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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, 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.
(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 December 31, 1995
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Common Stock, $1.00 par value 147,061,200 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 Six months ended
December 31, 1995 and 1994 3
Consolidated Balance Sheets - December 31, 1995
and June 30, 1995 4
Consolidated Statements of Cash Flows -
Six months ended December 31, 1995 and 1994 5
Notes to Consolidated Financial Statements -
December 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 4. Submissions of Matters to a Vote of Security-Holders 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
1995 1994 1995 1994
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<S> <C> <C> <C> <C>
Net sales $ 916.1 $ 830.9 $ 1,725.7 $ 1,576.4
Interest, royalties, and sundry income 30.8 5.3 39.1 10.4
------- ------- ------- -------
946.9 836.2 1,764.8 1,586.8
Deductions from income:
Cost of products sold 645.2 586.0 1,225.6 1,107.1
Selling, administrative, and general expense 111.7 106.2 213.3 210.8
Research and development expense 21.9 17.7 41.5 34.2
Interest expense 6.3 7.4 12.4 14.2
Amortization of goodwill 2.6 2.6 5.1 5.1
------- ------- ------- -------
787.7 719.9 1,497.9 1,371.4
------- ------- ------- -------
Income before income taxes 159.2 116.3 266.9 215.4
Income taxes 59.7 43.6 100.1 80.8
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Net Income 99.5 72.7 166.8 134.6
Retained earnings at beginning of period 1,465.6 1,234.2 1,417.6 1,188.6
Cash dividends: $.13 and $.11 per share for the
three months ended December 31, 1995 and 1994,
respectively; $.26 and $.22 per share for the
six months ended December 31, 1995 and 1994,
respectively. (19.3) (16.2) (38.6) (32.5)
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Retained earnings at end of period $ 1,545.8 $ 1,290.7 $ 1,545.8 $ 1,290.7
======= ======= ======= =======
Net income per share $ .66 $ .49 $ 1.11 $ .90
======= ======= ======= =======
Shares used in computation (in thousands) 150,452 150,019
</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
1995 1995
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(Note)
<S> <C> <C>
ASSETS
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Current assets
Cash and cash equivalents $ 62.2 $ 88.3
Receivables 654.6 561.5
Deferred income tax benefits 24.3 24.3
Inventories 426.7 397.2
Prepaid expenses 107.3 96.9
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Total current assets 1,275.1 1,168.2
Other assets
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Cost in excess of net assets of businesses acquired,
less amortization 319.5 324.1
Investments in affiliates 81.8 79.2
Miscellaneous 63.5 65.0
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464.8 468.3
Property, plant and equipment, at cost 2,088.5 2,006.0
Less allowances for depreciation 959.6 886.5
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1,128.9 1,119.5
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$ 2,868.8 $ 2,756.0
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LIABILITIES AND SHAREHOLDERS' EQUITY
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Current liabilities
Notes payable and current portion of long-term debt $ 61.5 $ 42.3
Accounts payable 285.7 284.1
Accrued salaries, wages and other compensation 55.2 66.1
Other accrued expenses 134.9 131.7
Income taxes 49.1 29.9
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Total current liabilities 586.4 554.1
Long-term debt, less current portion 218.5 218.5
Deferred income taxes 54.7 54.5
Accrued postretirement benefits other than pensions 155.1 152.1
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 $1.00 per share)
Authorized - 300.0 shares
Issued, including shares in treasury - 148.4 shares
and 148.3 shares at December 31 and June 30, 1995 148.4 148.3
Additional paid-in capital 62.4 62.2
Retained earnings 1,545.8 1,417.6
Foreign currency translation adjustment and other 29.3 35.4
1,785.9 1,663.5
Less cost of common stock in treasury - 1.3 shares (45.9) --
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Total shareholders' equity 1,740.0 1,663.5
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$ 2,868.8 $ 2,756.0
</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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MORTON INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN MILLIONS)
<TABLE>
<CAPTION>
Cash Provided (Used)
Six Months Ended
December 31
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1995 1994
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<S> <C> <C>
Operating Activities
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Net income $ 166.8 $ 134.6
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 90.8 79.6
Deferred income taxes 0.2 0.2
Undistributed earnings of affiliates (2.6) (3.7)
Changes in operating assets and liabilities
net of effects of businesses acquired:
Increase in receivables (96.5) (56.8)
Increase in inventories and prepaid expense (42.5) (59.0)
Decrease in accounts payable and accrued
expenses (5.0) (23.9)
Increase/(decrease) in accrued income taxes 22.3 (8.3)
Other - net 3.7 7.2
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Net cash provided by operating activities 137.2 69.9
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Investing Activities
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Purchase of property, plant and equipment (100.0) (127.7)
Proceeds from property and other asset disposals 1.5 0.8
Cash invested in businesses acquired (0.6) (10.7)
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Net cash used for investing activities (99.1) (137.6)
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Financing Activities
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Purchase of common stock for treasury (52.8) --
Increase in notes payable 21.7 105.0
Repayment of long-term debt (0.1) (0.1)
Stock option transactions 4.6 3.9
Dividends paid (38.6) (32.5)
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Net cash (used for) provided by financing activities (65.2) 76.3
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Effect of foreign exchange rate changes on cash
and cash equivalents 1.0 (2.1)
Increase in cash and cash equivalents (26.1) 6.5
Cash and cash equivalents at beginning of year 88.3 58.7
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Cash and cash equivalents at end of period $ 62.2 $ 65.2
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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 six months ended December 31, 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
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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
1995 1995
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<S> <C> <C>
Finished products and work-in-process $298.1 $287.0
Materials and supplies 128.6 110.2
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$426.7 $397.2
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</TABLE>
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Item 2. Management's Discussion and Analysis of Financial
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Condition and Results of Operations
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Results of Operations
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Sales increased 10 percent in the second quarter of fiscal 1996 over last
year's second quarter and earnings per share increased 35 percent for the same
two periods. Included in earnings was $24.1 million pretax income, $15.1
million or 10 cents per share after tax, relating to environmental insurance
settlements. Excluding the 10 cents, earnings per share were 56 cents, a 14
percent increase. Sales for the second quarter were $916.1 million versus
$830.9 million in the prior year. Net income for the quarter was $99.5
million compared with $72.7 million in the second quarter of fiscal 1995.
For the six months ended December 31, 1995, sales were $1.7 billion, up nine
percent over the prior year. Including the environmental insurance
settlements, net income for the first six months of fiscal 1996 was $166.8
million, a 24 percent increase over the same period in fiscal 1995. Earnings
per share of $1.11 as of December 31, 1995 was up 23 percent over last year.
All three business segments did well in the fiscal 1996 second quarter.
Specialty chemicals saw strong sales growth overall despite North American
economic weakness. Airbag results, while affected by automotive products
slowdowns, showed good growth and continued productivity improvements. Salt
results improved primarily due to the early and strong winter ice control
season.
Morton's specialty chemicals sales rose eight percent in the quarter ending
December 31, 1995 to $391.5 million and operating profits grew by 13 percent
to $49.6 million.
Strong sales performers in the second quarter of fiscal 1996 included the
following product lines: European packaging and industrial adhesives, dyes,
performance chemicals, powder coatings and electronic materials.
Contributing substantially to the improved quarterly operating income were
dyes, performance chemicals, and electronic materials.
In the quarter, the Company saw raw material costs somewhat stabilize,
contributing to the improvement in specialty chemicals operating income.
Other factors include the impact of foreign translation, which boosted
earnings by $.7 million, and increased product prices to offset raw material
price increases.
Specialty chemical sales for the first six months of fiscal 1996 were $786.6
million, up six percent and operating profits of $106.0 million were up three
percent over the same period last year. The growth in sales year over year
was largely attributable to the European packaging and industrial adhesives,
performance chemicals, polymer systems, electronic materials, powder coatings
and waterbased polymer product lines. Performance chemicals, polymer systems
and electronic materials accounted for the improvement in earnings.
Sales grew faster than earnings for the six months ended December 31, 1995, as
earnings reflected the impact of lower volumes and higher raw material prices
on operating margins in the first quarter. Year-to-date chemical sales and
earnings were favorably impacted by the effects of foreign exchange translation
of $12.5 million and $1.8 million, respectively.
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Salt sales in the second quarter of fiscal 1996 were $168.0 million, up 12
percent, and operating income rose nine percent to $37.6 million. The biggest
factor in the second quarter performance was the strong sales of ice control
salt as a result of customer demand late in the quarter, especially in the
Company's Canadian operations. Second quarter ice control sales were up
nearly 35 percent over the prior year.
The Company expected difficult comparisons with last year's second quarter
results because last year customers filled up largely depleted inventories
while this year customer inventories reflected the mild winter of 1994-5.
However, storms in some of Morton's key ice control markets resulted in
customers needing to refill their stockpiles. Coupled with good performance
from water conditioning salt, sales and profits in this segment were much
better than expected.
For the first six months of fiscal 1996, salt sales were up six percent to
$279.5 million and operating income of $57.3 million was flat compared with
the same period last fiscal year. Consistent with the second quarter results,
year-over-year sales improvement is primarily the result of performance in the
ice control and water conditioning product lines. Year-to-date operating
income reflects the effect of relatively flat pricing for ice control salt and
the impact of packaging and ingredient cost increases which have not been
fully recovered by price increases for non-ice products.
Airbag sales of $356. 6 million were up 12 percent in the quarter ended
December 31, 1995, while operating profits rose 13 percent to $71.7 million.
Slower automotive production levels in North America, particularly at some key
customers, meant that sales fell short of expectations. However, as a result
of management actions taken earlier to improve production efficiencies,
operating profits increased faster than sales.
Sales of driver-side and passenger-side inflators grew dramatically at the
following customers during the second quarter and first six months of fiscal
1996: Volkswagen, General Motors, Nissan, Toyota, and Mercedes. Also during
the same periods the Company recorded substantially increased sales of
driver-side and passenger-side modules (inflators and bags) for these
customers: Ford, General Motors, BMW, Honda, Mitsubishi and Toyota. Prices
for both inflators and modules continued to fall in the second quarter but
the company more than offset the price declines through production
efficiencies, resulting in slight operating margin improvement.
As previously noted, second quarter earnings for the company included
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. These
settlements involved policies written by various insurance companies from the
1940's through the mid 1980's. Due to the age of these issues, related
expenses have previously been charged to earnings either through actual
expenditures for remediation or through the establishment of environmental
accruals. As such, the settlement payments received have been included in
other income in the quarter.
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Liquidity and Capital Resources
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Operating activities were a source of cash in the six month period ended
December 31, 1995 providing $137.2 million, compared to the same period in the
prior year when operations provided $69.9 million.
Net income provided $166.8 million in the first six months of fiscal year 1996
compared to $134.6 million last year. Depreciation and amortization was $11.2
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. Changes in operating assets and liabilities resulted in a
$118.0 million use of funds this year compared to a $140.8 million use of
funds during the first six months of last year. This decrease in the use of
funds is primarily attributable to improved working capital management.
Investing activities in the first six months of fiscal year 1996 were
primarily the result of capital spending, which used $100.0 million of cash
compared to $127.7 million in the same period last year. The major reduction
in capital spending this period compared to the same period 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 six month period ended December 31, 1995 were a
$65.2 million use of funds compared to funds provided of $76.3 million during
the same period in the prior year. Short-term notes payable increased $21.7
million in the current period compared with a $105.0 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 December 31, 1995, the
Company repurchased approximately 1.6 million shares of its common stock for
approximately $52.8 million.
Dividend payments for the first six months of fiscal year 1996 increased to
$38.6 from $32.5 in the same period last year, due primarily to the increase in
the dividend rate paid per share.
The Company's current ratio at December 31, 1995 was 2.2 compared to 2.1 at
June 30, 1995. Total debt as a percentage of total capitalization at December
31, 1995 was 13.5% compared to 13.2% at June 30, 1995.
As of December 31, 1995 the Company has unexpended authorizations for fixed
asset spending of $192.6 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.
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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PART II - OTHER INFORMATION
Item 4. Submissions of Matters to a Vote of Security-Holders
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The Company's annual shareholders' meeting was held on October 26, 1995. 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>
AUTHORITY
WITHHELD
SHARES FOR (Shares)
<S> <C> <C>
Richard L. Keyser 126,375,240 1,414,671
Frank W. Luerssen 126,118,791 1,671,120
Roger W. Stone 126,358,738 1,431,173
</TABLE>
2. The appointment of Ernst & Young LLP as the Company's independent
auditors for the fiscal year ending June 30, 1996, was ratified in
accordance with the following votes:
FOR 127,789,911 shares
AGAINST 99,833 shares
ABSTAIN 289,280 shares
Item 6. Exhibits and Reports on Form 8-K
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The Company did not file any 8-K Reports during the fiscal quarter ended
December 31, 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: February 12, 1996 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> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> DEC-31-1995
<CASH> 55700
<SECURITIES> 6500
<RECEIVABLES> 667900
<ALLOWANCES> (13300)
<INVENTORY> 426700
<CURRENT-ASSETS> 1275100
<PP&E> 2088500
<DEPRECIATION> (959600)
<TOTAL-ASSETS> 2868800
<CURRENT-LIABILITIES> 586400
<BONDS> 218100
<COMMON> 148400
0
0
<OTHER-SE> 1591600
<TOTAL-LIABILITY-AND-EQUITY> 2868800
<SALES> 1725700
<TOTAL-REVENUES> 1764800
<CGS> 1225600
<TOTAL-COSTS> 1480400
<OTHER-EXPENSES> 5100
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12400
<INCOME-PRETAX> 266900
<INCOME-TAX> 100100
<INCOME-CONTINUING> 166800
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 166800
<EPS-PRIMARY> 1.11
<EPS-DILUTED> 1.11
</TABLE>
