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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, 1995
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
- -------------------------------------------- ----------
(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 March 31, 1995
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Common Stock, $1.00 par value 148,005,719 shares
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MORTON INTERNATIONAL, INC.
QUARTERLY REPORT ON FORM 10-Q
INDEX
PAGE
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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, 1995 and 1994 3
Consolidated Balance Sheets - March 31, 1995
and June 30, 1994 4
Consolidated Statements of Cash Flows -
Nine months ended March 31, 1995 and 1994 5
Notes to Consolidated Financial Statements -
March 31, 1995 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 9
Item 6. Exhibits and Reports on Form 8-K 9
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 Nine Months Ended
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March 31 March 31
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1995 1994 1995 1994
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $921.0 $808.3 $2,497.4 $2,118.8
Interest, royalties, and sundry income 5.5 6.1 15.9 16.4
---------- --------- --------- ---------
926.5 814.4 2,513.3 2,135.2
Deductions from income:
Cost of products sold 647.0 555.7 1,754.1 1,467.2
Selling, administrative, and general expense 106.9 119.3 317.7 324.7
Research and development expense 18.8 16.9 53.0 49.6
Interest expense 7.4 6.8 21.6 21.4
Amortization of goodwill 2.6 2.6 7.7 7.8
---------- --------- --------- ---------
782.7 701.3 2,154.1 1,870.7
---------- --------- --------- ---------
Income before income taxes 143.8 113.1 359.2 264.5
Income taxes 53.9 41.8 134.7 96.6
---------- --------- --------- ---------
Net income 89.9 71.3 224.5 167.9
Retained earnings at beginning of period 1,290.7 1,184.6 1,188.6 1,115.4
Cash dividends: $.11 and $.093 per share for the
three months ended March 31, 1995 and 1994,
respectively; $.33 and $.279 per share for the
nine months ended March 31, 1995 and 1994,
respectively (16.3) (13.7) (48.8) (41.1)
---------- --------- --------- ---------
Retained earnings at end of period $1,364.3 $1,242.2 $1,364.3 $1,242.2
========== ========= ========= =========
Net income per share $ .60 $ .47 $ 1.50 $ 1.12
========== ========= ========= =========
Shares used in computation (in thousands) 150,084 150,129
========= =========
</TABLE>
See notes to consolidated financial statements.
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MORTON INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN MILLIONS)
<TABLE>
<CAPTION>
March 31 June 30
1995 1994
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(Note)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 86.6 $ 58.7
Receivables 576.0 484.4
Deferred income tax benefits 27.8 27.8
Inventories 397.1 346.9
Prepaid expenses 91.4 78.6
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Total current assets 1,178.9 996.4
Other assets
Cost in excess of net assets of businesses acquired,
less amortization 327.6 333.1
Investments in affiliates 68.1 65.6
Miscellaneous 63.9 62.6
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459.6 461.3
Property, plant and equipment, at cost 1,949.0 1,757.2
Less allowances for depreciation 854.1 752.3
1,094.9 1,004.9
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$2,733.4 $2,462.6
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable and current portion of long-term debt $ 112.5 $ 68.7
Accounts payable 279.0 264.6
Accrued salaries, wages and other compensation 61.5 64.9
Other accrued expenses 149.2 133.6
Income taxes 26.9 25.4
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Total current liabilities 629.1 557.2
Long-term debt, less current portion 198.6 198.6
Deferred income taxes 55.4 55.1
Accrued postretirement benefits other than pension 150.4 146.2
Other noncurrent liabilities 106.5 105.9
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 - 148.0 shares and 147.6 shares at
March 31, 1995 and June 30, 1994 148.0 147.6
Additional paid-in capital 58.4 53.0
Retained earnings 1,364.3 1,188.6
Foreign currency translation adjustment 23.1 10.8
Unamortized restricted stock award (0.4) (0.4)
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Total Shareholders' Equity 1,593.4 1,399.6
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$2,733.4 $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)
Nine Months Ended
March 31
---------------------
1995 1994
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<S> <C> <C>
Operating Activities
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Net income $ 224.5 $ 167.9
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 120.9 103.6
Deferred income taxes 0.3 (0.7)
Undistributed earnings of affiliates (5.2) (5.3)
Changes in operating assets and liabilities
net of effects of businesses acquired:
Increase in receivables (83.4) (118.3)
Increase in inventories and prepaid expense (49.8) (4.2)
Increase in accounts payable and
accrued expenses 22.7 57.3
Increase in accrued income taxes 0.8 9.6
Other - net 9.9 2.8
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Net cash provided by operating activities 240.7 212.7
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Investing Activities
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Purchase of property, plant and equipment (192.4) (146.0)
Proceeds from property and other asset disposals 1.0 14.3
Cash invested in businesses acquired (12.7) (7.0)
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Net cash used for investing activities (204.1) (138.7)
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Financing Activities
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Increase (decrease) in notes payable 38.6 (10.5)
Repayment of long-term debt (0.1) (2.5)
Stock option transactions 5.5 18.6
Dividends paid (48.8) (41.1)
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Net cash used for financing activities (4.8) (35.5)
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Effect of foreign exchange rate changes on cash
and cash equivalents (3.9) (1.4)
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Increase in cash and cash equivalents 27.9 37.1
Cash and cash equivalents at beginning of period 58.7 45.3
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Cash and cash equivalents at end of period $ 86.6 $ 82.4
========= =========
</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 nine months
ended March 31, 1995 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>
Mar. 31 June 30
1995 1994
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<S> <C> <C>
Finished products and work-in-process $ 274.3 $ 240.3
Materials and supplies 122.8 106.6
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$ 397.1 $ 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 third quarter of fiscal 1995 was $89.9 million, a 26 percent
increase over the same period last year. Third quarter net sales were $921.0
million compared with $808.3 million a year ago, a 14 percent increase.
Earnings per share for the current quarter were $.60 versus $.47 last year.
Sales, net income and earnings per share represent third quarter records for
the Company.
Although the salt business had lower sales and earnings for the quarter, the
strength of the airbag and specialty chemicals businesses more than offset salt
results.
Net income for the first nine months of fiscal 1995 was $224.5 million, or
$1.50 per share, a 34 percent increase over last year's $167.9 million.
Fiscal 1995 sales were $2.5 billion compared with $2.1 billion for the same
period last year, up 18 percent.
A healthy economy in the U.S. and continuing recovery in Europe were reflected
in Morton's specialty chemicals results. Sales of specialty chemicals in the
third quarter of 1995 were $407.7 million, an 18 percent increase over third
quarter fiscal 1994 sales. Earnings in the current quarter increased 24
percent to $58.0 million compared with the same period last year. Sales gains
were largely volume driven, although currency translations accounted for $13.7
million of the gain. Higher raw material prices for certain specialty
chemical products were partially offset by increased selling prices. Further
offsetting was sales mix. As a result, third quarter profit margins increased
more than half a point to 14.2 percent.
Improved sales and earnings in the quarter were largely the result of excellent
gains in the adhesives, performance chemicals, plastics additives, automotive,
industrial and powder coatings and electronic materials product lines.
Sales of Morton's specialty chemicals for the first nine months of fiscal 1995
were $1.1 billion, up 15% over fiscal 1994 sales of $995.8 million for the same
period. Year-to-date earnings at March 31, 1995 were $160.9 million, an 18%
increase over the same period last year. As in the third quarter, strong
volumes were primarily responsible for the sales gains, while currency
translation contributed $27.2 million to the year over year improvement in
sales. Current year-to-date earnings were impacted by increases in certain raw
material prices in part offset by improved pricing and mix. Product lines
responsible for the fiscal 1995 third quarter sales and earnings gains were
also responsible for the improvements in results for the first nine months of
fiscal 1995.
An exceptionally mild winter in fiscal 1995 compared with the severe winter
conditions experienced last year resulted in current third quarter ice control
sales down 27 percent compared with the prior year. As a result, total sales
in the third quarter of fiscal 1995 were $174.3 million, 16 percent below the
same period last year. Earnings for the quarter were $42.1 million, a decrease
of 19 percent from last year's record high third quarter earnings of $52.3
million.
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Salt sales for the nine months ended March 31, 1995 were $438.0 million down 3%
from sales of $449.3 million in the same period last year. Earnings for the
same periods were $99.6 million in fiscal 1995 versus $102.8 million in fiscal
1994. Current year-to-date ice control sales were approximately 9% lower than
the same period last year. Partially offsetting were strong performances in
the water conditioning and industrial/food processing product lines.
Morton Automotive Safety Products sales of $339.0 million for the quarter ended
March 31, 1995 were 34 percent higher while earnings of $68.7 million increased
44 percent compared to the same quarter a year ago. Sales of driver inflators
and modules as well as passenger modules to General Motors, including GM's Opel
cars, Chrysler and many of the Japanese auto makers accounted for these
improved results. Pricing pressures have resulted in sales dollar growth lower
than volume gains; however, continuing efforts directed at cost control and
better operating efficiencies have significantly improved the Company's current
margins and its future prospects. Additional contracts announced recently for
U.S., European and Japanese car companies should contribute to further sales
growth.
Fiscal 1995 year-to-date earnings increased 45 percent to $173.8 million and
sales increased 35 percent to $911.9 million when compared with the same period
in the prior year. Factors responsible for these increases are consistent with
those identified for the current third quarter earnings and sales gains.
Third quarter and year-to-date fiscal 1995 corporate expenses were
significantly lower than those in the same periods last year. Fiscal 1994
included certain expenses at levels higher than currently required, the most
significant of which was the accrual to meet the incremental tax obligation
related to certain of the Company's outstanding stock options.
Liquidity and Capital Resources
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Operating activities were a source of cash in the nine month periods ended
March 31, 1995 and March 31, 1994 providing, $240.7 million and $212.7 million,
respectively.
Net income provided $224.5 million in the first nine months of fiscal year 1995
compared to $167.9 million last year. Depreciation and amortization was $17.3
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 $99.8 million use of funds this year compared to
a $52.8 million use of funds during the first nine months of last year. The
increase in fiscal 1995 year-to-date was largely attributable to higher levels
of inventory in all three business segments. Higher levels of sales accounted
for the inventory growth for the chemical segment and Automotive Safety
Products, while the mild winter resulted in salt inventory levels significantly
higher than normal.
Investing activities in the first nine months of fiscal year 1995 were
primarily the result of capital spending, which used $192.4 million of cash
compared to $146.0 million in the same period last year. The major capital
spending programs are the expansion of airbags into Europe as well as the
continued 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 for the
nine months ended March 31, 1995 includes $12.7 million related to
acquisitions, which includes $10.7 million for the acquisition of selected
assets of Thiokol GmbH, a former subsidiary of Ruetgerswerke AG, while the first
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nine months of fiscal 1994, included acquisitions of $7.0 million, of which
$6.1 million related to Hoescht AG's printed circuit material business.
Investing activities in the nine months ended March 31, 1994 also included
$14.3 million proceeds from property and other asset disposals, $12.2 million
of which related to the sale of the semiconductor photoresist business.
Financing activities for the nine month period ended March 31, 1995 had funds
of $4.8 million used compared to funds of $35.5 million used during the same
period of the prior year. Short-term notes payable increased $38.6 million in
the current period compared to a $10.5 million decrease during the first nine
months of fiscal 1994. Short-term borrowings at March 31, 1995 are less than
those outstanding at March 31, 1994. The increase in short-term payables noted
above reflects the difference in outstanding short-term borrowings at the
beginning of each period; June 30, 1994 short-term borrowings were $48.4
million compared with $105.2 million at June 30, 1993. Dividend payments for
the first nine months of fiscal year 1995 increased to $48.8 million from
$41.1 million 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, 1995 were proceeds from stock option transactions of
$5.5 million compared to $18.6 million for the same period last year.
The Company's current ratio at March 31, 1995 was 1.9 compared to 1.8 at June
30, 1994. Total debt as a percentage of total capitalization at March 31,
1995 was 15.9 percent compared to 15.5 percent at June 30, 1994.
As of March 31, 1995 the Company had unexpended authorizations for fixed asset
spending of $210.4 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.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
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Subpoena Duces Tecum - New York State Attorney General's Office. On April 12,
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1995, the Company was advised that the State of New York has formally closed
its investigation of ice control salt pricing, pursuant to which the Company
had furnished the State with copies of documents relating to the Salt Group's
deicing business.
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, 1995.
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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 15, 1995 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-30-1995
<PERIOD-END> MAR-31-1995
<CASH> 42200
<SECURITIES> 44400
<RECEIVABLES> 589900
<ALLOWANCES> (13900)
<INVENTORY> 397100
<CURRENT-ASSETS> 1178900
<PP&E> 1949000
<DEPRECIATION> (854100)
<TOTAL-ASSETS> 2733400
<CURRENT-LIABILITIES> 629100
<BONDS> 198600
<COMMON> 148000
0
0
<OTHER-SE> 1445400
<TOTAL-LIABILITY-AND-EQUITY> 2733400
<SALES> 2497400
<TOTAL-REVENUES> 2513300
<CGS> 1754100
<TOTAL-COSTS> 2124800
<OTHER-EXPENSES> 7700
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21600
<INCOME-PRETAX> 359200
<INCOME-TAX> 134700
<INCOME-CONTINUING> 224500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 224500
<EPS-PRIMARY> 1.50
<EPS-DILUTED> 1.50
</TABLE>
