<PAGE>
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, 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
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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, 1995
- ----------------------------- ---------------------------------
Common Stock, $1.00 par value 148,360,357 shares
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MORTON INTERNATIONAL, INC.
QUARTERLY REPORT ON FORM 10-Q
INDEX
PAGE
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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, 1995 and 1994 3
Consolidated Balance Sheets - September 30, 1995
and June 30, 1995 4
Consolidated Statements of Cash Flows -
Three months ended September 30, 1995 and 1994 5
Notes to Consolidated Financial Statements -
September 30, 1995 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7 - 8
PART II. OTHER INFORMATION
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)
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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1995 1994
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<S> <C> <C>
Net sales $ 809.6 $ 745.5
Interest, royalties and sundry income 8.3 5.0
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817.9 750.5
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Deductions from income:
Cost of products sold 580.4 521.0
Selling, administrative and general expense 101.6 104.6
Research and development expense 19.6 16.5
Interest expense 6.1 6.8
Amortization of goodwill 2.5 2.5
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710.2 651.4
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Income before income taxes 107.7 99.1
Income taxes 40.4 37.2
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Net income 67.3 61.9
Retained earnings at beginning of period 1,417.6 1,188.6
Cash dividends: $.13 per share for the
three months ended September 30, 1995 and
$.11 for the three months ended September 30,
1994, respectively (19.3) (16.3)
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Retained earnings at end of period $ 1,465.6 $ 1,234.2
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Net income per share $ .45 $ .41
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Shares used in computation (in thousands) 150,581 149,986
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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
1995 1995
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(Note)
ASSETS
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<S> <C> <C>
Current assets
Cash and cash equivalents $ 76.2 $ 88.3
Receivables 601.1 561.5
Deferred income tax benefits 24.3 24.3
Inventories 431.6 397.2
Prepaid expenses 106.5 96.9
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Total current assets 1,239.7 1,168.2
Other assets
Cost in excess of net assets of businesses acquired,
less amortization 322.0 324.1
Investments in affiliates 79.9 79.2
Miscellaneous 63.9 65.0
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465.8 468.3
Property, plant and equipment, at cost 2,045.4 2,006.0
Less allowances for depreciation 924.7 886.5
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1,120.7 1,119.5
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$ 2,826.2 $ 2,756.0
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable and current portion of long-term debt $ 51.2 $ 42.3
Accounts payable 278.4 284.1
Accrued salaries, wages and other compensation 55.7 66.1
Other accrued expenses 123.8 131.7
Income taxes 58.6 29.9
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Total current liabilities 567.7 554.1
Long-term debt, less current portion 218.5 218.5
Deferred income taxes 54.6 54.5
Accrued postretirement benefits other than pensions 153.8 152.1
Other noncurrent liabilities 113.8 113.3
Shareholders' equity
Preferred Stock (par value $1.00 per share)
Authorized - 25.0 shares, none issued
Common Stock (par value $1.00 per share)
Authorized - 300.0 shares
Issued-148.4 shares and 148.3 shares at
September 30 and June 30, 1995 148.4 148.3
Additional paid-in capital 64.6 62.2
Retained earnings 1,465.6 1,417.6
Foreign currency translation adjustment and other 39.2 35.4
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Total Shareholders' Equity 1,717.8 1,663.5
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$ 2,826.2 $ 2,756.0
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</TABLE>
Note: The balance sheet at June 30, 1995 has been derived from the audited
consolidated financial statements at that date.
See notes to consolidated financial statements.
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<PAGE>
MORTON INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN MILLIONS)
<TABLE>
<CAPTION>
Cash Provided (Used)
Three Months Ended
September 30
-----------------------
1995 1994
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<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 67.3 $ 61.9
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 45.2 39.2
Deferred income taxes 0.1 0.1
Undistributed earnings of affiliates (2.9) (1.9)
Changes in operating assets and liabilities:
Increase in receivables (42.8) (27.4)
Increase in inventories and prepaid expenses (44.9) (44.2)
Decrease in accounts payable and
accrued expenses (22.7) (22.2)
Increase in accrued income taxes 29.5 13.3
Other - net 4.3 2.1
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Net cash provided by operating activities 33.1 20.9
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INVESTING ACTIVITIES
Purchase of property, plant and equipment (47.4) (68.9)
Proceeds from property and other asset disposals 1.2 0.4
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Net cash used for investing activities (46.2) (68.5)
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FINANCING ACTIVITIES
Increase in notes payable 10.5 69.6
Repayment of long-term debt (0.1) (0.1)
Stock option transactions 1.9 1.9
Dividends paid (19.3) (16.3)
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Net cash (used for) provided by financing activities (7.0) 55.1
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Effect of foreign exchange rate changes on cash
and cash equivalents 8.0 (0.4)
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(Decrease) increase in cash and cash equivalents (12.1) 7.1
Cash and cash equivalents at beginning of year 88.3 58.7
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Cash and cash equivalents at end of period $ 76.2 $ 65.8
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</TABLE>
See notes to consolidated financial statements.
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<PAGE>
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, 1995 are not necessarily
indicative of the results to be expected for the fiscal year ending June 30,
1996. 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, 1995.
INVENTORIES
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
1995 1995
-------- -------
<S> <C> <C>
Finished products and work-in-process $311.9 $287.0
Materials and supplies 119.7 110.2
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$431.6 $397.2
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</TABLE>
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net income for the first quarter of fiscal 1996 was $67.3 million, a 9 percent
increase over the same period last year. Sales for the first quarter were
$809.6 million versus $745.5 million last year, also up 9 percent. Earnings per
share were 45 cents, up 10 percent over last year's 41 cents.
Specialty chemical sales in the quarter were up 5 percent to $395.1 million
while earnings were down 5 percent to $56.4 million. Lower volumes, caused
primarily by sluggish economic conditions in North America, and continued higher
raw material prices squeezed operating margins, resulting in lower levels of
profits for most specialty chemical product lines. However, certain product
lines posted strong sales and profit increases including: product lines sold
outside of North America such as Morton's European packaging and industrial
adhesives products; liquid polysulfide polymers for sealants; electronic
materials for printed circuit boards, sodium borohydride for the pulp and paper
industries; advanced materials going into the semiconductor business; and powder
coatings where environmental benefits are causing manufacturers to switch from
liquid coatings.
The impact of raw material cost increases not recovered by price increases was
approximately $4.5 million in the first quarter of fiscal 1996. The impact of
foreign exchange on chemical sales and earnings was favorable during the first
quarter of fiscal 1996 compared to the prior year, improving sales by $6.7
million and earnings by $1.1 million.
Salt sales of $111.5 million were down by 1 percent in the quarter while
operating profits of $19.7 million declined by 15 percent. Ice control sales
were approximately 40 percent below the first quarter of fiscal 1995. The prior
year first quarter benefitted from depleted inventories following the severe
winter of 1993-4 and reflected record sales. In contrast, ice control salt
inventory levels in the first quarter of fiscal 1996 remain high after last
year's mild winter, resulting in significantly lower volumes and overall flat
pricing. Most of the remainder of the salt product lines did well although
year-over-year profits for the first quarter were negatively impacted by
packaging and ingredient cost increases effective later in fiscal 1995 which
have not been fully recovered by price increases.
Morton Automotive Safety Products sales of $303.0 million increased 19 percent
in the quarter ended September 30, 1995, and earnings of $50.9 million rose 22
percent over the same period last year. Sales of passenger-side inflators and
modules grew faster than driver-side inflators and modules as more vehicles
offer full front seat protection in the United States. Additional sales growth
came from European and Japanese car manufacturers providing vehicles with
airbags as standard equipment for their domestic cars. Among the largest
increases in the quarter were General Motors inflators and modules for both
sides, Ford modules for both sides, Nissan inflators for both sides, Toyota
inflators for the driver side, and Mercedes inflators for the passenger side.
Corporate expenses in the quarter were below the same quarter in the prior year
by 22 percent. Contributing to the positive swing in expenses were lower net
interest costs, foreign exchange gains and continued overall tight cost control.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Operating activities were a source of cash in the three month periods ended
September 30, 1995 and 1994, providing $33.1 million and $20.9 million,
respectively.
Net income provided cash of $67.3 million in the first quarter of fiscal 1996
compared to $61.9 million last year. Depreciation and amortization was $6.0
million higher in the current period. This increase is primarily the result of
the high level of capital spending at the airbag facilities in Utah in recent
years as projects are completed and assets capitalized. Changes in operating
assets and liabilities resulted in a $76.6 million use of funds this year
compared to a $78.4 million use of funds during the first three months of last
year.
Investing activities in the first quarter of fiscal year 1996 were primarily the
result of capital spending, which used $47.4 million of cash compared to $68.9
million in the same period last year. The major reduction in capital spending
this quarter compared to the same quarter last year is at the airbag facilities
in Utah and reflects the overall decrease in capital spending levels compared
with prior years as well as the timing of expenditures. Expansion related to
certain chemical products as well as basic upkeep of the Salt and Chemical
facilities continue to be areas of capital spending.
Financing activities for the first quarter of fiscal year 1996 were a $7.0
million use of funds compared to funds provided of $55.1 million during the same
period in the prior year. Short-term notes payable increased $10.5 million in
the current period compared with a $69.6 million increase during the first
quarter of last year. This change reflects the lower level of borrowing
required in fiscal 1996 as cash generated from operations increased and capital
spending decreased. Dividend payments for the first quarter of fiscal year
1996 increased to $19.3 from $16.3 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, 1995 was 2.2 compared to 2.1 at
June 30, 1995. Total debt as a percentage of total capitalization at September
30, 1995 was 13.2%, unchanged from June 30, 1995.
As of September 30, 1995 the Company has unexpended authorizations for fixed
asset spending of $184.2 million. These authorizations related primarily to the
expansion of the airbag business, at a reduced level, as well as general
facility expansion, product improvement, and maintenance Company-wide.
On October 26, 1995, the Company's Board of Directors authorized the buy back of
up to 10 million shares of the Company's common stock on the open market.
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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<PAGE>
PART II - OTHER INFORMATION
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, 1995.
*************************************
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 13, 1995 BY: "/s/L. F. Zumbach"
------------------------- ------------------------------------
L. F. Zumbach
Controller
(Principal Accounting Officer)
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> SEP-30-1995
<CASH> 50500
<SECURITIES> 25700
<RECEIVABLES> 614400
<ALLOWANCES> (13300)
<INVENTORY> 431600
<CURRENT-ASSETS> 1239700
<PP&E> 2045400
<DEPRECIATION> (924700)
<TOTAL-ASSETS> 2826200
<CURRENT-LIABILITIES> 567700
<BONDS> 218100
<COMMON> 148400
0
0
<OTHER-SE> 1569400
<TOTAL-LIABILITY-AND-EQUITY> 2826200
<SALES> 809600
<TOTAL-REVENUES> 817900
<CGS> 580400
<TOTAL-COSTS> 701600
<OTHER-EXPENSES> 2500
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6100
<INCOME-PRETAX> 107700
<INCOME-TAX> 40400
<INCOME-CONTINUING> 67300
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> 67300
<EPS-PRIMARY> .45
<EPS-DILUTED> .45
</TABLE>
