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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, 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 December 31, 1994
- ----------------------------- --------------------------------
Common Stock, $1.00 par value 147,882,245 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 Six months ended
December 31, 1994 and 1993 3
Consolidated Balance Sheets - December 31, 1994
and June 30, 1994 4
Consolidated Statements of Cash Flows -
Six months ended December 31, 1994 and 1993 5
Notes to Consolidated Financial Statements -
December 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 4. Submissions of Matters to a Vote of Security-Holders 9 - 10
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
-------------------- --------------------
1994 1993 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 830.9 $ 690.9 $1,576.4 $1,310.5
Interest, royalties, and sundry income 5.3 5.7 10.4 10.3
-------- -------- -------- --------
836.2 696.6 1,586.8 1,320.8
Deductions from income:
Cost of products sold 586.0 485.2 1,107.1 911.5
Selling, administrative, and general expense 106.2 100.2 210.8 205.4
Research and development expense 17.7 16.0 34.2 32.7
Interest expense 7.4 7.4 14.2 14.6
Amortization of goodwill 2.6 2.5 5.1 5.2
-------- -------- -------- --------
719.9 611.3 1,371.4 1,169.4
-------- -------- -------- --------
Income before income taxes 116.3 85.3 215.4 151.4
Income taxes 43.6 31.6 80.8 54.8
-------- -------- -------- --------
Net Income 72.7 53.7 134.6 96.6
Retained earnings at beginning of period 1,234.2 1,144.6 1,188.6 1,115.4
Cash dividends: $.11 and $.093 per share for the
three months ended December 31, 1994 and 1993,
respectively; $.22 and $.186 per share for the
six month ended December 31, 1994 and 1993
respectively. (16.2) (13.7) (32.5) (27.4)
-------- -------- -------- --------
Retained earnings at end of period $1,290.7 $1,184.6 $1,290.7 $1,184.6
======== ======== ======== ========
Net income per share $ .49 $ .36 $ .90 $ .65
======== ======== ======== ========
Shares used in computation (in thousands) 150,019 149,919
======== ========
</TABLE>
See notes to consolidated financial statements.
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MORTON INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN MILLIONS)
<TABLE>
<CAPTION>
December 31 June 30
1994 1994
----------- ----------
(Note)
<S> <C> <C>
ASSETS
------
Current assets
Cash and cash equivalents $ 65.2 $ 58.7
Receivables 541.0 484.4
Deferred income tax benefits 27.8 27.8
Inventories 407.5 346.9
Prepaid expenses 82.9 78.6
-------- --------
Total current assets 1,124.4 996.4
Other assets
Cost in excess of net assets of businesses acquired,
less amortization 328.2 333.1
Investments in affiliates 67.9 65.6
Miscellaneous 63.1 62.6
-------- --------
459.2 461.3
Property, plant and equipment, at cost 1,875.5 1,757.2
Less allowances for depreciation 816.7 752.3
-------- --------
1,058.8 1,004.9
-------- --------
$2,642.4 $2,462.6
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LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities
Notes payable and current portion of long-term debt $ 173.9 $ 68.7
Accounts payable 246.3 264.6
Accrued salaries, wages and other compensation 56.1 64.9
Other accrued expenses 136.6 133.6
Income taxes 17.3 25.4
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Total current liabilities 630.2 557.2
Long-term debt, less current portion 198.6 198.6
Deferred income taxes 55.0 55.1
Accrued postretirement benefits other than pensions 148.9 146.2
Other noncurrent liabilities 106.0 105.9
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 - 147.9 shares and 147.6 shares at December 30
and June 30, 1994 147.9 147.6
Additional paid-in capital 56.7 53.0
Retained earnings 1,290.7 1,188.6
Foreign currency translation adjustment 8.6 10.8
Unamortized restricted stock award (0.2) (0.4)
-------- --------
Total shareholders' equity 1,503.7 1,399.6
-------- --------
$2,642.4 $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)
Six Months Ended
December 31
--------------------
1994 1993
-------- --------
<S> <C> <C>
Operating Activities
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Net income $ 134.6 $ 96.6
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 79.6 68.1
Deferred income taxes 0.2 (0.9)
Undistributed earnings of affiliates (3.7) (2.1)
Changes in operating assets and liabilities
net of effects of businesses acquired:
Increase in receivables (56.8) (92.8)
Increase in inventories and prepaid expense (59.0) (27.2)
Decrease in accounts payable and accrued
expenses (23.9) (17.6)
(Decrease)/increase in accrued income taxes (8.3) 0.4
Other - net 7.2 (0.3)
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Net cash provided by operating activities 69.9 24.2
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Investing Activities
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Purchase of property, plant and equipment (127.7) (91.0)
Proceeds from property and other asset disposals 0.8 13.1
Cash invested in businesses acquired (10.7) (7.0)
-------- --------
Net cash used for investing activities (137.6) (84.9)
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Financing Activities
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Increase in notes payable 105.0 86.3
Repayment of long-term debt (0.1) (2.5)
Stock option transactions 3.9 9.6
Dividends paid (32.5) (27.4)
-------- --------
Net cash provided by financing activities 76.3 66.0
Effect of foreign exchange rate changes on cash
and cash equivalents (2.1) 2.9
-------- --------
Increase in cash and cash equivalents 6.5 8.2
Cash and cash equivalents at beginning of year 58.7 45.3
-------- --------
Cash and cash equivalents at end of period $ 65.2 $ 53.5
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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, 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>
Dec. 31 June 30
1994 1994
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<S> <C> <C>
Finished products and work-in-process $ 288.8 $ 240.3
Materials and supplies 118.7 106.6
------- -------
$ 407.5 $ 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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During the quarter ended December 31, 1994, earnings per share increased 36
percent on a 20 percent increase in sales compared with the same period last
year. Sales were $830.9 million in the second quarter of fiscal 1995 while
net income was $72.7 million. Second quarter fiscal 1994 sales and net
income were $690.9 million and $53.7 million, respectively. Earnings per
share for the current quarter were 49 cents versus 36 cents a year ago.
The Company saw solid performances from all three business segments. Strong
volume gains in specialty chemicals helped boost sales 15 percent in that
business, while the replenishment of customer ice control inventories was
largely responsible for the 11 percent gain in salt sales. In the airbag
business, continued airbag penetration in cars, light trucks and vans around
the world combined with improved costs and productivity resulted in a 33
percent increase in sales and a 42 percent gain in operating profits.
Net income for the six months ended December 31, 1994 was $134.6 million, or
$.90 per share, a 39 percent increase over net income of $96.6 million
reported for the same period last year. Sales for the current six month
period were $1.6 billion compared with sales of $1.3 billion for the first
six months of fiscal 1994.
Sales of specialty chemicals for the second quarter of fiscal 1995 were $362.4
million and profits were $43.7 million. Sales and profits increased 15 and 17
percent, respectively, over second quarter fiscal 1994 sales of $315.3 million
and profits of $37.4 million. Raw material price increases during the quarter
largely offset improved volume and positive exchange rates, resulting in
essentially equivalent specialty chemical operating margin percentages in the
second quarter versus a year ago.
Changes in foreign exchange rates from a year ago had a favorable impact on
the specialty chemicals segment. Due to currency fluctuations, current
quarter sales were $8.3 million and earnings $.8 million higher when compared
with the prior year.
Specialty chemical product lines showing both sales and profit improvement
during the quarter were adhesives, thermoplastic polyurethanes, performance
chemicals, plastic additives, automotive and powder coatings and electronic
materials. These product lines accounted for approximately 85 percent of the
specialty chemicals increase in sales and all of the increase in profits.
Continued economic strength in the United States and improvement in European
economies were mainly responsible for the improved results from these product
lines. Electronic materials also benefited from their lower cost position as
a result of a recent restructuring.
Specialty chemical sales for the first six months of fiscal 1995 were $739.8
million compared with $648.9 million for the six months ended December 31,
1993. Current year-to-date earnings were $102.9 million compared with $89.2
million for the same period last year. Those product lines responsible for
improved sales and earnings in the second quarter of fiscal 1995 were also
responsible for the current year-to-date sales and earnings improvement over
the prior year. Due to year-over-year currency fluctuation, sales and
earnings for the six months ended December 31, 1994 were favorably impacted by
$13.6 million and $1.7 million, respectively.
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Salt sales were $150.6 million in the second quarter of fiscal 1995 and
business segment profits were $34.4 million. Sales and profits for the second
quarter last year were $136.0 million and $28.5 million, respectively. While
the overall salt business saw sales growth of 11 percent, the ice control
portion grew by 20 percent. Improved pricing and the filling of depleted
customer inventories after last year's winter season accounted for the
increase in ice control sales. Other salt product lines which did well in the
quarter were water conditioning, industrial/food processing and specialty
grocery products. Salt sales for the six months ended December 31, 1994 were
$263.7 million compared with $240.9 million for the same period last year.
Profits for the current six-month period were $57.5 million versus $50.5
million in the prior year. Products contributing to the favorable second
quarter results compared with prior year, are the same products driving the
favorable year-over-year results for the first six months of fiscal 1995.
Airbag sales in the quarter ended December 31, 1994, were $317.9 million and
business segment profits were $63.5 million. Volume gains outpaced the sales
dollar increase in the quarter because of continued price declines built into
Morton's contracts with automotive customers around the world. However, tight
cost controls and improved operating efficiencies allowed the Company to see
some margin expansion, 20 percent versus 19 percent, in the current quarter
despite the lower prices. Fiscal 1995 year-to-date sales were $572.9 million
compared with $420.7 million last year; current year-to-date earnings were
$105.1 million versus $71.7 million a year ago.
Overall corporate expenses in the quarter were flat with last year's second
quarter expense. However, corporate expenses for the first six months of
fiscal 1995 were significantly lower than those for the same period in fiscal
1994. This reduction is the result of higher accruals provided in the first
six months of fiscal 1994 to meet the incremental tax obligation related to
certain of the Company's outstanding stock options. The accruals in fiscal
1994 were driven by the impact of the Budget Reconciliation Act passed in July
1993 as well as the increase in the price of the Company's stock. The tax
rate was 37.5 percent in fiscal 1995 versus 37.0 percent the year before.
Interest, royalties and sundry income for the second quarter and first six
months of fiscal 1995 was relatively flat compared with the same periods last
year.
Liquidity and Capital Resources
- -------------------------------
Operating activities were a source of cash in the six month periods ended
December 31, 1994 and December 31, 1993 providing, $69.9 million and $24.2
million, respectively.
Net income provided $134.6 million in the first six months of fiscal year 1995
compared to $96.6 million last year. Depreciation and amortization was $11.5
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 $140.8 million use of funds this year
compared to a $137.5 million use of funds during the first six months of last
year.
Investing activities in the first six months of fiscal year 1995 were
primarily the result of capital spending, which used $127.7 million of cash
compared to $91.0 million in the same period last year. The major capital
spending programs are the expansion of airbags into Europe as well as the
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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 six months ended December 31, 1994 includes $10.7 for the
acquisition of selected assets of Thiokol GmbH, a former subsidiary of
Rutgerswerke AG, while the first six 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 six months
ended December 31, 1993 also included $13.1 million proceeds from property and
other asset disposals, principally $12.2 million related to the sale of the
semiconductor photoresist business.
Financing activities for the six month period ended December 31, 1994 provided
funds of $76.3 million compared to funds of $66.0 million provided during the
same period of the prior year. Short-term notes payable increased $105.0
million in the current period compared with a $86.3 million increase during
the first six months of fiscal 1994. Dividend payments for the first six
months of fiscal year 1995 increased to $32.5 from $27.4 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, 1994 was 1.8, the same as June 30,
1994. Total debt as a percentage of total capitalization at December 31, 1994
was 19.3% compared to 15.5% at June 30, 1994.
As of December 31, 1994 the Company has unexpended authorizations for fixed
asset spending of $193.5 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 4. Submissions of Matters to a Vote of Security-Holders
- ------------------------------------------------------------
The Company's annual shareholders' meeting was held on October 27, 1994. 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:
<TABLE>
<CAPTION>
AUTHORITY
WITHHELD
SHARES FOR (Shares)
<S> <C> <C>
Ralph M. Barford 124,792,229 705,609
William T. Creson 124,773,169 724,669
S. Jay Stewart 124,815,876 681,962
</TABLE>
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2. The appointment of Ernst & Young as the Company's independent auditors for
the fiscal year ending June 30, 1995, was ratified in accordance with the
following votes:
FOR 125,029,838 shares
AGAINST 179,235 shares
ABSTAIN 288,765 shares
3. The proposal to adopt the 1994 Non-Employee Directors Stock Plan received
votes as follows:
FOR 110,127,844 shares
AGAINST 13,280,894 shares
ABSTAIN 2,089,100 shares
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
The Company did not file any 8-K Reports during the fiscal quarter ended
December 31, 1994.
*************************************
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: February 10, 1995 BY: /s/ L. F. Zumbach
------------------------------------
L. F. Zumbach
Controller
(Principal Accounting Officer)
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<TABLE> <S> <C>
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<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> DEC-31-1994
<CASH> 38500
<SECURITIES> 26700
<RECEIVABLES> 553000
<ALLOWANCES> (12000)
<INVENTORY> 407500
<CURRENT-ASSETS> 1124400
<PP&E> 1875500
<DEPRECIATION> (816700)
<TOTAL-ASSETS> 2642400
<CURRENT-LIABILITIES> 630200
<BONDS> 198500
<COMMON> 147900
0
0
<OTHER-SE> 1355800
<TOTAL-LIABILITY-AND-EQUITY> 2642400
<SALES> 1576400
<TOTAL-REVENUES> 1586800
<CGS> 1107100
<TOTAL-COSTS> 1352100
<OTHER-EXPENSES> 5100
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14200
<INCOME-PRETAX> 215400
<INCOME-TAX> 80800
<INCOME-CONTINUING> 134600
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 134600
<EPS-PRIMARY> .90
<EPS-DILUTED> .90
</TABLE>
