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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, 1996
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.
(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, 1996
- ----------------------------- -----------------------------
Common Stock, $1.00 par value 147,038,589 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 and Nine months ended
March 31, 1996 and 1995 3
Consolidated Balance Sheets - March 31, 1996
and June 30, 1995 4
Consolidated Statements of Cash Flows -
Nine months ended March 31, 1996 and 1995 5
Notes to Consolidated Financial Statements -
March 31, 1996 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7 - 9
PART II. OTHER INFORMATION
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURE 10
2
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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
--------------------- --------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $998.4 $921.0 $2,724.1 $2,497.4
Interest, royalties, and sundry income 22.9 5.5 62.0 15.9
-------- -------- -------- --------
1,021.3 926.5 2,786.1 2,513.3
Deductions from income:
Cost of products sold 709.4 647.0 1,935.0 1,754.1
Selling, administrative, and general expense 111.3 106.9 324.6 317.7
Research and development expense 19.4 18.8 60.9 53.0
Interest expense 6.3 7.4 18.7 21.6
Amortization of goodwill 2.6 2.6 7.7 7.7
-------- -------- -------- --------
849.0 782.7 2,346.9 2,154.1
-------- -------- -------- --------
Income before income taxes 172.3 143.8 439.2 359.2
Income taxes 64.6 53.9 164.7 134.7
-------- -------- -------- --------
Net income 107.7 89.9 274.5 224.5
Retained earnings at beginning of period 1,545.8 1,290.7 1,417.5 1,188.6
Cash dividends: $.13 and $.11 per share for the
three months ended March 31, 1996 and 1995,
respectively; $.39 and $.33 per share for the
nine months ended March 31, 1996 and 1995,
respectively (19.1) (16.3) (57.6) (48.8)
-------- -------- -------- --------
Retained earnings at end of period $1,634.4 $1,364.3 $1,634.4 $1,364.3
======== ======== ======== ========
Net income per share $ .72 $ .60 $ 1.83 $ 1.50
======== ======== ======== ========
Shares used in computation (in thousands) 150,232 150,084
======== ========
</TABLE>
See notes to consolidated financial statements.
3
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MORTON INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN MILLIONS)
<TABLE>
<CAPTION>
March 31 June 30
1996 1995
--------- -----------
(Note)
<S> <C> <C>
ASSETS
- ------
Current assets
Cash and cash equivalents $ 130.6 $ 88.3
Receivables 653.2 561.5
Deferred income tax benefits 24.3 24.3
Inventories 363.0 397.2
Prepaid expenses 118.5 96.9
--------- -----------
Total current assets 1,289.6 1,168.2
Other assets
Cost in excess of net assets of businesses acquired,
less amortization 316.5 324.1
Investments in affiliates 90.0 79.2
Miscellaneous 63.0 65.0
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469.5 468.3
Property, plant and equipment, at cost 2,137.7 2,006.0
Less allowances for depreciation 993.6 886.5
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1,144.1 1,119.5
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$ 2,903.2 $ 2,756.0
========= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities
Notes payable and current portion of long-term debt $ 13.1 $ 42.3
Accounts payable 296.5 284.1
Accrued salaries, wages and other compensation 60.4 66.1
Other accrued expenses 124.1 131.7
Income taxes 48.4 29.9
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Total current liabilities 542.5 554.1
Long-term debt, less current portion 218.5 218.5
Deferred income taxes 54.7 54.5
Accrued postretirement benefits other than pensions 156.3 152.1
Other noncurrent liabilities 114.1 113.3
Shareholders' equity
Preferred stock (par value $1.00 per share)
Authorized - 25.0 shares, none issued
Common stock (par value $1.00 per share)
Authorized - 300.0 shares
Issued, including shares in treasury - 148.4 shares
and 148.3 shares at March 31, 1996 and June 30, 1995 148.4 148.3
Additional paid-in capital 58.3 62.2
Retained earnings 1,634.4 1,417.6
Foreign currency translation adjustment and other 24.4 35.4
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1,865.5 1,663.5
Less cost of common stock in treasury - 1.4 shares (48.4) --
--------- -----------
Total shareholders' equity 1,817.1 1,663.5
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$ 2,903.2 $ 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.
4
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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
--------------------------
1996 1995
-------- ---------
<S> <C> <C>
Operating Activities
- --------------------
Net income $ 274.5 $ 224.5
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 135.4 120.9
Deferred income taxes 0.3 0.3
Undistributed earnings of affiliates (3.7) (5.2)
Changes in operating assets and liabilities
net of effects of businesses acquired:
Increase in receivables (96.4) (83.4)
Decrease (increase) in inventories and prepaid expense 8.5 (49.8)
Increase in accounts payable and
accrued expenses 0.9 22.7
Increase in accrued income taxes 24.6 0.8
Other - net (2.6) 9.9
-------- ---------
Net cash provided by operating activities 341.5 240.7
-------- ---------
Investing Activities
- --------------------
Purchase of property, plant and equipment (161.1) (192.4)
Proceeds from property and other asset disposals 1.8 1.0
Investment in affiliates (0.2) -
Cash invested in businesses acquired (0.6) (12.7)
-------- ---------
Net cash used for investing activities (160.1) (204.1)
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Financing Activities
- --------------------
Purchase of common stock for treasury (66.9) -
(Decrease) Increase in notes payable (26.5) 38.6
Repayment of long-term debt (0.1) (0.1)
Stock option transactions 9.4 5.5
Dividends paid (57.6) (48.8)
-------- ---------
Net cash used for financing activities (141.7) (4.8)
-------- ---------
Effect of foreign exchange rate changes on cash
and cash equivalents 2.6 (3.9)
-------- ---------
Increase in cash and cash equivalents 42.3 27.9
Cash and cash equivalents at beginning of period 88.3 58.7
-------- ---------
Cash and cash equivalents at end of period $ 130.6 $ 86.6
======== =========
</TABLE>
See notes to consolidated financial statements.
5
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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, 1996 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
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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>
Mar. 31 June 30
1996 1995
------- -------
<S> <C> <C>
Finished products and work-in-process $244.8 $287.0
Materials and supplies 118.2 110.2
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$363.0 $397.2
===== =====
</TABLE>
6
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Item 2. Management's Discussion and Analysis of Financial Condition
- --------------------------------------------------------------------
and Results of Operations
-------------------------
Sales increased 8 percent over last year s third quarter and earnings per
share increased 20 percent from 60 cents per share last year to 72 cents per
share in the current period. Included in current third quarter earnings was a
$15.0 million payment from Nippon Paint Company for the Morton Nippon Coatings
joint venture established in January 1996. Excluding the impact of this
transaction, earnings per share for the quarter were 66 cents per share, a 10
percent increase over last year.
For the nine months ended March 31, 1996, sales were $2.7 billion, an increase
of 9 percent over the prior year. Net income for the period grew 22 percent to
$274.5 million and earnings per share increased from $1.50 in fiscal 1995 to
$1.83 for the current year. Included in earnings per share for the first nine
months of fiscal 1996 was 10 cents for environmental insurance settlements
(recorded in the second quarter) and 6 cents for the Nippon Paint payment
mentioned above.
The Company s financial results were impacted on the positive side by strong
winter conditions in the eastern part of the United States and the
aforementioned $15.0 million payment from Nippon Paint Company. Offsetting
these positive factors were the General Motors strike in March, which
substantially reduced airbag sales and profits in the quarter; sluggish
European and North American economic conditions particularly apparent in
March, which affected chemical performance; and the transfer of some coatings
sales and profits from Morton to the new joint venture.
Morton s specialty chemicals third quarter sales of $407.5 million were flat
compared with last year's third quarter, while operating profits grew by 29
percent to $75.1 million. Excluding the joint venture transaction impact,
chemical sales and operating income in the quarter were up 2 percent and 5
percent, respectively. Establishment of the joint venture in plastic
substrate coatings for Japanese transplant car companies in the United States
reduced Morton s sales in the quarter by approximately $7.5 million. Profits
grew faster than sales during the quarter due to the $15.0 million payment
from Nippon Paint, the stabilization of raw material prices, and the impact of
prior selling price increases.
Strong sales performers in the third quarter of fiscal 1996 included the
following product lines: performance chemicals, advanced materials, electronic
materials, powder coatings, and European industrial adhesives. Combined third
quarter sales of these product lines increased 9 percent over the prior year.
Product lines contributing substantially to the improved quarterly operating
income were performance chemicals, advanced materials, electronic materials,
dyes, European industrial adhesives, waterbased polymers and thermoplastic
polyurethanes, whose combined operating income increased 42 percent over the
same period last year.
During the third quarter of fiscal 1996, the Company continued to see the
benefit of cost control measures and some falling raw material prices, so that
the marginal return on sales (excluding the impact of the joint venture)
increased by approximately one-half percent.
Specialty chemicals sales for the first nine months of fiscal 1996 were
$1,194.1 million, up 4 percent, and operating income of $181.1 million was up
12 percent over the same period last
7
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year. Strong contributors to the year-over-year improvement in sales and
operating profits included Morton s performance chemicals, advanced materials,
electronic materials, polymer systems and European industrial adhesives.
Fiscal 1996 year-to-date sales and profits have been favorably impacted by
exchange translation of $13.2 and $1.8, respectively, nearly all of which
resulted in the first six months.
Salt sales in the third quarter were a record $222.3 million, up 28 percent
over last year's third quarter. Operating income rose 21 percent to $50.9
million.
The strong results in the salt business were largely attributable to the ice
control salt sales which were up 50 percent in the third quarter compared with
the same period last year. Winter storms, which impacted the northeastern
United States in particular, increased the demand for ice control salt in
several key markets. While ice control salt had the largest effect in the
quarter, the rest of the salt business also performed well.
For the nine months ended March 31, 1996, sales in the salt business were up
15 percent to $501.8 million and operating income of $108.2 million increased
9 percent over the same period in fiscal 1995. As with the third quarter
results, the year-over-year sales increase is primarily the result of record
ice control sales as well as the improved performance of water conditioning
and solar products sold in the U.S. Earnings did not increase at the same
rate as sales due to the higher mix of lower margin ice control business and
higher operating expenses.
Automotive Safety Products sales of $368.6 million grew by 9 percent in the
third quarter while operating income rose 2 percent to $69.9 million. The
lower-than-anticipated sales and earnings in the quarter were attributable to
the General Motors strike, which reduced sales by over $20 million.
For the nine months ended March 31, 1996, sales in the airbag business reached
$1,028.2 million, a 13 percent increase over the same period last year and
earnings of $192.5 million were 11 percent higher than fiscal 1995.
Airbag business growth should return to expected levels in the fourth quarter
with the resolution of the GM strike and the anticipated increase in
production for new contracts starting in model year 1997, plus shipments of
side impact airbags.
Sales of driver-side modules, as well as passenger-side inflators and modules,
were the main reason for year-over-year sales increases. Customers who
contributed to the year-over-year sales increase in the third quarter included
Toyota, Ford and Nissan. For the nine months ended March 31, 1996, customers
contributing to the increase in sales over the same period last year included
Toyota, Ford, Nissan and GM.
Corporate expenses for the nine months ended March 31, 1996 were $32.5 million
less than the same period last year. As noted previously, fiscal 1996
year-to-date earnings include approximately $24.1 million related to
settlement of substantially all claims against the Company s former insurance
carriers for clean up expenses at chemical waste disposal sites located
throughout the country. Also contributing to the favorable year-over-year
comparison are favorable net interest costs of $4.3 million.
8
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Liquidity and Capital Resources
- -------------------------------
Operating activities were a source of cash in the nine month periods ended
March 31, 1996 and March 31, 1995 providing $341.5 million and $240.7 million,
respectively.
Net income provided $274.5 million in the first nine months of fiscal year
1996 compared to $224.5 million last year. Depreciation and amortization was
$14.5 million higher in the current period, primarily the result of the high
level of capital spending at the airbag facilities in Utah in recent years.
Changes in operating assets and liabilities resulted in a $65.0 million use of
funds this year compared to a $99.8 million use of funds during the first nine
months of last year. The decrease compared to last year was largely
attributable to lower levels of inventory in the Salt and Automotive Safety
Products segments.
Investing activities in the first nine months of fiscal year 1996 were
primarily the result of capital spending, which used $161.1 million of cash
compared to $192.4 million in the same period last year. The reduction in
capital spending this period compared to the same period last year primarily
reflects the slowing of capital expenditures at the airbag facilities, and, to
a lesser extent, 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 nine month period ended March 31, 1996 were a
$141.7 million use of funds compared to funds of $4.8 million used during the
same period in the prior year. Short-term notes payable decreased $26.5
million in the current period compared with a $38.6 million increase during
the same period of last year. This change reflects the lower level of
incremental borrowing required in fiscal 1996 as cash generated from
operations increased and capital spending decreased. During the second quarter
of fiscal 1996, the board of directors authorized a 10 million share buy back
of the Company's common stock. Through March 31, 1996, the Company repurchased
approximately 1.9 million shares of its common stock for approximately $66.9
million. Dividend payments for the first nine months of fiscal year 1996
increased to $57.6 from $48.8 in the same period last year, due primarily to
the increase in the dividend rate paid per share.
The Company's current ratio at March 31, 1996 was 2.4 compared to 2.1 at June
30, 1995. Total debt as a percentage of total capitalization at March 31,
1996 was 10.2 percent compared to 13.2 percent at June 30, 1995.
As of March 31, 1996 the Company had unexpended authorizations for fixed
asset spending of $177.7 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, dividend
payments and its share repurchase plan in the foreseeable future.
9
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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 March
31, 1996.
*************************************
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 10, 1996 BY: "/s/L. F. Zumbach"
-----------------------------------
L. F. Zumbach
Controller
(Principal Accounting Officer)
10
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 54300
<SECURITIES> 76300
<RECEIVABLES> 666500
<ALLOWANCES> (13300)
<INVENTORY> 363000
<CURRENT-ASSETS> 1289600
<PP&E> 2137700
<DEPRECIATION> (993600)
<TOTAL-ASSETS> 2903200
<CURRENT-LIABILITIES> 542500
<BONDS> 218100
0
0
<COMMON> 148400
<OTHER-SE> 1668700
<TOTAL-LIABILITY-AND-EQUITY> 2903200
<SALES> 2724100
<TOTAL-REVENUES> 2786100
<CGS> 1935000
<TOTAL-COSTS> 2320500
<OTHER-EXPENSES> 7700
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18700
<INCOME-PRETAX> 439200
<INCOME-TAX> 164700
<INCOME-CONTINUING> 274500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 274500
<EPS-PRIMARY> 1.83
<EPS-DILUTED> 1.83
</TABLE>
