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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1993
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to ______________
Commission File No. 1-10270
MORTON INTERNATIONAL, INC.
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(Exact Name of Registrant as Specified in its Charter)
Indiana 36-3640053
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(State of Incorporation or Organization) (I.R.S. Employer Identification No.)
100 North Riverside Plaza, Chicago, Illinois 60606-1596
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number (312) 807-2000
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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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Class Outstanding at December 31, 1993
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Common Stock, $1.00 par value 48,977,579 shares
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MORTON INTERNATIONAL, INC.
QUARTERLY REPORT ON FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION:
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Item 1. Financial Statements (Unaudited)
Consolidated Statements of Income and Retained
Earnings - Three months and six months ended
December 31, 1993 and 1992 3
Consolidated Balance Sheets - December 31, 1993
and June 30, 1993 4
Consolidated Statements of Cash Flows -
Six months ended December 31, 1993 and 1992 5
Notes to Consolidated Financial Statements -
December 31, 1993 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7 - 9
PART II. OTHER INFORMATION
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Item 4. Submission of Matters to a Vote of Security-Holders 9
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURE 10
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
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MORTON INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (UNAUDITED)
(IN MILLIONS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31 December 31
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1993 1992 1993 1992
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<S> <C> <C> <C> <C>
Net sales $ 690.9 $ 545.2 $1,310.5 $1,083.3
Interest, royalties, and sundry income 5.7 4.9 10.3 9.2
------- -------- ------- --------
696.6 550.1 1,320.8 1,092.5
Deductions from income:
Cost of products sold 485.2 378.8 911.5 748.5
Selling, administrative, and general expense 100.2 88.2 205.4 178.5
Research and development expense 16.0 18.3 32.7 34.5
Interest expense 7.4 8.4 14.6 16.9
Amortization of goodwill 2.5 2.6 5.2 5.3
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611.3 496.3 1,169.4 983.7
------- -------- ------- --------
Income from operations before income taxes 85.3 53.8 151.4 108.8
Income taxes 31.6 19.6 54.8 39.7
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Income from operations 53.7 34.2 96.6 69.1
Cumulative effect of change in accounting for
postretirement and postemployment benefits
other than pensions, net of taxes - - - (94.4)
------- -------- ------- --------
Net income(loss) 53.7 34.2 96.6 (25.3)
Retained earnings at beginning of period 1,144.6 1,058.4 1,115.4 1,129.5
Cash dividends: $.28 and $.24 per share for the
three months ended December 31, 1993 and 1992,
respectively; $.56 and $.48 per share for the
six month ended December 31, 1993 and 1992
respectively. (13.7) (11.6) (27.4) (23.2)
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Retained earnings at end of period $1,184.6 $1,081.0 $1,184.6 $1,081.0
======== ======== ======== ========
Net income per share
Income from operations $ 1.07 $ .70 $ 1.93 $ 1.41
Cumulative effect of change in accouting for
postretirement and postemployment benefits
other than pensions - - - (1.91)
-------- -------- -------- --------
Net income (loss) $ 1.07 $ .70 $ 1.93 $ (0.50)
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Shares used in computation (in thousands) 49,973 49,182
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</TABLE>
See notes to consolidated financial statements.
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MORTON INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
<TABLE>
<CAPTION>
December 31 June 30
1993 1993
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(Unaudited) (Note)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 53.5 $ 45.3
Receivables 475.4 389.6
Deferred income tax benefits 31.0 31.0
Inventories 349.8 332.6
Prepaid expenses 73.3 67.3
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Total current assets 983.0 865.8
Other assets
Cost in excess of net assets of businesses acquired,
less amortization 336.8 344.5
Investments in affiliates 55.7 54.6
Miscellaneous 64.5 59.6
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457.0 458.7
Property, plant and equipment, at cost 1,633.9 1,570.4
Less allowances for depreciation 699.6 656.1
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934.3 914.3
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$ 2,374.3 $ 2,238.8
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable and current portion of long-term debt $ 189.1 $ 107.8
Accounts payable 212.8 217.8
Accrued salaries, wages and other compensation 58.4 57.0
Other accrued expenses 112.4 129.2
Income taxes 13.4 13.4
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Total current liabilities 586.1 525.2
Long-term debt, less current portion 217.2 217.8
Deferred income taxes 55.3 56.0
Accrued postretirement benefits other than pensions 143.3 140.8
Other noncurrent liabilities 98.9 98.8
Shareholders' equity
Preferred stock (par value $1.00 per share)
Authorized - 25.0 shares, none issued
Common stock (par value $1.00 per share)
Authorized - 300.0 shares
Issued - 49.0 shares and 48.8 shares at December 30
and June 30, 1993 49.0 48.8
Additional paid-in capital 42.1 32.7
Retained earnings 1,184.6 1,115.4
Foreign currency translation adjustment (1.7) 4.1
Unamortized restricted stock award (0.5) (0.8)
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Total shareholders' equity 1,273.5 1,200.2
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$ 2,374.3 $ 2,238.8
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</TABLE>
Note: The balance sheet at June 30, 1993 has been derived from the audited
consolidated financial statements at that date.
See notes to consolidated financial statements.
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MORTON INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN MILLIONS)
<TABLE>
<CAPTION>
Cash Provided (Used)
Six Months Ended
December 31
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1993 1992
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<S> <C> <C>
Operating Activities
Net income (loss) $ 96.6 $ (25.3)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 68.1 55.6
Deferred income taxes (0.9) 1.0
Postretirement and postemployment benefits-
cumulative effect - 94.4
Undistributed earnings of affiliates (2.1) (2.2)
Changes in operating assets and liabilities
net of effects of businesses acquired:
(Increase)/decrease in receivables (92.8) 0.8
Increase in inventories and prepaid expense (27.2) (21.8)
Decrease in accounts payable and accrued
expenses (17.6) (69.5)
Increase/(decrease) in accrued income taxes 0.4 (2.5)
Other - net (0.3) 0.5
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Net cash provided by operating activities 24.2 31.0
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Investing Activities
Purchase of property, plant and equipment (91.0) (100.3)
Proceeds from property and other asset disposals 13.1 1.8
Cash invested in businesses acquired (7.0) (5.0)
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Net cash used for investing activities (84.9) (103.5)
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Financing Activities
Increase in notes payable 86.3 86.9
Repayment of long-term debt (2.5) -
Stock option transactions 9.6 3.7
Dividends paid (27.4) (23.2)
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Net cash provided by financing activities 66.0 67.4
Effect of foreign exchange rate changes on cash
and cash equivalents 2.9 2.9
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Increase/(decrease) in cash and cash equivalents 8.2 (2.2)
Cash and cash equivalents at beginning of year 45.3 35.0
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Cash and cash equivalents at end of period $ 53.5 $ 32.8
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</TABLE>
See notes to consolidated financial statements
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MORTON INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Basis of Presentation
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The interim financial statements have been prepared in accordance with the
instructions to Form 10-Q and Rule 10-01 of Regulation SX and therefore, do
not include all information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the six months ended December 31, 1993 are not necessarily
indicative of the results to be expected for the fiscal year ending June 30,
1994. It is suggested that the financial statements be read in conjunction
with the consolidated financial statements and notes thereto included in the
Company's Annual Report to Shareholders and Annual Report on Form 10-K for the
fiscal year ended June 30, 1993.
In the fourth quarter of fiscal 1993, 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"
effective as of July 1, 1992. The financial statements as of and for the six
months ended December 31, 1992 have been restated resulting in a decrease to
previously reported net income of $94.4 million ($1.91 per share) as a result
of the cumulative effect of applying these accounting changes and $2.5 million
($.05 per share) for the incremental expense related to the accounting change
for postretirement benefits. The financial statements as of and for the three
months ended December 31, 1992 have been restated to reflect the incremental
expense related to the accounting change for postretirement benefits of $1.2
million ($.02 per share).
Inventories
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Inventories are stated at lower of cost or market. Approximately one-half the
cost of consolidated inventories is determined by the last-in, first-out
method while the balance is determined by the first-in, first-out method.
Components of inventories are as follows:
<TABLE>
<CAPTION>
Dec. 31 June 30
1993 1993
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<S> <C> <C>
Finished products and work-in-process $251.5 $244.0
Materials and supplies 98.3 88.6
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$349.8 $332.6
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</TABLE>
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Item 2. Management's Discussion and Analysis of Financial Condition
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and Results of Operations
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Results of Operations
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Net sales in the second quarter ended December 31, 1993, were $690.9 million,
a 27 percent increase over sales reported the same quarter last year. Net
income for the quarter increased 57 percent to $53.7 million. Earnings per
share for the second quarter of fiscal year 1994 were $1.07 versus $.70 in the
prior year.
Net income for the six months ended December 31, 1993 was $96.6 million, or
$1.93 per share, a 37 percent increase over per share income from operations
of $1.41 reported for the first six months of last year. (In fiscal 1993,
Morton recorded an after tax charge of $94.4 million, or $1.91 per share, for
the cumulative effect of the change in accounting for postretirement and
postemployment benefits, causing it to show a net loss of $.50 per share in
the first six months of fiscal 1993.) Sales for the current six month period
were $1.3 billion compared to sales of $1.1 billion for the same period last
year, a 21 percent increase.
Morton Automotive Safety Products continues its outstanding performance as
customers' demand for airbags on both the driver and passenger side and higher
automobile production rates fueled excellent growth. The specialty chemicals
group posted mixed results with many of the U.S. businesses doing quite well
while certain of the European operations were negatively impacted by the
economic slowdown there. And, although ice and snow came too late in the
second quarter to affect ice control salt sales, quarterly results still
posted a gain compared to the prior year.
Sales of Morton's specialty chemicals during the second quarter of fiscal year
1994 were $315.3 million, seven percent higher than sales in the same period
last year. Second quarter profits were $37.4 million, increasing 27 percent
over the prior year. Product lines with strong results were automotive
coatings, powder coatings, industrial coatings, plastic additives, organic
chemicals, performance chemicals, polymer systems and the extrudable
specialties part of the adhesives business. These product lines accounted
for 97 percent of specialty chemicals' sales increase and 81 percent of the
earnings increase over the prior year, with improvements due primarily to
volume and mix. Electronic materials was the primary contributor to the
balance of the earnings increase as a result of cost savings associated with
the ongoing restructuring of that business.
Changes in foreign exchange rates from a year ago continue to have an adverse
effect on the specialty chemical segment. Due to currency fluctuations,
chemical sales were negatively impacted by $8.8 million and earnings by $.9
million when compared with the prior year.
Second quarter sales of Morton Automotive Safety Products were $239.6 million
compared to $118.1 million a year ago, a 103 percent gain. Profits for the
quarter increased 135 percent to $44.8 million compared with the same period
last year.
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Sales volume for driver- and passenger- side inflators and modules continue
their significant growth; overall sales dollars grew at a somewhat higher
rate, reflecting the significant increase in sales of higher priced passenger
units. Morton Automotive Safety Products' earnings reflect its continued
efforts to improve production efficiency and control costs.
Salt sales for the quarter ended December 31, 1993, increased three percent
to $136.0 million compared with the same period last year. Profits increased
six percent to $28.5 million. Increased sales of non-ice control products,
primarily table salt and water softening products, were partially offset by a
five percent decrease in ice control sales. Recent winter storms, however,
have had a favorable impact on January ice control sales.
Comparison of current quarter earnings with those of the same period last year
reflects a higher level of corporate expense in the current quarter. A
portion of the increase is the result of accruals required to meet the
incremental tax obligation related to some of the company's outstanding stock
options. The company does not expect future accruals to be as significant as
recent accruals because of the continued exercise of these stock options.
Interest, royalties and sundry income for the quarter was $5.7 million
compared with $4.9 million in the same period last year. The increase was
primarily the result of increased equity in earnings of unconsolidated
subsidiaries.
Liquidity and Capital Resources
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Operating activities were a source of cash in the six month periods ended
December 31, 1993 and December 31, 1992 providing, $24.2 million and $31.0
million, respectively.
Net income provided $96.6 million in the first six months of fiscal year 1994
compared to income from operations of $69.1 million last year. Net income for
the first six months ended December 31, 1992 has been restated to reflect both
the cumulative effect of change in accounting of $94.4 million and incremental
expense of $2.5 million in the period related to the Company's adoption of
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 of fiscal year 1993.
Depreciation and amortization was $12.5 million higher in the current period,
primarily the result of the high level of capital spending at the airbag
facilities in Utah. Changes in operating assets and liabilities resulted in a
$137.5 million use of funds this year compared to a $92.5 million use of funds
during the first six months of last year. Current quarter increase is largely
driven by higher receivables balances resulting from the significantly
increased sales activity of Morton Automotive Safety Products.
Investing activities in the first six months of fiscal year 1994 were
primarily the result of capital spending, which used $91.0 million of cash
compared to $100.3 million in the same period last year. The major capital
spending program, although less than the prior year, continues to be the
expansion of air bag facilities in Utah. Expansion related to certain
chemical products as well as basic upkeep of the Salt and Chemical
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facilities are also significant areas of capital spending. Investing
activities in the six months ended December 31, 1993 also included $13.1
million proceeds from property and other asset disposals, principally $12.2
million relating to the sale of the semiconductor photoresist business. Also
during the first six months of fiscal 1994, investing activities included $7.0
million, of which $6.1 million related to the acquisition of Hoescht AG's
printed circuit material business.
Financing activities for the six month period ended December 31, 1993 provided
funds of $66.0 million compared to funds of $67.4 million provided during the
same period of the prior year. Short-term notes payable increased $86.3
million in the current period compared with a $86.9 million increase during
the first six months of fiscal 1993. Dividend payments for the first six
months of fiscal year 1994 increased to $27.4 from $23.2 in the same period
last year, due primarily to the increase in the dividend paid per share.
The Company's current ratio at December 31, 1993 was 1.7, compared to 1.6 at
June 30, 1993. Total debt as a percentage of total capitalization at December
31, 1993 was 23.4% compared to 20.6% at June 30, 1993.
As of December 31, 1993 the Company has unexpended authorizations for fixed
asset spending of $174.1 million. These authorizations related primarily to
the expansion of the airbag business as well as general facility expansion,
product improvement, 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 antici-
pated working capital requirements, fixed asset spending and dividend payments
in the foreseeable future.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders
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The Company's annual shareholders' meeting was held on October 28, 1993. The
results of the matters voted upon at the meeting are as follows:
1. The following individuals were elected directors of the Company for
terms specified in the proxy statement for the above meeting in accordance
with the following votes:
AUTHORITY
SHARES FOR WITHHELD
(Shares)
Dennis C. Fill 41,795,702 222,791
Charles A. Sanders 41,798,542 219,951
George A. Schaefer 41,796,870 221,623
Raymond C. Tower 41,784,217 234,276
2. The appointment of Ernst & Young as the Company's independent auditors
for the fiscal year ending June 30, 1994, was ratified in accordance with
the following votes:
FOR 41,771,755 shares
AGAINST 43,736 shares
ABSTAIN 203,002 shares
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Item 6. Exhibits and Reports on Form 8-K
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During the fiscal quarter ended December 31, 1993 one 8-K report was filed:
the item reported was Item 5- Other Information; no financial statements or
exhibits were filed therewith, and the date of the report was October 28,
1993.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MORTON INTERNATIONAL, INC.
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(Registrant)
Date: February 9, 1994 BY: /s/ L. F. Zumbach
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L. F. Zumbach
Controller
(Principal Accounting Officer)
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