of $27.0 million related to the restructuring of operations
including disposition of facilities and relocation of manufacturing
facilities and $2.3 million for the incremental annual expense for the
accounting change related to postretirement benefits. Fiscal year 1993 profit
for each of the Salt and Automotive Safety Products segments includes a
charge of $2.2 million for the incremental annual expense for the accounting
change related to postretirement benefits.
(4) Fiscal year 1994 includes a $9.0 million charge for anticipated future
environmental expenditures and a $.3 million charge for the incremental
annual expense for the accounting change related to postretirement benefits.
Fiscal year 1993 includes the fourth quarter charge of $15.0 million for
anticipated future environmental expenditures, $3.0 million related to
restructuring costs and a $1.3 million charge for the incremental annual
expense for the accounting change related to postretirement benefits. Fiscal
year 1992 includes $12.0 million of non-operating, before tax income
resulting from a subtenant's default under a sublease of the company's
former corporate headquarters building, as well as charges of $10.5 million
for anticipated future environmental expenditures and $1.3 million related
to previous years' dispositions.
(5) Corporate assets are principally cash and cash equivalents, deferred income
tax benefits, prepaid expenses and property, plant and equipment.
</TABLE>
<PAGE>
MORTON INTERNATIONAL, INC.
QUARTERLY FINANCIAL HIGHLIGHTS (UNAUDITED)
(in millions, except per share data)
<TABLE>
<CAPTION>
Fiscal Year 1994 Fiscal Year 1993
--------------------------------------- ---------------------------------------
Three Months Ended Three Months Ended
--------------------------------------- ---------------------------------------
June 30 March 31 Dec. 31 Sept. 30 June 30 March 31 Dec. 31 Sept. 30
------- -------- ------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales........................... $730.8 $808.3 $690.9 $619.6 $578.2 $648.3 $545.2 $538.1
Gross profit........................ 216.4 252.6 205.7 193.3 180.4 198.2 166.4 168.4
Income from operations before
income taxes(1)................... 93.1 113.1 85.3 66.1 15.1 75.9 53.8 55.0
Income from operations.............. 58.6 71.3 53.7 42.9 9.6 48.2 34.2 34.9
Cumulative effect of change in
accounting(2)..................... - - - - - - - (94.4)
------ ------ ------ ------ ------ ------ ------ --------
Net income.......................... 58.6 71.3 53.7 42.9 9.6 48.2 34.2 (59.5)
Income per share(3),(4):
Income from operations............ .39 .47 .36 .29 .06 .32 .24 .24
Cumulative effect of change in
accounting(2)................... - - - - - - - (.64)
------ ------ ------ ------ ------ ------ ------ --------
Net income........................ .39 .47 .36 .29 .06 .32 .24 (.40)
Cash dividends per share(4)......... .093 .093 .093 .093 .08 .08 .08 .08
Market price of common stock(4),(5)
High.............................. 34-1/8 37-1/4 33-1/2 29-3/4 26-1/2 24-1/8 21-3/8 20-1/8
Low............................... 25-1/2 30-5/8 28-1/2 25-3/4 22-3/4 19-1/4 18 17
<PAGE>
<FN>
(1) Fourth quarter of fiscal 1993 includes charges of $30.0 million related to
the restructuring of operations and $15.0 million for anticipated future
environmental expenditures.
(2) Effective July 1, 1992, the company adopted FASB Statement No. 106,
"Employers Accounting for Postretirement Benefits Other than Pensions," and
FASB Statement No. 112, "Employers Accounting for Postemployment Benefits".
These changes were adopted in the fourth quarter and the first quarter of
fiscal 1993 has been restated to reflect the impact of the changes.
(3) Net income per share has been calculated based on the average number of
common and common equivalent shares outstanding for the company.
(4) Per share amounts have been restated to reflect the effect of the 3-for-1
stock split declared June 23, 1994.
(5) The principal market is the New York Stock Exchange and prices are based on
the Composite Tape (Ticker symbol MII).
</TABLE>
<PAGE>
Report of Ernst & Young LLP,
Independent Auditors
To the Shareholders and
Board of Directors
Morton International, Inc.
We have audited the accompanying consolidated balance sheets of Morton
International, Inc. as of June 30, 1994 and 1993, and the related consolidated
statements of income and cash flows for each of the three years in the period
ended June 30, 1994. These financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on these
financial statements 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 Morton
International, Inc. at June 30, 1994 and 1993, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended June 30, 1994, in conformity with generally accepted accounting
principles.
As discussed in the notes to the consolidated financial statements, the company
changed its method of accounting for postretirement benefits other than pensions
and postemployment benefits in 1993.
Chicago, Illinois
July 28, 1994
<PAGE>
Report of Management
We have prepared the accompanying consolidated financial statements of Morton
International, Inc. in conformity with generally accepted accounting principles
appropriate in the circumstances. The integrity and objectivity of data in these
financial statements are the responsibility of management. Based on currently
available information, management makes informed judgments and estimates of the
effects of certain events and transactions when preparing the financial
statements. Financial information included elsewhere in this Annual Report is
consistent with that contained in the financial statements.
We maintain a highly developed accounting system and controls to provide
reasonable assurance that assets are safeguarded against loss from unauthorized
use or disposition and that financial records are reliable for preparing
financial statements and maintaining accountability for assets. However, there
are inherent limitations that should be recognized in considering the potential
effectiveness of any system of internal accounting control. The concept of
reasonable assurance is based on the recognition that the cost of a system of
internal control should not exceed the benefits derived and that the evaluation
of those factors requires estimates and judgments by management. The company's
systems provide such reasonable assurance.
The functioning of the accounting system and controls over it are reviewed by an
extensive program of internal audits and by the company's independent auditors,
Ernst & Young LLP. The responsibility of the Board of Directors for the
company's financial statements is exercised through its Audit Committee which is
composed of Directors who are not company employees. The Audit Committee
recommends to the Board of Directors the selection of the independent auditors
and reviews their fee arrangements. It meets periodically with management, the
internal auditors and the independent auditors to assure that each is carrying
out its responsibilities. The independent auditors have full and free access to
the Audit Committee to discuss auditing and financial reporting matters.
The company's legal counsel has reviewed the company's position with respect to
litigation, claims, assessments, and illegal or questionable acts, has
communicated that position to our independent auditors, and is satisfied that it
is properly disclosed in the financial statements.
The company has prepared and distributed to its employees a statement of its
policies prohibiting certain activities deemed illegal, unethical, or against
the best interest of the company. Certification of compliance with such
policies is required and any apparent problems are reviewed by a committee of
the Board of Directors. In consultation with our independent auditors, we have
developed and instituted additional internal controls and internal audit
procedures designed to prevent or detect violations of those policies. We
believe that the policies and procedures provide reasonable assurance that our
operations are conducted in conformity with the law and with a high standard of
business conduct.
Thomas F. McDevitt
Vice President Finance and Chief Financial Officer
July 28, 1994
<PAGE>
MORTON INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FISCAL 1994 COMPARED TO FISCAL 1993
Income from operations of $1.51 per share for the fiscal year ended June 30,
1994 was up 76 percent from the $.86 reported in fiscal 1993. Per share amounts
reflect the effect of the 3-for-1 stock split declared on June 23, 1994. Net
sales for fiscal 1994 were $2.85 billion, an increase of 23 percent over fiscal
1993 sales of $2.31 billion.
In fiscal 1993, the company's income from operations was $126.9 million net of
special charges, which included $19.1 million ($30.0 million pretax) for the
restructuring of operations. The company estimated that the $30.0 million
restructuring charge recorded in fiscal 1993 would result in annual cost savings
of approximately $15.0 million when fully implemented. In fiscal 1994, the
company realized approximately $7.9 million of such cost savings and the full
annual cost savings of approximately $15.0 million are expected to be realized
by fiscal 1996. These restructuring activities were initiated in fiscal 1993
and are expected to be substantially completed in fiscal 1995. Fiscal 1993
results also reflected the adoption of FASB Statements Nos. 106 and 112 during
the year. The cumulative, one-time, non-cash, pretax charge associated with the
adoption of these accounting standards was $151.6 million. Net income per share
for fiscal 1993 after all charges was $.22 compared to $1.51 in fiscal 1994.
The company's overall financial results for fiscal 1994 were favorably impacted
as the salt business segment set record highs for sales and profits for the
second consecutive year. The airbag business' sales and earnings grew
dramatically as driver- and passenger-side airbags became more widely available
in model year 1994 cars. And, the specialty chemicals segment demonstrated
strong year to year growth despite the impact of continued sluggish economies in
Europe and Japan.
Sales of specialty chemicals increased 7 percent during fiscal 1994 to $1,369.6
million. Profits increased 43 percent to $193.6 million from $135.4 in fiscal
1993. The 1993 results include a $27.0 million charge related to the
restructuring of operations. Excluding these charges from fiscal 1993, the
group's operating profit reflects a 19 percent increase.
Product lines reflecting major improvement compared to the previous year were
powder coatings, automotive coatings, polymer systems, organic specialties,
industrial coatings, traffic markings, waterbased polymers, thermoplastic
polyurethanes, dyes, the extrudable specialties portion of packaging adhesives,
performance chemicals and plastic additives with their combined sales up $102.5
million or 13 percent, primarily related to volume. Earnings for
<PAGE>
these product lines grew faster than sales with a year to year increase of 22
percent. Electronic materials' fiscal 1994 profit increased over fiscal 1993
despite weaker sales, due largely to the restructuring of that business and
effective cost control. Although fiscal 1994 sales for packaging adhesives
other than extrudable specialties were up 3 percent compared with fiscal 1993,
profits were down $4.8 million or 9% due to an increase in lower margined sales
and higher period costs, primarily depreciation.
The impact of foreign exchange rates negatively impacted the year to year
comparisons of specialty chemicals' sales by $33.3 million and profits by $5.3
million. The unfavorable impact of the changes in exchange rates was primarily
generated in the first half of fiscal 1994 and was largely attributable to
translation.
Salt sales were $541.5 million, up 6 percent for the year. Fiscal 1994
operating earnings increased 17 percent to $119.3 million. Significant snowfall
in the eastern U.S. markets during the third quarter of fiscal 1994 increased
ice control sales for the year by 10 percent. Water conditioning and grocery
salt also reflected good increases in sales during fiscal 1994. And, as a
result of a new promotional program, sales of the popular blue can were up
strongly for the current fiscal year. Fiscal 1994 earnings also benefited from
favorable pricing and tight cost control.
Automotive Safety Products' sales for fiscal 1994 were $938.5 million, 79
percent over the prior year, while operating profits increased 110 percent to
$164.0 million. Sales of driver- and passenger-side airbag inflators, as well
as modules, continued to increase as automakers accelerated the introduction of
inflatable restraint systems into passenger cars and vans sold in the United
States. The growth of passenger-side programs outpaced the growth of driver-
side programs as consumers continue to show a preference for cars and vans with
dual airbags. During fiscal 1994, the company increased its share of module
business which also improved sales. Pricing pressures experienced in fiscal
1994 continued to negatively impact overall results but offsetting cost
reductions and increased productivity contributed to improved operating margins
for the year. The company anticipates that Automotive Safety Products' sales
will increase more than 30 percent in fiscal 1995.
Environmental accruals for the total fiscal year 1994 were $9.0 million ($4.0
million in the fourth quarter) versus $16.2 million in fiscal 1993. Interest
expense was also lower than fiscal 1993 as all three business segments generated
cash. For the year, corporate expenses of $119.3 million were slightly higher
than last year's $115.9 million, a 3% increase, primarily due to higher levels
of accruals related to incentive payments as well as accruals for tax
obligations related to certain of the company's stock options. Corporate expense
accruals related to such employee stock options reduced total fiscal year 1994
earnings per share by $.07, primarily attributable to one-time costs related to
tax rate changes effective in fiscal 1994. Fiscal 1993 earnings per share
<PAGE>
were reduced by $.05 for accruals relating to such options. Corporate expenses
for the fourth quarter of fiscal 1994 were down $19.5 million compared with 1993
as a result of several factors including tighter controls over corporate costs,
reversal of a portion of the option accrual ($3.7 million) and environmental
charges well below last year's $15.0 million fourth quarter charge.
RESULTS OF OPERATIONS FISCAL 1993 COMPARED TO FISCAL 1992
Fiscal 1993 income per share from operations of $1.08, before the special
charges described below, was up 10 percent compared to $.98 per share in fiscal
1992. Net sales were $2.31 billion, an increase of 13 percent over fiscal 1992
sales of $2.04 billion. Operating earnings (before the special charges) were
$160.6 million compared to $144.6 million in 1992.
Fiscal year 1993 net income was $32.5 million after all charges, or $.22 per
share.
The company adopted FASB Statement No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions", and FASB Statement No. 112
"Employers' Accounting for Postemployment Benefits" in the fourth quarter. As a
result, the company recorded a cumulative one-time, non-cash, pretax charge of
$151.6 million ($94.4 million after tax, or $.64 per share) plus an $8.0 million
incremental non-cash pretax expense (or $.03 per share after tax) for fiscal
1993.
Also in the fourth quarter of fiscal 1993 the company recorded pretax provisions
of $15.0 million for potential environmental cleanups at certain waste disposal
sites and $30.0 million for charges related to restructuring of operations,
including dispositions of property and the relocation of manufacturing
facilities. The per share impact on operations totaled $.19 for these two
charges. The company anticipates annual cost savings of approximately $15.0
million as a result of the restructuring actions once they are fully
implemented.
Included in the fourth quarter of fiscal 1992 was $12.0 million of non-
operating, before tax income resulting from a subtenant's default under a
sublease of Morton's former corporate headquarters building. Also in the same
fourth quarter, the company recorded charges of $10.5 million for anticipated
environmental expenditures and $1.3 million related to previous years'
dispositions.
Although the chemical segment was impacted by the sluggish economies in Europe
and Japan, the salt business set a new record high in fiscal 1993 and the
airbag business continued its dramatic growth.
Sales of the company's specialty chemicals during fiscal year 1993 increased 3
percent to $1,274.3 million. Chemical profits for fiscal 1993 included charges
of $27.0 million related to the restructuring of operations and $2.3 million for
the incremental
<PAGE>
expense for the accounting change related to postretirement benefits. Excluding
these charges, the group's income for fiscal year 1993 was $164.7 million, down
slightly compared to $165.3 million for fiscal 1992.
Product lines reflecting major improvement compared to the previous year were
automotive coatings, powder coatings, electronic materials, the extrudable
specialties portion of packaging adhesives and performance chemicals, with
combined sales up $40.2 million and earnings up $15.3 million compared with
fiscal 1992.
Offsetting these improvements were the results of other packaging adhesives,
polymer systems, dyes, advanced materials and industrial coatings with sales and
earnings down $7.4 million and $15.4 million from the previous year. Foreign
exchange rates also had a $1.6 million negative impact on the group's earnings
in fiscal 1993.
Salt fiscal 1993 sales and earnings reached record highs for the year. Sales
were $511.5 million, up 6 percent for the year. Earnings improved 10 percent to
$102.3 million. Included in earnings was the incremental expense for the
accounting change related to postretirement benefits of $2.2 million.
Significant snowfall in key U.S. markets during the third quarter and early
restocking for next season increased ice control sales by 12 percent. In
addition, nearly every other product line reflected an increase in sales.
Earnings also benefited from price increases and tight cost control. Prior year
results included a $3.2 million gain related to an exchange of certain salt
production properties in Utah.
Automotive Safety Products' sales for fiscal 1993 were $524.0 million, 59
percent over fiscal 1992, while operating profits increased 62 percent to $78.0
million. Included in current year earnings was $2.2 million for the incremental
annual expense for the accounting change related to postretirement benefits.
Sales of driver- and passenger-side airbag inflators as well as modules
continued to increase as automakers accelerated the introduction of inflatable
restraint systems into passenger cars and vans sold in the United States.
Fiscal 1993 fourth quarter and total year earnings comparisons with the prior
year reflect a higher level of corporate expense accruals related to a portion
of the company's outstanding stock options. As a result of the significant
increase in the stock price during the second half of fiscal 1993, the company
accrued for incremental tax obligations related to such options. Those accruals
reduced earnings incrementally in the fourth quarter and total fiscal year by
$.02 and $.04 per share, respectively, as compared to the same periods last
year. While fiscal 1993 operating earnings benefited from a slightly lower
effective tax rate (36.5 percent versus 37.5 percent in fiscal 1992), the $4.0
million after tax impact from the
<PAGE>
loss of rental income related to the former corporate headquarters building more
than offset this benefit.
LIQUIDITY AND CAPITAL RESOURCES
During the three fiscal years ended June 30, 1994, operating activities were the
principal source of funds for the company, providing $319.6 million, $254.5
million and $213.9 million.
Income from operations before accounting changes provided $226.5 million of
funds in fiscal 1994 compared with $126.9 million in 1993 and $144.5 million in
1992. Depreciation and amortization of $137.6 million in 1994 was higher than
1993 and 1992 by $20.8 million and $32.9 million; the increase due principally
to the higher level of capital expenditures of Automotive Safety Products in
recent years. Changes in operating assets and liabilities resulted in a $41.8
million use of funds in fiscal 1994 compared with funds provided in fiscal 1993
of $9.1 million and a $42.1 million use of funds in fiscal 1992. The change in
fiscal 1994 was largely driven by higher receivables balances resulting from the
significantly increased sales activity of Morton Automotive Safety Products.
Net investing activities for fiscal 1994 required $213.9 million of cash
compared with $201.6 million and $177.2 million in fiscal years 1993 and 1992.
Capital spending was the major component of investing activities in all three
years. The major capital spending program, although less than the prior year,
continues to be expansion of the airbag facilities in Utah. Expansion of
certain chemical facilities, as well as basic upkeep of the salt and chemical
facilities, were also significant areas of capital spending. Investing
activities in fiscal 1994 included $16.4 million of proceeds from property and
other asset disposals, principally $12.2 million relating to the sale of the
semiconductor photoresist business. Fiscal 1994 investing activities also
included $7.0 million related to acquisitions, of which $6.1 million related to
the acquisition of Hoescht AG's printed circuit material business. Investing
activities in fiscal 1992 included $27.5 million of proceeds from property and
other asset disposals, $20.8 million of which related to the sale of the food
and cosmetic colors business and $6.2 million of which related to the
disposition of a salt facility in exchange for another salt operation.
Financing activities for fiscal years 1994, 1993 and 1992 used funds of $95.8
million, $38.4 million and $57.4 million. Dividend payments for the three years
were $54.9 million, $46.6 million and $46.5 million. Repayment of long-term
debt in fiscal 1994 of $2.6 million was comparable to fiscal 1992, but down
significantly from the $37.7 million in fiscal 1993. Short-term notes payable
decreased $59.0 million in 1994 compared to a $33.7 million increase in fiscal
1993 and a $12.5 million decrease in fiscal 1992. These uses of funds were
somewhat offset by $20.7 million
<PAGE>
proceeds from stock option transactions in fiscal 1994 and $12.2 million in
fiscal 1993.
The company's current ratio was 1.8 at June 30, 1994, and 1.6 at June 30, 1993.
Total debt as a percentage of total capitalization was 15.5 percent at June 30,
1994, compared to 20.6 percent at June 30, 1993.
As of June 30, 1994, the company has unexpended authorizations for fixed asset
projects totaling $233.6 million. The authorizations relate primarily to the
expansion of the airbag business as well as general facility expansion, product
improvements, and maintenance company-wide.
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 and dividend
payments in the foreseeable future.
IMPACT OF INFLATION
Inflation has not had a significant impact upon the results of the company's
operations in recent years. The company has historically taken steps to reduce
the effects of inflation on its business. In periods of increasing prices, to
the extent permitted by competition, the company has adjusted its selling prices
to compensate for increased costs. An ongoing cost control program implemented
throughout the company also has contributed to reducing the influence of
inflationary costs. Further, a continuing program of investment in new and more
efficient facilities, production processes and productivity enhancements also
has made a significant contribution in offsetting inflation. The company uses
the LIFO method of accounting for its domestic inventories in the specialty
chemicals and salt groups. Under this method the cost of products sold, as
reported in the financial statements, approximates current costs.
ENVIRONMENTAL MATTERS
For a detailed discussion, see Environmental Matters on page 31 included in the
Notes to Consolidated Financial Statements.
MORTON INTERNATIONAL, INC.
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
dollars in millions, except per share data 1994 1993 1992 1991 1990 1989(4)
- - - - - -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net sales........................... $ 2,849.6 $ 2,309.8 $ 2,043.9 $ 1,905.9 $ 1,638.7 $1,406.6
Cost of products sold............... 1,981.6 1,596.4 1,399.6 1,319.7 1,123.3 957.6
Selling, administrative and
general expense................... 434.0 391.7 341.7 289.7 260.9 223.0
Research and development expense.... 66.1 68.6 61.3 58.6 47.8 38.1
Interest expense.................... 27.8 33.7 33.8 36.4 17.3 9.1
Amortization of goodwill............ 10.4 10.7 10.8 10.6 7.0 5.7
Restructuring, reorganization and
other unusual charges (income).... - 30.0 - - (14.3) 37.1
Income from continuing operations,
net of income taxes (1)........... 226.5 126.9 144.5 138.3 134.8 97.1
Income from discontinued operations,
net of income taxes............... - - - - - -
Income from operations, net of
income taxes(1)................... 226.5 126.9 144.5 138.3 134.8 97.1
Other (charges)credits to income(2). - (94.4) - - - -
Net income ......................... 226.5 32.5 144.5 138.3 134.8 97.1
Provision for depreciation.......... 123.7 103.0 91.3 80.9 68.9 58.1
- - - - - ----------------------------------------------------------------------------------------------------------
FINANCIAL
Total assets........................ $ 2,462.6 $ 2,238.8 $ 2,110.9 $ 1,925.8 $ 1,813.7 $1,364.3
Working capital..................... 439.2 340.6 324.9 347.5 324.4 256.3
Current ratio....................... 1.8 1.6 1.7 1.8 1.8 1.9
Long-term debt...................... $ 198.6 $ 217.8 $ 222.6 $ 255.7 $ 261.4 $ 43.9
Total debt to capitalization........ 15.5 % 20.6 % 20.2 % 22.1 % 24.0 % 9.3 %
Shareholders' equity................ $ 1,399.6 $ 1,200.2 $ 1,222.9 $ 1,103.4 $ 1,008.1 $ 900.7
Shareholders' equity per share(6)...$ 9.48 $ 8.20 $ 8.40 $ 7.61 $ 7.00 $ 6.27
Return on shareholders' equity(3)... 18.9 % 10.4 % 13.1 % 13.7 % 15.0 % 12.3 %
Capital expenditures................ $ 219.9 $ 201.4 $ 200.1 $ 163.6 $ 111.3 $ 131.9
Cash dividends paid(5).............. 54.9 46.6 46.5 45.2 41.4 -
- - - - - ----------------------------------------------------------------------------------------------------------
PER SHARE DATA(6)
Income from continuing operations(1) $1.51 $ .86 $ .98 $ .95 $ .93 $.68
Income from discontinued operations. - - - - - -
------ ------ ------ ------ ------ ------
Income from operations(1)........... 1.51 .86 .98 .95 .93 .68
Other (charges)credits to income(2). - (.64 ) - - - -
------ ------ ------ ------ ------ ------
Net income ......................... $1.51 $ .22 $ .98 $ .95 $ .93 $.68
------ ------ ------ ------ ------ ------
Cash dividends paid(5).............. $.373 $.320 $.320 $.313 $.287 -
- - - - - ----------------------------------------------------------------------------------------------------------
GENERAL
Average number of common shares
outstanding (in thousands)(6)..... 150,090 148,113 147,140 145,583 144,458 143,678
Approximate number of shareholders.. 8,860 9,370 9,870 10,190 10,600 11,280
Approximate number of employees..... 13,100 11,900 10,700 10,200 9,700 8,400
- - - - - ----------------------------------------------------------------------------------------------------------
<CAPTION>
SELECTED FINANCIAL DATA
dollars in millions, except per share data 1988 (4) 1987 (4) 1986 (4) 1985 (4)
- - - - - -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS
Net sales........................... $ 1,248.3 $ 1,093.9 $ 1,023.3 $ 969.8
Cost of products sold............... 826.7 702.6 671.7 653.6
Selling, administrative and
general expense................... 211.7 199.1 181.0 165.7
Research and development expense.... 34.9 31.1 28.8 24.9
Interest expense.................... 4.1 3.0 2.8 2.5
Amortization of goodwill............ 5.1 4.4 3.7 2.9
Restructuring, reorganization and
other unusual charges (income).... - - - -
Income from continuing operations,
net of income taxes (1)........... 116.4 105.0 89.8 78.5
Income from discontinued operations,
net of income taxes............... - - - 3.3
Income from operations, net of
income taxes(1)................... 116.4 105.0 89.8 81.8
Other (charges)credits to income(2). (3.8) - - 75.1
Net income ......................... 112.6 105.0 89.8 156.9
Provision for depreciation.......... 52.9 46.6 42.4 37.1 (7)
- - - - - -------------------------------------------------------------------------------------
FINANCIAL
Total assets........................ $ 1,178.9 $ 1,009.1 $ 852.7 $ 825.2
Working capital..................... 227.3 189.3 133.5 129.6
Current ratio....................... 2.0 1.9 1.7 1.7
Long-term debt...................... $ 45.6 $ 4.8 $ 5.6 $ 6.7
Total debt to capitalization........ 8.4 % 3.4 % 4.9 % 3.6 %
Shareholders' equity................ $ 790.1 $ 676.8 $ 524.8 $ 510.0
Shareholders' equity per share(6)... $ 5.53 $ 4.77 $ 3.71 $ 3.61
Return on shareholders' equity(3)... 17.2 % 20.0 % 17.6 % 14.9 %
Capital expenditures................ $ 97.7 $ 72.5 $ 60.1 $ 69.5 (7)
Cash dividends paid(5).............. - - - -
- - - - - -------------------------------------------------------------------------------------
PER SHARE DATA(6)
Income from continuing operations(1) $.81 $.74 $.63 $ .53
Income from discontinued operations. - - - .02
------ ------ ------ ------
Income from operations(1)........... .81 .74 .63 .55
Other (charges)credits to income(2). (.02 ) - - .50
------ ------ ------ ------
Net income ......................... $.79 $.74 $.63 $1.05
------ ------ ------ ------
Cash dividends paid(5).............. - - - -
- - - - - -------------------------------------------------------------------------------------
GENERAL
Average number of common shares
outstanding (in thousands)(6)..... 143,558 142,933 142,269 147,558
Approximate number of shareholders.. 11,930 12,520 14,220 14,550
Approximate number of employees..... 7,800 7,700 7,700 7,800
- - - - - -------------------------------------------------------------------------------------
<PAGE>
<FN>
(1) Fiscal year 1994 includes a provision of $5.7 million or $.04 per share for
potential environmental cleanup expenditures at certain waste disposal sites and
the incremental annual cost of the change in accounting for post retirement
benefits of $3.9 million or $.03 per share.Fiscal year 1993 includes special
accruals related to the restructuring of operations including disposition of
facilities and relocation of manufacturing facilities of $19.1 million or $.13
per share, provision for environmental cleanup expenditures at certain waste
disposal sites of $9.5 million or $.06 per share and the incremental annual cost
of the change in accounting for post retirement benefits of $5.1 million or $.03
per share. Fiscal year 1992 includes non-operating income of $7.5 million or
$.05 per share resulting from a subtenant's default under a sublease of Morton's
former corporate headquarters building and charges of $7.4 million or $.05 per
share primarily related to anticipated future environmental expenditures. Fiscal
year 1990 includes the gain on sale of a 40% interest in a foreign affiliate of
$13.1 million or $.09 per share and unusual charges of $7.3 million or $.05 per
share for additional anticipated costs related primarily to previously divested
operations and to the spin-off. Fiscal year 1989 includes reorganization and
other unusual charges of $25.0 million or $.17 per share.
(2) 1993 charge is the cumulative effect of change in accounting for post
retirement benefits other than pensions and post employment benefits. 1988
charge is the cumulative effect of change in accounting for income taxes. 1985
credit is the gain on disposition of businesses, net of income taxes.
(3) Based on total income from operations and calculated on beginning of year
shareholders' equity.
(4) Effective July 1, 1989, Morton Thiokol, Inc. (MTI) transferred its
commercial businesses and certain corporate assets and certain liabilities to
the company. Since July 1, 1989, MTI (now Thiokol Corporation) and the company
have been independent companies.The historical financial statements of MTI have
been retroactively restated to disaggregate the separate financial statements of
the company and Thiokol to present their financial positions, results of
operations and cash flows as if they were separate entities operating on a
stand-alone basis prior to July 1, 1989.
(5) MTI was responsible for dividend payments prior to July 1, 1989.
(6) For fiscal years 1994 through 1990, income per share has been calculated
based on the average number of common and common equivalent shares outstanding
for the company. For periods prior to July 1, 1989, income per share has been
calculated based on the average number of common and common equivalent shares
outstanding for MTI. Average shares outstanding and per share amounts have been
restated to reflect the effect of the 3-for-1 stock split declared June 23,
1994.
(7) Continuing operations
</TABLE>
<PAGE>
EXHIBIT (22)(a)
SUBSIDIARIES OF MORTON INTERNATIONAL, INC.
The following is a list of the subsidiaries of the Company as of June 30,
1994. Certain subsidiaries, which considered in the aggregate as a single
subsidiary would not constitute a significant subsidiary, have been omitted.
The consolidated financial statements reflect the operations of all
subsidiaries as they existed on June 30, 1994, except for certain primarily
inactive subsidiaries not considered significant as defined in Regulation S-X,
Rule 1.02(v).
<TABLE>
<CAPTION>
STATE OR OTHER
JURISDICTION OF
INCORPORATION OR
NAME OF SUBSIDIARY ORGANIZATION
- - - - - ------------------------------------------------------------ ----------------
<S> <C>
Bee Chemical Company........................................ Illinois
CVD Incorporated............................................ Delaware
The Canadian Salt Company Limited........................... Canada
Inagua Transports, Incorporated............................. Liberia
Morton Bahamas Limited...................................... Bahamas
Inagua General Store, Limited........................... Bahamas
Morton International B.V.................................... The Netherlands
Morton International G.m.b.H................................ Germany
IRO Chemie Verwaltungsgesellschaft m.b.H................ Germany
Morton International Limited................................ England
Morton International, Ltd................................... Canada
Morton International, Ltd................................... Japan
Morton International S.A.................................... France
Morton S.A.............................................. France
Morton International S.p.A.................................. Italy
Morton Japan, Ltd........................................... Japan
Morton Nichiyu Co., Ltd..................................... Japan
(50% owned by Morton International, Inc.)
Morton International, S.A. de C.V........................... Mexico
Morton Yokohama, Inc........................................ Delaware
(50% owned by Morton International, Inc.)
N.V. Morton International S.A............................... Belgium
Nippon-Bee Chemical Co. Ltd................................. Japan
(50% owned by Bee Chemical Company)
Toray Thiokol Company, Ltd.................................. Japan
(5% owned by Morton International, Inc.)
Toyo-Morton, Limited........................................ Japan
(50% owned by Morton International, Inc.)
</TABLE>
S-2
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1994
<PERIOD-END> JUN-30-1994
<CASH> 49500
<SECURITIES> 9200
<RECEIVABLES> 494900
<ALLOWANCES> (10500)
<INVENTORY> 346900
<CURRENT-ASSETS> 996400
<PP&E> 1757200
<DEPRECIATION> (752300)
<TOTAL-ASSETS> 2462600
<CURRENT-LIABILITIES> 557200
<BONDS> 198500
<COMMON> 147600<F1>
0
0
<OTHER-SE> 1252000
<TOTAL-LIABILITY-AND-EQUITY> 2462600
<SALES> 2849600
<TOTAL-REVENUES> 2877500
<CGS> 1981600
<TOTAL-COSTS> 2478600
<OTHER-EXPENSES> 10400
<LOSS-PROVISION> 3100
<INTEREST-EXPENSE> 27800
<INCOME-PRETAX> 357600
<INCOME-TAX> 131100
<INCOME-CONTINUING> 226500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 226500
<EPS-PRIMARY> 1.51<F1>
<EPS-DILUTED> 1.51<F1>
<FN>
<F1>On June 23, 1994, the Company announced a 3-for-1 stock split of its common
stock. The stock split will be in the form of a 200 percent stock dividend,
payable on August 17, 1994 to shareholders of record on August 3, 1994. Shares
outstanding and per share amounts have been restated to reflect the effects of
the stock split as of June 30, 1994.
</FN>
</TABLE>
