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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, 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
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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, 1996
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Common Stock, $1.00 par value 142,518,352 shares
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MORTON INTERNATIONAL, INC.
QUARTERLY REPORT ON FORM 10-Q
INDEX
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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 ended
September 30, 1996 and 1995 3
Consolidated Balance Sheets - September 30, 1996
and June 30, 1996 4
Consolidated Statements of Cash Flows -
Three months ended September 30, 1996 and 1995 5
Notes to Consolidated Financial Statements -
September 30, 1996 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6 - 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 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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1996 1995
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<S> <C> <C>
Net sales $ 875.9 $ 809.6
Interest, royalties and sundry income 9.9 8.3
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885.8 817.9
Deductions from income:
Cost of products sold 621.6 580.4
Selling, administrative and general expense 112.1 101.6
Research and development expense 18.7 19.6
Interest expense 6.0 6.1
Amortization of goodwill 2.5 2.5
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760.9 710.2
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Income before income taxes 124.9 107.7
Income taxes 46.2 40.4
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Net income 78.7 67.3
Retained earnings at beginning of period 1,675.5 1,417.6
Cash dividends: $.15 per share for the
three months ended September 30, 1996 and
$.13 for the three months ended September 30,
1995 (21.4) (19.3)
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Retained earnings at end of period $ 1,732.8 $ 1,465.6
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Net income per share $ .54 $ .45
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Shares used in computation (in thousands) 144,878 150,581
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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
1996 1996
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(Note)
<S> <C> <C>
ASSETS
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Current assets
Cash and cash equivalents $ 133.3 $ 71.1
Receivables 630.2 624.6
Deferred income tax benefits 23.6 23.6
Inventories 393.8 364.5
Prepaid expenses 115.8 112.4
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Total current assets 1,296.7 1,196.2
Other assets
Cost in excess of net assets of businesses
acquired, less amortization 293.8 296.3
Investments in affiliates 73.0 70.7
Miscellaneous 62.0 62.5
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428.8 429.5
Property, plant and equipment, at cost 2,194.3 2,151.3
Less allowances for depreciation 1,038.1 1,005.5
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1,156.2 1,145.8
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$ 2,881.7 $ 2,771.5
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LIABILITIES AND SHAREHOLDERS' EQUITY
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Current liabilities
Notes payable and current portion of long-term debt $ 48.0 $ 37.2
Accounts payable 308.7 296.6
Accrued salaries, wages and other compensation 58.7 67.6
Other accrued expenses 121.0 122.3
Income taxes 69.0 33.6
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Total current liabilities 605.4 557.3
Long-term debt, less current portion 218.5 218.5
Deferred income taxes 53.5 53.4
Accrued postretirement benefits other than pensions 156.0 155.2
Other noncurrent liabilities 115.3 114.3
Shareholders' equity
Preferred Stock (par value $1.00 per share)
Authorized - 25.0 shares, none issued
Common Stock (par value $1.00 per share)
Authorized - 300.0 shares
Issued-148.4 shares at September 30 and
June 30, 1996 148.4 148.4
Additional paid-in capital 54.9 55.9
Retained earnings 1,732.8 1,675.5
Foreign currency translation adjustment and other 11.4 11.0
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1,947.5 1,890.8
Less cost of common stock in treasury-5.9 shares
at September 30, 1996 and 6.0 shares at June 30, 1996 214.5 218.0
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Total Shareholders' Equity 1,733.0 1,672.8
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$ 2,881.7 $ 2,771.5
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</TABLE>
Note: The balance sheet at June 30, 1996 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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1996 1995
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<S> <C> <C>
Operating Activities
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Net income $ 78.7 $ 67.3
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 46.8 45.2
Deferred income taxes 0.2 0.1
Undistributed earnings of affiliates (2.4) (2.9)
Changes in operating assets and liabilities:
Receivables (5.8) (42.8)
Inventories and prepaid expenses (32.6) (44.9)
Accounts payable and accrued expenses 1.7 (22.7)
Accrued income taxes 35.9 29.5
Other - net (0.6) 4.3
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Net cash provided by operating activities 121.9 33.1
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Investing Activities
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Purchase of property, plant and equipment (55.9) (47.4)
Proceeds from property and other asset disposals 4.7 1.2
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Net cash used for investing activities (51.2) (46.2)
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Financing Activities
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Purchase of common stock for treasury (0.2) -
Net increase in notes payable 10.8 10.5
Repayment of long-term debt (0.1) (0.1)
Stock option transactions 2.2 1.9
Dividends paid (21.4) (19.3)
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Net cash used for financing activities (8.7) (7.0)
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Effect of foreign exchange rate changes on cash
and cash equivalents 0.2 8.0
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Increase (decrease) in cash and cash equivalents 62.2 (12.1)
Cash and cash equivalents at beginning of year 71.1 88.3
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Cash and cash equivalents at end of period $ 133.3 $ 76.2
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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 three months ended September 30, 1996 are not necessarily
indicative of the results to be expected for the fiscal year ending June 30,
1997. 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, 1996.
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>
Sept. 30 June 30
1996 1996
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<S> <C> <C>
Finished products and work-in-process $284.7 $261.3
Materials and supplies 109.1 103.2
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$393.8 $364.5
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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 1997 was $78.7 million, a 17 percent
increase over the same period last year. Sales for the first quarter were
$875.9 million versus $809.6 million last year, an increase of 8 percent.
Earnings per share were 54 cents, up 20 percent over last year's 45 cents.
Specialty chemicals sales in the quarter rose 3 percent to $407.3 million.
Higher specialty chemicals sales in the United States offset weakness in
European and Asian demand. Volume growth in the quarter was up 7.5 percent, but
the negative impact of foreign exchange and product mix plus the transfer of
approximately $8.0 million of automotive coatings products' sales to the joint
venture set up in January 1996 lowered the overall reported sales. Earnings
in the first quarter of fiscal 1997 were up 18 percent to $66.5 million versus
the first quarter of fiscal 1996. Favorable raw material prices compared to
last year and the benefit of some of the restructuring actions started in
fiscal 1996, including a $2.4 million gain on the sale of the Lytron product
line, were important
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factors in the improved earnings and operating margins. The unfavorable
impact of foreign exchange on sales and earnings for the quarter was $3.6
million and $.4 million, respectively.
Among the chemical businesses which performed well both in sales and earnings
in this year's first quarter versus a year ago were waterbased polymers,
advanced materials, performance chemicals, plastics additives, dyes, industrial
coatings, and powder coatings. These product lines in total grew 13 percent
from last year's sales level and contributed 44 percent of the group's sales
in the first quarter of this fiscal year. Earnings for these products
increased faster than sales, up 50 percent, and accounted for 90 percent of
the chemical group's year-over-year increase in earnings.
Salt sales of $115.7 million in the first quarter increased by 4 percent while
earnings rose 18 percent versus the same period a year ago. Sales were
generally stronger across most product lines, especially food processing and
chemical salt, and the salt business anticipates excellent ice control sales
in the second quarter, as municipalities and highway departments replenish ice
control inventories depleted during last year's harsh winter. Earnings in the
current quarter increased faster than sales as a result of the comparison with
a weak first quarter in fiscal 1996, higher production levels to prepare for
the fiscal 1997 ice control season, and tight control of costs which include
lower freight costs, favorable barge rates, and favorable load rates in Canada.
Morton Automotive Safety Products sales of $352.9 million increased 16 percent
in the quarter ended September 30, 1996, and earnings of $54.7 million rose 7
percent over the same period last year. The strong airbag sales in the first
quarter of fiscal 1997 were a result of healthy car production levels in the
United States, 20 new product launches, accelerated side-impact orders, and
business which developed as a result of problems competitors had meeting
initial customer requirements. Earnings grew slower than sales primarily due
to approximately $7.0 million of special expenses related to the start up of
new products, which included higher than expected freight, overtime and
material costs. These start-up costs are not expected to impact the second
quarter in the same magnitude.
Among the products responsible for the sales growth were inflators and modules
sold to Chrysler, Ford, BMW, Honda, Toyota, Mitsubishi, Daihatsu, Subaru,
Mazda, and Volkswagen. Also important contributors to the sales increase were
side-impact inflators and modules sold to Nissan and Toyota.
Corporate costs remained tightly controlled in the first fiscal quarter of
1997, finishing only 2 percent ahead of the fiscal 1996 first quarter.
Common stock repurchases were only 5,000 shares during the quarter due to the
ongoing negotiation of the proposed transaction with Autoliv AB described
below. However, the cumulative impact of the shares repurchased in fiscal
1996 (6.7 million out of a 10 million share authorization) added slightly more
than 1 cent to earnings per share in the quarter ended September 30, 1996.
On September 30, 1996, the Company and Autoliv AB jointly announced the
signing of a letter of intent to merge Morton's Automotive Safety Products
business with Autoliv. The business combination will result in the formation
of a new U.S. holding company, Autoliv, Inc. The transaction is intended to be
a merger of equals, in which Autoliv AB's shareholders will exchange their
Autoliv shares for 53.5 percent of the equity of Autoliv, Inc. and the
Company's shareholders
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will exchange their interest in Automotive Safety Products for 46.5 percent of
Autoliv, Inc.
Immediately prior to the business combination, the Company will contribute all
of its operations not directly related to ASP, together with $750 million of
cash, less any amount paid to close indebtedness with affiliates, funded by new
indebtedness which will remain the obligation of ASP, to a new company, "New
Morton International, Inc.", which will assume the Morton International name.
Shares of New Morton International will be distributed to the Company's
shareholders on a share-for-share basis at the effective date of the
transactions. Old Morton International, Inc., then owning the operations of
ASP, will become a wholly owned subsidiary of Autoliv, Inc. as a result of the
merger. The distribution of New Morton International shares and the exchange
of Autoliv, Inc. shares for Company shares are expected to be tax-free
transactions for U.S. federal income tax purposes.
The transactions described above are subject to, among other things, execution
of definitive agreements, approval by the Company's shareholders, acceptance
by holders of at least 90 percent of Autoliv AB's outstanding shares of an
exchange offer for Autoliv, Inc. shares, receipt by the Company of a ruling
from the U.S. Internal Revenue Service regarding certain tax aspects of the
transactions, and certain regulatory approvals.
Liquidity and Capital Resources
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Operating activities were a source of cash in the three month periods ended
September 30, 1996 and 1995, providing $121.9 million and $33.1 million,
respectively.
Net income provided cash of $78.7 million in the first quarter of fiscal 1997
compared to $67.3 million last year. Depreciation and amortization was $1.6
million higher in the current period. As a result of improved working capital
management, changes in operating assets and liabilities resulted in a $1.4
million use of funds during the first three months of fiscal 1997 compared to
a $76.6 million use of funds during the same period last year.
Investing activities in the first quarter of fiscal year 1997 were primarily
the result of capital spending, which used $55.9 million of cash compared to
$47.4 million in the same period last year. The increase in capital spending
this quarter compared to the same quarter last year is attributable to the
ramp-up for side-impact inflators, as well as other new technologies, at the
airbag facilities in Utah. 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 1997 were a $8.7
million use of funds compared to a $7.0 million use of funds during the same
period in the prior year. Dividend payments for the three months ended
September 30, 1996 increased to $21.4 from $19.3 in the same period last year.
This change is due primarily to the increase in the dividend rate paid per
share offset by the reduction in shares outstanding due to the share
repurchase program.
The Company's current ratio at September 30, 1996 was 2.1 unchanged from June
30, 1996. Total debt as a percentage of total capitalization at September 30,
1996 was 13.0% compared to 12.9% at June 30, 1996.
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As of September 30, 1996, the Company has unexpended authorizations for fixed
asset spending of $224.1 million. These authorizations related primarily to
the expansion of the airbags business, at a reduced level, 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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EPA Inquiry - Moss Point Plant. During the period covered by this report, two
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federal grand jury subpoenas have been served on the Company seeking documents
related to waste water discharges at the above plant. The Company has
furnished the requested documents.
Item 6. Exhibits and Reports on Form 8-K
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During the fiscal quarter ended September 30, 1996, one 8-K report was filed:
the item reported was Item 5- Other Events; no financial statements or
exhibits were filed therewith, and the date of the report was September 30,
1996.
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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.
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(Registrant)
Date: November 5, 1996 BY: /s/L. F. Zumbach
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L. F. Zumbach
Controller
(Principal Accounting Officer)
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<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> SEP-30-1996
<CASH> 46500
<SECURITIES> 86800
<RECEIVABLES> 641000
<ALLOWANCES> (10800)
<INVENTORY> 393800
<CURRENT-ASSETS> 1296700
<PP&E> 2194300
<DEPRECIATION> (1038100)
<TOTAL-ASSETS> 2881700
<CURRENT-LIABILITIES> 605400
<BONDS> 218500
0
0
<COMMON> 148400
<OTHER-SE> 1584600
<TOTAL-LIABILITY-AND-EQUITY> 2881700
<SALES> 875900
<TOTAL-REVENUES> 885800
<CGS> 621600
<TOTAL-COSTS> 752400
<OTHER-EXPENSES> 2500
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6000
<INCOME-PRETAX> 124900
<INCOME-TAX> 46200
<INCOME-CONTINUING> 78700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> 78700
<EPS-PRIMARY> .54
<EPS-DILUTED> .54
</TABLE>
