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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 September 30, 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
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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 September 30, 1994
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Common Stock, $1.00 par value 147,817,572 shares
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MORTON INTERNATIONAL, INC.
QUARTERLY REPORT ON FORM 10-Q
INDEX
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PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Income and Retained
Earnings - Three months ended
September 30, 1994 and 1993 3
Consolidated Balance Sheets - September 30, 1994
and June 30, 1994 4
Consolidated Statements of Cash Flows -
Three months ended September 30, 1994 and 1993 5
Notes to Consolidated Financial Statements -
September 30, 1994 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7 - 8
PART II. OTHER INFORMATION
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Item 1. Legal Proceedings 9
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURE 9
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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
September 30
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1994 1993
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<S> <C> <C>
Net sales $ 745.5 $ 619.6
Interest, royalties and sundry income 5.0 4.6
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750.5 624.2
Deductions from income:
Cost of products sold 521.0 426.3
Selling, administrative and general expense 104.6 105.2
Research and development expense 16.5 16.7
Interest expense 6.8 7.2
Amortization of goodwill 2.5 2.7
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651.4 558.1
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Income before income taxes 99.1 66.1
Income taxes 37.2 23.2
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Net income 61.9 42.9
Retained earnings at beginning of period 1,188.6 1,115.4
Cash dividends: $.11 per share for the
three months ended September 30, 1994 and
$.093 for the three months ended September 30,
1993, respectively (16.3) (13.7)
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Retained earnings at end of period $ 1,234.2 $ 1,144.6
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Net income per share $ .41 $ .29
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Shares used in computation (in thousands) 149,986 149,673
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</TABLE>
See notes to consolidated financial statements.
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MORTON INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN MILLIONS)
<TABLE>
<CAPTION>
September 30 June 30
1994 1994
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(Note)
<S> <C> <C>
ASSETS
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Current assets
Cash and cash equivalents $ 65.8 $ 58.7
Receivables 514.4 484.4
Deferred income tax benefits 27.8 27.8
Inventories 388.4 346.9
Prepaid expenses 83.7 78.6
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Total current assets 1,080.1 996.4
Other assets
Cost in excess of net assets of businesses acquired,
less amortization 331.0 333.1
Investments in affiliates 68.6 65.6
Miscellaneous 61.5 62.6
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461.1 461.3
Property, plant and equipment, at cost 1,828.4 1,757.2
Less allowances for depreciation 785.2 752.3
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1,043.2 1,004.9
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$ 2,584.4 $ 2,462.6
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LIABILITIES AND SHAREHOLDERS' EQUITY
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Current liabilities
Notes payable and current portion of long-term debt $ 139.5 $ 68.7
Accounts payable 256.4 264.6
Accrued salaries, wages and other compensation 52.9 64.9
Other accrued expenses 133.1 133.6
Income taxes 39.1 25.4
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Total current liabilities 621.0 557.2
Long-term debt, less current portion 198.6 198.6
Deferred income taxes 55.3 55.1
Accrued postretirement benefits other than pensions 147.9 146.2
Other noncurrent liabilities 106.7 105.9
Shareholders' equity
Preferred Stock (par value $1.00 per share)
Authorized - 25.0 shares, none issued
Common Stock (par value $1.00 per share)
Authorized - 300.0 shares
Issued- 147.8 shares and 147.6 shares at
September 30 and June 30, 1994 147.8 147.6
Additional paid-in capital 54.7 53.0
Retained earnings 1,234.2 1,188.6
Foreign currency translation adjustment 18.5 10.8
Unamortized restricted stock award (0.3) (0.4)
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Total Shareholders' Equity 1,454.9 1,399.6
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$ 2,584.4 $ 2,462.6
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</TABLE>
Note: The balance sheet at June 30, 1994 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)
Three Months Ended
September 30
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1994 1993
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<S> <C> <C>
Operating Activities
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Net income $ 61.9 $ 42.9
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 39.2 33.3
Deferred income taxes 0.1 (1.0)
Undistributed earnings of affiliates (1.9) (0.6)
Changes in operating assets and liabilities net
of effects of businesses acquired:
Increase in receivables (27.4) (69.5)
Increase in inventories and prepaid expenses (44.2) (21.5)
(Decrease) increase in accounts payable and
accrued expenses (22.2) 12.0
Increase in accrued income taxes 13.3 15.2
Other - net 2.1 1.4
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Net cash provided by operating activities 20.9 12.2
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Investing Activities
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Purchase of property, plant and equipment (68.9) (42.4)
Proceeds from property and other asset disposals 0.4 12.8
Cash invested in businesses acquired - (6.4)
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Net cash used for investing activities (68.5) (36.0)
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Financing Activities
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Increase in notes payable 69.6 29.5
Repayment of long-term debt (0.1) (2.5)
Stock option transactions 1.9 4.9
Dividends paid (16.3) (13.7)
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Net cash provided by financing activities 55.1 18.2
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Effect of foreign exchange rate changes on cash
and cash equivalents (0.4) 1.0
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Increase (decrease) in cash and cash equivalents 7.1 (4.6)
Cash and cash equivalents at beginning of year 58.7 45.3
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Cash and cash equivalents at end of period $ 65.8 $ 40.7
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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
- ---------------------
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 three months ended September 30, 1994 are not necessarily
indicative of the results to be expected for the fiscal year ending June 30,
1995. 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, 1994.
Share and per share amounts for fiscal 1994 have been restated to reflect the
effect of the 3-for-1 stock split declared June 23, 1994 and paid August 17,
1994.
Inventories
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Inventories are stated at lower of cost (principally last-in, first-out
method) or market. Components of inventories are as follows:
<TABLE>
<CAPTION>
Sept. 30 June 30
1994 1994
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<S> <C> <C>
Finished products and work-in-process $277.3 $240.3
Materials and supplies 111.1 106.6
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$388.4 $346.9
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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 income for the first quarter of fiscal 1995 was $61.9 million, a 44
percent increase over the same period last year. Sales for the first quarter
were $745.5 million versus $619.6 million last year, up 20 percent. Earnings
per share were 41 cents, up 41 percent over last year's 29 cents. All three
of the Company's businesses showed strong sales gains and tight cost controls
during the fiscal first quarter.
Morton's specialty chemicals business saw volume and market share gains in
several of its key product areas including adhesives and coatings. In
addition, continued economic strength in the United States and some
improvement in Europe helped boost the performance. Sales grew by 13 percent
to $377.4 million and earnings increased by 14 percent to $59.2 million.
Among the product lines which showed particularly strong sales and earnings
gains were adhesives worldwide, thermoplastic polyurethanes, performance
chemicals, plastic additives, automotive coatings, powder coatings and
electronic materials. These product lines combined accounted for approximately
90 percent of the quarter over quarter increase in sales and over 100 percent
of the earnings increase. The earnings improvement was fueled by tight cost
control, as well as, some benefit derived from product mix in addition to
volume gains. Although sales of waterbased polymers, polymer systems and dyes
were relatively flat in the first quarter of fiscal 1995 compared with the
prior year, earnings were down due primarily to increasing raw material and
certain other manufacturing costs.
The impact of foreign exchange on chemical sales and earnings was favorable
during the first quarter of fiscal 1995 compared with the prior year. Year
over year, sales were $5.2 million higher and earnings $.7 million higher due
to exchange translations. As noted above, certain raw material costs have
increased during the quarter compared to last year, and many key raw materials
are expected to be higher in the second quarter of fiscal 1995. Where
possible, the Company plans to raise its prices to help offset the increase in
its costs.
Salt sales and earnings improvement in the quarter reflected the continued
strength of Morton's water conditioning products as well as early ice control
sales as customers refill depleted inventories. Sales of salt products in
the quarter were $113.1 million, up 8 percent, while earnings rose to $23.1
million, a 5 percent gain.
Sales of inflators and modules continue to benefit from the adoption of
airbags in cars, light trucks and vans sold in the United States. This
quarter, the Company also saw an increase in modules supplied to Europe as
auto manufacturers seek to put airbags in cars sold in Europe as quickly as
they can. Sales for Automotive Safety Products rose by 41 percent to $255.0
million in the first quarter with strong gains from GM, Mazda and several new
passenger programs. Earnings were $41.6 million, a 55 percent increase.
Lower selling prices have been largely offset by reductions in material costs
and efficiency savings.
Corporate expenses were considerably lower in the current fiscal quarter.
Favorably impacting this year's first quarter were lower net interest costs.
Also, last year as a result of the Budget Reconciliation Act passed in July
1993, the fiscal 1994 first quarter included a one-time pretax charge of $9.3
million attributable to incremental tax obligations related to certain
outstanding stock options.
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Interest royalties and sundry income for the first quarter of fiscal 1995 of
$5.0 million were up slightly from the $4.6 million reported last year.
Liquidity and Capital Resources
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Operating activities were a source of cash in the three months ended
September 30, 1994, providing $20.9 million, compared to the same period in
the prior year when operations provided $12.2 million.
Net income provided $61.9 million in the first quarter compared to $42.9
million last year. Depreciation and amortization was $5.9 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 $78.4 million use of funds this year compared to a $62.4 million
use of funds during the first three months of last year. This change is
primarily due to the increased volume of business.
Investing activities in the first quarter of fiscal year 1995 were the result
of capital spending, which used $68.9 million of cash compared to $42.4 million
in the same period last year. The major capital spending program continues to
be the expansion of airbag 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
first quarter of last year also included $12.8 million proceeds from property
and other asset disposals, principally $12.5 million relating to the sale of
the semiconductor photoresist business. Also during the first three months of
fiscal 1994, investing activities included $6.4 million for the acquisition of
Hoescht AG's printed circuit material business.
Financing activities for the first quarter of fiscal year 1995 provided funds
of $55.1 million compared to funds of $18.2 million provided during the same
period of the prior year. Short-term notes payable increased $69.6 million in
the current period compared with a $29.5 million increase during the first
quarter of last year. Dividend payments for the first quarter of fiscal year
1995 increased to $16.3 from $13.7 in the same period last year, due primarily
to the increase in the dividend rate paid per share.
The Company's current ratio at September 30, 1994 was 1.7 compared to 1.8 at
June 30, 1994. Total debt as a percentage of total capitalization at September
30, 1994 was 18.3% compared to 15.5% at June 30, 1994.
As of September 30, 1994 the Company has unexpended authorizations for fixed
asset spending of $206.4 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
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EPA ADMINISTRATIVE COMPLAINT - RINGWOOD PLANT. On October 5, 1994, the U.S.
EPA dismissed, with prejudice, an administrative complaint against the Company
seeking $1.587 million in civil penalties. The complaint alleged 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 in the mid-1980s.
SUBPOENA DUCES TECUM - U.S. DEPARTMENT OF JUSTICE. On October 11, 1994, the
Antitrust Division notified the Company that it was preparing to return
documents submitted pursuant to the subpoena duces tecum issued in March 1994.
The Company is advised by legal counsel that this step signifies an end to the
Antitrust Division's investigation into the Company's highway de-icing salt
bidding practices. The investigation was conducted by a Grand Jury of the
United States District Court, Western District of Pennsylvania, sitting in
Pittsburgh.
WEST VIRGINIA INVESTIGATION - DE-ICING SALT. On September 29, 1994, the West
Virginia Attorney General's Office served a subpoena and interrogatories on
the Company requiring production of documents and the disclosure of
information relating to that state's highway de-icing salt purchases since
January 1, 1992. The subpoena and interrogatories were issued in connection
with a civil investigation into possible violations of the West Virginia
Antitrust Act. The Company is cooperating fully with this investigation,
which involves others in the de-icing salt industry as well.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
The Company did not file any 8-K Reports during the fiscal quarter ended
September 30, 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: November 10, 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> 3-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> SEP-30-1994
<CASH> 38800
<SECURITIES> 27000
<RECEIVABLES> 526700
<ALLOWANCES> (12300)
<INVENTORY> 388400
<CURRENT-ASSETS> 1080100
<PP&E> 1828400
<DEPRECIATION> (785200)
<TOTAL-ASSETS> 2584400
<CURRENT-LIABILITIES> 621000
<BONDS> 198500
<COMMON> 147800
0
0
<OTHER-SE> 1307100
<TOTAL-LIABILITY-AND-EQUITY> 2584400
<SALES> 745500
<TOTAL-REVENUES> 750500
<CGS> 521000
<TOTAL-COSTS> 642100
<OTHER-EXPENSES> 2500
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6800
<INCOME-PRETAX> 99100
<INCOME-TAX> 37200
<INCOME-CONTINUING> 61900
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 61900
<EPS-PRIMARY> .41
<EPS-DILUTED> .41
</TABLE>
