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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 March 31, 1994
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
- ---------------------------------------- ------------------------------------
(State of Incorporation or Organization) (I.R.S. Employer Identification No.)
100 North Riverside Plaza, Chicago, Illinois 60606-1596
- -------------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number (312) 807-2000
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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
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Class Outstanding at March 31, 1994
- ----------------------------- -----------------------------
Common Stock, $1.00 par value 49,194,661 shares
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MORTON INTERNATIONAL, INC.
QUARTERLY REPORT ON FORM 10-Q
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION:
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Item 1. Financial Statements (Unaudited)
Consolidated Statements of Income and Retained
Earnings - Three months and nine months ended
March 31, 1994 and 1993 3
Consolidated Balance Sheets - March 31, 1994
and June 30, 1993 4
Consolidated Statements of Cash Flows -
Nine months ended March 31, 1994 and 1993 5
Notes to Consolidated Financial Statements -
March 31, 1994 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 1. Legal Proceedings 10
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURE 11
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
MORTON INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (UNAUDITED)
(IN MILLIONS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31 March 31
1994 1993 1994 1993
-------------------- -------------------
<S> <C> <C> <C> <C>
Net sales $808.3 $648.3 $2,118.8 $1,731.6
Interest, royalties, and sundry income 6.1 3.6 16.4 12.8
--------- --------- --------- ---------
814.4 651.9 2,135.2 1,744.4
Deductions from income:
Cost of products sold 555.7 450.1 1,467.2 1,198.6
Selling, administrative, and general expense 119.3 98.3 324.7 276.8
Research and development expense 16.9 16.3 49.6 50.8
Interest expense 6.8 8.6 21.4 25.5
Amortization of goodwill 2.6 2.7 7.8 8.0
--------- --------- --------- ---------
701.3 576.0 1,870.7 1,559.7
--------- --------- --------- ---------
Income from operations before income taxes 113.1 75.9 264.5 184.7
Income taxes 41.8 27.7 96.6 67.4
--------- --------- --------- ---------
Income from operations 71.3 48.2 167.9 117.3
Cumulative effect of change in accounting for
postretirement and postemployment benefits,
other than pensions net of taxes (94.4)
--------- --------- --------- ---------
Net income 71.3 48.2 167.9 22.9
Retained earnings at beginning of period 1,184.6 1,081.0 1,115.4 1,129.5
Cash dividends: $.28-$.24 per share for the
three months ended March 31, 1994 and 1993,
respectively; $.84-$.72 per share for the
nine months ended March 31, 1994 and 1993,
respectively (13.7) (11.8) (41.1) (35.0)
--------- --------- --------- ---------
Retained Earnings at end of period $1,242.2 $1,117.4 $1,242.2 $1,117.4
========= ========= ========= =========
Income per share:
Income from operations $ 1.42 $ .97 $ 3.35 $ 2.38
Cumulative effect of change in accounting for
postretirement and postemployment benefits
other than pension - - (1.91)
--------- --------- --------- ---------
Net income $ 1.42 $ .97 $ 3.35 $ .47
========= ========= ========= =========
Shares used in computation (in thousands) 50,043 49,259
========= =========
See notes to consolidated financial statements.
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MORTON INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
<TABLE>
<CAPTION>
March 31 June 30
1994 1993
----------- -----------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 82.4 $ 45.3
Receivables 504.4 389.6
Deferred income tax benefits 31.0 31.0
Inventories 326.3 332.6
Prepaid expenses 75.6 67.3
----------- -----------
Total current assets 1,019.7 865.8
Other assets
Cost in excess of net assets of businesses acquired,
less amortization 334.9 344.5
Investments in affiliates 57.8 54.6
Miscellaneous 60.1 59.6
----------- -----------
452.8 458.7
Property, plant and equipment, at cost 1,683.6 1,570.4
Less allowances for depreciation 725.2 656.1
----------- -----------
958.4 914.3
----------- -----------
$ 2,430.9 $ 2,238.8
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable and current portion of long-term debt $ 95.1 $ 107.8
Accounts payable 264.9 217.8
Accrued salaries, wages and other compensation 61.6 57.0
Other accrued expenses 133.6 129.2
Income taxes 22.4 13.4
----------- -----------
Total current liabilities 577.6 525.2
Long-term debt, less current portion 218.0 217.8
Deferred income taxes 54.5 56.0
Accrued postretirement benefits other than pension 144.6 140.8
Other noncurrent liabilities 96.5 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 - 49.2 shares and 48.8 shares at
March 31, 1994 and June 30, 1993 49.2 48.8
Additional paid-in capital 50.8 32.7
Retained earnings 1,242.2 1,115.4
Foreign currency translation adjustment (2.1) 4.1
Unamortized restricted stock award (0.4) (0.8)
----------- -----------
Total Shareholders' Equity 1,339.7 1,200.2
----------- -----------
$ 2,430.9 $ 2,238.8
=========== ===========
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.
</TABLE>
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MORTON INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN MILLIONS)
<TABLE>
<CAPTION>
Cash Provided (Used)
Nine Months Ended
March 31
--------------------
<S> <C> <C>
1994 1993
-------- --------
Operating Activities
Net Income $ 167.9 $ 22.9
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 103.6 84.2
Deferred income taxes (0.7) 1.2
Postretirement and postemployment benefits-
cumulative effect - 94.4
Undistributed earnings of affiliates (5.3) (3.6)
Changes in operating assets and liabilities
net of effects of businesses acquired:
Increase in receivables (118.3) (74.5)
(Increase) Decrease in inventories and prepaid expense (4.2) 18.8
Increase (Decrease) in accounts payable and
accrued expenses 57.3 (13.4)
Increase in accrued income taxes 9.6 9.4
Other - net 2.8 4.1
-------- --------
Net cash provided by operating activities 212.7 143.5
-------- --------
Investing Activities
Purchase of property, plant and equipment (146.0) (151.5)
Proceeds from property and other asset disposals 14.3 2.7
Cash invested in businesses acquired (7.0) (5.0)
-------- --------
Net cash used for investing activities (138.7) (153.8)
-------- --------
Financing Activities
(Decrease) Increase in notes payable (10.5) 64.3
Repayment of long-term debt (2.5) -
Stock option transactions 18.6 6.9
Dividends paid (41.1) (35.0)
-------- --------
Net cash (used for) provided by financing activities (35.5) 36.2
-------- --------
Effect of foreign exchange rate changes on cash
and cash equivalents (1.4) 3.2
-------- --------
Increase in cash and cash equivalents 37.1 29.1
Cash and cash equivalents at beginning of year 45.3 35.0
-------- --------
Cash and cash equivalents at end of period $ 82.4 $ 64.1
======== ========
See notes to consolidated financial statements.
</TABLE>
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MORTON INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Basis of Presentation
- ---------------------
The interim financial statements have been prepared in accordance with the
instructions to Form 10-Q and Rule 10-01 of Regulation 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 nine months
ended March 31, 1994 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 nine
months ended March 31, 1993 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 $3.7 million
($.08 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 March 31, 1993 have been restated to reflect the incremental
expense related to the accounting change for postretirement benefits of $1.2
million ($.03 per share).
Inventories
- -----------
Inventories are stated at the 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>
March 31 June 30
1994 1993
--------- --------
<S> <C> <C>
Finished products and work-in-process $212.9 $244.0
Materials and supplies 113.4 88.6
_____ _____
$326.3 $332.6
===== =====
</TABLE>
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Item 2. Management's Discussion and Analysis of Financial Condition
- --------------------------------------------------------------------
and Results of Operations
-------------------------
Results of Operations
- ---------------------
Net income for the third quarter of fiscal year 1994 was $71.3 million, a 48
percent increase over the same period last year. Third quarter net sales were
$808.3 million, up 25 percent over the prior year. Earnings per share were
$1.42 versus $.97 a year ago.
For the first nine months of fiscal 1994, net income was $167.9 million, or
$3.35 per share, a 43 percent increase over income from operations of $117.3
million reported for the first nine months of fiscal 1993. (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 post-
emeployment benefits, resulting in per share net income of $.47 for the first
nine months of fiscal 1993.) Sales for the nine months ended March 31, 1994,
were $2.1 billion compared with sales of $1.7 billion for the same period last
year, up 22 percent.
During the third quarter of fiscal 1994, all three of Morton's businesses showed
strong improvement. Severe winter weather conditions helped salt turn in record
sales and earnings. Automotive Safety Products, the leading producer of airbag
inflators, continued its excellent performance. And in the specialty chemicals
businesses, nearly all product lines showed improved results.
Sales of Morton's specialty chemicals in the quarter ended March 31, 1994, were
$346.9 million, a 7 percent increase over the same period last year, while
earnings increased 24 percent over the prior year to $47.0 million. Primary
contributors to the strong sales and profit increases were Morton's petroleum
dyes used to differentiate between different fuels; the extrudable specialties
portion of Morton Packaging Adhesives; Morton's plastic additives for rigid and
flexible PVC; and Morton's coatings business including industrial coatings,
automotive coatings for plastic substrates and powder coatings. These results
were primarily volume driven. Morton Thermoplastic Polyurethanes, Morton
Polymer Systems and Morton Performance Chemicals also contributed to the sales
and earnings gains. And, despite slightly weaker sales compared with last
year, Morton Electronic Materials' profits continue to compare favorably with
the prior year due largely to the restructuring of that business.
Due to currency fluctuations, third quarter sales and operating earnings in
specialty chemicals were negatively impacted compared with the prior year.
Sales were $4.6 million lower and earnings were $.6 million lower due to
exchange translations in the quarter. That impact was less significant in the
quarter ended March 31, 1994, than in previous quarters this fiscal year.
Specialty chemicals sales in the first nine months of fiscal 1994 were $995.7
million compared with $940.9 million for the nine month period ended March 31,
1993. Current year-to-date earnings were $136.2 million compared with earnings
of $111.8 million for the same period last year. Those product groups who were
primary contributors to the third quarter sales and earnings improvements over
the prior year were also largely responsible for the current year-to-date sales
and earnings gains. Year-to-date fiscal 1994 sales and earnings were negatively
impacted compared with the prior year due to currency fluctuations. Sales for
the nine months ended March 31, 1994 were $28.8 million lower and earnings were
$3.7 million lower due to exchange translations.
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Morton's salt group posted sales and earnings gains of 14 percent and 26
percent, respectively, in the third quarter. Sales for the third quarter of
fiscal 1994 were $208.4 million compared with sales of $183.3 million in the
prior year. Earnings during the same period this year were $52.3 million
versus $41.5 million. Ice control sales as a result of the severe winter
weather in the eastern part of the United States and Canada were particularly
strong in the quarter, showing a more than 20 percent increase over last year's
third quarter record results. Water softening products were also responsible
for the sales and earnings increases due to strong demand and favorable
pricing. Salt sales for the nine months ended March 31, 1994 were $449.3
million and earnings were $102.8 million compared with sales and earnings of
$422.0 million and $87.9 million, respectively, for the same period last year.
Increases in current year-to-date sales and earnings are the result of strong
ice control and water softening sales as noted above, as well as increased
volume in table salt.
Morton Automotive Safety Product's third quarter sales increased 81 percent to
$253.0 million while profits rose to $47.8 million, a 105 percent increase
compared with the same period last year. Although sales of driver-side
inflators and modules continue their significant growth, sales of passenger-side
modules were particularly strong in the third quarter for fiscal 1994 as car
manufacturers strive to meet consumer preference for dual airbag vehicles.
Third quarter earnings increase outpaced sales increase as a result of cost
management and process improvements. Fiscal 1994 year-to-date earnings
increased 113 percent to $119.5 million and sales increased 83 percent to $673.7
million when compared with earnings and sales for the similar period last year.
Reasons for these increases are consistent with those noted for the third
quarter sales and earnings gains.
Comparison of third quarter fiscal 1994 earnings with those of the same period
last year reflects a slightly higher level of corporate expense in the current
quarter. This increase is largely the result of additional accruals for
environmental liabilities, additional incentive accruals and certain recorded
exchange losses. Corporate expenses for the nine months ended March 31, 1994
are higher than the same period last year primarily as a result of accruals
required to meet the incremental tax obligation related to some of the
Company's outstanding stock options as well as additional accruals for
environmental liabilities.
Interest, royalties and sundry income for the quarter was $2.5 million higher
than the same period last year. This increase was primarily the result of
increased equity in earnings of unconsolidated subsidiaries.
Liquidity and Capital Resources
- -------------------------------
Operating activities were a source of cash in the nine month periods ended
March 31, 1994 and March 31, 1993 providing, $212.7 million and $143.5
million, respectively.
Net income provided $167.9 million in the first nine months of fiscal year 1994
compared to income from operations of $117.3 million last year. Net income for
the first nine months ended March 31, 1993 has been restated to reflect both
the cumulative effect of change in accounting of $94.4 million and incremental
expense of $3.7 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
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Benefits" in the fourth quarter of fiscal year 1993. Depreciation and
amortization was $19.4 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 $52.8 million use of
funds this year compared to a $55.6 million use of funds during the first nine
months of last year.
Investing activities in the first nine months of fiscal year 1994 were
primarily the result of capital spending, which used $146.0 million of cash
compared to $151.5 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 facilities are also
significant areas of capital spending. Investing activities in the nine months
ended March 31, 1994 also included $14.3 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 nine months of
fiscal 1994, investing activities included $7.0 million related to
acquisitions, of which $6.1 million related to the acquisition of Hoescht AG's
printed circuit material business.
Financing activities for the nine month period ended March 31, 1994 had funds of
$35.5 million used compared to funds of $36.2 million provided during the same
period of the prior year. Short-term notes payable decreased $10.5 million in
the current period compared to a $64.3 million increase during the first nine
months of fiscal 1993 primarily due to increased cash flows and greater
utilization of the Company's world-wide cash. Dividend payments for the first
nine months of fiscal year 1994 increased to $41.1 from $35.0 in the same
period last year, due primarily to the increase in the dividend paid per
share. Offsetting the above uses of funds for the nine months ended March 31,
1994 were proceeds from stock option transactions of $18.6 million compared to
$6.9 million for the same period last year.
The Company's current ratio at March 31, 1994 was 1.8 compared to 1.6 at June
30, 1993. Total debt as a percentage of total capitalization at March 31, 1994
was 18.3% compared to 20.6% at June 30, 1993.
As of March 31, 1994 the Company had unexpended authorizations for fixed asset
spending of $227.8 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
anticipated working capital requirements, fixed asset spending and dividend
payments in the foreseeable future.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- --------------------------
Subpoena Duces Tecum - Attorney General of the State of New York. 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. While the particulars of the investigation were not
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 were not disclosed.
EPA Administrative Complaint - Ringwood Plant During the period covered by
this report, the following material development occurred with respect to the
EPA's administrative complaint against the Company for alleged violation of the
Toxic Substances Control Act (TSCA), as reported in Item 3 of the Company's
form 10-K Report for the fiscal year ended June 30, 1993:
In a case involving similar issues, the Court of Appeals for the District of
Columbia held that a federal five year statute of limitations applied to TSCA
violations, and began to run when violations were committed, not when
discovered by the EPA (3M Co. v. Browner, CA DC No. 92-1126, March 4, 1994).
If the 3M ruling is not reversed or materially modified, all or a substantial
portion of the civil penalties sought in the Ringwood complaint (originally
$1,587,000, later reduced to $1,323,450) should be barred by the statute of
limitations.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
The Company did not file any 8-K Reports during the fiscal quarter ended March
31, 1994
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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.
-----------------------------------
(Registrant)
Date: May 12, 1994 BY: /s/L. F. Zumbach
------------------------------- -----------------------------------
L. F. Zumbach
Controller
(Principal Accounting Officer)
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1994
<PERIOD-END> MAR-31-1994
<CASH> 37300
<SECURITIES> 45100
<RECEIVABLES> 515600
<ALLOWANCES> (11200)
<INVENTORY> 326300
<CURRENT-ASSETS> 1019700
<PP&E> 1683600
<DEPRECIATION> (725200)
<TOTAL-ASSETS> 2430900
<CURRENT-LIABILITIES> 577600
<BONDS> 198500
<COMMON> 49200
0
0
<OTHER-SE> 1290500
<TOTAL-LIABILITY-AND-EQUITY> 2430900
<SALES> 2118800
<TOTAL-REVENUES> 2135200
<CGS> 1467200
<TOTAL-COSTS> 1841500
<OTHER-EXPENSES> 7800
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21400
<INCOME-PRETAX> 264500
<INCOME-TAX> 96600
<INCOME-CONTINUING> 167900
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 167900
<EPS-PRIMARY> 3.35
<EPS-DILUTED> 3.35
<PAGE>
</TABLE>
