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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended June 30, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the Transition period from
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Commission file number 1-10270
MORTON INTERNATIONAL, INC.
<TABLE>
<S> <C>
Incorporated in the State of Indiana IRS Employer Identification
No. 36-3640053
</TABLE>
Principal Executive Offices:
100 North Riverside Plaza, Chicago, Illinois 60606-1596
Telephone Number: (312) 807-2000
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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<S> <C>
Common Stock, par value New York Stock Exchange
$1.00 per share Chicago Stock Exchange
Common Stock Purchase Rights New York Stock Exchange
Chicago Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: NONE
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
Aggregate market value of registrant's voting stock held by non-affiliates,
based upon the closing price of said stock on the New York Stock
Exchange-Composite Transaction Listing on August 22, 1996 ($37.875 per share):
$5,375,013,695.
Number of shares of Common Stock outstanding as of August 22, 1996:
142,476,728
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of Annual Report to Shareholders for the fiscal year ended June
30, 1996: Parts I, II and IV.
2. Portions of definitive Proxy Statement dated September 12, 1996: Parts
III and IV.
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<PAGE>
PART I
ITEM 1. BUSINESS*
BUSINESS SEGMENTS
The Company** operates in three business segments: Specialty Chemicals,
Salt, and Automotive Safety Products, manufacturing and marketing a wide range
of products for industrial and consumer use in the United States ("U.S.") and
internationally. The Company's international business is subject to those risks
inherent in carrying on business outside of the U.S., including currency
fluctuations, possible nationalization, expropriation, price controls or other
restrictive government action.
SPECIALTY CHEMICALS
The Specialty Chemicals segment manufactures a wide variety of high
technology and specialized chemical products for a multitude of customer
applications. It conducts chemical operations directly and through direct or
indirect subsidiaries and joint venture arrangements. Specialty chemical
products are marketed throughout the world directly to customers and indirectly
through distributors and agents. Although Western Europe, North America and
Japan are the major geographic markets served, activity in Southeast Asia is
growing. In fiscal 1996, the Specialty Chemicals segment, which had previously
consisted of four product groups, was reorganized into the three groups
described below.
ADHESIVES & CHEMICAL SPECIALTIES
A major product line for this group is adhesives used for flexible
packaging, extrudable specialties and industrial applications. Laminating
adhesives are used primarily in food packaging to bond paper, film, or foil.
Extrudable specialty products are used in the coextrusion process to manufacture
multi-layer plastic film, sheet and bottles. Industrial adhesives are used for
bonding rigid substrates, such as rubber to metal or panels used in
construction.
In addition, this group manufactures liquid dyes to color petroleum products
for identification purposes and other dyes and coloring products used in
printing and writing inks; sodium borohydride, a reducing agent used principally
as a bleaching chemical in paper manufacturing; polysulfide polymers used in the
production of sealants, rubber products, coatings and solid rocket fuel; heat
stabilizers and lubricants used in rigid polyvinyl chloride ("PVC") applications
in the construction industry, principally for pipe and siding; industrial
biocides for the protection of plastic products; and metalorganics used in the
semiconductor industry.
Other major product lines manufactured by this group include thermoplastic
polyurethanes, waterbased polymers, and automotive adhesives. Advanced
Materials, a subsidiary, employs the chemical vapor deposition process to
manufacture crystalline substrates for lenses used in lasers and optical
devices; as well as silicon carbide for semiconductor processing equipment, wear
parts, reflective optics and computer hard drive heads and disks.
COATINGS
This group manufactures and markets a wide range of automotive, commercial,
and industrial coatings products, including customized performance liquid
coatings, principally used on plastic components and parts in automotive
markets; protective and decorative powder coatings employed on metal substrates
in
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* EXCEPT FOR HISTORICAL INFORMATION, THE MATTERS DISCUSSED IN THIS FORM 10-K
REPORT ARE FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES,
INCLUDING THE TIMELY DEVELOPMENT AND ACCEPTANCE OF NEW PRODUCTS, THE IMPACT OF
COMPETITIVE PRODUCTS AND PRICING, CHANGING MARKET CONDITIONS AND THE OTHER RISKS
DETAILED THROUGHOUT THIS REPORT. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE
PROJECTED. THESE FORWARD- LOOKING STATEMENTS REPRESENT THE COMPANY'S JUDGMENT AS
OF THE FILING DATE OF THIS REPORT. THE COMPANY DISCLAIMS, HOWEVER, ANY INTENT OR
OBLIGATION TO UPDATE SUCH STATEMENTS.
** The term "Company" as used herein refers to Morton International, Inc. and
its subsidiaries, unless otherwise indicated.
1
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ITEM 1. BUSINESS*--(Continued)
commercial and automotive markets; coil coatings, extrusion coatings and other
general industrial coatings for application to aluminum and steel substrates;
and conventional and durable highway marking coatings products and application
equipment.
ELECTRONIC MATERIALS
This group manufactures chemicals for the electronics market, principally
dry film photoresists sold to printed circuit board manufacturers and used to
create circuit patterns on copper-clad laminate by means of a photo-imaging
process. Electronic Materials also makes both dry film and liquid photoimageable
solder masks to protect finished circuit boards, as well as a broad line of
ancillary process chemicals and equipment.
SALT
The Salt segment produces and sells salt, principally in the U.S. and
Canada, under (respectively) the MORTON and WINDSOR trademarks, for human and
animal consumption, water conditioning and highway ice melting, as well as for
industrial and chemical uses. Sales are made through the Company sales force, as
well as through independent distributors, agents and brokers.
Table salt is sold under the MORTON and WINDSOR brands and under private
labels. Sales of MORTON brand table salt in the U.S. are approximately equal to
the aggregate sales of all other table salts. Salt for water conditioning is
sold principally for residential use and, to a lesser extent, for municipal and
industrial use. Salt is also sold for use in food and meat processing and in a
wide variety of chemical applications. Salt for ice melting on streets and
highways is sold primarily to government agencies, with some ice melting salt
being sold for domestic use under the SAFE-T-SALT brand.
AUTOMOTIVE SAFETY PRODUCTS
This segment designs, develops, manufactures and sells gas generators
("inflators"), modules and cushions for use in driver, passenger, side-impact
and knee bolster automotive airbag passive restraint systems. A module consists
of an inflator, airbag and cover. The Company is also developing adaptive airbag
systems, for which it is developing SMART-TM- inflators and SMARTBAG-TM-
modules, advanced non-azide pyrotechnic inflators and modules, as well as
integrated steering wheels.
Products manufactured by this group are marketed throughout the world
directly to automobile manufacturers. In the U.S., federal legislation will
require driver- and passenger-side airbags in all passenger cars by model year
1998, and in all light trucks, vans and sport utility vehicles by model year
1999. Currently, U.S. automakers are producing dual-airbag vehicles ahead of the
schedule mandated by law. In Europe, nearly all new cars are expected to have
dual airbags by the end of the decade, and a similar rate of airbag introduction
is anticipated for the domestic Japanese market.
A 50% owned joint venture with the Bendix Safety Restraints Group of
Allied-Signal Inc. assembles passenger-side airbag modules. Such modules are
marketed directly to applicable automobile manufacturers by the Company and the
Bendix Safety Restraints Group.
The Company produces airbag inflators, modules and components in the U.S.
and Europe. The Company has technical centers and support facilities in the U.S.
and internationally to provide liaison with customers.
COMPETITION
The majority of the Specialty Chemicals segment's business is highly
competitive. The Company is the market leader in most of its product lines and
is subject to significant competition from other manufacturers around the globe.
Principal methods of competition include technical service for specialized
customer requirements, price and quality.
2
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ITEM 1. BUSINESS*--(Continued)
All areas in which the Salt segment operates are highly competitive.
Although the salt segment is a major factor in the salt industry, its market
share varies widely, depending on the geographic area and the type of product
involved. This segment uses price, quality, service, product performance, and
technical, advertising and promotional support as its principal methods of
competition.
Currently, the Automotive Safety Products segment competes with a number of
other firms, some of which are large, well-qualified and possess sufficient
resources to compete effectively for the business of a relatively small number
of automobile manufacturers selling large numbers of cars in the U.S., Europe
and Asia. The continuing rapid expansion of the automotive airbag industry has
led to a number of new entrants into the market. This segment uses technology,
price, quality and delivery as its principal methods of competition.
RESEARCH AND DEVELOPMENT
Expenses incurred for research and development activities related to Company
businesses were $80.2 million, $72.5 million, and $66.1 million for fiscal 1996,
1995 and 1994, respectively.
ENVIRONMENTAL PROTECTION
Federal, state and local environmental laws and regulations are increasing
in number, complexity and stringency. Public perception of risk to health,
safety and the environment has become the driving force behind many new
regulations. It is the Company's policy to comply with these requirements, and
the Company believes that as a general matter its policies, practices and
procedures are properly designed to prevent unreasonable risk of environmental
damage, and of resulting financial liability, in connection with its businesses.
Some risk of environmental damage is, however, inherent in particular operations
and products of the Company, as it is with other companies engaged in similar
businesses. In addition, some risk of financial liability can result from rare
instances of aberrant environmental conduct at the plant level. See Item 3,
Legal Proceedings, EPA INQUIRY--MOSS POINT PLANT, below. The Company recently
took measures to improve its environmental auditing and oversight procedures.
The Company is and has been engaged in the handling, manufacture, use and
disposal of many substances which are classified as hazardous or toxic by one or
more regulatory agencies. The Company believes that its handling, manufacture,
use and disposal of such substances have generally been in accord with
environmental laws and regulations. It is possible, however, that future
knowledge or other developments, such as improved capability to detect
substances in the environment, increasingly strict environmental laws and
standards and enforcement policies thereunder, could bring into question the
Company's handling, manufacture, use or disposal of such substances.
Among other environmental requirements, the Company is subject to the
federal Superfund law, and similar state laws, under which the Company has been
named a potentially responsible party and under which it may be liable for
cleanup costs associated with approximately 60 inactive waste disposal sites.
The Company's cleanup expenditures totaled approximately $6.8 million in fiscal
1996. Although, under some court interpretations of these laws, there is a
possibility that a responsible party might have to bear more than its
proportional share of the cleanup costs if it is unable to obtain appropriate
contribution from other responsible parties, the Company has not had to bear
significantly more than its proportional share in multiparty situations taken as
a whole.
Although the level of future expenditures for environmental matters cannot
be determined with any degree of certainty, based on the facts presently known
to it, management does not believe that such costs will have a material effect
on the Company's financial position, results of operations or liquidity. Capital
expenditures related to environmental matters were $12.6 million for fiscal 1996
and are estimated at $8.2 million for fiscal 1997.
3
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ITEM 1. BUSINESS*--(Continued)
EMPLOYEES
The number of employees of the Company at June 30, 1996 was approximately
14,100, compared to 13,800 at June 30, 1995.
RAW MATERIALS
The Company's businesses use many raw materials in the manufacture of their
products, nearly all of which are generally available from a large number of
qualified suppliers. Peaks in worldwide demand have had an impact on raw
material costs and availability, particularly with single or sole sourced
supplies. The Company's businesses, however, have not experienced significant or
long-term difficulty in obtaining raw materials.
SEASONALITY; BACKLOG
Sales of highway ice control salt are quite seasonal, and vary with winter
weather conditions in areas where that product is used. In keeping with industry
practice, ice control salt is stockpiled both by the salt segment and by its
customers in sufficient quantities to meet estimated requirements for the next
season.
Sales of products by the specialty chemicals and automotive safety products
segments do not exhibit significant seasonal fluctuations. There are no material
backlogs in the Company's businesses.
PATENTS AND TRADEMARKS
The Company's businesses conduct comprehensive research and development
programs to enable them to maintain their competitive position. The Company owns
approximately 3,000 patents and patent applications, which expire on varying
dates through the year 2016.
The Company's businesses are engaged in research and development and own
patents and patent applications in the fields of photochemicals for the printed
circuit board industry, sodium borohydride reducing and bleach generating agents
and other products, industrial biocides, heat stabilizers for PVC, asphalt
additives, chemically vapor deposited lenses, polysulfide polymers, sealants and
other polymers, specialty and powder coatings, adhesives, dyes, salt and brine
products, and airbag inflators, modules and gas generants. The Company believes
that its present commercial position in these fields is enhanced by the patents
it owns as well as the technical expertise, know-how, and trade secrets it has
developed.
New patents are important to the airbag business' development of
state-of-the-art technologies for new products.
The Company has about 1,900 U.S. and foreign trademarks and trademark
applications which are generally renewable while the marks remain in use.
CUSTOMERS
Neither the Specialty Chemicals nor Salt segments is dependent upon any
single customer, or any single group of customers, the loss of any one of which
would have a material adverse effect on such business segment. However, the loss
of certain existing customers of the Automotive Safety Products segment,
including General Motors, whose sales exceeded 10 percent of consolidated net
sales, currently could have a material adverse effect on such business.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Financial information about industry segments for the three fiscal years in
the period ended June 30, 1996 is included on page 38 of the Company's Annual
Report to Shareholders for fiscal 1996, and is incorporated herein by reference.
4
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ITEM 2. PROPERTIES
The Company leases its corporate headquarters in Chicago, Illinois. The
principal properties of its business segments include manufacturing, mining,
office, research and warehousing facilities, most of which are owned and the
remainder leased, at the following domestic and foreign locations:
<TABLE>
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UNITED WESTERN
STATES EUROPE CANADA JAPAN OTHER TOTAL
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<S> <C> <C> <C> <C> <C> <C>
SPECIALTY CHEMICALS
ADHESIVES & CHEMICAL SPECIALTIES GROUP.......... 26 14 1 2 3 46
COATINGS GROUP.................................. 21 1 1 1 2 26
ELECTRONIC MATERIALS GROUP...................... 4 5 -- 1 4 14
SALT.............................................. 14 -- 7 -- 2 23
AUTOMOTIVE SAFETY PRODUCTS........................ 6 5 -- 3 -- 14
</TABLE>
The Company considers its facilities to be generally well maintained and
suitably equipped in accordance with the requirements of each of its business
segments.
With respect to the Salt Group, total salt production in fiscal 1996 was
approximately 11.2 million tons.
Rock salt and brine well reserves vary, but all salt production locations
have sufficient reserves to satisfy anticipated production requirements for the
foreseeable future. Salt reserves for solar evaporation facilities are regarded
as unlimited.
ITEM 3. LEGAL PROCEEDINGS
LITIGATION AND REGULATION
NEW JERSEY DEPARTMENT OF ENVIRONMENTAL PROTECTION V. VENTRON CORPORATION, ET
AL., SUPERIOR COURT OF BERGEN COUNTY, NEW JERSEY, FILED ON MARCH 31, 1976. After
a 55-day trial held in 1979 and unsuccessful appeals to the Appellate Division
and to the Supreme Court of New Jersey, Ventron (a corporate predecessor of the
Company) and its co-defendant, Velsicol Chemical Corporation ("Velsicol") were
each held jointly and severally liable for the cost of remediation necessary to
correct mercury-related environmental problems associated with a former mercury
processing plant located adjacent to Berry's Creek in Wood-Ridge, New Jersey.
Subsequent to the liability holding, the Company, Velsicol and the New Jersey
Department of Environmental Protection ("NJDEP") entered into a judicial consent
order under which the Company and Velsicol agreed, subject to certain conditions
and limitations, to share the costs of technical studies to determine the
appropriate remedy for environmental problems associated with the former
Wood-Ridge operation. Under the terms of the judicial consent order, a Berry's
Creek\Wood-Ridge Site Action Committee was established and thereafter adopted
resolutions under which NJDEP authorized the Company and Velsicol to perform a
remedial investigation\feasibility study ("RI\FS") of the Wood-Ridge plant site.
The resolutions also confirmed that a separate and coordinated basin-wide,
multi-party approach would be taken to address the multiple sources of
contamination in Berry's Creek in which the Company, Velsicol and other parties
responsible for the contamination would participate. The Wood-Ridge plant site
RI\FS will begin in early fiscal 1997, and is scheduled to take approximately 42
months to complete. The Berry's Creek RI\FS is expected to proceed on a
timetable yet to be determined. Because of the absence of site-specific data,
the unique nature of mercury plant wastes, and the complex characteristics of
the Wood-Ridge plant site and Berry's Creek, no reliable estimate can be made of
the Company's liability (or range of exposure) until information sufficient to
permit such determination is available from the investigations and studies
referred to above. The Company's ultimate exposure will also depend upon the
continued participation of Velsicol and on the results of both formal and
informal attempts to spread liability to others believed to share
responsibility. In this vein, the Company and Velsicol filed suit in the United
States District Court for the District of New Jersey in July, 1996 alleging that
the defendants, numbering in excess of 100, were additionally responsible at
least in part for the costs of technical studies and any remedial actions that
may be required. Defendants are present and former owners or operators of
neighboring industrial facilities and waste disposal sites, former
toll-processing customers of the mercury plant, and others believed to share
5
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ITEM 3. LEGAL PROCEEDINGS--(Continued)
responsibility for environmental problems attributed to the Company and
Velsicol. With respect to Berry's Creek, it is also anticipated that New Jersey
authorities will employ administrative enforcement mechanisms to influence
potentially responsible parties to join in a coordinated, basin-wide multi-party
RI\FS. The Company is not entitled to indemnity under insurance policies for
environmental cleanup and related expenses resulting from operation of the
mercury plant.
EPA INQUIRY--MOSS POINT PLANT. In April, 1996 U.S. EPA Region 4 ("EPA")
notified the Company that irregularities had been discovered in water discharge
monitoring reports ("DMRs") filed by the Company's Moss Point, Mississippi
chemicals plant for the months of January and March, 1995, and in related
internal summary reports for February, 1995. An outside law firm specially
retained by the Company confirmed that DMRs and supporting information for the
January-March, 1995 period had in fact been falsified, and discovered that
similar falsifications had occurred as well both before and after that period.
In each case, the erroneous DMRs appeared to misrepresent the results of testing
performed by an outside laboratory on samples of effluent discharged by the
plant pursuant to its NPDES permit. Other possible environmental violations at
Moss Point were discovered during the review process, each of which is currently
being investigated through an expansion of the original investigation. The
Company is cooperating with the EPA, which it has kept informed on a continuing
basis. The plant's environmental coordinator, who admitted responsibility for
the falsifications, was discharged. As a result of the foregoing, the Company
may be exposed to fines, penalties and remedial expenses, the amounts of which
cannot presently be determined. No administrative or judicial enforcement
proceedings have been instituted and the Company has not been informed of the
EPA's intentions in this regard.
MISCELLANEOUS. The Company is involved in a number of additional pending
legal and administrative proceedings which are not expected, individually or in
the aggregate, to be material to its business or financial position. There are
governmental agencies with authority to limit or prohibit distribution of some
of the Company's products should they formally conclude that continued
distribution is unsafe to the population or the environment. There are currently
no challenges pending, the resolution of which would have a material effect upon
the Company's operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT (AS REQUIRED BY INSTRUCTION 3. TO ITEM
401(B) OF REGULATION S-K)
Generally, officers are elected by the Board of Directors at its first
meeting following the Annual Meeting of Shareholders, and they serve for the
succeeding year until the next such meeting, or until their successors are
elected and qualify. The next Annual Meeting of Shareholders will be held on
October 24, 1996.
Listed below are the executive officers of the Company as of the date
hereof:
<TABLE>
<CAPTION>
NAME AND AGE *POSITION
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<S> <C>
S. Jay Stewart (57)................ Chairman of the Board, Chief Executive
Officer and Director
William E. Johnston (55)........... President, Chief Operating Officer and
Director
Walter W. Becky II (53)............ Group Vice President and President, Salt
Group
Daniel D. Feinberg (53)............ Group Vice President and President,
Electronic Materials Group
James J. Fuerholzer (60)........... Group Vice President and President,
Adhesives and Chemical Specialties Group
Stephen A. Gerow (53).............. Group Vice President and President,
Coatings Group
</TABLE>
6
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EXECUTIVE OFFICERS OF THE REGISTRANT--(Continued)
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NAME AND AGE *POSITION
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Fred J. Musone (52)................ Group Vice President and President,
Automotive Safety Products Group
Raymond P. Buschmann (52).......... Vice President and Associate General
Counsel
Nancy A. Hobor (50)................ Vice President, Communications and Investor
Relations
Christopher K. Julsrud (48)........ Vice President, Human Resources
Donald L. Kidd (64)................ Vice President, Management Information and
Services
Thomas F. McDevitt (56)............ Vice President Finance and Chief Financial
Officer
P. Michael Phelps (62)............. Vice President and Secretary
James R. Stanley (64).............. Vice President for Legal Affairs and
General Counsel
Bruce G. Wolfe (53)................ Treasurer
Lisa F. Zumbach (39)............... Controller
<FN>
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* With the exception of Mr. Musone, who joined the Company from Federal-Mogul
Corporation in 1995, all of the executive officers have held senior management
or professional positions with the Company for more than the past five years.
For Federal-Mogul, Mr. Musone was President of Worldwide Manufacturing from
1993 to 1995 and President, Chassis Product Operations from 1989 to 1993.
</TABLE>
7
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Information concerning the market for the Company's common equity and
related security holder matters is included on the inside front cover of the
Company's Annual Report to Shareholders for fiscal 1996, and is incorporated
herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data for the ten fiscal years in the period ended June
30, 1996 are included on pages 4-5 of the Company's Annual Report to
Shareholders for fiscal 1996, and are incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations for the three fiscal years in the period ended June 30, 1996, is
included on pages 23-26 of the Company's Annual Report to Shareholders for
fiscal 1996, and is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated balance sheets of the Company as of June 30, 1996 and 1995,
and the consolidated statements of income and cash flows for each of the three
years in the period ended June 30, 1996, and notes to consolidated financial
statements which are included on pages 27-38 of the Company's Annual Report to
Shareholders for fiscal 1996 are incorporated herein by reference. Quarterly
results of operations on the inside front cover of the Annual Report to
Shareholders for fiscal 1996 are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the directors and nominees for director of the
Company is included on pages 2-5 of the Company's definitive Proxy Statement
dated September 12, 1996, and is incorporated herein by reference.
Information concerning the executive officers of the Company is included on
pages 6-7, Part I hereof.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning executive compensation for fiscal 1996 is included on
pages 8-18 of the Company's definitive Proxy Statement dated September 12, 1996,
and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information concerning beneficial ownership of the Company's common stock is
included on page 7 of the Company's definitive Proxy Statement dated September
12, 1996, and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relationships and related transactions is
included on page 8 of the Company's definitive Proxy Statement dated September
12, 1996, under the caption "Compensation Committee Interlocks and Insider
Participation," and is incorporated herein by reference.
8
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) DOCUMENTS FILED AS PART OF THIS REPORT
1. FINANCIAL STATEMENTS
The following consolidated financial statements of the Company and its
subsidiaries, included on pages 27-38 of the Company's Annual Report to
Shareholders for the fiscal year ended June 30, 1996, are incorporated herein by
reference:
Consolidated Statements of Income--Years ended June 30, 1996, 1995 and 1994
Consolidated Balance Sheets--June 30, 1996 and 1995
Consolidated Statements of Cash Flows--Years ended June 30, 1996, 1995 and
1994
Notes to Consolidated Financial Statements
2. FINANCIAL STATEMENT SCHEDULES
The following consolidated financial information for the fiscal years 1996,
1995 and 1994 is submitted herewith:
<TABLE>
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PAGE
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<S> <C> <C>
Report of Independent Auditors............................................................ F-1
Schedule II --Valuation and Qualifying Accounts..................................... F-2
</TABLE>
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
3. INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION METHOD OF FILING
- --------- ------------------------------------------------------ ------------------------------------------------------
<S> <C> <C> <C> <C>
(3) Articles of incorporation and by-laws
(a) Restated Articles of Incorporation of the Company Incorporated by reference to Exhibit 3.2 to
Registration Statement No. 33-28803
(b) By-laws of the Company amended through January 24, Incorporated by reference to Exhibit (3)(b) to the
1991 Company's Report on Form 10-K for fiscal 1991
(4) Instruments defining the rights of security holders, including
indentures
(a) Rights Agreement dated as of June 12, 1989 between the Incorporated by reference to Exhibit 4.1 to
Company and The First National Bank of Chicago Registration Statement No. 33-28803
(b) Amendment dated January 24, 1991, to Rights Agreement Incorporated by reference to Exhibit (4)(a) to the
dated June 12, 1989 between the Company and The First Company's Report on Form 10-K for fiscal 1991
National Bank of Chicago
(c) Amendment No. 2 dated August 11, 1994, to Rights Incorporated by reference to the Company's Report on
Agreement dated June 12, 1989 between the Company and Form 8-A12B/A
The First National Bank of Chicago
(d) See Exhibits (3)(a) and (3)(b) above
</TABLE>
9
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<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION METHOD OF FILING
- --------- ------------------------------------------------------ ------------------------------------------------------
<S> <C> <C> <C> <C>
(10) Material contracts
(a) * Key Executive Long-Term Incentive Program effective Filed herewith electronically
for fiscal 1997-99
(b) * Key Executive Annual Bonus Program (Program 1) Filed herewith electronically
effective for fiscal 1997
(c) Staff Executive Annual Bonus Program (Program 2) Filed herewith electronically
effective for fiscal 1997
(d) * 1989 Incentive Plan, renamed by amendment effective Incorporated by reference to Exhibit (10)(d) to the
June 23, 1994 Company's Report on Form 10-K for fiscal 1994
(e) * Form of Nonqualified Stock Option Notice and Grant Filed herewith electronically
Agreement
(f) * Restricted Stock Award Notice and Grant Agreement, Filed herewith electronically
dated February 7, 1995, between the Company and F. J.
Musone
(g) * Morton Thiokol, Inc. Survivor Income Benefits Plan, Incorporated by reference to Exhibit 10.14 to
amended through March 24, 1983, assumed by the Registration Statement No. 33-28803
Company
(h) * Morton International, Inc. Executive Post-Retirement Incorporated by reference to Exhibit (10)(f) to the
Life Insurance Plan Company's Report on Form 10-K for fiscal 1992
(i) * Arrangements whereby the Company compensates its N/A
independent auditors for tax services to certain key
executives, concerning which arrangements there is no
written document
(j) * Form of Employment Agreement between the Company and Incorporated by reference to Exhibit (10)(g) to the
certain of its executive officers Company's Report on Form 10-K for fiscal 1990
(k) ** Executive Employment Agreement, dated April 1, 1994, Incorporated by reference to Exhibit (10)(i) to the
between the Company and S. J. Stewart Company's Report on Form 10-K for fiscal 1994
(l) ** Employment Agreement, dated February 3, 1995, between Filed herewith electronically
the Company and F. J. Musone
(m) ** Group Trigger Employment Agreement, dated February 6, Filed herewith electronically
1995, between the Company and F. J. Musone
(n) * Supplemental Executive Retirement Program Incorporated by reference to Exhibits 10.15 and 10.16
to Registration Statement No. 33-28803
(o) 1994 Non-Employee Directors Stock Plan Incorporated by reference to Exhibit (10)(k) to the
Company's Report on Form 10-K for fiscal 1995
(p) Non-Employee Directors Deferred Compen- Incorporated by reference to Exhibit (10)(l) to the
sation Plan Company's's Report on Form 10-K for fiscal 1995
(11) Statement re computation of per share earnings
(a) Statement re computation of per share earnings of the Filed herewith electronically
Company and subsidiaries, for the three years ended
June 30, 1996, 1995 and 1994
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION METHOD OF FILING
- --------- ------------------------------------------------------ ------------------------------------------------------
<S> <C> <C> <C> <C>
(13) Annual report to security holders
(a) Annual Report to Shareholders of the Company for Filed herewith electronically
fiscal 1996 (financial information only: inside front
cover, pages 4-5 and 23-39)
(22) Subsidiaries of the registrant
(a) Subsidiaries of the Company Filed herewith electronically
(27) Financial data schedule for year ended June 30, Filed herewith electronically
1996
</TABLE>
- ------------------------
*Exhibits 10(a), (b), (d), (e), (f), (g), (h), (i), (j), and (n) consist of
compensation plans or arrangements in which all of the Company's five most
highly compensated executive officers currently participate, except that only
F. J. Musone participates in Exhibit (10)(f), S. J. Stewart does not
participate in Exhibit 10(j) and only W. E. Johnston participates in Exhibit
10(n). These plans and, where applicable, the foregoing individuals' current
benefits under each (except Exhibit 10(i)) are described in the section
captioned "Executive Compensation" beginning on page 8 of the Company's
definitive Proxy Statement dated September 12, 1996, which descriptions are
incorporated herein by reference.
**Descriptions of these employment agreements are set forth on page 16 of the
Company's definitive Proxy Statement dated September 12, 1996, which
descriptions are incorporated herein by reference.
(b) REPORTS ON FORM 8-K
Not applicable
11
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) 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, AS OF THE 22ND DAY OF
AUGUST, 1996.
MORTON INTERNATIONAL, INC.
(REGISTRANT)
By /s/ T. F. MCDEVITT
------------------------------------
T. F. MCDEVITT
VICE PRESIDENT FINANCE AND
CHIEF FINANCIAL OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES INDICATED, AS OF THE 22ND DAY OF AUGUST, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- -------------------------------------------------- ----------------------------------------------------------
<S> <C>
Chairman of the Board, Chief Executive Officer
/S/ S. J. STEWART and Director (Principal Executive Officer)
--------------------------------------
S. J. STEWART
Vice President Finance and Chief Financial Officer
/S/ T. F. MCDEVITT (Principal Financial Officer)
--------------------------------------
T. F. MCDEVITT
Controller
/S/ L. F. ZUMBACH (Principal Accounting Officer)
--------------------------------------
L. F. ZUMBACH
/S/ R. M. BARFORD Director
--------------------------------------
R. M. BARFORD
/S/ J. R. CANTALUPO Director
--------------------------------------
J. R. CANTALUPO
/S/ W. T. CRESON Director
--------------------------------------
W. T. CRESON
/S/ W. J. FARRELL Director
--------------------------------------
W. J. FARRELL
/S/ D. C. FILL Director
--------------------------------------
D. C. FILL
/S/ W. E. JOHNSTON Director
--------------------------------------
W. E. JOHNSTON
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
- -------------------------------------------------- ----------------------------------------------------------
<S> <C>
/S/ R. L. KEYSER Director
--------------------------------------
R. L. KEYSER
/S/ F. W. LUERSSEN Director
--------------------------------------
F. W. LUERSSEN
/S/ E. J. MOONEY Director
--------------------------------------
E. J. MOONEY
/S/ G. A. SCHAEFER Director
--------------------------------------
G. A. SCHAEFER
/S/ R. W. STONE Director
--------------------------------------
R. W. STONE
</TABLE>
13
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and
Board of Directors
Morton International, Inc.
We have audited the consolidated financial statements of Morton
International, Inc. and subsidiaries listed in Item 14(a)(1) of the annual
report on Form 10-K of Morton International, Inc. for the year ended June 30,
1996. Our audits also included the financial statement schedule listed in Item
14(a)(2). These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Morton International, Inc. and subsidiaries at June 30, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended June 30, 1996, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
As discussed in the notes to the consolidated financial statements, the
Company adopted Financial Accounting Standards Board Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" in 1996.
ERNST & YOUNG LLP
Chicago, Illinois
July 31, 1996
F-1
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
MORTON INTERNATIONAL, INC. AND SUBSIDIARIES
(IN THOUSANDS)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
ADDITIONS
---------------------------------
(1) (2)
BALANCE AT CHARGED TO
BEGINNING CHARGED TO COSTS OTHER ACCOUNTS DEDUCTIONS BALANCE AT
DESCRIPTION OF PERIOD AND EXPENSES --DESCRIBE --DESCRIBE END OF PERIOD
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended June 30, 1996.................. $13,300 $2,325 $-- $4,583(A) $10,817
225(B)
Year ended June 30, 1995.................. 10,539 4,940 -- 2,577(A) 13,300
(398)(B)
Year ended June 30, 1994.................. 9,025 3,124 -- 1,868(A) 10,539
(258)(B)
</TABLE>
- ------------------------
Note A-- Represents write-offs less recoveries.
Note B-- Foreign currency translation adjustments.
F-2
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
Number 33-29194 on Form S-8, Registration Statement Number 33-29195 on Form S-8,
Registration Statement Number 33-30147 on Form S-8, Registration Statement
Number 33-44170 on Form S-8, and Registration Statement Number 33-56199 on Form
S-8 of our report dated July 31, 1996, with respect to the consolidated
financial statements and schedule of Morton International, Inc. and
subsidiaries, included or incorporated by reference in the Annual Report (Form
10-K) for the year ended June 30, 1996.
ERNST & YOUNG LLP
Chicago, Illinois
August 22, 1996
<PAGE>
07/01/96 EXHIBIT (10)(a)
MORTON INTERNATIONAL, INC.
FISCAL 1997-99
KEY EXECUTIVE LONG-TERM INCENTIVE PROGRAM
This Program, which has been adopted pursuant to paragraph 4(d)(i) of the
Company's 1989 Incentive Plan (formerly the 1989 Stock Awards Plan), provides
cash incentive opportunities to Senior Corporate Officers, Group Vice Presidents
and key Business Unit Executives for achieving long-term growth oriented
performance goals.
A. OBJECTIVE
The objective of this Program is to further the growth of the Company by
rewarding key executives for achieving long-term growth oriented
performance goals, benefiting the shareholders.
B. TIMING
The Program will operate over a three-year performance period covering
fiscal 1997, 1998 and 1999.
C. ELIGIBILITY AND PARTICIPATION
The Program covers the following executive positions:
Chief Executive Officer
Chief Operating Officer
Corporate Officers reporting to the Chief Executive Officer or Chief
Operating Officer
Business Unit Executives, in salary grade 23 or above, reporting to a
Group Vice President
Eligibility will be by position. Participation approval, however, will be
only by position and incumbent.
Positions must be nominated for participation prior to the start of the
performance period. Participation requires the approval of the Chief
Operating Officer, the Chief Executive Officer and the Compensation
Committee of the Board.
D. PROGRAM FUNDING
The Chief Financial Officer, at the direction of the Chief Executive
Officer, will reserve appropriate funds during the course of the fiscal
year to provide incentive payments. Any such reserved funds shall remain
the property of the Company and no participant shall have a right or claim
to any such funds unless the right or claim has specifically accrued under
the Program.
<PAGE>
Fiscal 1997-99 Key Executive Long-Term Incentive Program
Page 2
E. PERFORMANCE CRITERIA
Criteria used to measure performance for the performance period are:
<TABLE>
<CAPTION>
PARTICIPANT GROUP APPLICABLE PERFORMANCE CRITERIA
----------------- -------------------------------
<S> <C>
CEO, COO, and Corporate - Growth in Company Earnings Per
Staff Officers Share ("EPS")
- Average Return on Net Assets - Group Roll-up
Group Vice Presidents - Growth in Pre-Tax Group Profit
- Average Return on Net Assets - Group
Business Unit Executives - Growth in Pre-Tax Group or Business Unit Profit
- Average Return on Net Assets - Group or Business
Unit
</TABLE>
F. ESTABLISHMENT OF PERFORMANCE OBJECTIVES
For the performance period, growth and average return on net assets
objectives have been established by the Compensation Committee of the
Board based upon recommendation by the Chief Executive Officer.
These objectives include a threshold level at which partial incentives may
be earned, the desired objective for the period at which target incentives
may be earned, and an optimum level at which maximum incentives may be
earned, as follows:
<TABLE>
<CAPTION>
EPS OR PRE TAX PROFIT GROWTH AVERAGE RONA
---------------------------- ------------
<S> <C> <C>
Threshold 5% growth compounded annually (Set based on historical
Objective 10% growth compounded annually results and requirements
Optimum 20% growth compounded annually for future Company success)
</TABLE>
G. ADJUSTMENTS TO PERFORMANCE OBJECTIVES
Performance objectives will be adjusted by action of the Compensation
Committee (in accordance with calculations confirmed by the Company's
independent auditors) so that the degree to which the objectives are
achieved will not be affected by any of the following which occur after the
objectives are initially established: changes in (or in the application of)
accounting principles; changes in tax laws; any material acquisition,
divestiture or joint venture; extraordinary items as defined under
generally accepted accounting principles; and any other non-recurring items
which the Company's press releases or SEC filings note and take into
account in explaining what the Company's or a business unit's financial
results would have been on a comparable basis from period to period.
H. TARGET INCENTIVE AMOUNTS
A specific dollar incentive target for each participant will be established
by the Compensation Committee based on a recommendation from the CEO. The
dollar target will be computed as a percentage of the participant's base
salary immediately before the beginning of the performance period. The
percentage to be applied will vary depending on the participant's assigned
salary grade as follows:
<PAGE>
Fiscal 1997-99 Key Executive Long-Term Incentive Program
Page 3
ASSIGNED SALARY GRADE PERCENTAGE TARGET APPLIED TO SALARY
--------------------- ------------------------------------
33 100%
31 100%
28 80%
27 80%
26 80%
25 70%
24 70%
23 60%
22 60%
The dollar value of the incentive targets, computed in accordance with the
above schedule, may be adjusted by the Compensation Committee based on the
recommendation of the CEO, within a guideline range of plus or minus 20% to
provide a degree of flexibility in determining individual incentive
amounts. The Compensation Committee may use the same guideline range of
plus or minus 20% to determine an adjusted incentive target for the CEO.
I. ACTUAL INCENTIVE AWARDS
Actual incentive awards require the approval of the CEO and Compensation
Committee and will be based upon pre-established individual participant
payout schedules reflecting achievement of performance objectives for the
performance period. For results between the established performance
objectives, linear interpolation will be used to compute the percentage of
the target incentive which may be earned. The achievement levels and
corresponding payout opportunity are as follows:
------------------------------------------------
------------------------------------------------
Achievement Percent of Target
Level Which May Be Earned
------------------------------------------------
------------------------------------------------
Threshold 50%
Objective 100%
Optimum 200%
------------------------------------------------
------------------------------------------------
J. INCENTIVE PAYMENTS
Any incentive payments made under the Program will be made in the form of
cash or Company stock (at the election of the Company), and will normally
be paid in the month of August following the end of the three-year
performance period. No incentive award is earned until the date the
Compensation Committee approves such payment.
If the Company reasonably anticipates that all or any portion of an
incentive award otherwise payable under the Program will be nondeductible
by the Company for federal income tax purposes as a result of the
application of Section 162(m) of the Internal Revenue Code of 1986, as
amended, the Company may defer the payment of such award or portion
thereof. A deferred account balance in the amount of the deferred portion
of such award will be created by the Company for each participant with
respect to whom an incentive award payment is deferred. Such deferred
account balance will accrue interest, compounded semi- annually, at the
average rate for commercial paper as reflected in the Federal Reserve 30
day commercial paper composite.
<PAGE>
Fiscal 1997-99 Key Executive Long-Term Incentive Program
Page 4
Prior to the end of each taxable year of the Company, the Company will
determine the maximum amount of each participant's deferred account balance
that the Company reasonably expects would be deductible by it for federal
income tax purposes in such taxable year if such amount were paid to such
participant on or before the last day of such taxable year and will pay
that amount to the participant on or before such date.
K. TERMINATION OF EMPLOYMENT OR CESSATION OF ELIGIBILITY
Because incentive awards are not earned until the date the Compensation
Committee approves payment, if termination of employment occurs or the
participant ceases to be eligible for benefits under the Program before
such date (whether or not the performance period has ended), no such
terminated or ineligible employee is entitled to any incentive payment.
Under certain circumstances, as detailed below, a terminated participant
who completed one-third of the performance period and whose employment
terminates by reason other than resignation or involuntary termination may
be considered for an incentive award. Consideration of such awards will be
at the sole discretion of the Compensation Committee and require approval
based upon the Chief Executive Officer's recommendation according to the
following schedule:
Reason for Termination Incentive Award Eligibility
---------------------- ---------------------------
Retirement or Death Pro rata share of incentive award, payable
to retiree or heirs/estate after the end of
the performance period subject to the
achievement of
goals for the entire performance period.
Long-Term Disability Pro rata share of incentive award, payable
after the end of the performance period
subject to the achievement of goals for the
entire performance period.
Resignation or No incentive award even if termination
Involuntary Termination occurs after the end
of the performance period but before the
Compensation Committee approves payment of
awards.
L. ADMINISTRATION
The Program will be administered by the Compensation Committee assisted by
the Company's Human Resources staff.
M. CHANGE IN CONTROL
Anything in this Program to the contrary notwithstanding, upon the
occurrence of a Change in Control of the Company (as defined from time to
time in Section 5(c) of the 1989 Incentive Plan), the performance periods
with respect to all outstanding incentive awards shall terminate as of such
date and the related incentive awards shall be payable as of such date.
The amount payable with respect to any award shall be equal to the percent
of the target determined as follows: The sum of (x) the product of (i) the
greater of (a) the percent of target that would have been earned and
payable pursuant to Section I above if the
<PAGE>
Fiscal 1997-99 Key Executive Long-Term Incentive Program
Page 5
performance period had ended as of the last day of the fiscal quarter
immediately prior to such Change in Control of the Company or (b) 100 and
(ii) the number of full quarters elapsed in the performance period (the
"Elapsed Quarters") divided by twelve and (y) the product of (i) 100 and
(ii) the quotient obtained by dividing (a) twelve minus the number of
Elapsed Quarters by (b) twelve.
<PAGE>
07/01/96 EXHIBIT (10)(b)
PROGRAM ONE
MORTON INTERNATIONAL, INC.
FISCAL 1997
KEY EXECUTIVE ANNUAL BONUS PROGRAM
This Program, which has been adopted pursuant to paragraph 4(d) (i) of the
Company's 1989 Incentive Plan (formerly the 1989 Stock Awards Plan), provides
annual cash bonus opportunities depending on performance of Corporate Officers,
Group Vice Presidents and Business Unit Executives.
A. OBJECTIVE
The objective of this Program is to reward key executives who have a direct
influence on annual profits for outstanding performance in this regard.
B. TIMING
The Program year for purposes of this Program will correspond to the
Company's 1997 fiscal year.
C. ELIGIBILITY AND PARTICIPATION
This Program covers the following executive positions:
Chief Executive Officer
Chief Operating Officer
Corporate Officers reporting to the Chief Executive Officer or the
Chief Operating Officer
Business Unit Executives, in salary grade 23 or above, reporting to a
Group Vice President
Eligibility will be by position. Participation approval, however, will be
only by position and incumbent.
Positions must be nominated for participation prior to the start of the
Program year. Participation requires the approval of the Chief Operating
Officer, the Chief Executive Officer and the Compensation Committee of the
Board.
D. PROGRAM FUNDING
A fund will be calculated for the Program year. The fund will be
determined by multiplying the individual participant's June 30, 1996 salary
by the target bonus percent for each participant's salary grade (see
Paragraph H). The sum of these amounts times 1.6 is the maximum fund.
The Chief Financial Officer, at the direction of the Chief Executive
Officer, will reserve appropriate funds during the course of the fiscal
year to provide bonus awards. Any such reserved funds shall remain the
property of the Company and no participant shall have a right or claim to
any such funds unless the right or claim has specifically accrued under the
Program.
<PAGE>
Fiscal 1997
Key Executive Annual Bonus Program
Page 2
E. PERFORMANCE CRITERIA
Criteria used to measure performance for the Program year are:
APPLICABLE PERFORMANCE
PARTICIPANT GROUP CRITERIA
----------------- ----------------------
CEO, COO and Corporate Staff Officers Attainment of Company Earnings
Per Share ("EPS") Goal
Group Vice Presidents Attainment of EPS Goal and
Group Profit Results
Business Unit Executives Attainment of Group Profit
Results, Business Unit Profit
Results and Strategic Goals
F. ESTABLISHMENT OF SPECIFIC PERFORMANCE OBJECTIVES
For the Program year, EPS and Group and Business Unit profit objectives
have been established by the Compensation Committee of the Board upon
recommendation by the Chief Executive Officer.
The EPS objective includes the threshold level at which a bonus may be
earned, the target objective for the year, and a maximum limit beyond which
additional bonus amounts may not be earned with respect to EPS as follows:
Threshold - 6% Below Budget
Target - Budget
Maximum - 8% Above Budget
Strategic objectives for Business Unit Executives will be developed and
reviewed by appropriate levels of management. These objectives may be
financial or non-financial in nature. They may be weighted to reflect
relative importance. The objectives will also embody measurement criteria
so that the degree of accomplishment can be determined. Where objectives
encompass more than one year, milestones will be used to reflect expected
progress each year.
G. ADJUSTMENTS TO PROFIT OBJECTIVES
Profit objectives will be adjusted by action of the Compensation Committee
(in accordance with calculations confirmed by the Company's independent
auditors) so that the degree to which the objectives are achieved will not
be affected by any of the following which occur after the objectives are
initially established: changes in (or in the application of) accounting
principles; changes in tax laws; any material acquisition, divestiture or
joint venture; extraordinary items as defined under generally accepted
accounting principles; and any other non-recurring items which the
Company's press releases or SEC filings note and take into account in
explaining what the Company's or a Business Unit's profits would have been
on a comparable basis from period to period.
<PAGE>
Fiscal 1997
Key Executive Annual Bonus Program
Page 3
H. ANNUAL BONUS TARGETS
A dollar bonus target will be established for each participant. The dollar
bonus target will be computed as a percentage of the participant's base
salary on June 30th preceding the start of the Program year. The
percentage to be applied will vary depending on the participant's assigned
salary grade as follows:
ASSIGNED SALARY PERCENTAGE APPLIED TO SALARY
GRADE EARNINGS TO DETERMINE TARGET BONUS
--------------- ----------------------------------
33 75.00
31 68.75
28 62.50
27 62.50
26 56.25
25 50.00
24 43.75
23 37.50
22 37.50
I. ACTUAL BONUS AWARDS
Actual bonus awards for the Program year will be based on payout schedules
reflecting achievement of performance objectives. Payments of bonus awards
require the approval of the Chief Operating Officer, the Chief Executive
Officer and the Compensation Committee.
The payout schedules are presented below by participant group. No bonus
shall be earned based upon EPS attainment if the EPS does not exceed that
for the prior year. For results between the performance indicators, linear
interpolation will be used to compute the percent of the target bonus which
may be earned.
1. CHIEF EXECUTIVE OFFICER, CHIEF OPERATING OFFICER AND CORPORATE STAFF
OFFICERS
In this group, actual bonus awards will be based on relative
attainment of the EPS objective.
The EPS threshold for minimum bonus awards to be allocated will be 6
percentage points below the EPS goal at 100%. The EPS objective for
the bonus awards to be allocated at maximum will be 8 percentage
points above the EPS goal at 100%.
<PAGE>
Fiscal 1997
Key Executive Annual Bonus Program
Page 4
EPS PERCENT OF TARGET
ATTAINMENT BONUS WHICH MAY BE EARNED
---------- -------------------------
6% below 52%
5% below 60%
4% below 68%
3% below 76%
2% below 84%
1% below 92%
EPS Goal 100%
5% above 140%
8% above 160%
In total, the annual bonus award for a participant in this group cannot
exceed 160 percent of the participant's target bonus.
2. GROUP VICE PRESIDENTS
Actual bonus awards for this group of participants will depend on relative
attainment of the EPS objective as well as the appropriate Group Profit
objective.
The specific payout schedule based on EPS and the applicable Group Profit
is as follows:
EPS GROUP PROFIT
------------------------------- ---------------------------------
PERCENT OF TARGET ACTUAL PROFIT PERCENT OF TARGET
EPS BONUS WHICH AS PERCENT BONUS WHICH
ATTAINMENT MAY BE EARNED OF BUDGET MAY BE EARNED
---------- ----------------- ------------- -----------------
6% below 4% 90% 48%
5% below 6% 95% 60%
4% below 9% 100% 80%
3% below 11% 105% 92%
2% below 14% 110% 104%
1% below 16% 115% 120%
EPS Goal 20% 120% 140%
5% above 30%
8% above 36%
In total, the annual bonus award for a participant in this group cannot
exceed 160 percent of the participant's target bonus.
3. BUSINESS UNIT EXECUTIVES
Actual bonus awards for this group of participants will be based on
attainment of the applicable Group profit results compared to budget or the
applicable Group and Business Unit's profit results compared to budget. In
addition, up to 20 percent of a participant's target bonus can be earned
for achievement of specific strategic goals.
<PAGE>
Fiscal 1997
Key Executive Annual Bonus Program
Page 5
The bonus award schedule based on the applicable Group Profit and the
applicable Business Unit Profit is as follows:
Percent Of Target Which May Be Earned
Based On Unit Measurement:
--------------------------------------
Actual Profit Group Business
As Percent Profit OR Group AND Unit
Of Budget Only Profit Profit
-------------------------------------------------------
-------------------------------------------------------
90% 40% 20.0% 20.0%
95% 56% 28.0% 28.0%
100% 80% 40.0% 40.0%
105% 97% 48.5% 48.5%
110% 114% 57.0% 57.0%
115% 134% 67.0% 67.0%
120% 160% 80.0% 80.0%
-------------------------------------------------------
-------------------------------------------------------
The additional bonus for achievement of strategic goals will be
determined as a percentage of the participant's original target bonus
up to a maximum of 20 percent.
In total, the annual bonus award for a participant in this group
cannot exceed 160 percent of the participant's target bonus, including
any discretionary fund payout (see Paragraph J).
J. DISCRETIONARY BONUS AWARD
Under this Program, special discretionary cash bonus awards can be made for
one-time outstanding achievements by Business Unit Executives. Such awards
must be recommended by the Chief Executive Officer and approved by the
Compensation Committee of the Board. The Chief Executive Officer, Chief
Operating Officer, Corporate Staff Officers and Group Vice Presidents are
not eligible for discretionary awards.
K. BONUS AWARD PAYMENTS
Any bonus award payments made under the Program will be made in the form of
cash or Company stock (at the election of the Company), and will normally
be paid in the month of August following the end of the fiscal year. No
bonus award is earned until the date the Compensation Committee approves
such payment.
<PAGE>
Fiscal 1997
Key Executive Annual Bonus Program
Page 6
L. TERMINATION OF EMPLOYMENT OR CESSATION OF ELIGIBILITY
Because bonus awards are not earned until the date the Compensation
Committee approves payment, if termination of employment occurs or the
participant ceases to be eligible for benefits under the Program before
such date (whether or not the applicable fiscal year has ended), no such
terminated or ineligible employee is entitled to any bonus payment. Under
certain circumstances, as detailed below, a terminated participant whose
employment terminates after December 31 by reason other than resignation or
involuntary termination may be considered for a bonus award. Consideration
of such awards will be at the sole discretion of the Compensation Committee
and require approval based upon the Chief Executive Officer's
recommendation according to the following schedule:
REASON FOR TERMINATION BONUS AWARD ELIGIBILITY
---------------------- -----------------------
Death or Retirement Pro rata share of bonus award,
payable to retiree, heirs/estate
Long-Term Disability Pro rata share of bonus award
Resignation or No bonus award even if termination
Involuntary Termination occurs after June 30 but before
Compensation Committee approves
payment of awards.
M. ADMINISTRATION
The Program will be administered by the Compensation Committee assisted by
the Company's Human Resources staff.
<PAGE>
07/01/96 EXHIBIT (10)(c)
PROGRAM TWO
MORTON INTERNATIONAL, INC.
FISCAL 1997
CORPORATE STAFF EXECUTIVE ANNUAL BONUS PROGRAM
This Program provides annual cash bonus opportunities depending on performance
of key Corporate staff executives.
A. OBJECTIVE
The objective of this Program is to reward staff executives who can
significantly affect operating results through cost reduction, improved
efficiency, or profit improvement for outstanding performance in these
areas.
B. TIMING
The Program year for purposes of this Program will correspond to the
Company's 1997 fiscal year.
C. ELIGIBILITY AND PARTICIPATION
The Corporate Staff Executive Annual Bonus Program covers key Corporate
staff executive positions in salary grades 19 and above.
Eligibility will be by position. Participation approval will be by
position and incumbent.
Positions must be nominated for participation prior to the start of each
Program year. Participation requires the approval of the Corporate Officer
in charge of the functional area involved and the Corporate Vice President,
Human Resources.
The Chief Executive Officer will review any nomination involving a position
or incumbent to be added to this Program for the first time.
D. PROGRAM FUNDING
A fund will be calculated for each Program year. The fund will be
determined by multiplying the individual participant's January 1, 1997
salary by the target bonus percent for each participant's salary grade (see
Paragraph H). The sum of these amounts times 1.75 is the maximum fund.
The Chief Financial Officer, at the direction of the Chief Executive
Officer, will reserve appropriate funds during the course of the fiscal
year to provide bonus awards. Any such reserved funds shall remain the
property of the Company and no participant shall have a right or claim to
any such funds unless the right or claim has specifically accrued under the
Program.
<PAGE>
Fiscal 1997 Corporate Staff Executive Annual Bonus Program
Page 2
E. PERFORMANCE CRITERIA
Criteria used to measure performance for the Program year are:
Attainment of Company Earnings Per Share ("EPS") Goal
Attainment of Strategic Goals
Individual Performance
F. ESTABLISHMENT OF SPECIFIC PERFORMANCE OBJECTIVES
PROFIT GOALS
For the Program year, the EPS objective has been established by the
Compensation Committee of the Board upon recommendation by the Chief
Executive Officer.
This objective includes the minimum level at which a bonus may be earned,
the desired objective for the year, and a maximum limit beyond which
additional bonus amounts may not be earned.
STRATEGIC GOALS
Strategic goals are other financial or non-financial objectives. These
objectives will be designed to have an impact that is beyond the
participant's day to day position responsibilities. They may be weighted
to reflect relative importance. The objectives will also embody
measurement criteria so that the degree of accomplishment can be
determined. Where objectives encompass more than one year, milestones will
be used to reflect progress for the Program year.
Strategic goals will be closely reviewed by appropriate levels of
management.
INDIVIDUAL PERFORMANCE OBJECTIVES
Individual performance objectives will be established by each participant
and the supervising Corporate Officer. These objectives are to be set at
the beginning of the Program year, and will be directed toward individual
improvements in performance, productivity, efficiencies, cost savings,
profitability and other position responsibilities. After the close of the
Program year, each participant's individual performance will be rated by
the participant's manager against those pre-established objectives.
Objectives may be weighted according to relative importance. Individual
performance for bonus purposes should be consistent with the participant's
merit increase recommendation.
G. ADJUSTMENTS TO PROFIT OBJECTIVES
Profit objectives will be adjusted by action of the Compensation Committee
(in accordance with calculations confirmed by the Company's independent
auditors) so that the degree to which the objectives are achieved will not
be affected by any of the following which occur after the objectives are
initially established: changes in (or in the application of ) accounting
principles; changes in tax laws; any material acquisition, divestiture or
joint venture; extraordinary items as defined under generally accepted
accounting principles; and any other non-recurring items which the
Company's press releases or SEC filings note and take into account in
explaining what the Company's or a Business Unit's profits would have been
on a comparable basis from period to period.
<PAGE>
Fiscal 1997 Corporate Staff Executive Annual Bonus Program
Page 3
H. ANNUAL BONUS TARGETS
A dollar bonus target will be established at the start of the Program year
for each participant. The dollar bonus target will be computed as a
percentage of the participant's base salary on January 1st of the Program
year. The percentage to be applied will vary depending on the participant's
assigned salary grade as follows:
PERCENTAGE APPLIED TO SALARY
ASSIGNED SALARY EARNINGS TO DETERMINE
GRADE TARGET BONUS
--------------- ----------------------------
23 30%
22 30%
21 25%
20 22%
19 18%
I. ACTUAL BONUS AWARDS
Actual bonus awards for the Program year will be based on payout schedules
reflecting achievement of performance objectives. Payments of bonus awards
require the approval of the Chief Operating Officer and the Chief Executive
Officer.
PROFIT GOALS
The EPS threshold for minimum bonus awards to be allocated will be 6
percentage points below the EPS goal. The EPS objective for the bonus
awards to be allocated at maximum will be 7.5 percentage points above the
EPS goal.
EPS PERCENT OF TARGET
ATTAINMENT BONUS WHICH MAY BE EARNED
---------- -------------------------
6% below 15%
5% below 25%
4% below 35%
3% below 45%
2% below 55%
1% below 65%
EPS Goal 75%
5% above 125%
7.5% above 150%
No bonus shall be earned based upon EPS attainment if the EPS does not
exceed that for the prior year. For results between the EPS rates shown,
linear interpolation will be used to compute the percentage of the target
bonus which may be earned.
<PAGE>
Fiscal 1997 Corporate Staff Executive Annual Bonus Program
Page 4
STRATEGIC GOALS
The additional award for achievement of strategic goals will be determined
as a percentage of the participant's original target bonus up to a maximum
of 25 percent. The guidelines for measuring achievement of strategic goals
are:
PERCENT OF TARGET
ACHIEVEMENT BONUS WHICH MAY BE EARNED
----------- -------------------------
Not Met 0%
Minimum Achievement 1% - 14%
Substantially Met 15%
All Met 25%
INDIVIDUAL PERFORMANCE
The resulting award for each participant is then subject to adjustment
based on the participant's individual performance compared to
pre-established objectives. The individual performance rating guidelines
are as follows:
RANGE OF ADJUSTMENT
PERCENTAGES TO BE APPLIED TO
RATING EPS/STRATEGIC GOAL-DERIVED BONUS
------ --------------------------------
1 - Marginal - Did not meet most objectives 0%
2 - Good - Substantially met most objectives 50% - 84%
3 - Exceeds Expectations - Met all objectives 85% - 114%
4 - Outstanding - Clearly exceeded most or 115% - 150%
all objectives
In aggregate, however, bonus awards for participants cannot exceed the pool
established as a result of EPS and strategic goal attainment for all
participants. This will require a leveling back of the individual
performance adjustments on a pro rata basis.
J. BONUS AWARD LIMITATIONS
Bonuses earned under this Program will be limited to no more than 175
percent of the aggregate target bonus amounts for all participants. This
limit does not apply to any discretionary fund awards covered in Paragraph
K below.
K. DISCRETIONARY BONUS AWARD
Under this Program, special discretionary cash bonus awards can be made for
one-time outstanding achievements. Such awards must be recommended by the
Chief Executive Officer and approved by the Compensation Committee of the
Board.
<PAGE>
Fiscal 1997 Corporate Staff Executive Annual Bonus Program
Page 5
L. BONUS AWARD PAYMENTS
Any bonus award payments made under the Program will be made in the form of
cash or Company stock and will normally be paid in the month of August
following the end of the fiscal year. No bonus award is earned until the
date the Compensation Committee has reviewed the CEO's approval of such
payment.
M. TERMINATION OF EMPLOYMENT OR CESSATION OF ELIGIBILITY
Because bonus awards are not earned until the date on which the
Compensation Committee reviews the CEO's approval of payment, if
termination of employment occurs or the participant ceases to be eligible
for benefits under the Program before such date (whether or not the
applicable fiscal year has ended), no such terminated or ineligible
employee is entitled to any bonus payment. Under certain circumstances, as
detailed below, a terminated participant whose employment terminates after
December 31 by reason other than resignation or involuntary termination may
be considered for a bonus award. Consideration of such awards will be at
the sole discretion of the Compensation Committee and require approval
based upon the Chief Executive Officer's recommendation according to the
following schedule:
REASON FOR TERMINATION BONUS AWARD ELIGIBILITY
---------------------- -----------------------
Death or Retirement Pro rata share of bonus award, payable to
retiree, heirs/estate
Long-Term Disability Pro rata share of bonus award
Resignation or No bonus award even if termination occurs
Involuntary Termination after June 30 but before Compensation
Committee reviews the CEO's approval of
award payments.
N. ADMINISTRATIVE PROVISIONS
The Program will be administered by the Corporate Vice President, Human
Resources.
New participants and exceptional situations will be referred to the Chief
Executive Officer for review. Monitoring reports prepared by the Corporate
Human Resources staff will be distributed to the Chief Executive Officer
and the Compensation Committee of the Board for informational purposes.
It is the intention that this Program remain in effect in future years.
However, as with any special compensation plan, senior management and the
Board reserve the right to modify, revise, or terminate the Program at any
time.
<PAGE>
EXHIBIT (10)(e)
NOTICE OF GRANT OF STOCK OPTIONS
AND GRANT AGREEMENT
Name
ID:
I am pleased to advise you that you have been granted the following option to
buy Morton International, Inc. common stock:
Non-Qualified Stock option Grant Number 000000
Date of Grant 00/00/00
Date of Exercisability 00/00/00
Expiration Date 00/00/00
Total Number of Shares 0,000
Option Price per Share (average of $00.00
Morton stock high and low NYSE
prices on date of grant)
Total Price of Shares $00,000.00
Please sign the extra copy of this letter where indicated below to confirm your
understanding and agreement that the above-described option is governed by the
terms and conditions of 1) the Morton International, Inc. 1989 Incentive Plan,
as amended; and 2) the Grant Agreement covering this option. Both documents are
attached to and made a part of this letter.
Also enclosed (only to employees receiving option grants for the first time) is
an SEC prospectus dated October 17, 1994, summarizing the Incentive Plan. Other
optionees may obtain replacements from the Corporate Secretary's office.
Your signed copy of this letter (without attachments) should be returned as soon
as possible in the enclosed envelope to the Corporate Secretary of the Company.
All stock option exercises are handled through the Corporate Secretary's
department, so please contact us at (312) 807-2148 for the mechanics. Also, of
course, please feel free to call us with questions regarding any other aspect of
your option, or of Company stock ownership in general.
/s/ P. M. Phelps
------------------------------ --------------
P. M. Phelps Date
Vice President & Secretary
Morton International, Inc.
------------------------------ --------------
Name Date
<PAGE>
MORTON INTERNATIONAL, INC.
G R A N T A G R E E M E N T
APPLICABLE TO NONQUALIFIED STOCK OPTIONS GRANTED DATE
TO EMPLOYEES CURRENTLY DESIGNATED AS SEC "INSIDERS"
Your above-described stock option grant (the "option") is subject to the
following provisions in addition to those set forth in the attached Notice of
Grant (the "Notice"):
1. EXERCISABILITY: Except as otherwise provided in this Grant Agreement:
a. Your option shall be exercisable only if you shall continue in the
employment of Morton International, Inc. (the "Company") or one of its
subsidiaries at all times during the period commencing on the "Date of
Grant" specified in the Notice, continuing for a minimum of one year from
and after the Date of Grant, and ending on the day three months before the
date you exercise your option.
b. No part of your option will be exercisable prior to the "Date of
Exercisability" specified in the Notice, i.e., the first business day
following the expiration of one year from the Date of Grant. From and
after the Date of Exercisability your option will be exercisable in full,
provided that your employment shall not have terminated prior to the Date
of Exercisability.
c. Your option shall expire and become nonexercisable at the close of
business in the office of the Corporate Secretary of the Company on the
"Expiration Date" specified in the Notice.
2. PROCEDURE FOR EXERCISE:
You may exercise your rights to purchase all or any part of the option
shares of the Company's common stock (par value $1 per share) granted to
you in the amount specified in the Notice ("Option Shares") at any time and
from time to time during the term of your option by: a. Delivery of
written notification of exercise and payment in full to the Corporate
Secretary of the Company for all Option Shares being purchased plus the
amount of any federal and state income taxes required to be withheld by
reason of the exercise of your option; and, b. if requested, within the
specified time set forth in any such request, delivery to the Company of
such written representations and undertakings as may, in the opinion of the
Company's legal counsel, be necessary or desirable to comply with federal
and state tax and securities laws. The record date of your ownership of
all Option Shares purchased under this option shall be the date upon which
the above-described notification and payment are received by the Company,
provided that any requested representations and undertakings are delivered
within the time specified.
-1-
<PAGE>
3. SECURITIES LAW RESTRICTIONS:
You may not offer, sell or otherwise dispose of any Option Shares in a
manner which would violate the Securities Act of 1933 or any other state or
federal law.
4. LIMITED STOCK APPRECIATION RIGHT ("LSAR"):
Your option includes an LSAR described as follows covering the same number
of Option Shares. Within the 90-day period following a Change in Control
of the Company (as defined from time to time in section 5(c) of the
Company's 1989 Incentive Plan (the "Plan"), as amended), you have the
right, whether or not your option is then exercisable, by giving notice to
the Corporate Secretary of the Company, to elect to exchange all or part of
your then unexercised Option Shares for a cash payment from the Company
within 30 days of such notice, in the amount by which the "Change in
Control Price" (as defined below) per share of Company common stock exceeds
the option price multiplied by the number of Option Shares as to which your
LSAR shall have been exercised; provided, however, that if the end of such
90-day period is within six months of the Date of Grant and you are then
subject to the short-swing profit rules under the Securities Exchange Act
of 1934, any payment to you pursuant to this paragraph shall be made six
months and one day after the Date of Grant. To the extent you exercise
your LSAR, no further exercise of your related option is permissible.
For purposes of this Grant Agreement, "Change in Control Price" means the
higher of (i) the highest reported sales price, regular way, of a share of
Company common stock during the 60-day period prior to and including the
date of a Change in Control in any transaction reported on the New York
Stock Exchange Composite Index or other national securities exchange on
which such shares are listed or on the National Association of Securities
Dealers, Inc. Automated Quotations System or (ii) if the Change in Control
is the result of a tender or exchange offer or a Corporate Transaction (as
defined in section 5(c) of the Plan), the highest price per share of
Company common stock paid in such offer or Corporate Transaction.
5. TAX WITHHOLDING RIGHTS
If you are subject to the insider trading rules of the Securities and
Exchange Commission at the time(s) you exercise all or a part of this
option, you may elect, in accordance with Section 5(d) of the Plan, to have
shares of common stock otherwise issuable upon such exercise withheld that
then have a fair market value sufficient to satisfy your income tax
withholding requirements in connection with such exercise.
6. TERMINATION OF EMPLOYMENT:
a. If your employment with the Company terminates prior to the Expiration
Date because of your retirement pursuant to the terms of a pension plan of
the Company or your death, your option and LSAR will remain exercisable (by
you or by your estate or other person succeeding to your rights hereunder
by reason of your death, as the case may be) until the Expiration Date,
except as provided in the following sentence.
-2-
<PAGE>
Your option and LSAR shallbe exercisable after the Expiration Date only if
you should die less thanthree months prior to the Expiration Date, in which
case they will remainexercisable for a period of three months after the
date of your death.
b. If your employment with the Company is terminated for cause, your
option and LSAR, whether or not either is then otherwise exercisable under
this Grant Agreement, shall thereupon expire and become nonexercisable.
"Cause" means material misconduct by you in connection with your
employment, your engaging in immoral or illegal conduct or conduct which
brings you or the Company into disrepute or otherwise damages its business,
or your commission of an act of dishonesty or any felony.
c. If your employment terminates other than as provided in subparagraphs
a. and b. above, (i) your LSAR will expire and become nonexercisable on the
date your employment terminates, and (ii) if your option is exercisable on
the date your employment terminates, it will remain exercisable for three
months thereafter or until the Expiration Date, whichever occurs first.
7. NON-TRANSFERABILITY:
Your option and LSAR are personal to you and shall not be transferable by
you otherwise than by will or the laws of descent and distribution. During
your lifetime they are exercisable only by you.
8. CONFORMITY WITH PLAN:
Your option and LSAR are intended to conform in all respects with the Plan,
including any future amendments thereto. A copy of the Plan, amended as of
June 23, 1994, is attached hereto. Inconsistencies between this Grant
Agreement and the Plan shall be resolved in accordance with the terms of
the Plan. All definitions stated in the Plan shall be fully applicable to
this Grant Agreement.
9. EMPLOYMENT AND SUCCESSORS:
Nothing herein or in the Notice or the Plan confers any right or obligation
on you to continue in the employ of the Company or any subsidiary or shall
affect in any way your right or the right of the Company or any subsidiary,
as the case may be, to terminate your employment at any time. This Grant
Agreement, the Notice, and the Plan, including any future amendments
thereto, shall be binding upon you, your estate, any person succeeding to
your rights hereunder and any successor or successors of the Company.
10. GOVERNING LAW:
This Grant Agreement, the Notice, and the Plan shall be construed in
accordance with and governed by the laws of the State of Illinois.
<PAGE>
Exhibit (10)(F)
Morton International, Inc.
NOTICE OF RESTRICTED STOCK AWARD
AND GRANT AGREEMENT
Fred J. Musone
Morton International, Inc.
Automotive Safety Products
3350 Airport Road
Ogden, UT 84405
ID: ###-##-####
I am pleased to advise you that you have been granted the following
Restricted Stock Award of Morton International, Inc. common stock:
Date of Grant 02/06/95
Total Number of Shares 10,000
Please sign the extra copy of this letter where indicated below to
confirm your understanding and agreement that the above-described
Restricted Stock Award is governed by the terms and conditions of
1) the Morton International, Inc. 1989 Incentive Plan as amended;
and 2) the Grant Agreement covering this award. Both documents
are attached to and made a part of this letter.
Also attached are an SEC prospectus dated October 17, 1994,
summarizing the above Incentive Plan, and three copies of a form
of stock power covering the shares granted to you. Please sign
each stock power on the line above "Transferor Signature." Do NOT
date or fill in any other blank lines on the stock powers.
Your signed copy of this letter (without attachments) and all
three Stock Powers should be returned to:
Morton International, Inc.
Office of the Corporate Secretary
100 N. Riverside Plaza
Chicago, Illinois 60606-1596
/s/ P. M. Phelps February 7, 1995
----------------------------------- ------------------
For Morton International, Inc. Date
/s/ Fred J. Musone 2-14-95
----------------------------------- ------------------
Fred J. Musone Date
<PAGE>
MORTON INTERNATIONAL, INC.
G R A N T A G R E E M E N T
APPLICABLE TO RESTRICTED STOCK AWARD
GRANTED FEBRUARY 6, 1995 TO FRED J. MUSONE
Your restricted stock award of 10,000 shares of common stock of Morton
International, Inc. (the "Company") is subject to the following provisions in
addition to those set forth in the attached Notice of Grant (the "Notice"):
1. TRANSFER RESTRICTIONS:
Your restricted stock may not be sold, assigned, transferred, pledged or
otherwise encumbered during the "restriction period" defined in section 2
hereof. Any dividends or distributions on your restricted stock, other
than cash dividends, during the restriction period will be treated as
restricted stock under this Agreement. Except for the restrictions
contained in this Agreement, you will have all of the rights, including
voting rights, of a holder of Company common stock as to your restricted
stock.
2. RESTRICTION PERIOD:
Unless earlier terminated in accordance with sections 3 or 4 hereof, the
restrictions on 3,333 shares of the stock granted to you hereunder shall
terminate one year after the Grant Date (February 6, 1996); the restric-
tions on 3,333 additional shares of said stock shall terminate two years
after the Grant Date (February 6, 1997); and the restrictions on the
remaining 3,334 shares of said stock shall terminate three years after the
Grant Date (February 6, 1998).
3. TERMINATION OF EMPLOYMENT:
If your employment with the Company terminates during the restriction
period because of your death or total and permanent disability, the
restriction period will terminate as to all your stock remaining restricted
as of the date of such termination. If your employment terminates during
the restriction period for any other reason (except in connection with
circumstances described in Section 4 hereof), all of your then remaining
restricted stock will be forfeited.
4. CHANGE IN CONTROL OF THE COMPANY OR DISPOSITION OF ITS
AUTOMOTIVE SAFETY PRODUCTS GROUP
The restriction period will terminate as to all your stock remaining
restricted as of the date your employment with the Company or any
successor, as the case may be, terminates for any reason following 1) a
change in control of the Company*; or 2) a sale or other disposition by
the Company of all or substantially all of the assets of its Automotive
Safety Products Group, other than to a corporation (or other entity) whose
outstanding shares of common stock (or other ownership interest) are at
least 50% owned, directly or indirectly, by the Company.
____________
* as defined on pages 4-5 of the Company's 1989 Incentive Plan, amended
effective June 23, 1994 (the "Plan"), a copy of which is attached hereto.
-1-
<PAGE>
5. DELIVERY AT END OF RESTRICTION PERIOD:
As soon as practicable after termination of restrictions pursuant to
sections 2, 3 or 4 hereof, a certificate for the stock becoming free of
restrictions will be delivered to you, decreased by any stock withholding
elected by you pursuant to Section 6. hereof to satisfy tax obligations.
6. TAX EFFECTS:
Unless you make the election described below, you will be liable for
applicable Federal, State, and/or local income taxes on the value of your
restricted stock when the restriction period terminates. Alternatively,
you may file an election with the Internal Revenue Service to pay such
taxes based on the value of your restricted stock on the date of grant*.
This election must be filed within 30 days after the grant date. Any tax
liability you incur with respect to your restricted stock may be withheld
from your pay in accordance with legal requirements. Any taxes payable by
you upon termination of the restriction period may be satisfied, at your
option, by having the Company withhold stock to which you would otherwise
be entitled having a value equal to the amount of withholding required.
Additionally, cash dividends paid on your restricted stock will be subject
to applicable taxes and withholding requirements when paid.
The above summary should be read together with the enclosed Prospectus
dated October 17, 1994, covering the Plan which describes certain tax
consequences of restricted stock awards on page 5. In addition, it is
strongly suggested that you review the tax aspects of this grant with your
personal tax advisor.
7. CONFORMITY WITH PLAN:
Your restricted stock award is intended to conform in all respects with the
Plan. Inconsistencies between this Grant Agreement and the Plan shall be
resolved in accordance with the terms of the Plan. All definitions stated
in the Plan shall be fully applicable to this Grant Agreement.
8. EMPLOYMENT AND SUCCESSORS:
Nothing herein or in the Notice or the Plan confers any right or obligation
on you to continue in the employ of the Company or shall affect in any way
your right or the right of the Company to terminate your employment at any
time. This Grant Agreement, the Notice, and the Plan shall be binding upon
any successor or successors of the Company.
9. GOVERNING LAW:
This Grant Agreement, the Notice, and the Plan shall be construed in
accordance with and governed by the laws of the State of Illinois.
_______________
* $30.0625 per share (average of Company stock high and low NYSE prices on
date of grant).
-2-
<PAGE>
EXHIBIT (10)(l)
AGREEMENT
THIS AGREEMENT, made and entered into this 3rd day of February, 1995, by
and between MORTON INTERNATIONAL, INC., an Indiana corporation (hereinafter
referred to as "the Company"), and FRED J. MUSONE, an individual residing at
2770 East Delhi Road, Ann Arbor, Michigan (hereinafter referred to as "the
Executive").
WITNESSETH:
WHEREAS, the Company is seeking to replace its retiring Group Vice
President, Automotive Safety Products Group ("the Group") and desires to employ
the Executive to fill that position; and
WHEREAS, the Executive is willing to enter the employ of the Company for
that purpose.
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and understandings herein contained, and intending to be legally bound
hereby, the parties agree as follows:
1. POSITION AND DUTIES. Effective February 6, 1995 (the "Employment
Date"), the Company shall employ the Executive as President of the Group and a
Group Vice President of the Company, and the Executive agrees to be employed by
the Company in such capacity. The Executive shall have responsibility for the
general management and operation of the Group, and shall perform such additional
duties as may from time to time be assigned by the Company. The Executive shall
devote substantially all of his working time and efforts to the business and
affairs of the Group and Company.
<PAGE>
2. EMPLOYMENT TERM. The Executive's employment shall begin on the
Employment Date and shall continue at the pleasure of the Company, subject to
the potential future applicability of the change of control agreements referred
to in Section 7, below.
3. PLACE OF PERFORMANCE. The Executive shall be based at the Group's
headquarters in Ogden, Utah ("the Place of Performance").
4. COMPENSATION.
(a) BASE SALARY. The Executive shall receive base salary ("Base
Salary" or "the Executive's Base Salary") at an initial rate of $310,000 per
year, payable in substantially equal semi-monthly installments. The Executive's
Base Salary shall be subject to annual review by the Company, with salary
adjustments normally being effective September 1 of each year.
(b) ANNUAL BONUS. The Executive will participate in the Company's
Fiscal 1995 Key Executive Annual Bonus Program (Program I) on a pro rata basis.
Specifically, the Executive will be eligible to receive a Fiscal 1995 bonus
equal to the full amount of the bonus he would have earned if he had been
employed during the entire fiscal year multiplied by a fraction the numerator of
which is the number of days from the Employment Date through June 30, 1995,
inclusive, and the denominator of which is 365. Copies of the Company's 1989
Incentive Plan and of Program I are attached hereto as Exhibits A and B,
respectively. As a senior officer of the Company, the Executive will be
eligible to participate in subsequent bonus programs which the Company may adopt
in future
2
<PAGE>
fiscal years.
(c) LONG-TERM INCENTIVE PROGRAM. The Executive will participate
in the Company's Fiscal 1995-97 Key Executive Long-Term Incentive Program, a
copy of which is attached hereto as Exhibit C. Such participation will cover
the full performance period extending from July 1, 1994 through June 30, 1997,
and will not be subject to pro rata reduction. As a senior officer of the
Company, the Executive will be eligible to participate in subsequent long-term
incentive programs which the Company may adopt in future fiscal years.
(d) RESTRICTED SHARES. The Executive shall receive a grant of
10,000 restricted shares of the Company's stock under and subject to the terms
set forth in the Notice of Restricted Stock Award and Grant Agreement, attached
hereto as Exhibit D. The effective date of the grant will be the Employment
Date.
(e) STOCK OPTIONS. The Executive will be granted non-qualified
stock options pursuant to the Company's 1989 Incentive Plan (Exhibit A hereto)
and the Notice of Grant of Stock Options and Grant Agreement, attached hereto as
Exhibit E. The grant will be for a 10 year term and will be made as of the
Employment Date at an exercise price equal to the stock's fair market value on
the date of grant. The option shall cover the purchase of 20,000 Company
shares. As a senior officer of the Company, the Executive will be eligible to
participate in future stock option grants which the Company may make pursuant to
such Plan.
(f) LUMP SUM PAYMENT. The Company will make a lump sum
3
<PAGE>
payment to the Executive of $100,000. Such payment will be made on the
Employment Date or as soon thereafter as practicable. At the appropriate time,
the Company agrees to make a further lump sum payment in an amount which, in the
reasonable judgment of the Company and the Executive, is necessary to restore
the deficiency, if any, in the discretionary portion of the Executive's calendar
year 1994 annual bonus due from his prior employer, which deficiency is
attributable to the Executive's leaving his prior employment to join the
Company.
5. PENSION. The Executive shall be eligible to participate in the
Company's basic and excess defined benefit pension plans, according to the terms
of those plans.
6. OTHER BENEFITS.
(a) EXECUTIVE AUTOMOBILE. The Executive will be eligible to
participate in the Company's executive automobile plan, under which an
automobile is furnished for the Executive's use at no cost. The plan presently
specifies an automobile with a maximum price not to exceed $41,000, excluding
sales and luxury taxes. All personal mileage is classified as imputed income
but is grossed-up for income tax purposes by the Company. Currently the maximum
price is adjusted annually, and automobiles are replaced after two years.
(b) VACATION. The Executive shall be eligible for four weeks
vacation per calendar year, including a full four weeks for calendar year 1995.
(c) SURVIVOR INCOME BENEFITS PLAN. The Executive will
4
<PAGE>
be eligible to participate in the Company's Survivor Income Benefit Plan, under
which benefits are payable to participants' surviving spouses (or dependant
children if there is no spouse) if a participant dies prior to age 65 while
employed by the Company. The benefit is 50% of the participant's base pay at
death, reduced by any pre-retirement death benefits payable under the Company's
pension plans and by any survivorship benefits payable by Social Security, and
continues until the participant would have attained age 65.
(d) TAX SERVICES. The Executive shall be entitled to receive
personal tax return preparation services from Ernst & Young. The expense of
such services will be paid by the Company, and will be grossed-up for income tax
purposes.
(e) CLUB MEMBERSHIP. The Executive shall be entitled to a country
club membership at Company expense, either at the Ogden Country Club or at a
similar country club in the Ogden area. The Executive shall also be entitled to
membership in an Ogden area hunting club of his choosing at Company expense.
7. CHANGE OF CONTROL EMPLOYMENT AGREEMENTS. The Company and the
Executive will enter into change of control employment agreements effective as
of the Employment Date, as follows:
(a) CORPORATE AGREEMENT. A trigger employment agreement applicable
to corporate changes of control, in the form executed by senior executives of
the Company, as set forth in Exhibit F hereto.
(b) GROUP AGREEMENT. A special Group Trigger Employment Agreement
applicable to a change of control of the Group, as set
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forth in Exhibit G hereto.
8. MISCELLANEOUS.
(a) RELOCATION. The Executive shall be entitled to benefits under
the Company's relocation policy and related policies in connection with his
relocation to the Place of Performance.
(b) OBLIGATIONS CONTINGENT ON COMMENCEMENT OF EMPLOYMENT. The
Company's obligations under this Agreement are contingent on the Executive's
actually entering the employ of the Company at the Place of Performance. Prior
to such entry the Executive will obtain a pre-employment physical examination,
which includes a drug test, at the Company's cost which will provide evidence
that he is able to perform his duties as described herein.
(c) WITHHOLDING TAXES. The Company may withhold from any amounts
payable under this Agreement such federal, state or local taxes as shall be
required to be withheld pursuant to any applicable law or regulation.
(d) ENROLLMENT AND ELECTION FORMS. At the Company's request, the
Executive shall complete and forward to the Company in a timely manner, all
appropriate plan and benefit enrollment, election and similar forms.
(e) PLAN CHANGES. Except as otherwise specifically provided herein,
the Executive acknowledges that the Company shall have the right to modify or
terminate any current plan, practice, policy or program relating to
compensation, bonuses, options, welfare benefit plans, perquisites or other
plans, practices, policies or programs of any nature, in its sole discretion.
No
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such change shall apply retroactively, nor shall it result in the Executive's
not being eligible to receive benefits which in the aggregate are as favorable
as those generally afforded peer executives of the Company.
(f) OTHER PROGRAMS AND BENEFITS. The Executive shall be entitled
to participate in generally available employee benefit plans and arrangements of
the Company for which he may be eligible.
(g) EMPLOYEE TRADE SECRET AND PATENT AGREEMENT. The Executive shall
execute the Company's Employee Trade Secret and Patent Agreement, attached
hereto as Exhibit H.
(h) COMPANY POLICIES AND PROCEDURES. The Executive shall be subject
to and shall strictly observe all policies and procedures of the Company
including, without limitation, those regulating the conduct and behavior of its
employees.
9. SPECIAL SEVERANCE ARRANGEMENTS. If the Executive's employment is
terminated by the Company within three (3) years following the Employment Date
for reasons other than cause or change of control as contemplated in Section 7,
above, the following special severance arrangements will apply:
(a) SEPARATION ALLOWANCE. The Company shall pay the Executive a
separation allowance equal to one (1) year's base salary at the then current
rate. Such allowance shall be paid at the election of the Executive either in
a lump sum or in equal semi-monthly installments. If semi-monthly installments
are elected and the Executive obtains other employment within one (1) year
following termination, the unpaid balance of such one (1) year
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separation allowance shall be paid to the Executive in a single lump sum. If
the Executive continues to be unemployed one (1) year following termination, the
Company shall thereupon commence further semi-monthly payments to the Executive
(in amounts equal to one-twenty-fourth (1/24) of the Executive's annual base
salary at the time of termination) until the Executive obtains other employment;
provided, however, that such payments shall cease at the end of the two (2) year
period following termination, irrespective of whether the Executive has obtained
other employment.
(b) INTERIM INSURANCE. During the two (2) year period following
termination, or until the Executive obtains new employment during such two (2)
year period, the Executive will remain eligible to participate in the Company's
contributory basic insurance (one times annual base salary) and health care
insurance plans.
(c) HOME EQUITY PROTECTION. The Company will reimburse the
Executive in an amount equal to the difference between the bona fide purchase
price of a residence purchased or to be purchased by the Executive in the Ogden,
Utah area and the bonafide resale price of such residence, provided that resale
by the Executive occurs within a three (3) year period following termination.
(d) MOVING EXPENSE. The Company will pay to move the Executive's
household goods from his residence in the Ogden, Utah area to any other location
in the United States, provided that such move occurs within a three (3) year
period following termination.
(e) OUTPLACEMENT. Executive outplacement services will
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be provided to the Executive at Company expense.
(f) EXCLUSIVITY. The foregoing payments, benefits and services
shall be in lieu of and in full satisfaction of any claims, damages or causes of
action to which the Executive may otherwise be entitled as a result of such
termination.
10. ENTIRE AGREEMENT, ETC.. This Agreement cancels any prior
understandings, whether written or oral, between the parties and, together with
the exhibits hereto which form an integral part hereof, constitutes the entire
agreement between the Executive and the Company. No provisions of this
Agreement may be modified, waived or discharged unless such waiver, modification
or discharge is agreed to in a writing which is signed by the Executive and the
Company. No waiver of any condition or provision of this Agreement shall be
deemed a waiver of similar or dissimilar provisions or conditions at the same or
at any prior or subsequent time. The validity, interpretation, construction and
performance of this Agreement shall be governed by the substantive laws of the
State of Illinois.
WITNESS the due execution hereof the day and year first above written.
MORTON INTERNATIONAL, INC.
BY: /s/ S. Jay Stewart
--------------------------------
S. Jay Stewart
Chairman and Chief Executive Officer
/s/ Fred J. Musone
--------------------------------
Fred J. Musone
1/20/94 Musone.agmt
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EXHIBIT (10)(m)
GROUP TRIGGER EMPLOYMENT AGREEMENT
AGREEMENT by and between Morton International, Inc. (the
"Company") and Fred J. Musone (the "Executive"), dated as of the
6th day of February, 1995 ("this Agreement").
The Company has employed the Executive as President of its
Automotive Safety Products Group (the "Group") and as a Group Vice
President of the Company. It is in the best interests of the
Company to assure that it will have the continued dedication of the
Executive, notwithstanding the possibility, threat, or occurrence
of a Change of Control (as defined below) of the Group. The
Company believes it is imperative to diminish the inevitable
distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change
of Control and to encourage the Executive's full attention and
dedication to the Company and the Group currently and in the event
of any threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a Change
of Control which ensure that the compensation and benefits
expectations of the Executive will be satisfied and which are
competitive with those of other corporations. The Company further
desires to be in a position to offer the services of the Executive
to a purchaser or successor owner of the Group (the "Purchaser") on
terms and conditions acceptable to the Executive. In order to
accomplish these objectives, the parties are entering into this
Agreement.
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NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. CERTAIN DEFINITIONS. (a) The "Change of Control
Date" shall be the first date during the Change of Control Period
on which a Change of Control (as defined in Section 2) occurs.
Anything in this Agreement to the contrary notwithstanding, if a
Change of Control occurs and the Company has terminated the
Executive's employment (other than under circumstances which would
constitute Cause or Disability (as such terms are defined below))
or the Executive has terminated his employment under circumstances
which would constitute Good Reason (as defined below) if such
termination occurred the day after the Change of Control Date, and
if it is reasonably demonstrated by the Executive (i) that such
termination of employment was at the request of a third party who
has taken steps reasonably calculated to effect the Change of
Control or (ii) that the Company's actions otherwise arose in
connection with or in anticipation of the Change of Control, then
for all purposes of this Agreement the "Change of Control Date"
shall mean the date immediately prior to the date of such
termination of employment.
(b) The "Change of Control Period" shall mean the
period commencing on the date hereof and ending on the third
anniversary of such date; provided, however, that commencing on the
date one year after the date hereof, and on each annual anniversary
of such date (such date and each annual anniversary thereof shall
be hereinafter referred to as the "Renewal Date"), the Change of
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Control Period shall be automatically extended so as to terminate
three years from such Renewal Date, unless at least 60 days prior
to the Renewal Date the Company shall give notice to the Executive
that the Change of Control Period shall not be so extended.
2. CHANGE OF CONTROL. For the purpose of this
Agreement, a "Change of Control" shall mean the sale or other
disposition of all or substantially all of the assets of the Group,
other than to a corporation (or other entity) whose outstanding
shares of common stock (or other ownership interest) are at least
50% owned, directly or indirectly, by the Company.
3. EVENTS UPON CHANGE OF CONTROL. Upon the occurrence
of a Change of Control:
(a) If requested by the Company and by the Purchaser, and
if acceptable to the Executive, the Executive shall forthwith enter
into the employ of the Purchaser on the terms and conditions set
forth in this Agreement; provided that in such event (i) the
Company shall assign this Agreement to the Purchaser, which shall
accept such assignment and agree to assume all rights and to
perform all obligations of the Company hereunder, and (ii) the
Company shall remain as a guarantor of the Purchaser's obligations
under this Agreement.
(b) Anything herein to the contrary notwithstanding, if
the Executive does not enter the employ of the Purchaser, the
Company shall have the right to terminate the Executive's
employment at any time during the Employment Period. In such
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event, however, the termination shall be deemed to have been made
by the Executive for Good Reason as defined in Section 6(c) and the
Executive's sole entitlement shall be to the payments and other
benefits provided for in Section 7(d).
4. EMPLOYMENT PERIOD. Subject to the provisions of
Section 3, the Company hereby agrees to continue the Executive in
its employ, and the Executive hereby agrees to remain in the employ
of the Company, for the period commencing on the Change of Control
Date and ending on the third anniversary of such date (the
"Employment Period").
5. TERMS OF EMPLOYMENT.
(a) POSITION AND DUTIES. (i) During the Employment
Period, (A) the Executive's position (including status, offices,
titles and reporting requirements), authority, duties and
responsibilities shall be at least commensurate in all material
respects with the most significant of those held, exercised and
assigned at any time during the 90-day period immediately preceding
the Change of Control Date and (B) the Executive's services shall
be performed at the location (the "Principal Business Location")
where the Executive was employed immediately preceding the Change
of Control Date or at any office or location which does not result
in a material increase in the distance or time of commutation
between the Executive's place of primary residence at the Change of
Control Date and the Executive's Principal Business Location, or
materially adversely affect the mode of such commutation.
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(ii) During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is
entitled, the Executive agrees to devote reasonable attention and
time during normal business hours to the business and affairs of
the Company and, to the extent necessary to discharge the
responsibilities assigned to the Executive hereunder, to use the
Executive's reasonable best efforts to perform faithfully and
efficiently such responsibilities. During the Employment Period it
shall not be a violation of this Agreement for the Executive to (A)
serve on corporate, civic or charitable boards or committees, (B)
deliver lectures, fulfill speaking engagements or teach at
educational institutions and (C) manage personal investments, so
long as such activities do not significantly interfere with the
performance of the Executive's responsibilities as an employee of
the Company in accordance with this Agreement. It is expressly
understood and agreed that to the extent that any such activities
have been conducted by the Executive prior to the Change of Control
Date, the continued conduct of such activities (or the conduct of
activities similar in nature and scope thereto) subsequent to the
Change of Control Date shall not thereafter be deemed to interfere
with the performance of the Executive's responsibilities to the
Company.
(b) COMPENSATION AND EMPLOYMENT. (i) BASE
SALARY. During the Employment Period, the Executive shall receive
in accordance with the Company's payroll practices at the Change of
Control Date an annual base salary ("Annual Base Salary"), at least
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equal to twelve times the highest monthly base salary paid or
payable to the Executive by the Company and its affiliated
companies in respect of the twelve-month period immediately
preceding the month in which the Change of Control Date occurs.
During the Employment Period, the Annual Base Salary shall be
reviewed at least annually and shall be increased at any time and
from time to time as shall be substantially consistent with
increases in base salary awarded in the ordinary course of business
to other peer executives of the Company and its affiliated
companies but in no event shall the annual increase in Base Salary
be less than a percentage at least equal to the increase, if any,
in the cost-of-living shown on the Consumer Price Index for the
area in which the Principal Business Location is located, published
by the Bureau of Labor Statistics of the United States Department
of Labor for the immediately preceding twelve-month period (or, if
no such Consumer Price Index is then published, any successor index
thereto). Any increase in Annual Base Salary shall not serve to
limit or reduce any other obligation to the Executive under this
Agreement. Annual Base Salary shall not be reduced after any such
increase and the term Annual Base Salary as utilized in this
Agreement shall refer to Annual Base Salary as so increased. As
used in this Agreement, the term "affiliated companies" includes
any company controlled by, controlling or under common control with
the Company.
(ii) BONUS. (A) In addition to Annual Base Salary,
the Executive shall be awarded, for each fiscal year beginning or
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ending during the Employment Period, an annual bonus (the "Annual
Bonus") in cash at least equal to the highest annualized (for any
fiscal year consisting of less than twelve full months or with
respect to which the Executive has been employed by the Company for
less than twelve full months) bonus paid or payable (including any
amount subject to a deferral election) to the Executive by the
Company and its affiliated companies in respect of the three fiscal
years immediately preceding the fiscal year in which the Change of
Control Date occurs (the "Recent Annual Bonus"). Each such Annual
Bonus shall be paid no later than the end of the third month of the
fiscal year next following the fiscal year for which the Annual
Bonus is awarded, unless the Executive shall elect to defer the
receipt of such Annual Bonus.
(B) In addition to Annual Base Salary and the Annual
Bonus, the Executive shall be paid, for each fiscal year beginning
or ending during the Employment Period, a long-term bonus (the
"Long-Term Bonus") in cash at least equal to the average long-term
incentive bonus (the "Recent Long-Term Bonus") paid or payable to
the Executive by the Company and its affiliated companies under the
Company's Long-Term Incentive Compensation Plan or any successor
plan (the "LTIP") in respect of the last three completed
performance cycles ending with the performance cycle ending in the
fiscal year preceding the fiscal year in which the Change of
Control Date occurs (or, if less, in respect of the number of
completed performance cycles for which the Executive has received
a long-term bonus). If the Executive was not a participant in the
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LTIP in one of such cycles, but is, at the Change of Control Date,
a participant in the LTIP, the Recent Long-Term Bonus shall be
equal to the amount payable to such Executive under the LTIP upon
a Change of Control (as defined in the LTIP), divided by the number
of performance cycles in which the Executive was participating at
such time. For the fiscal year in which the Change of Control Date
occurs and for the next two fiscal years, any such payment may be
reduced (but not below zero) by the amount actually paid upon the
Change of Control (as defined in the LTIP) to the Executive under
the terms of the LTIP with respect to the performance cycle that
otherwise would have ended in such fiscal year. Each such Long-
Term Bonus shall be paid pursuant to a plan which has three-year
performance cycles and is otherwise substantially similar to the
LTIP and shall be paid no later than the end of the third month of
the fiscal year next following the fiscal year for which the Long-
Term Bonus is awarded, unless the Executive shall elect to defer
the receipt of such Long-Term Bonus.
(iii) INCENTIVE, SAVINGS AND RETIREMENT PLANS. In
addition to Annual Base Salary, Annual Bonus and Long-Term Bonus
payable as hereinabove provided, the Executive shall be entitled to
participate during the Employment Period in all incentive, savings
and retirement plans, practices, policies and programs applicable
to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies
and programs provide the Executive with incentive, savings and
retirement benefits opportunities, in each case, less favorable, in
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the aggregate, than the most favorable of those provided by the
Company and its affiliated companies for the Executive under such
plans, practices, policies and programs as in effect at any time
during the 90-day period immediately preceding the Change of
Control Date.
(iv) WELFARE BENEFIT PLANS. During the Employment
Period, the Executive and/or the Executive's family, as the case
may be, shall be eligible for participation in and shall receive
all benefits under welfare benefit plans, practices, policies and
programs provided by the Company and its affiliated companies
(including, without limitation, medical, prescription, dental,
disability, salary continuance, employee life, group life,
accidental death and travel accident insurance plans and programs)
and applicable to other peer executives of the Company and its
affiliated companies, but in no event shall such plans, practices,
policies and programs provide benefits which are less favorable, in
the aggregate, than the most favorable of such plans, practices,
policies and programs in effect at any time during the 90-day
period immediately preceding the Change of Control Date.
(v) EXPENSES. During the Employment Period, the
Executive shall be entitled to receive prompt reimbursement for all
reasonable expenses incurred by the Executive in accordance with
the most favorable policies, practices and procedures of the
Company and its affiliated companies in effect at any time during
the 90-day period immediately preceding the Change of Control Date
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or, if more favorable to the Executive, as in effect at any time
thereafter with respect to other peer executives of the Company and
its affiliated companies.
(vi) FRINGE BENEFITS. During the Employment Period,
the Executive shall be entitled to fringe benefits including,
without limitation, club memberships and annual physical, in
accordance with the most favorable plans, practices, programs and
policies of the Company and its affiliated companies in effect at
any time during the 90-day period immediately preceding the Change
of Control Date or, if more favorable to the Executive, as in
effect at any time thereafter with respect to other peer executives
of the Company and its affiliated companies.
(vii) OFFICE AND SUPPORT STAFF. During the
Employment Period, the Executive shall be entitled to an office or
offices of a size and with furnishings and other appointments, to
exclusive personal secretarial and other assistance, and to a
Company-provided car, at least equal to the most favorable of the
foregoing provided to the Executive by the Company and its
affiliated companies at any time during the 90-day period
immediately preceding the Change of Control Date or, if more
favorable to the Executive, as provided at any time thereafter with
respect to other peer executives of the Company and its affiliated
companies.
(viii) VACATION. During the Employment Period, the
Executive shall be entitled to paid vacation in accordance with the
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most favorable plans, policies, programs and practices of the
Company and its affiliated companies as in effect at any time
during the 90-day period immediately preceding the Change of
Control Date or, if more favorable to the Executive, as in effect
at any time thereafter with respect to other peer executives of the
Company and its affiliated companies with similar lengths of
service.
(ix) SUBSTITUTION OF EQUIVALENT BENEFITS. After a
Change of Control and presuming that the Executive enters the
employ of the Purchaser, the Purchaser shall have the right to
substitute, in whole or in part, its own plans, practices, policies
and programs that are available to other peer executives of the
Purchaser (the "Purchaser's Plans") for the plans, practices,
policies and programs referred to in subsections (ii) through
(viii), above (the "Company Plans"); provided, however, that in
each instance the Purchaser's Plans shall be substantially similar
to and at least as favorable to the Executive as the Company's
Plans.
6. TERMINATION OF EMPLOYMENT. (a) DEATH OR DIS-
ABILITY. The Executive's employment shall terminate automatically
upon the Executive's death during the Employment Period. If the
Company determines in good faith that the Disability of the
Executive has occurred during the Employment Period (pursuant to
the definition of "Disability" set forth below), it may give to the
Executive written notice in accordance with Section 13(b) of this
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Agreement of its intention to terminate the Executive's employment.
In such event, the Executive's employment with the Company shall
terminate effective on the 30th day after receipt of such notice by
the Executive (the "Disability Change of Control Date"), provided
that, within the 30 days after such receipt, the Executive shall
not have returned to full-time performance of the Executive's
duties. For purposes of this Agreement, "Disability" means the
absence of the Executive from the Executive's duties with the
Company on a full-time basis for 180 consecutive business days as
a result of incapacity due to mental or physical illness which is
determined to be total and permanent by a physician selected by the
Company or its insurers and acceptable to the Executive or the
Executive's legal representative (such agreement as to
acceptability not to be withheld unreasonably).
(b) CAUSE. The Company may terminate the Executive's
employment during the Employment Period for "Cause." For purposes
of this Agreement, "Cause" means (i) an act or acts of personal
dishonesty taken by the Executive and intended to result in
substantial personal enrichment of the Executive at the expense of
the Company, (ii) repeated violations by the Executive of the
Executive's obligations under Section 5(a) of this Agreement which
are demonstrably willful and deliberate on the Executive's part and
which are not remedied in a reasonable period of time after receipt
of written notice from the Company or (iii) the conviction of the
Executive of a felony involving moral turpitude. For purposes of
this Section 6(b), no act, or failure to act, on the Executive's
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part shall be considered "willful" unless done, or omitted to be
done, by him not in good faith and without reasonable belief that
his action or omission was in the best interest of the Company.
Notwithstanding the foregoing, the Executive shall not be deemed to
have been terminated for Cause unless and until there shall have
been delivered to the Executive a copy of a resolution, duly
adopted by the affirmative vote of not less than three-quarters of
the entire membership of the Board at a meeting of the Board called
and held for the purpose (after reasonable notice to the Executive
and an opportunity for him, together with his counsel, to be heard
before the Board), finding that in the good faith opinion of the
Board, the Executive was guilty of conduct set forth above in
clause (i), (ii), or (iii) of the second sentence of this Section
6(b) and specifying the particulars thereof in detail.
(c) GOOD REASON. The Executive's employment may be
terminated during the Employment Period by the Executive for Good
Reason. For purposes of this Agreement, "Good Reason" means:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position
(including status, offices, titles and reporting
requirements), authority, duties or responsibilities as
contemplated by Section 5(a) of this Agreement, or any other
action by the Company which results in a diminution in such
position, authority, duties or responsibilities, excluding for
this purpose an isolated, insubstantial and inadvertent action
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not taken in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the
Executive;
(ii) any failure by the Company to comply with any of
the provisions of Section 5(b) of this Agreement, other than an
isolated, insubstantial and inadvertent failure not occurring
in bad faith and which is remedied by the Company promptly
after receipt of notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be
based at any office or location other than that
described in Section 5(a)(i)(B) hereof;
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by
this Agreement;
For purposes of this Section 6(c), any good faith
determination of "Good Reason" made by the Executive shall be
conclusive. Anything in this Agreement to the contrary
notwithstanding, a termination by the Executive for any reason
during the 30-day period immediately following the first
anniversary of the Change of Control Date shall be deemed to be a
termination for Good Reason for all purposes of this Agreement.
(d) NOTICE OF TERMINATION. Any termination by the
Company for Cause or by the Executive for Good Reason shall be
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communicated by Notice of Termination to the other party hereto
given in accordance with Section 13(b) of this Agreement. For
purposes of this Agreement, a "Notice of Termination" means a
written notice which (i) indicates the specific termination
provision in this Agreement relied upon, (ii) sets forth in
reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the
provision so indicated and (iii) if the Date of Termination (as
defined below) is other than the date of receipt of such notice,
specifies the termination date (which date shall be not more than
fifteen days after the giving of such notice). The failure by the
Executive to set forth in the Notice of Termination any fact or
circumstance which contributes to a showing of Good Reason shall
not waive any right of the Executive hereunder or preclude the
Executive from asserting such fact or circumstance in enforcing the
Executive's rights hereunder.
(e) DATE OF TERMINATION. "Date of Termination" means
the date of receipt of the Notice of Termination or any later date
specified therein, as the case may be; provided, however, that (i)
if the Executive's employment is terminated by the Company other
than for Cause or Disability, the Date of Termination shall be the
date on which the Company notifies the Executive of such
termination and (ii) if the Executive's employment is terminated by
reason of death or Disability, the Date of Termination shall be the
date of death of the Executive or the Disability Change of Control
Date, as the case may be.
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7. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a)
DEATH. If the Executive's employment terminates by reason of the
Executive's death during the Employment Period, this Agreement
shall terminate without further obligations to the Executive's
legal representatives under this Agreement, other than the
following obligations: (i) the Executive's Annual Base Salary
through the Date of Termination, to the extent not theretofore
paid, (ii) any amount payable to the Executive pursuant to 5(b)(ii)
hereof in respect of the most recently completed fiscal year, to
the extent not theretofore paid, (iii) if the Change of Control
Date occurred after the end of the most recently completed fiscal
year and no Annual Bonus was paid to the Executive in respect of
such period, an amount equal to the Recent Annual Bonus, (iv) the
product of the greater of the Annual Bonus paid or payable (and
annualized for any fiscal year consisting of less than twelve full
months or for which the Executive has been employed for less than
twelve full months) to the Executive for the most recently
completed fiscal year during the Employment Period, if any, or the
Recent Annual Bonus (such greater amount hereafter referred to as
the "Highest Annual Bonus") and a fraction, the numerator of which
is the number of days in the current fiscal year through the Date
of Termination, and the denominator of which is 365, (v) for each
performance cycle under the LTIP or any successor thereto which has
commenced on or after the Change of Control Date, the product of
the greater of the Long-Term Bonus paid or payable to the Executive
for the most recently completed performance cycle during the
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Employment Period, if any, or the Recent Long-Term Bonus (such
greater amount hereafter referred to as the "Greater Long-Term
Bonus") and a fraction, the numerator of which is the number of
days which have elapsed in the performance cycle through the Date
of Termination, and the denominator of which is 1095, and (vi) any
compensation previously deferred by the Executive (together with
any accrued interest thereon) and not yet paid by the Company and
any accrued vacation pay not yet paid by the Company (the amounts
described in paragraphs (i) through (vi) hereof are hereinafter
referred to as "Accrued Obligations"). All Accrued Obligations
shall be paid to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of
Termination. Anything in this Agreement to the contrary
notwithstanding, the Executive's family shall be entitled to
receive benefits at least equal to the most favorable benefits
provided by the Company and any of its affiliated companies to
surviving families of peer executives of the Company and such
affiliated companies under such plans, programs, practices and
policies relating to family death benefits, if any, as in effect
with respect to other peer executives and their families at any
time during the 90-day period immediately preceding the Change of
Control Date or, if more favorable to the Executive and/or the
Executive's family, as in effect on the date of the Executive's
death with respect to other peer executives of the Company and its
affiliated companies and their families.
(b) DISABILITY. If the Executive's employment is
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terminated by reason of the Executive's Disability during the
Employment Period, this Agreement shall terminate without further
obligations to the Executive, other than for Accrued Obligations.
All Accrued Obligations shall be paid to the Executive in a lump
sum in cash within 30 days of the Date of Termination. Anything in
this Agreement to the contrary notwithstanding, the Executive shall
be entitled after the Disability Change of Control Date to receive
disability and other benefits at least equal to the most favorable
of those provided by the Company and its affiliated companies to
disabled executives and/or their families in accordance with such
plans, programs, practices and policies relating to disability, if
any, as in effect with respect to other peer executives and their
families at any time during the 90-day period immediately preceding
the Change of Control Date or, if more favorable to the Executive
and/or the Executive's family, as in effect at any time thereafter
with respect to other peer executives of the Company and its
affiliated companies and their families.
(c) CAUSE; OTHER THAN FOR GOOD REASON. If the
Executive's employment shall be terminated for Cause during the
Employment Period or if the Executive terminates employment during
the Employment Period other than for Good Reason, this Agreement
shall terminate without further obligations to the Executive other
than the obligation to pay to the Executive Annual Base Salary
through the Date of Termination plus the amount of any compensation
previously deferred by the Executive and accrued vacation pay, in
each case to the extent theretofore unpaid.
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(d) GOOD REASON; OTHER THAN FOR CAUSE OR DISABILITY.
If, during the Employment Period, the Company shall terminate the
Executive's employment other than for Cause or Disability, or if
the Executive shall terminate employment under this Agreement for
Good Reason:
(i) the Company shall pay to the Executive in a lump sum
in cash within 30 days after the Date of Termination the
aggregate of the amounts described in paragraphs A, B and C,
below, less the amount described in paragraph D:
A. the product of (x) three and (y) the sum of (i)
Annual Base Salary, (ii) the Highest Annual Bonus and
(iii) the Greater Long-Term Bonus; and
B. all Accrued Obligations; and
C. a lump-sum retirement benefit equal to the
difference between (a) the actuarial equivalent of the
benefit under the Morton International, Inc. Pension Plan
and the Morton International, Inc. Excess Pension Plan as
in effect on the Change of Control Date or any successor
plan which provides more favorable benefits to the
Executive (the "Retirement Plans") which the Executive
would receive if the Executive's employment continued at
the compensation level provided for in Sections 5(b)(i)
and 5(b)(ii) of this Agreement for three years, assuming
for this purpose that all accrued benefits are fully
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vested, and (b) the actuarial equivalent of the
Executive's actual benefit (paid or payable), if any,
under the Retirement Plans; less
D. the sum of the following amounts calculated for
each performance cycle under the LTIP with respect to
which a payment was made under the terms of the LTIP as a
result of the Change of Control (as defined in the LTIP):
the product of (x) the number of days (but not less than
zero) that would have remained in such cycle as of the
Date of Termination if the Change of Control (as defined
in the LTIP) had not occurred divided by 1095 and (y) the
amount paid upon the Change of Control under the terms of
the LTIP with respect to such cycle; and
(ii) for the remainder of the Employment Period, or such
longer period as any plan, program, practice or policy may
provide, the Company shall continue benefits to the Executive
and/or the Executive's family at least equal to those which
would have been provided to them in accordance with the plans,
programs, practices and policies described in Section 5(b)(iv)
and (vi) of this Agreement if the Executive's employment had
not been terminated in accordance with the most favorable
plans, practices, programs or policies of the Company and its
affiliated companies applicable to other peer executives and
their families during the 90-day period immediately preceding
the Change of Control Date or, if more favorable to the
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Executive, as in effect at any time thereafter with respect to
other peer executives of the Company and its affiliated
companies and their families. For purposes of determining the
Executive's age and length of service at the time of his
termination of employment in order to determine eligibility of
the Executive for retiree benefits pursuant to such plans,
practices, programs and policies, the Executive shall be
considered to have remained employed until the end of the
Employment Period and to have terminated employment on the
last day of such period; provided, however, that the Executive
shall be entitled to the more favorable of the retiree
benefits in effect on the Date of Termination or the retiree
benefits in effect on the date that would have been the last
date of the Employment Period if the Executive had remained
employed.
8. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement
shall prevent or limit the Executive's continuing or future
participation in any benefit, bonus, incentive or other plans,
programs, policies or practices, provided by the Company or any of
its affiliated companies and for which the Executive may qualify,
nor shall anything herein limit or otherwise affect such rights as
the Executive may have under any other agreements with the Company
or any of its affiliated companies. Amounts which are vested
benefits or which the Executive is otherwise entitled to receive
under any plan, policy, practice or program of the Company or any
of its affiliated companies at or subsequent to the Date of
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Termination shall be payable in accordance with such plan, policy,
practice or program except as explicitly modified by this
Agreement.
9. FULL SETTLEMENT. The Company's obligation to make
the payments provided for in this Agreement and otherwise to
perform its obligations hereunder shall not be affected by any set-
off, counterclaim, recoupment, defense or other claim, right or
action which the Company may have against the Executive or others.
In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of
this Agreement. The Company agrees to pay, from time to time
promptly upon invoice, to the full extent permitted by law, all
legal fees and expenses which the Executive may reasonably incur as
a result of any contest or controversy (regardless of the outcome
thereof and whether or not litigation is involved) by the Company,
the Executive or others of the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee
of performance thereof (including as a result of any contest by the
Executive about the amount of any payment pursuant to Section 9 of
this Agreement).
10. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. (a)
Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by
the Company to or for the benefit of the Executive (whether paid or
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payable or distributed or distributable pursuant to the terms of
this Agreement or otherwise, but determined without regard to any
additional payments required under this Section 10) (a "Payment")
would be subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code") or any
interest or penalties are incurred by the Executive with respect to
such excise tax (such excise tax, together with any such interest
and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an
additional payment (a "Gross-Up Payment") in an amount such that
after payment by the Executive of all taxes (including any interest
or penalties imposed with respect to such taxes), including,
without limitation, any income taxes (and any interest and
penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, the Executive retains an amount of the Gross-
Up Payment equal to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 10(c), all
determinations required to be made under this Section 10, including
whether and when a Gross-Up Payment is required and the amount of
such Gross-Up Payment and the assumptions to be utilized in
arriving at such determination, shall be made by Ernst & Young (the
"Accounting Firm") which shall provide detailed supporting
calculations both to the Company and the Executive within 15
business days of the receipt of notice from the Executive that
there has been a Payment, or such earlier time as is requested by
the Company. In the event that the Accounting Firm is serving (or
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has, during the three years preceding the Effective Date, served)
as accountant or auditor for the individual, entity or group
effecting the Change of Control, the Executive shall appoint
another nationally recognized accounting firm to make the
determinations required hereunder (which accounting firm shall then
be referred to as the Accounting Firm hereunder). All fees and
expenses of the Accounting Firm shall be borne solely by the
Company. Any Gross-Up Payment, as determined pursuant to this
Section 10, shall be paid by the Company to the Executive within
five days of the receipt of the Accounting Firm's determination.
If the Accounting Firm determines that no Excise Tax is payable by
the Executive, it shall furnish the Executive with a written
opinion that failure to report the Excise Tax on the Executive's
applicable federal income tax return would not result in the
imposition of a negligence or similar penalty. Any determination
by the Accounting Firm shall be binding upon the Company and the
Executive. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination
by the Accounting Firm hereunder, it is possible that Gross-Up Pay-
ments which will not have been made by the Company should have been
made ("Underpayment"), consistent with the calculations required to
be made hereunder. In the event that the Company exhausts its
remedies pursuant to Section 10(c) and the Executive thereafter is
required to make a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred
and any such Underpayment shall be promptly paid by the Company to
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or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would
require the payment by the Company of the Gross-Up Payment. Such
notification shall be given as soon as practicable but no later
than ten business days after the Executive is informed in writing
of such claim and shall apprise the Company of the nature of such
claim and the date on which such claim is requested to be paid.
The Executive shall not pay such claim prior to the expiration of
the 30-day period following the date on which it gives such notice
to the Company (or such shorter period ending on the date that any
payment of taxes with respect to such claim is due). If the
Company notifies the Executive in writing prior to the expiration
of such period that it desires to contest such claim, the Executive
shall:
(i) give the Company any information reasonably
requested by the Company relating to such claim,
(ii) take such action in connection with contesting such
claim as the Company shall reasonably request in writing from
time to time, including, without limitation, accepting legal
representation with respect to such claim by an attorney
reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
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(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all
costs and expenses (including additional interest and penalties)
incurred in connection with such contest and shall indemnify and
hold the Executive harmless, on an after-tax basis, for any Excise
Tax or income tax (including interest and penalties with respect
thereto) imposed as a result of such representation and payment of
costs and expenses. Without limitation on the foregoing provisions
of this Section 10(c), the Company shall control all proceedings
taken in connection with such contest and, at its sole option, may
pursue or forgo any and all administrative appeals, proceedings,
hearings and conferences with the taxing authority in respect of
such claim and may, at its sole option, either direct the Executive
to pay the tax claimed and sue for a refund or contest the claim in
any permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate
courts, as the Company shall determine; provided, however, that if
the Company directs the Executive to pay such claim and sue for a
refund, the Company shall advance the amount of such payment to the
Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax
or income tax (including interest or penalties with respect
thereto) imposed with respect to such advance or with respect to
any imputed income with respect to such advance; and further
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provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with
respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the
Company's control of the contest shall be limited to issues with
respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case
may be, any other issue raised by the Internal Revenue Service or
any other taxing authority.
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 10(c), the Executive
becomes entitled to receive any refund with respect to such claim,
the Executive shall (subject to the Company's complying with the
requirements of Section 10(c)) promptly pay to the Company the
amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by
the Executive of an amount advanced by the Company pursuant to
Section 10(c), a determination is made that the Executive shall not
be entitled to any refund with respect to such claim and the
Company does not notify the Executive in writing of its intent to
contest such denial of refund prior to the expiration of 30 days
after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance
shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.
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11. CONFIDENTIAL INFORMATION. (a) During the period of
his employment hereunder, the Executive shall not, without the
written consent of the Chief Executive Officer, disclose to any
person, other than an employee of the Company or a person to whom
disclosure is reasonably necessary or appropriate in connection
with the performance by the Executive of his duties as an executive
of the Company, any material confidential information obtained by
him while in the employ of the Company with respect to any of the
products, improvements, formulas, designs or styles, processes,
customers, methods of distribution or methods of manufacture of the
Company, the disclosure of which he knows will be materially
damaging to the Company; PROVIDED, HOWEVER, that confidential
information shall not include any information known generally to
the public (other than as a result of unauthorized disclosure by
the Executive) or any information of a type not otherwise
considered confidential by persons engaged in the same business or
a business similar to that conducted by the Company. For the
period ending two years following the Date of Termination, the
Executive shall not disclose any confidential information of the
type described above except as determined by him to be reasonably
necessary in connection with any business or activity in which he
is then engaged.
(b) Any and all inventions made, developed or created by
the Executive (whether at the request or suggestion of the Company
or otherwise, whether alone or in conjunction with others, and
whether during regular hours of work or otherwise) during the
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period of his employment by the Company, which may be directly or
indirectly useful in, or relate to, the business of or tests being
carried out by the Company or any of its subsidiaries or
affiliates, will be promptly and fully disclosed by the Executive
to an appropriate executive officer of the Company and shall be the
Company's exclusive property as against the Executive, and the
Executive will promptly deliver to an appropriate executive officer
of the Company all papers, drawings, models, data and other
material relating to any invention made, developed or created by
him as aforesaid.
(c) The Executive will, upon the Company's request and
without any payment therefor, execute any documents necessary or
advisable in the opinion of the Company's counsel to direct
issuance of patents to the Company with respect to such inventions
as are to be the Company's exclusive property as against the
Executive under Section 11(b) above or to vest in the Company title
to such inventions as against the Executive, PROVIDED, HOWEVER,
that the expense of securing any such patent will be borne by the
Company.
(d) The foregoing provisions of this Section 11 shall be
binding upon the Executive's heirs, successors and legal
representatives.
(e) In no event shall an asserted violation of the
provisions of this Section 11 constitute a basis for deferring or
withholding any amounts otherwise payable to the Executive under
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this Agreement.
12. SUCCESSORS. (a) This Agreement is personal to the
Executive and without the prior written consent of the Company
shall not be assignable by the Executive otherwise than by will or
the laws of descent and distribution. This Agreement shall inure
to the benefit of and be enforceable by the Executive's legal
representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
13. MISCELLANEOUS. (a) This Agreement shall be
governed by and construed in accordance with the laws of the State
of Illinois, without reference to principles of conflict of laws.
The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect. This Agreement may not
be amended or modified otherwise than by a written agreement
executed by the parties hereto or their respective successors and
legal representatives.
(b) All notices and other communications hereunder shall
be in writing and shall be given by hand delivery to the other
party or by registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:
IF TO THE EXECUTIVE: Home address as currently
shown on Human Resources Department records of
Executive's business unit.
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IF TO THE COMPANY:
Morton International, Inc.
100 North Riverside Plaza
Chicago, Illinois 60606-1596
Attention: Corporate Secretary
or to such other address as either party shall have furnished to
the other in writing in accordance herewith. Notice and
communications shall be effective when actually received by the
addressee.
(c) The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement.
(d) The Company may withhold from any amounts payable
under this Agreement such federal, state or local taxes as shall be
required to be withheld pursuant to any applicable law or
regulation.
(e) The Executive's failure to insist upon strict
compliance with any provision hereof shall not be deemed to be a
waiver of such provision or any other provision thereof.
(f) This Agreement contains the entire understanding of
the Company and the Executive with respect to the subject matter
hereof.
(g) Anything in this Agreement to the contrary
notwithstanding, the Executive and the Company acknowledge that the
employment of the Executive by the Company is "at will", and,
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except as provided in Section 1 hereof, prior to the Change of
Control Date, the employment of the Executive may be terminated by
either the Executive or the Chief Executive Officer of the Company
at any time. Upon a termination of the Executive's employment
prior to the Change of Control Date, except as provided in Section
1 hereof, there shall be no further rights under this Agreement.
(h) In the event of a prior or contemporaneous Change of
Control as defined in a related Employment Agreement by and between
the parties of even date herewith (covering a possible change in
control of the Company at the corporate level) the related
Employment Agreement shall apply to the exclusion of this
Agreement, which shall thereupon be null and void.
IN WITNESS WHEREOF, the Executive has hereunto set his
hand and pursuant to the authorization from its Board of Directors
the Company has caused these presents to be executed in its name on
its behalf, all as of the day and year first above written.
/s/ Fred J. Musone
-----------------------------
Fred J. Musone
MORTON INTERNATIONAL, INC.
By: /s/ S. Jay Stewart
-----------------------------
S. Jay Stewart
Chairman and Chief Executive Officer
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EXHIBIT(11)(A)
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
MORTON INTERNATIONAL, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Income per common and common equivalent share:
Average number of shares of Common Stock
outstanding......................................... 146,943,682 147,917,384 147,095,571
Add:
Additional shares assuming exercise of dilutive
stock options--based on treasury stock method
using average market prices....................... 2,447,302 2,222,708 2,994,012
----------- ----------- -----------
Total shares...................................... 149,390,984 150,140,092 150,089,583
----------- ----------- -----------
----------- ----------- -----------
Net income (000 omitted).............................. $ 334,188 $ 294,058 $ 226,514
----------- ----------- -----------
----------- ----------- -----------
Net income per share.................................. $2.24 $1.96 $1.51
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
S-1
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EXHIBIT (13)(a)
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Morton International, Inc. manufactures and markets quality products to meet the
needs of its salt, specialty chemicals and airbag customers. For reporting
purposes, the company separates revenues and costs into three business
segments--Specialty Chemicals, Salt and Automotive Safety Products.
The following is a discussion of operating results comparing fiscal years
1996 to 1995 and 1995 to 1994; liquidity and capital resources; and the impact
of inflation.
COMPARISON: FISCAL 1996 TO FISCAL 1995
The company continued its trend of record sales and earnings in fiscal 1996.
Sales grew 9 percent during the year to $3.61 billion from $3.33 billion in
fiscal 1995. Earnings per share of $2.24, after special charges, were up 14
percent from fiscal 1995 earnings per share of $1.96. Before the special
charges, fiscal 1996 earnings per share were $2.40, up 22 percent over fiscal
1995. Included in fiscal 1996 earnings were $24.1 million pretax income ($15.1
million after tax or $.10 per share) related to the settlement of several
environmental insurance issues and $11.2 million pretax inome ($7.1 million
after tax or $.05 per share) related to proceeds received from the formation of
a joint venture, net of the impact on operations.
Fiscal 1996 included special charges of $29.2 million pretax ($23.9 million
after tax or $.16 per share) recorded in the fourth quarter. A portion of these
charges were for costs related to the closure of three chemical manufacturing
facilities as an initial phase of a broader facility consolidation and product
line rationalization program, and certain organizational changes. These
actions, when completed, are expected to result in annual savings to the company
of more than $8.5 million. Also included in the special charges was the impact
of the early adoption of the new accounting standard related to the impairment
of long-lived assets.
SPECIALTY CHEMICALS
For the fiscal year ended June 30, 1996, sales of the chemical business rose 3
percent to $1.61 billion, and operating earnings were down 1 percent to $222.0
million from $223.5 million in fiscal 1995.
Fiscal 1996 results included special charges of $27.1 million, as well as
the $15.0 million gain recorded in the third quarter for the formation of a
joint venture, Morton Nippon Coatings.
The special charges were made up of $11.3 million related primarily to the
announced closing of the Seabrook, New Hampshire, Stamford, Connecticut, and
Dixon, California, facilities; and $15.8 million related to the write-down of
certain assets of the defense-related chemical vapor deposition product line as
required by Financial Accounting Standards Board (FASB) Statement No. 121. As
these three plants are closed over the next 12 to 18 months, the production at
these facilities will be moved to other Morton facilities, resulting in better
asset utilization and lower overall costs. Excluding these special charges,
operating earnings increased 11 percent for fiscal 1996.
The formation of the Morton Nippon Coatings joint venture, which produces
plastic substrate coatings for Japanese transplant car companies in the United
States, resulted in reduced sales for the fourth quarter and total year by
approximately $7.0 million and $14.5 million respectively, and reduced earnings
from operations in these same two periods by approximately $2.8 million and
$3.8 million respectively.
The year-over-year sales increase for the chemical segment was a
combination of improved volume, pricing, and product mix. Offsetting this
improvement were higher raw material costs. Although many raw material costs
decreased in the fourth quarter, the chemical segment experienced overall raw
material cost increases during the year which had an unfavorable impact of
approximately $11.0 million. The effect on operating profits of the raw
material cost increases was mitigated by improved pricing and product mix, the
reengineering of manufacturing processes to improve efficiency, tight period
cost control, and higher volumes.
Those product lines which had strong year-over-year performances included
European industrial activities, performance chemicals, metalorganics, polymer
systems, and electronic materials. These product lines combined contributed
$468.7 million or 29 percent of specialty chemical sales in 1996. These same
product lines contributed 36 percent of the segment's operating profit.
Compared with fiscal 1995, sales of these product lines increased 10 percent and
earnings increased 35 percent. Earnings growth outpaced sales growth due to
favorable mix, lower operating costs and tight control over period costs,
leveraged against higher volumes.
Two product lines, plastics additives and dyes, ended fiscal 1996 with
sales and profits below their fiscal 1995 level. The combined sales of these
lines in fiscal 1996 were $158.5 million, 18 percent lower than fiscal 1995.
Operating profits for these businesses ended the current fiscal year 10 percent
below fiscal 1995. Tougher competitive pricing adversely affected the dyes
business for the second consecutive year, while adverse market conditions in the
building industry hurt plastics additives' performance. Continued control over
operating costs partially offset the negative impact of reduced sales on
earnings.
The translation impact of changes in foreign currency rates had a minimal
favorable impact, less than one percent, on sales and earnings in 1996.
SALT
Fiscal 1996 salt sales reached a record $603.3 million, up 13 percent. Salt's
operating earnings, also a record, were up 6 percent, ending the year at $124.7
million. While all product lines did well, ice control salt sales were up 32
percent over fiscal 1995, and were
23
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primarily responsible for the strong salt performance for the year. Severe
winter storms during the third quarter of this fiscal year, particularly in the
northeastern United States, increased the demand for ice control salt in several
key markets.
Sales of non-ice control salt increased 4 percent over fiscal 1995. The
sales increase was primarily due to improved results for water conditioning and
solar products. Pellets sales increased 6 percent mainly due to increased
shipments to a major customer. The increase in solar products was mainly due to
volume growth of 7 percent.
Salt's earnings did not increase at the same rate as sales largely due to
the higher mix of lower margin ice control business.
In the fourth quarter of fiscal 1995, the company's Mines Seleine salt mine
on the Magdalen Islands was shut down due to water intrusion into the production
shaft. Production has been suspended at this mine; production has been increased
at the companies remaining ice control mines.
Efforts to reopen the mine are continuing. Costs related to the efforts to
save the mine have been deferred. The company expects such costs to be recovered
from insurance proceeds.
AUTOMOTIVE SAFETY PRODUCTS
As in the past several years, sales of driver- and passenger-side airbag
inflators and modules increased in fiscal 1996 as car companies around the world
continue to provide airbag protection as standard equipment in their cars and
trucks. For fiscal 1996, Automotive Safety Products' sales were up 14 percent
to $1.40 billion. Units shipped increased 19 percent over fiscal 1995.
Operating earnings increased 13 percent to $255.6 million. Customers whose
sales were up strongly in the year included Toyota, Nissan, Ford, and Isuzu.
The strong airbag performance was achieved despite the negative impact on sales
and earnings of GM's strike and continued price reductions to our customers.
As in fiscal 1995, downward pricing pressure continued as overall average
selling prices decreased 5 percent, with the largest decrease in the passenger
inflator product line. To offset these market conditions, the business group
has continued to implement cost reduction initiatives and reengineer its
manufacturing processes to improve efficiency. These savings enabled this
business to continue to deliver attractive returns.
CORPORATE
In October 1995, the Board of Directors of Morton International, Inc. authorized
the repurchase of 10 million shares of the company's common stock. As of June
30, 1996, Morton had repurchased a total of 6.7 million shares. The weighted
average cost per share for the shares repurchased was approximately $36.00.
For the year, total corporate costs decreased 35 percent. This decrease was
due primarily to the receipt of $24.1 million in the second quarter related to
the settlement of several environmental insurance issues, as well as tight
control of administrative costs and lower net interest expense. Included in
corporate costs was a special charge of $2.1 million to reflect the current
estimated value of certain assets held for disposition.
The company's effective tax rate increased in fiscal 1996 to 38.0 percent
compared with 37.5 percent in fiscal 1995. This increase results from the $15.8
million charge related to the adoption of FASB Statement No. 121 described
above, for which no tax benefit was recorded, partially offset by the effect of
a decrease in foreign effective tax rates.
COMPARISON: FISCAL 1995 TO FISCAL 1994
Fiscal 1995 net income per share of $1.96 was 30 percent higher than fiscal
1994. Net sales of $3.33 billion were up 17 percent from fiscal 1994 sales of
$2.85 billion.
SPECIALTY CHEMICALS
Specialty chemicals' sales and profits grew in fiscal 1995 as both the U.S. and
European economies expanded. Sales reached $1.56 billion, an increase of 14
percent over fiscal 1994 sales of $1.37 billion. Profits increased 15 percent to
$223.5 million from $193.6 million in fiscal 1994.
Sales and profits were also favorably affected by foreign currency
translation. Year-to-year exchange fluctuations increased sales by $42.5 million
and pretax profits by $6.2 million over the prior year. Currencies primarily
responsible for the translation impact were the German deutsche mark and the
Dutch guilder.
Improved volumes accounted for approximately 73 percent of the
year-over-year increase in sales. Raw material cost increases compressed
Specialty chemicals' operating results by approximately $14.0 million. The
effect of these increases, however, was offset by operating efficiencies in
certain product lines, improved pricing and sales mix, and higher volumes.
Product lines that showed double-digit sales growth over fiscal 1994
results were adhesives, thermoplastic polyurethanes, performance chemicals,
plastics additives, automotive coatings, powder
24
<PAGE>
coatings and electronic materials. These product lines accounted for
approximately 73 percent of fiscal 1995 Specialty chemicals' sales and
approximately 89 percent of the year-to-year increase.
Profits for these product lines grew 27 percent, well above the sales
growth of 18 percent. Product lines mainly contributing to the faster profit
growth were thermoplastic polyurethanes, performance chemicals, plastics
additives, automotive coatings, powder coatings and electronic materials.
Although adhesives experienced good sales growth, earnings were constrained by
raw material price increases.
Dyes and waterbased polymers showed an unfavorable year-to-year profit
comparison. Combined profits were down $12.2 million. Dyes' product line results
were hurt by increased price competition; waterbased polymers' results were
hampered by raw material price increases, primarily for styrene.
SALT
Sales and earnings were both adversely affected by the mild winter weather
experienced in fiscal 1995. This was partially offset by a carryover effect from
the prior year's severe winter weather. The significant snowfall, which
contributed to the prior year's record results, depleted customer inventories
and led to strong early season orders for ice control salt in fiscal 1995.
Salt sales fell by 1 percent to $534.9 million in fiscal 1995. Earnings
were down only 2 percent compared to the prior year's record. Ice control sales
for fiscal 1995 finished 8 percent below fiscal 1994's record results.
Continued growth in non-ice control product lines, particularly water
conditioning products with sales up over 7 percent, also helped to offset the
unfavorable impact of the mild winter weather. In addition, careful cost
controls helped Salt achieve operating margins at the same level as fiscal 1994.
AUTOMOTIVE SAFETY PRODUCTS
Sales of driver- and passenger-side airbag inflators and modules steadily
increased as automakers in the United States, Europe and Japan accelerated the
introduction of inflatable restraint systems into passenger cars, trucks and
vans. For the second year in a row, the company increased its share of the
module market, which contributed to the improved sales results.
Morton Automotive Safety Products' fiscal 1995 sales were $1.23 billion, 31
percent over the prior year. Profits increased 38 percent to $226.5 million.
Included in profits was a $2.4 million pretax charge for the elimination of
324 administrative and technical support positions. Before such charge, profits
increased 40 percent over fiscal 1994. Fiscal 1995 pretax profits were also
adversely affected by approximately $5.0 million related to the start-up of the
European airbag manufacturing operations.
Downward pricing pressure continued in fiscal 1995 as overall average
selling prices decreased 5 percent. Continued implementation of cost reductions
and operational efficiencies offset these pricing pressures and resulted in
improved operating margins of 19 percent (versus 18 percent in fiscal 1994).
CORPORATE
As a result of tight controls on administrative expense, lower net interest
costs and lower accruals related to certain employee stock options, total
corporate costs declined by 19 percent during fiscal 1995. Net interest cost was
lower in fiscal 1995 as all three business segments continued to generate cash.
Fiscal 1994 included an accrual related to certain employee stock options
that reduced total fiscal 1994 earnings per share by $.07. This was primarily
attributable to costs related to the impact of tax rate changes effective in
fiscal 1994.
The effective tax rate in fiscal 1995 was 37.5 percent versus 36.7 percent
the prior year.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES
During each of the three fiscal years in the period ended June 30, 1996,
operating activities were the principal source of funds for the company,
providing $501.2 million, $358.0 million and $331.3 million.
Net income provided $334.2 million of funds in fiscal 1996 compared to
$294.1 million in 1995 and $226.5 million in 1994. Depreciation and amortization
of $175.5 million in 1996 was higher than 1995 and 1994 by $14.2 million and
$37.9 million, the increase due principally to the higher level of capital
spending at the airbag facilities in Utah and Europe in recent years. In the
fourth quarter of fiscal 1996, $29.2 million of special charges were described
above.
Changes in operating assets and liabilities resulted in a $42.5 million use
of funds in fiscal 1996 compared to a use of funds of $29.6 million in 1995 and
$30.1 million in 1994.
The increase in operating assets net of liabilities in fiscal 1996 over
1995 was largely driven by higher receivables at Morton Automotive Safety
Products due to increased sales activity. Partially
25
<PAGE>
offsetting the higher receivables balance were reductions in inventory levels by
all three business groups and an increase in current liabilities at Morton
Automotive Safety Products.
INVESTING ACTIVITIES
Net investing activities for fiscal 1996 required $214.5 million of cash
compared with $263.9 million and $213.9 million in fiscal 1995 and 1994. Capital
spending was the major component of investing activities in all three years.
The reduction in capital spending from fiscal 1995 primarily reflects the
decline in capital expenditures at the airbag facilities in Utah, an overall
decrease in capital spending levels compared with fiscal 1995 and the timing of
expenditures. Expansion related to certain chemical products as well as basic
upkeep of the salt and chemical facilities were also significant areas of
capital spending.
Investing activities in fiscal 1996 also reflected $4.4 million of proceeds
from property and other asset disposals compared to $2.4 million in fiscal 1995
and $16.4 million in fiscal 1994 which was largely from the sale of the
semiconductor photoresist business. In fiscal 1996 and 1995, investing
activities included $.6 million and $12.7 million of cash invested in businesses
acquired.
FINANCING ACTIVITIES
Financing activities for fiscal 1996, 1995 and 1994 used funds of $307.8
million, $72.4 million, and $107.5 million. Dividend payments for the three
years were $76.3 million, $65.1 million and $54.9 million. Year-over-year
increases in dividends primarily reflected the increase in dividends paid per
share.
Improved operating earnings and cash generation opportunities going forward
allowed the company to again raise its dividend in June 1996, effective with the
dividend payable September 9, 1996. The increase was 15 percent.
During the second quarter of fiscal 1996, the Board of Directors authorized
a 10 million share buyback of the company's common stock. During fiscal 1996,
the company repurchased 6.7 million shares of its common stock for $242.3
million.
Short-term notes payable decreased $1.1 million, $10.4 million and $59.0
million in 1996, 1995 and 1994. This reflected the lower level of short-term
borrowing required as cash generated from operations increased.
OTHER
The company's current ratio was 2.1 at June 30, 1996, the same as June 30, 1995.
Total debt as a percentage of total capitalization was 12.9 percent at June 30,
1996, compared to 13.2 percent at June 30, 1995.
As of June 30, 1996, the company had unexpended authorizations for fixed
asset and maintenance projects totaling $189.8 million. The authorizations
related primarily to the expansion of the airbag business as well as chemical
facility expansion, product improvements, and maintenance on a company-wide
basis.
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 share repurchase program in the foreseeable future.
IMPACT OF INFLATION
Inflation generally has not had a significant impact upon the results of the
company's operations in recent years. Historically, the company has taken steps
to reduce the effects of inflation on its business. In periods of increasing
prices, to the extent permitted by competition, the company has adjusted its
selling prices to compensate for increased costs.
An ongoing cost control program implemented throughout the company also has
contributed to reducing the influence of inflationary costs. Further, a
continuing program of investment in new and more efficient facilities,
production processes, and productivity enhancements has made a significant
contribution in offsetting inflation.
The company uses the LIFO method of accounting for its domestic inventories
of the specialty chemicals and salt groups. Under this method the cost of
products sold, as reported in the financial statements, approximates current
costs.
ENVIRONMENTAL MATTERS
For a detailed discussion, see Environmental Matters on page 36 included in the
Notes to Consolidated Financial Statements.
26
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
Year ended June 30
--------------------------------------
(in millions, except per share data) 1996 1995 1994
- --------------------------------------------------------------------------------
Net sales $3,612.5 $3,325.9 $2,849.6
Interest, royalties and sundry income 73.7 29.0 27.9
-------- -------- --------
3,686.2 3,354.9 2,877.5
Deductions from income
Cost of products sold 2,566.3 2,348.8 1,981.6
Selling, administrative and general
expense 436.4 424.4 434.0
Research and development expense 80.2 72.5 66.1
Interest expense 24.6 28.4 27.8
Amortization of goodwill 10.3 10.3 10.4
Special charges 29.2 - -
-------- -------- --------
3,147.0 2,884.4 2,519.9
-------- -------- --------
Income before income taxes 539.2 470.5 357.6
Income taxes 205.0 176.4 131.1
-------- -------- --------
Net income $ 334.2 $ 294.1 $ 226.5
-------- -------- --------
Net income per share $ 2.24 $ 1.96 $ 1.51
-------- -------- --------
- -------------------------------------
See notes to consolidated financial statements.
27
<PAGE>
CONSOLIDATED BALANCE SHEETS
June 30
-----------------------
(in millions) 1996 1995
- --------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 71.1 $ 88.3
Receivables, less allowances of $10.8 and $13.3 624.6 561.5
Deferred income tax benefits 23.6 24.3
Inventories 364.5 397.2
Prepaid expenses 112.4 96.9
-------- ---------
Total Current Assets 1,196.2 1,168.2
-------- ---------
OTHER ASSETS
Cost in excess of net assets of businesses acquired,
less amortization 296.3 324.1
Investments in affiliates 70.7 79.2
Miscellaneous 62.5 65.0
-------- --------
429.5 468.3
-------- --------
PROPERTY, PLANT AND EQUIPMENT
Land 35.7 36.7
Buildings and improvements 588.9 554.9
Machinery and equipment 1,360.9 1,219.9
Construction in progress 165.8 194.5
-------- --------
2,151.3 2,006.0
Less allowances for depreciation 1,005.5 886.5
-------- --------
1,145.8 1,119.5
-------- --------
$ 2,771.5 $ 2,756.0
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable and current portion of long-term debt $ 37.2 $ 42.3
Accounts payable 296.6 284.1
Accrued salaries, wages and other compensation 67.6 66.1
Other accrued expenses 122.3 131.7
Income taxes 33.6 29.9
-------- --------
Total Current Liabilities 557.3 554.1
-------- --------
Noncurrent Liabilities
Long-term debt, less current portion 218.5 218.5
Deferred income taxes 53.4 54.5
Accrued postretirement benefits other than pensions 155.2 152.1
Other noncurrent liabilities 114.3 113.3
-------- --------
Total Noncurrent Liabilities 541.4 538.4
-------- --------
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 in
1996 and 1995 148.4 148.3
Additional paid-in capital 55.9 62.2
Retained earnings 1,675.5 1,417.6
Foreign currency translation adjustment and other 11.0 35.4
-------- --------
1,890.8 1,663.5
Less cost of common stock in treasury-6.0 shares 218.0 -
-------- --------
Total Shareholders' Equity 1,672.8 1,663.5
-------- --------
$ 2,771.5 $ 2,756.0
-------- --------
- ---------------------------------------------------
See notes to consolidated financial statements.
28
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Cash provided (used)
Year ended June 30
---------------------------------------
in millions 1996 1995 1994
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 334.2 $ 294.1 $ 226.5
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 175.5 161.3 137.6
Deferred income taxes 7.3 5.7 5.3
Undistributed earnings of affiliates (2.5) (5.5) (8.0)
Special charges 29.2 - -
Changes in operating assets and liabilities
net of effects of businesses acquired:
Receivables (69.2) (67.6) (93.6)
Inventories 12.1 (55.0) (25.4)
Accounts payable and accrued expenses 9.0 14.2 58.4
Income taxes 6.8 3.9 24.8
Other-net (1.2) 6.9 5.7
-------- -------- ---------
Net cash provided by operating
activities 501.2 358.0 331.3
-------- -------- ---------
Investing Activities
Purchase of property, plant and
equipment (216.4) (252.2) (219.9)
Proceeds from property and other asset
disposals 4.4 2.4 16.4
Cash invested in businesses acquired (.6) (12.7) (7.0)
Other (1.9) (1.4) (3.4)
-------- -------- ---------
Net cash used for investing activities (214.5) (263.9) (213.9)
-------- -------- ---------
Financing Activities
Purchase of common stock for treasury (242.3) - -
Net repayment of short-term borrowings (1.1) (10.4) (59.0)
Repayment of long-term debt - (22.2) (2.6)
Long-term borrowings - 19.9 -
Stock option transactions 11.9 5.4 9.0
Dividends paid (76.3) (65.1) (54.9)
-------- -------- ---------
Net cash used for financing activities (307.8) (72.4) (107.5)
-------- -------- ---------
Effect of foreign exchange rate changes
on cash and cash equivalents 3.9 7.9 3.5
-------- -------- ---------
(Decrease)increase in cash and cash
equivalents (17.2) 29.6 13.4
Cash and cash equivalents at beginning
of year 88.3 58.7 45.3
-------- -------- ---------
Cash and cash equivalents at end of year $ 71.1 $ 88.3 $ 58.7
-------- -------- ---------
</TABLE>
- -----------------------------------------------
See notes to consolidated financial statements.
29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NATURE OF OPERATIONS
Morton International, Inc. is an international organization engaged in the
manufacture and marketing of specialty chemicals, automotive inflatable
restraint systems and salt. Specialty Chemicals is the largest segment,
accounting for 44 percent of 1996 sales. Its major markets include general
industrial, packaging, construction, automotive, electronics, paper and
printing, textiles, and petroleum, primarily in North America, Europe and Japan
but with growing activity in Southeast Asia. The Salt segment contributed 17
percent of 1996 sales. It serves all major North American salt markets with a
complete line of salt products. Automotive Safety Products represented 39
percent of 1996 sales and produces airbag inflators and modules for all major
U.S., European and Asian automobile manufacturers.
Over 40 percent of the company's revenues are generated by sales to the
automotive industry, which is made up of a relatively small number of end
customers. Although the company manufactures a number of products for this
industry, a significant disruption in the industry, a significant change in
demand or pricing, or a dramatic change in technology could have a material
effect on the company.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
Investments in 50 percent or less owned companies and joint ventures, where the
company does not effectively control the entity, are carried on the equity
basis. All intercompany accounts and transactions have been eliminated from the
consolidated financial statements.
CASH EQUIVALENTS
The company considers all highly liquid investment instruments purchased with a
maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market. The cost of domestic
inventories for the Specialty Chemicals and Salt segments (54 percent and 55
percent of consolidated inventories at June 30, 1996 and 1995) is determined by
the last-in, first-out (LIFO) method, while the cost of foreign inventories and
the automotive safety products inventories is determined by the first-in, first-
out (FIFO) method. If the FIFO method, which approximates replacement cost, had
been used for all inventories, the total amount for inventories would have been
increased by $36.8 million and $36.2 million at June 30, 1996 and 1995.
INTANGIBLE ASSETS
Cost in excess of net assets of businesses acquired and other intangibles are
being amortized on a straight-line basis over periods not exceeding 40 years.
The amount of accumulated amortization related to intangibles, primarily
goodwill, recorded as of June 30, 1996 and 1995, was $131.9 million and $118.7
million.
PROPERTY, PLANT AND EQUIPMENT
The company provides for depreciation of property, plant and equipment, all of
which are recorded at cost, by annual charges to income, computed in part under
the straight-line method and in part under accelerated methods.
FOREIGN CURRENCY TRANSLATION
All assets and liabilities in the balance sheet of foreign subsidiaries whose
functional currency is other than the U.S. dollar are translated at year-end
exchange rates except shareholders' equity which is translated at historical
rates. Translation gains and losses are accumulated as a separate component of
shareholders' equity. Foreign currency transaction gains and losses are
included in determining net income.
FOREIGN EXCHANGE CONTRACTS
The company uses forward foreign exchange contracts primarily to offset the
effects of foreign currency fluctuations related to firm and anticipated foreign
denominated receivables and payables transactions, intercompany financing
transactions and dividends from subsidiaries. The company may also use forward
foreign exchange contracts to offset the currency fluctuation related to foreign
currency denominated debt. The company nets its exposures before entering into
hedge transactions. Generally, contracts do not exceed one year. Gains or
losses on forward foreign exchange contracts are recognized in determining net
income as incurred. Exchange gains (losses) recorded on these forward contracts
in 1996, 1995 and 1994 were $1.6 million, $(2.2) million and $(2.9) million.
Outstanding forward foreign exchange contracts at June 30, 1996, were values at
year-end foreign exchange rates, with the changes in valuations reflected
directly in net income.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
QUARTERLY RESULTS
Quarterly results are presented on the inside front cover of the annual report.
30
<PAGE>
SPECIAL CHARGES
During the fourth quarter of fiscal 1996, the company recorded special pretax
charges of $29.2 million ($23.9 million after tax or $.16 per share). The
charges included amounts related to the early adoption of the accounting
standard related to impairment of long-lived assets and the costs related to
selected facility rationalizations and employee terminations resulting from the
reorganization of the specialty chemicals operations.
During fiscal 1996, the company adopted Financial Accounting Standards
Board (FASB) Statement No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of." This statement requires
impairment losses to be recognized for long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amounts.
Statement No. 121 also addresses the accounting for long-lived assets that are
expected to be disposed.
In applying the criteria of FASB Statement No. 121, the company determined
that the significant reduction in the defense related business of its chemical
vapor deposition product line and the resulting negative impact on income in
recent years were indicators of potential impairment. Accordingly, the company
evaluated the ongoing value of long-lived assets associated with this product
line in accordance with the provisions of FASB Statement No. 121. Based on this
evaluation, the company determined that an impairment did exist and recorded an
impairment loss of $15.8 million to write these assets down to their fair value.
Fair value was based on estimated future cash flows to be generated by this
product line, discounted at a rate commensurate with the risk involved. No tax
benefit was recorded related to this charge.
During the second quarter of fiscal 1996, the company consolidated two of
its chemical groups to concentrate resources, streamline operations and better
position itself to achieve its strategic growth objectives.
Related to this action, the company recorded a pretax charge of $11.3
million in the fourth quarter for the planned closure of three domestic chemical
facilities and a European sales office as well as the elimination of certain
duplicate management and administrative positions. Operations at the facilities
to be exited will be transferred to other existing facilities. Components of
the one-time charge include $3.0 million related to the disposal of the
facilities mentioned above, $4.9 million related to the write-down to net
realizable value of certain manufacturing equipment, and $3.4 million related to
employee termination costs. These actions are expected to take place over the
next 12 to 18 months and, when completed, are expected to generate estimated
annual savings of $8.5 million.
In addition, the company recorded a pretax charge of $2.1 million to write
down to current estimated realizable value certain corporate assets held for
sale.
INVENTORIES
Components of inventories were as follows:
June 30
---------------------
(in millions) 1996 1995
- --------------------------------------------------------------------------------
Finished products and work-in-process $261.3 $287.0
Materials and supplies 103.2 110.2
------ ------
$364.5 $397.2
------ ------
FINANCING ARRANGEMENTS
The company has committed credit agreements with banks which will expire in
December 1996 and January 2001. In addition, lines of credit are available from
domestic and foreign banks which generally do not have termination dates but are
reviewed annually for renewal. Under these arrangements, the company may borrow
upon such terms and conditions as the company and the banks may mutually agree.
At June 30, 1996, such credit facilities amounted to approximately $541.4
million, and the unused portions therof were approximately $504.3 million.
Long-term debt consisted of the following:
June 30
------------------
(in millions) 1996 1995
Credit Sensitive Debentures (net of
unamortized discount of $1.4) $198.6 $198.6
Other 20.0 20.0
------ ------
218.6 218.6
Less current portion .1 .1
------ ------
$218.5 $218.5
------ ------
The Credit Sensitive Debentures ("Debentures") due June 1, 2020, are
unsecured obligations of the company. The Debentures had an initial effective
interest rate of 9.335 percent, subject to adjustment on the calendar day that
certain changes in the debt rating of the Debentures occur as determined by
Standard & Poor's Corporation or Moody's Investor Service. No adjustment of the
initial effective interest rate has occurred.
The aggregate maturities of long-term debt through June 30, 2001, total $.2
million. Interest paid on borrowings in 1996, 1995 and 1994 was $24.1 million,
$28.2 million and $28.4 million.
Notes payable at June 30, 1996 and 1995, reflected borrowings from banks at
average interest rates of 3.8 percent and 5.9 percent.
31
<PAGE>
FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods were used by the company to estimate its fair value
disclosures for financial instruments.
CASH AND CASH EQUIVALENTS
The carrying amount reported in the balance sheet for cash and cash equivalents
approximates its fair value.
SHORT- AND LONG-TERM DEBT
The carrying amount of the company's borrowings in the form of notes payable
approximates its fair value. The fair value of the company's long-term debt is
estimated using discounted cash flow analyses, based on the company's current
incremental borrowing rates for similar types of borrowing arrangements.
FOREIGN CURRENCY EXCHANGE CONTRACTS
Forward foreign exchange contracts which hedge foreign currency exposures or
transactions are valued at current foreign exchange rates.
The carrying or notional amounts and fair values of the company's financial
instruments at June 30, 1996, were as follows:
Carrying or
notional Fair
(in millions) amount value
- --------------------------------------------------------------------------------
Short-term debt $ 37.1 $ 37.1
Long-term debt 218.6 258.1
Forward foreign exchange contracts 87.9 88.5
INCOME TAXES
The provisions for income taxes were as follows:
(in millions) 1996 1995 1994
- --------------------------------------------------------------------------------
Current:
Federal $137.6 $111.6 $77.1
State 27.2 20.9 14.4
Foreign 32.9 38.2 34.3
------ ------ ------
197.7 170.7 125.8
------ ------ ------
Deferred:
Federal 5.3 4.6 3.9
State 1.7 1.0 .3
Foreign .3 .1 1.1
------ ------ ------
7.3 5.7 5.3
------ ------ ------
$205.0 $176.4 $131.1
------ ------ ------
A reconciliation of the United States statutory rate to the effective
income tax rate follows:
1996 1995 1994
- --------------------------------------------------------------------------------
Statutory rate 35.0% 35.0% 35.0%
Effect of:
State tax, net of federal
tax benefit 3.5 3.0 2.7
Depletion (1.1) (1.2) (1.4)
Net foreign items (1.0) (.2) (.7)
Other 1.6 .9 1.1
------ ------ ------
Effective rate 38.0% 37.5% 36.7%
------ ------ ------
Deferred income taxes reflect the impact of temporary differences between
the valuation of assets and liabilities for financial reporting and their tax
bases. Significant components of the company's deferred tax balances were as
follows:
June 30
--------------------
(in millions) 1996 1995
- --------------------------------------------------------------------------------
Deferred tax benefits related to:
Postretirement and postemployment benefits $64.3 $62.8
Other 88.5 90.9
------ ------
152.8 153.7
------ ------
Deferred tax liabilities related to:
Tax over book depreciation 98.0 94.7
Pension 33.5 29.4
Other 64.3 67.7
------ ------
195.8 191.8
------ ------
Net deferred tax liability $43.0 $38.1
------ ------
No individual item included in other deferred tax benefits or deferred tax
liabilities above is material. Deferred income tax benefits at June 30, 1996
and 1995, included $13.2 million and $7.9 million of refundable income taxes.
Total income tax payments during fiscal 1996, 1995 and 1994 were $189.2
million, $165.0 million and $104.4 million.
Components of the company's income before income taxes were as follows:
(in millions) 1996 1995 1994
- --------------------------------------------------------------------------------
Domestic $442.3 $373.4 $267.0
Foreign 96.9 97.1 90.6
------ ------ ------
$539.2 $470.5 $357.6
------ ------ ------
The Internal Revenue Service has completed its examination of the company's
federal income tax returns through fiscal 1989, and has issued notices of
deficiency on certain issues, no one of which is significant. The company
disagrees with the proposed adjustments and is taking appropriate action to
contest such deficiency notices. Management believes the ultimate resolution of
these matters will not have a material effect upon the company's financial
position, results of operations, or liquidity.
32
<PAGE>
SHAREHOLDERS' EQUITY
Changes in shareholders' equity are summarized below:
<TABLE>
<CAPTION>
Foreign
currency
Common stock Additional translation
--------------------- paid-in Retained adjustment Treasury
(in millions) Shares Amount capital earnings and other stock
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance June 30, 1993 48.8 $ 48.8 $ 32.7 $ 1,115.4 $ 3.3 $ -
Net income - - - 226.5 - -
Cash dividends paid, $1.12(1)
per share - - - (54.9) - -
Exercise of stock options and related
income tax benefits .4 .4 20.3 - - -
Translation adjustment - - - - 6.7 -
3-for-1 stock split 98.4 98.4 - (98.4) - -
Other - - - - .4 -
------- ------- ------- ------- ------- -------
Balance June 30, 1994 147.6 147.6 53.0 1,188.6 10.4 -
Net income - - - 294.1 - -
Cash dividends paid, $.44
per share - - - (65.1) - -
Exercise of stock options and related
income tax benefits .7 .7 8.7 - - -
Translation adjustment - - - - 25.1 -
Other - - .5 - (.1) -
------- ------- ------- ------- ------- -------
Balance June 30, 1995 148.3 148.3 62.2 1,417.6 35.4 -
Net income - - - 334.2 - -
Cash dividends paid, $.52
per share - - - (76.3) - -
Exercise of stock options and related
income tax benefits .1 .1 (6.3) - - 24.3
Translation adjustment - - - - (24.6) -
Purchase of common stock for treasury - - - - - (242.3)
Other - - - - .2 -
------- ------- ------- ------- ------- -------
Balance June 30, 1996 148.4 $ 148.4 $ 55.9 $ 1,675.5 $ 11.0 $(218.0)
------- ------- ------- ------- ------- -------
</TABLE>
(1) On a pre-split basis.
In October 1995, the company's Board of Directors authorized the
repurchase of up to 10 million shares of the company's common stock on the open
market. During fiscal 1996, the company repurchased approximately 6.7 million
shares.
On June 23, 1994, the company declared a 3-for-1 stock split of its common
stock. The stock split was in the form of a 200 percent stock dividend, payable
on August 17, 1994, to shareholders of record on August 3, 1994.
In June 1989, the company declared a dividend distribution of one Preferred
Share Purchase Right for each outstanding common share. Until exercisable, the
Rights will not be transferable apart from the company's common stock. When
exercisable, each Right will entitle its holder to buy one three-hundredths of a
share of the company's new series of preferred stock at an exercise price of
$58.33-1/3 until July 1, 1999. The Rights will only become exercisable if a
person or group acquires or makes an offer to acquire 20 percent or more of the
company's common stock. In the event the company is acquired in a merger, each
Right entitles the holder to purchase common stock of the surviving company
having a market value of twice the exercise price of the Rights. In the event
any person or group acquires 20 percent or more of the company's common stock
(reducible to 15 percent under certain circumstances), each Right entitles the
holder (other than such acquirer) to purchase common stock of the company having
a market value of twice the exercise price of the Right. The Rights may be
redeemed by the company at the price of 1/3 cent per Right prior to the
acquisition of 20 percent of the outstanding shares of the company's common
stock. At June 30, 1996, 0.6 million shares of preferred stock were reserved for
future exercises of Preferred Share Purchase Rights.
33
<PAGE>
BENEFIT PLANS
PENSIONS
The company has noncontributory defined benefit pension plans covering employees
at most domestic operations. The benefits are based on an average of the
employee's earnings in the years preceding retirement and on credited service.
Certain supplemental unfunded plan arrangements also provide retirement benefits
to specified groups of participants. Most international subsidiaries also have
retirement plans.
The company's funding policy for the domestic plans is to contribute
amounts sufficient to meet the minimum funding requirements of the Employee
Retirement Income Security Act of 1974, plus any additional amounts which the
company may determine to be appropriate.
The net pension expense for company-sponsored pension plans consisted of
the following components:
in millions 1996 1995 1994
- -------------------------------------------------------------------------------
Service cost--benefits earned
during the year $ 17.7 $ 15.7 $ 13.9
Interest cost on projected
benefit obligation 37.4 34.5 30.9
Return on plan assets:
Actual $(82.7) $(59.8) $(18.1)
Deferred portion 40.0 20.5 (20.1)
-------- -------- --------
Expected return (42.7) (39.3) (38.2)
Net amortization 3.1 1.6 (1.4)
------ ------ ------
Net pension expense $ 15.5 $ 12.5 $ 5.2
------ ------ ------
<TABLE>
<CAPTION>
The reconciliation of the funded status of pension plans was as follows:
June 30, 1996 June 30, 1995
----------------------------------- ----------------------------------
Plans in which Plans in which Plans in which Plans in which
assets exceed accumulated assets exceed accumulated
accumulated benefit obligation accumulated benefit obligation
in millions benefit obligation exceeds assets benefit obligation exceeds assets
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Plan assets at fair value $542.4 $ - $459.1 $3.7
------------ ------------ ------------ ------------
Actuarial present value of projected
benefit obligations:
Accumulated benefit obligation
Vested 395.6 21.3 367.7 25.5
Non-vested 24.8 .1 23.3 -
Provision for future salary increases 80.2 6.3 81.4 5.1
------------ ------------ ------------ ------------
500.6 27.7 472.4 30.6
------------ ------------ ------------ ------------
Plan assets in excess of (less than)
projected benefit obligation 41.8 (27.7) (13.3) (26.9)
Unrecognized net experience loss
since July 1, 1986 59.9 11.9 109.6 14.4
Prior service cost not yet recognized
in net pension cost (.7) 2.3 (1.0) 2.6
Unrecognized net (asset) obligation
at July 1, 1986 (23.4) .8 (27.0) .7
Adjustment to recognize minimum liability - (8.7) - (12.6)
------------ ------------ ------------ ------------
Net pension asset (liability) recognized
in the consolidated balance sheets $ 77.6 $(21.4) $ 68.3 $(21.8)
------------ ------------ ------------ ------------
</TABLE>
34
<PAGE>
The weighted averages of assumptions used in the determination of the projected
benefit obligation were:
1996 1995 1994
- ----------------------------------------------------------------------------
Discount rate 7.8% 7.6% 7.8%
Rate of increases in compensation level 4.9% 4.9% 5.2%
Expected long-term rate of return on assets 9.5% 9.5% 9.5%
The assets of the company-sponsored plans are invested primarily in
equities and bonds.
Certain pension plans contain restrictions on the use of excess pension
plan assets in the event of a change in control of the company.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The company currently provides postretirement health care and life insurance
benefits to most U.S. and Canadian retirees. In general, U.S. employees who
retire after attaining age 55 with five years of service are eligible for
continued health care and life insurance coverage. Dependent health care and
life insurance coverage are also available. Most retirees contribute toward the
cost of health care coverage, with the contributions generally varying based on
service. In June 1993, the company adopted a provision which caps the level of
company subsidy at the amount in effect as of the year 2000 for most U.S.
employees who retire after December 31, 1992. In general, most Canadian
employees who retire after attaining age 55 and are entitled to a pension
benefit are eligible for continued retiree health and life insurance coverage.
Dependent health insurance is also generally available. The benefits are
provided on a noncontributory basis.
Net periodic postretirement benefit cost included the following components:
in millions 1996 1995 1994
- ----------------------------------------------------------------------------
Service cost--benefits
earned during the year $ 2.5 $ 2.2 $ 2.3
Interest cost on accumulated
postretirement benefit obligation 10.9 11.1 11.9
Net amortization (.9) (.9) (.7)
------ ------ ------
Net periodic postretirement
benefit cost $12.5 $12.4 $13.5
------ ------ ------
At present, there is no prefunding of the postretirement benefits
recognized under FASB Statement No. 106. The following table presents the
status of the plans reconciled with amounts recognized in the consolidated
balance sheets for the company's postretirement benefits:
June 30
---------------
in millions 1996 1995
- -----------------------------------------------------------------
Accumulated postretirement
benefit obligation:
Retirees and dependents $ 95.1 $102.7
Fully eligible active plan participants 11.2 9.6
Other active plan participants 39.8 36.7
------ ------
146.1 149.0
Unrecognized prior period gain 5.2 2.3
Unamortized plan amendment 12.9 9.4
------ ------
Postretirement benefit liability recognized
in the consolidated balance sheets $164.2 $160.7
------ ------
For measurement purposes, the assumed weighted average annual rate of
increase per capita cost of health care benefits was 9.5 percent for 1997 and
assumed to decrease one percent per year to 5.5 percent in 2001 and remain
constant thereafter. As noted above, for U.S. employees retiring after
December 31, 1992, the company's policy is to increase retiree contributions
so that the company's annual per capita cost contribution remains constant at
the level incurred in the year 2000. The weighted average discount rate used
in determining the accumulated postretirement benefit obligation was 7.8
percent at June 30, 1996, and 7.6 percent at June 30, 1995. The rate of
increase on compensation levels assumed was 4.8 percent at June 30, 1996 and
1995.
A one percent increase in the annual health care cost trend rates would
have increased the accumulated postretirement benefit obligation at June 30,
1996, by approximately $8.2 million and increased postretirement benefit expense
for fiscal 1996 by approximately $.9 million.
OTHER
The company contributes to savings plans for eligible domestic employees.
Company contributions to the savings plans were $8.4 million, $8.3 million and
$7.7 million in 1996, 1995 and 1994.
35
<PAGE>
INCENTIVE PLAN
Under the company's 1989 Incentive Plan (formerly 1989 Stock Awards Plan),
grants may be made to key employees of stock options, stock appreciation rights,
shares of restricted stock, other awards valued by reference to the company's
common stock and cash. Under the 1982 Key Employees Stock Option and
Performance Unit Plan, grants could be made to key employees of stock options,
stock options with alternative appreciation rights and appreciation rights not
related to any option. In addition, certain outstanding options provide for
supplemental cash payments to optionees upon exercise for the purpose of
reimbursing them for the income tax liability incurred as a result of such
exercises. Stock option activity is summarized as follows:
Option price
Shares per share
- ------------------------------------------------------------------
Options outstanding at
June 30, 1994 6,070,266 $ 9.53 to $35.13
Granted 895,870 28.56 to 30.06
Lapsed (27,100) 28.29 to 29.63
Exercised (785,474) 9.53 to 28.29
----------
Options outstanding at
June 30, 1995 6,153,562 10.30 to 35.13
Granted 852,110 30.06 to 36.31
Lapsed (74,370) 29.63 to 32.00
Exercised (1,042,926) 10.57 to 29.63
----------
Options outstanding at
June 30, 1996 (5,096,361
exercisable shares) 5,888,376 10.30 to 36.31
----------
Options outstanding at June 30, 1996, had expiration dates ranging from
October 23, 1996, to June 27, 2006. All stock options granted have an option
price equal to the stock's fair market value at date of grant and the number of
options is fixed. Therefore, the granting of such options does not result in a
charge against earnings. In addition, limited appreciation rights were
outstanding covering 2,899,583 option shares. Limited appreciation rights are
paid in cash in lieu of the related options upon a change in control of the
company, at which time a charge to earnings would be recorded. As of June 30,
1996, supplemental cash payment rights were outstanding with respect to 852,709
option shares, payable upon exercise of options or limited appreciation rights.
Supplemental cash payment rights outstanding have been accrued based on the
current fair market value of the company's stock and current income tax rates.
Under the terms of the 1989 Incentive Plan, restricted stock award shares
have been granted to certain employees at no cost. The outstanding restricted
stock award shares vest from one to five years subsequent to their award dates.
The cost of restricted stock awards, based on the stock's fair market value at
the award dates, is charged to shareholders' equity and subsequently amortized
against earnings over the vesting period. At June 30, 1996, common stock shares
of 31,251 were outstanding under restricted stock awards.
At June 30, 1996, common stock shares of 7,882,724 were reserved for both
outstanding and future grants of options and payment of appreciation rights and
other stock-based awards.
In October 1995, the FASB issued Statement No. 123, "Accounting for
Stock-Based Compensation." This standard establishes a fair value method for
accounting for stock-based compensation plans either through recognition or
disclosure. The company will adopt this standard in fiscal 1997 by disclosing
the pro forma net income and earnings per share amounts assuming the fair value
method had been used. Compensation cost for stock options and awards will
continue to be measured based on intrinsic value under Accounting Principles
Board Opinion 25, "Accounting for Stock Issued to Employees."
ENVIRONMENTAL MATTERS
The company, like others in similar businesses, is subject to extensive federal,
state and local environmental laws and regulations. Although company
environmental policies and practices are designed to ensure compliance with
these laws and regulations, future developments and increasingly stringent
regulation could require the company to make additional unforeseen
environmental expenditures.
Environmental accruals are routinely reviewed on an interim basis as events
and developments warrant and are subjected to a comprehensive review annually
during the fiscal fourth quarter.
The company has been named a potentially responsible party at approximately
60 inactive waste disposal sites where cleanup costs have been or may be
incurred under the Federal Comprehensive Environmental Response, Compensation
and Liability Act and similar state statutes. The company's potential exposure
has been evaluated on a site-by-site basis, and an accrual reflecting the
company's best estimate of the liability has been established to the extent
sufficient information is available to reasonably estimate costs which may be
incurred. However, at certain of these sites, the company is unable, due to a
variety of factors, to assess and quantify the ultimate extent of its
responsibility for study and remediation costs. The most significant of these
sites is located in Wood-Ridge, New Jersey, where, at present, the company and
one other party have been held
36
<PAGE>
jointly and severally liable for the cost of remediation necessary to correct
mercury-related environmental problems associated with a former mercury
processing plant. Although the company has accrued for expected site study
costs and some remedial effort, no reliable estimate can presently be made of
the company's range of liability due to the absence of site-specific data, the
unique nature of mercury plant wastes and the complex characteristics of the
plant site and adjacent areas. An estimate of the range of liability at Wood-
Ridge is not reasonably possible until technical studies are sufficiently
completed to permit such a determination. The Wood-Ridge plant site study will
commence in early fiscal 1997, and is estimated to take approximately 42 months
to complete. Study of the surrounding area is expected to begin after
commencement of the plant site study on a timetable yet to be determined. The
company's ultimate exposure will also depend upon the continued participation of
the other party held liable and on the results of both formal and informal
attempts to spread liability to others believed to share responsibility.
Where appropriate, the analysis to determine the company's liability, if
any, with respect to remedial costs at the above sites reflects an assessment of
the likelihood and extent of participation of other potentially responsible
parties. The possibility of recoveries from insurance carriers (in addition to
recoveries previously made) is factored into accrual determinations only when
the company is reasonably assured that such additional recoveries are probable
of realization.
During the second quarter of fiscal 1996, the company received
approximately $24.1 million related to settlement of substantially all claims
against the company's former insurance carriers for cleanup 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 had previously been
charged to earnings either through actual expenditures for remediation or
through the establishment of environmental accruals. As such, the settlement
payments received were included in sundry income.
During the fourth quarter of fiscal 1996, the U.S. EPA notified the company
of possible irregularities in water discharge monitoring reports filed by the
Moss Point, Mississippi, plant in early 1995. The company retained an outside
law firm to investigate, and it was confirmed that such reports had been
falsified over a period of years. Other possible environmental violations at
the plant were also identified, and the investigation has been expanded to
address the additional issues. As a result of these irregularities and possible
violations, the company may be exposed to fines, penalties and remedial
expenses. Since the matter is in its early stages, the company is unable to
quantify the extent of its exposure to liability, if any. The company intends
to cooperate fully with environmental authorities and is keeping them informed
on a continuing basis.
The company's cleanup expenditures totaled approximately $6.8 million, $3.0
million and $7.8 million for 1996, 1995 and 1994. Amounts accrued as of June
30, 1996, are generally expected to be paid out over a period of up to 15 years.
Although the level of future expenditures for environmental matters cannot
be determined with any degree of certainty, based on the facts presently known
to it, management does not believe that such costs will have a material effect
on the company's financial position, results of operations, or liquidity.
LITIGATION AND REGULATION
There are judicial and administrative claims pending or contemplated against the
company in addition to those of an environmental nature discussed in the
Environmental Matters note above. Management believes that the resolution of
those claims should not have a material effect upon the company's financial
position, results of operations, or liquidity.
Various governmental agencies have authority to limit or prohibit
distribution of some of the company's products should they formally conclude
that continued distribution is unsafe to the population or the environment.
There are currently no challenges pending, the resolution of which would have a
material effect upon the company's operations.
LEASE COMMITMENTS
The company has commitments under operating leases primarily for building and
office space, railroad equipment and real estate. Rental expense charged in
1996, 1995 and 1994 was $38.4 million, $36.3 million and $34.6 million,
including insignificant amounts for contingent rentals and sublease income.
Renewal and purchase options are available on certain of these leases.
Future minimum rental commitments under operating leases having initial or
remaining non-cancelable terms in excess of one year as of June 30, 1996, were
as follows (in millions): 1997 -- $26.4; 1998 -- $16.9; 1999 -- $13.8; 2000 --
$11.9; 2001 -- $9.5; thereafter -- $306.8.
37
<PAGE>
BUSINESS SEGMENT INFORMATION
OPERATIONS IN DIFFERENT BUSINESSES
<TABLE>
<CAPTION>
Profit as a percent
of average
Sales(1) Profit(2) identifiable assets
SALES AND PROFIT ----------------------------- --------------------------- ---------------------
in millions 1996 1995 1994 1996 1995 1994 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Specialty Chemicals(3) $1,611.7 $1,564.7 $1,369.6 $ 222.0 $ 223.5 $ 193.6 15.4% 15.8% 14.7%
Salt 603.3 534.9 541.5 124.7 117.4 119.3 32.9 34.0 37.8
Automotive Safety Products 1,397.5 1,226.3 938.5 255.6 226.5 164.0 34.6 34.8 30.5
-------- -------- -------- -------- -------- --------
Business totals 3,612.5 3,325.9 2,849.6 602.3 567.4 476.9 23.5 23.5 21.9
General Corporate expense -- net(4) - - - (63.1) (96.9) (119.3)
-------- -------- -------- -------- -------- --------
Consolidated totals $3,612.5 $3,325.9 $2,849.6 $ 539.2 $ 470.5 $ 357.6
-------- -------- -------- -------- -------- --------
ASSETS, CAPITAL EXPENDITURES, Year end Capital Depreciation and
DEPRECIATION AND AMORTIZATION identifiable assets expenditures amortization
----------------------------- ---------------------------- -----------------------
in millions 1996 1995 1994 1996 1995 1994 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
Specialty Chemicals $1,427.8 $1,459.3 $1,370.2 $ 86.8 $ 83.0 $ 87.5 $ 66.8 $ 63.1 $ 57.9
Salt 385.3 371.9 319.2 35.8 42.1 35.7 32.6 30.8 30.1
Automotive Safety Products 768.2 709.7 593.6 91.8 125.8 94.3 72.1 63.5 45.7
--------- --------- --------- --------- --------- --------- ------ ------ ------
Business totals 2,581.3 2,540.9 2,283.0 214.4 250.9 217.5 171.5 157.4 133.7
General Corporate(5) 190.2 215.1 179.6 2.0 1.3 2.4 4.0 3.9 3.9
--------- --------- --------- --------- --------- --------- ------- ------ ------
Consolidated totals $2,771.5 $2,756.0 $2,462.6 $216.4 $252.2 $219.9 $175.5 $161.3 $137.6
--------- --------- --------- --------- --------- --------- ------- ------ ------
OPERATIONS IN DIFFERENT
GEOGRAPHIC AREAS Year end
Sales(1) Profit(2) identifiable assets
--------------------------------- ---------------------------- ----------------------------
in millions 1996 1995 1994 1996 1995 1994 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
United States $2,819.6 $2,645.7 $2,280.5 $502.9 $467.2 $384.3 $1,934.9 $1,909.9 $1,775.7
Foreign Areas --
Canada and Bahamas 194.1 185.3 197.6 41.0 35.1 45.9 161.5 153.4 148.2
Europe 567.8 465.0 341.2 54.8 61.7 43.7 462.3 452.3 328.6
Others 31.0 29.9 30.3 3.6 3.4 3.0 22.6 25.3 30.5
--------- --------- --------- --------- --------- --------- --------- --------- ---------
$3,612.5 $3,325.9 $2,849.6 $602.3 $567.4 $476.9 $2,581.3 $2,540.9 $2,283.0
--------- --------- --------- --------- --------- --------- --------- --------- ---------
</TABLE>
(1) Export sales from the United States in fiscal 1996 were 17% of sales to
unaffiliated customers, primarily to Canada, Europe and Japan, while in
fiscal 1995 and 1994, such sales were 18% and 16%. Intersegment and
intergeographic area sales and transfers were insignificant. No country
within the European grouping contributed or represented 10% or more of
sales, profit, or identifiable assets. During fiscal 1996, 1995 and 1994,
a customer of the Automotive Safety Products segment accounted for
approximately 12%, 13% and 10% of total sales.
(2) Business segment profit is before income taxes, interest income, interest
expense and allocation of certain corporate administrative expenses, but
included foreign exchange gains (losses) of $.7 million, $.5 million
and $(2.9) million in 1996, 1995 and 1994.
(3) Fiscal 1996 profit included special charges of $27.1 million. Refer to
Special Charges footnote. Fiscal 1996 profit also included $11.2 million
related to proceeds received, net of the impact on operations, for the
formation of a joint venture.
(4) Fiscal 1996 included $24.1 million income related to the settlement of
several environmental insurance issues. Fiscal 1996 also included special
charges of $2.1 million. Refer to Special Charges footnote.
(5) Corporate assets are principally cash and cash equivalents, deferred income
tax benefits, prepaid expenses and property, plant and equipment.
38
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Shareholders and Board of Directors Morton International, Inc.
We have audited the accompanying consolidated balance sheets of Morton
International, Inc. as of June 30, 1996 and 1995, and the related consolidated
statements of income and cash flows for each of the three years in the period
ended June 30, 1996. These financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Morton
International, Inc. at June 30, 1996 and 1995, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended June 30, 1996, in conformity with generally accepted accounting
principles.
As discussed in the notes to the consolidated financial statements, the
company adopted Financial Accounting Standards Board Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" in 1996.
/s/ Ernst & Young LLP
Chicago, Illinois
July 31, 1996
REPORT OF MANAGEMENT
We have prepared the accompanying consolidated financial statements of Morton
International, Inc. in conformity with generally accepted accounting principles
appropriate in the circumstances. The integrity and objectivity of data in these
financial statements are the responsibility of management. Based on currently
available information, management makes informed judgments and estimates of the
effects of certain events and transactions when preparing the financial
statements. Financial information included elsewhere in this Annual Report is
consistent with that contained in the financial statements.
We maintain a highly developed accounting system and controls to provide
reasonable assurance that assets are safeguarded against loss from unauthorized
use or disposition and that financial records are reliable for preparing
financial statements and maintaining accountability for assets. However, there
are inherent limitations that should be recognized in considering the potential
effectiveness of any system of internal accounting control. The concept of
reasonable assurance is based on the recognition that the cost of a system of
internal control should not exceed the benefits derived and that the evaluation
of those factors requires estimates and judgments by management. The company's
systems provide such reasonable assurance.
The functioning of the accounting system and controls over it are reviewed
by an extensive program of internal audits and by the company's independent
auditors, Ernest & Young LLP. The responsibility of the Board of Directors for
the company's financial statements is exercised through its Audit Committee,
which is composed of Directors who are not company employees. The Audit
Committee recommends to the Board of Directors the selection of the independent
auditors and reviews their fee arrangements. It meets periodically with
management, the internal auditors and the independent auditors to assure that
each is carrying out its responsibilities. The independent auditors have full
and free access to the Audit Committee to discuss auditing and financial
reporting matters.
The company's legal counsel has reviewed the company's position with
respect to litigation, claims, assessments, and illegal or questionable acts,
has communicated that position to our independent auditors, and is satisfied
that it is properly disclosed in the financial statements.
The company has prepared and distributed to its employees a statement of
its policies prohibiting certain activities deemed illegal, unethical, or
against the best interest of the company. Certification of compliance with such
policies is required and any apparent problems are reviewed by a committee of
the Board of Directors. In consultation with our independent auditors, we have
developed and instituted additional internal controls and internal audit
procedures designed to prevent or detect violations of those policies. We
believe that the policies and procedures provide reasonable assurance that our
operations are conducted in conformity with the law and with a high standard of
business conduct.
/s/ Thomas F. McDevitt
Thomas F. McDevitt
Vice President Finance and Chief Financial Officer
July 31, 1996
39
<PAGE>
MORTON INTERNATIONAL MANUFACTURES AND MARKETS
SPECIALTY CHEMICALS, AIRBAGS AND SALT.
[PICTURE] [PICTURE] [PICTURE]
WITH A STRONG FINANCIAL STANDING AND STEADY CASH FLOW,
MORTON CONTINUES TO ENHANCE SHAREHOLDER VALUE.
THE COMPANY HAS ALWAYS AGGRESSIVELY PURSUED A GROWTH-ORIENTED APPROACH
WITH STRATEGIC INVESTMENTS TO GAIN ADVANTAGES OVER ITS COMPETITION.
MORTON BUSINESSES ARE MARKET LEADERS AND NEW PRODUCT DEVELOPMENT IS A PRIORITY.
MORE THAN 14,000 EMPLOYEES OPERATE 75 PLANTS AND OFFICES IN 24 COUNTRIES.
TOGETHER, THEY BRING A COMMITMENT TO CUSTOMERS AS
MORTON BUILDS ON ITS TRADITION OF SUCCESS.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
1996 1995
-------------------------------- ------------------------------
dollars in millions, except per share data Amount Per share Amount Per share
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $3,612.5 $3,325.9
Income before special charges, net of taxes $ 358.1 $ 2.40 $ 294.1 $ 1.96
Net income $ 334.2 $ 2.24 $ 294.1 $ 1.96
Book value at end of year $1,672.8 $11.75 $1,663.5 $11.22
Total debt to capitalization 12.9% 13.2%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
QUARTERLY FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
(Unaudited)
Fiscal year 1996 Fiscal year 1995
--------------------------------------------- -------------------------------------------
Three months ended Three months ended
---------------------------------------------- -------------------------------------------
in millions, except per share data June 30(3) March 31(4) Dec. 31 (5) Sept. 30 June 30 March 31 Dec. 31 Sept. 30
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 888.4 $ 998.4 $ 916.1 $ 809.6 $ 828.5 $ 921.0 $ 830.9 $ 745.5
Gross profit 257.1 289.0 270.9 229.2 233.8 274.0 244.8 224.5
Income before income taxes 100.0 172.3 159.2 107.7 111.3 143.8 116.3 99.1
Net income 59.7 107.7 99.5 67.3 69.6 89.9 72.7 61.9
Net income per share (1) .41 .72 .66 .45 .46 .60 .49 .41
Cash dividends per share .13 .13 .13 .13 .11 .11 .11 .11
Market price of common stock(2)
High 39-3/4 40-1/4 36-1/8 34 32 30-7/8 29-1/2 30-1/4
Low 34-3/8 34 29-5/8 28-1/8 26-1/4 26-1/4 25-3/4 25-7/8
</TABLE>
(1) Net income per share has been calculated based on the average number of
common and common equivalent shares outstanding for the company.
(2) The principal market is the New York Stock Exchange and prices are based on
the Composite Tape (Ticker symbol MII).
(3) Includes special charges of $29.2 million pretax ($23.9 million after tax
or $.16 per share). Refer to Special Charges footnote on page 31.
(4) Includes $15.0 million proceeds ($9.4 million after tax or $.06 per share)
related to the formation of a joint venture.
(5) Includes $24.1 million pretax income ($15.1 million after tax or $.10 per
share) related to the settlement of several environmental insurance issues.
<PAGE>
A LOOK AT ACHIEVING LONG-TERM SUCCESS
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
dollars in millions, except per share data 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATIONS
Net sales $ 3,612.5 $ 3,325.9 $ 2,849.6 $ 2,309.8 $ 2,043.9
Cost of products sold 2,566.3 2,348.8 1,981.6 1,596.4 1,399.6
Selling, administrative and general expense 436.4 424.4 434.0 391.7 341.7
Research and development expense 80.2 72.5 66.1 68.6 61.3
Interest expense 24.6 28.4 27.8 33.7 33.8
Amortization of goodwill 10.3 10.3 10.4 10.7 10.8
Special charges (income) 29.2 - - 30.0 -
Income from operations, net of income taxes(1) 334.2 294.1 226.5 126.9 144.5
Other charges to income(2) - - - 94.4 -
Net income 334.2 294.1 226.5 32.5 144.5
Provision for depreciation 161.4 147.0 123.7 103.0 91.3
- ---------------------------------------------------------------------------------------------------------------
FINANCIAL
Total assets $ 2,771.5 $ 2,756.0 $ 2,462.6 $ 2,238.8 $ 2,110.9
Working capital 638.9 614.1 439.2 340.6 324.9
Current ratio 2.1 2.1 1.8 1.6 1.7
Long-term debt $ 218.5 $ 218.5 $ 198.6 $ 217.8 $ 222.6
Total debt to capitalization 12.9% 13.2% 15.5% 20.6% 20.2%
Shareholders' equity $ 1,672.8 $ 1,663.5 $ 1,399.6 $ 1,200.2 $ 1,222.9
Shareholders' equity per share $ 11.75 $ 11.22 $ 9.48 $ 8.20 $ 8.40
Return on shareholders' equity(3) 20.1% 21.0% 18.9% 10.4% 13.1%
Capital expenditures $ 216.4 $ 252.2 $ 219.9 $ 201.4 $ 200.1
Cash dividends paid 76.3 65.1 54.9 46.6 46.5
- ---------------------------------------------------------------------------------------------------------------
PER SHARE DATA(5)
Income from operations(1) $ 2.24 $ 1.96 $ 1.51 $ .86 $ .98
Other charges to income(2) - - - (.64) -
--------- --------- --------- --------- ---------
Net income $ 2.24 $ 1.96 $ 1.51 $ .22 $ .98
--------- --------- --------- --------- ---------
Cash dividends paid $ .520 $ .440 $ .373 $ .320 $ .320
- ---------------------------------------------------------------------------------------------------------------
GENERAL
Average number of common shares
outstanding (in thousands)(5) 149,391 150,140 150,090 148,113 147,140
Approximate number of shareholders 10,625 9,900 8,860 9,370 9,870
Approximate number of employees 14,100 13,800 13,100 11,900 10,700
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
dollars in millions, except per share data 1991 1990 1989(4) 1988(4) 1987(4)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATIONS
Net sales $1,905.9 $1,638.7 $1,406.6 $1,248.3 $1,093.9
Cost of products sold 1,319.7 1,123.3 957.6 826.7 702.6
Selling, administrative and general expense 289.7 260.9 223.0 211.7 199.1
Research and development expense 58.6 47.8 38.1 34.9 31.1
Interest expense 36.4 17.3 9.1 4.1 3.0
Amortization of goodwill 10.6 7.0 5.7 5.1 4.4
Special charges (income) - (14.3) 37.1 - -
Income from operations, net of income taxes(1) 138.3 134.8 97.1 116.4 105.0
Other charges to income(2) - - - 3.8 -
Net income 138.3 134.8 97.1 112.6 105.0
Provision for depreciation 80.9 68.9 58.1 52.9 46.6
- ------------------------------------------------------------------------------------------------------------
FINANCIAL
Total assets $1,925.8 $1,813.7 $1,364.3 $1,178.9 $1,009.1
Working capital 347.5 324.4 256.3 227.3 189.3
Current ratio 1.8 1.8 1.9 2.0 1.9
Long-term debt $ 255.7 $ 261.4 $ 43.9 $ 45.6 $ 4.8
Total debt to capitalization 22.1% 24.0% 9.3% 8.4% 3.4%
Shareholders' equity $1,103.4 $1,008.1 $ 900.7 $ 790.1 $ 676.8
Shareholders' equity per share $ 7.61 $ 7.00 $ 6.27 $ 5.53 $ 4.77
Return on shareholders' equity(3) 13.7% 15.0% 12.3% 17.2% 20.0%
Capital expenditures $ 163.6 $ 111.3 $ 131.9 $ 97.7 $ 72.5
Cash dividends paid 45.2 41.4 - - -
- ------------------------------------------------------------------------------------------------------------
PER SHARE DATA(5)
Income from operations(1) $ .95 $ .93 $ .68 $ .81 $ .74
Other charges to income(2) - - - (.02) -
-------- -------- -------- -------- --------
Net income $ .95 $ .93 $ .68 $ .79 $ .74
-------- -------- -------- -------- --------
Cash dividends paid $ .313 $ .287 - - -
- ------------------------------------------------------------------------------------------------------------
GENERAL
Average number of common shares
outstanding (in thousands)(5) 145,583 144,458 143,678 143,558 142,933
Approximate number of shareholders 10,190 10,600 11,280 11,930 12,520
Approximate number of employees 10,200 9,700 8,400 7,800 7,700
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Fiscal 1996 included special charges of $23.9 million or $.16 per share.
Refer to Special Charges footnote. Fiscal 1996 also included $15.1 million
or $.10 per share related to the settlement of several environmental
insurance issues and $7.1 million or $.05 per share related to proceeds
received, net of the impact on operations, for the formation of a joint
venture. Fiscal 1993 included special accruals related to therestructuring
of operations including disposition of facilities and relocation of
manufacturing facilities of $19.1 million or $.13 per share. Fiscal 1990
included the gain on sale of a 40% interest in a foreignaffiliate of $13.1
million or $.09 per share and unusual charges of $7.3 million or $.05 per
share for additional anticipated costs related primarily to previously
divested operations and to the spin-off from Thiokol Corporation. Fiscal
1989 included reorganization and other unusual charges of $25.0 million or
$.17 per share.
(2) 1993 charge was the cumulative effect of change in accounting for
postretirement benefits other than pensions and postemployment benefits.
1988 charge was the cumulative effect of change in accounting for income
taxes.
(3) Based on total income from operations and calculated on beginning-of-year
shareholders' equity.
(4) Effective July 1, 1989, Morton Thiokol, Inc. (MTI) transferred its
commercial businesses and certain corporate assets and certain liabilities
to the company. Since July 1, 1989, MTI (now Thiokol Corporation) and the
company have been independent companies. MTI was responsible for dividend
payments prior to July 1, 1989. (5)For fiscal 1990 through 1996, per share
amounts were calculated based onthe average number of common and common
equivalent shares outstanding for the company. For periods prior to July
1, 1989, per share amounts were calculated based on the average number of
common and common equivalent shares outstanding for MTI.
(5) For fiscal 1990 through 1996, per share amounts were calculated based on
the average number of common and common equivalent shares outstanding for
the company. For periods prior to July 1, 1989, per share amounts were
calculated based on the average number of common and common equivalent
shares outstanding for MTI.
<PAGE>
BUSINESS SEGMENT RESULTS
DOLLARS IN MILLIONS
AUTOMOTIVE SAFETY PRODUCTS -- SALES
96 ................................................................... 1,397.5
95 ................................................................... 1,226.3
94 ................................................................... 938.5
93 ................................................................... 524.0
92 ................................................................... 328.9
AUTOMOTIVE SAFETY PRODUCTS -- PROFITS
96 ................................................................... 255.6
95 ................................................................... 226.5
94 ................................................................... 164.0
93 ................................................................... 78.0
92 ................................................................... 48.1
SALT -- SALES
96 ................................................................... 603.3
95 ................................................................... 534.9
94 ................................................................... 541.5
93 ................................................................... 511.5
92 ................................................................... 480.7
SALT -- PROFITS
96 ................................................................... 124.7
95 ................................................................... 117.4
94 ................................................................... 119.3
93 ................................................................... 102.3
92 ................................................................... 92.9
SPECIALTY CHEMICALS -- SALES
96 ................................................................... 1,611.7
95 ................................................................... 1,564.7
94 ................................................................... 1,369.6
93 ................................................................... 1,274.3
92 ................................................................... 1,234.3
SPECIALTY CHEMICALS -- PROFITS
96 ................................................................... 249.1*
95 ................................................................... 223.5
94 ................................................................... 193.6
93 ................................................................... 162.4**
92 ................................................................... 165.3
* Before special charges of $27.1 million. Refer to special charges footnote
on page 31.
** Before a $27.0 million charge related to the restructuring of operations.
<PAGE>
EXHIBIT (22)(a)
SUBSIDIARIES OF MORTON INTERNATIONAL, INC.
The following is a list of the subsidiaries of the Company as of June 30,
1996. Certain subsidiaries, which considered in the aggregate as a single
subsidiary would not constitute a significant subsidiary, have been omitted.
The consolidated financial statements reflect the operations of all
subsidiaries as they existed on June 30, 1996, except for certain primarily
inactive subsidiaries not considered significant as defined in Regulation S-X,
Rule 1.02(v).
<TABLE>
<CAPTION>
STATE OR OTHER
JURISDICTION OF
INCORPORATION OR
NAME OF SUBSIDIARY ORGANIZATION
- ------------------------------------------------------------ ----------------
<S> <C>
Bee Chemical Company........................................ Illinois
CVD Incorporated............................................ Delaware
The Canadian Salt Company Limited........................... Canada
Inagua Transports, Incorporated............................. Liberia
Morton Bahamas Limited...................................... Bahamas
Inagua General Store, Limited........................... Bahamas
Morton International B.V.................................... The Netherlands
Morton International G.m.b.H................................ Germany
IRO Chemie Verwaltungsgesellschaft m.b.H................ Germany
Morton International Limited................................ England
Morton International, Ltd................................... Canada
Morton International, Ltd................................... Japan
Morton International S.A.................................... France
Morton S.A.............................................. France
Morton International, S.A. de C.V........................... Mexico
Morton International S.p.A.................................. Italy
Morton Japan, Ltd........................................... Japan
Morton Manufacturing B.V.................................... The Netherlands
Morton Nichiyu Co., Ltd..................................... Japan
(50% owned by Morton International, Inc.)
Morton Yokohama, Inc........................................ Delaware
(50% owned by Morton International, Inc.)
N.V. Morton International S.A............................... Belgium
Nippon-Bee Chemical Co. Ltd................................. Japan
(50% owned by Bee Chemical Company)
Toray Thiokol Company, Ltd.................................. Japan
(5% owned by Morton International, Inc.)
Toyo-Morton, Limited........................................ Japan
(50% owned by Morton International, Inc.)
</TABLE>
S-2
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 43,000
<SECURITIES> 28,100
<RECEIVABLES> 635,400
<ALLOWANCES> (10,800)
<INVENTORY> 364,500
<CURRENT-ASSETS> 1,196,200
<PP&E> 2,151,300
<DEPRECIATION> (1,005,500)
<TOTAL-ASSETS> 2,771,500
<CURRENT-LIABILITIES> 557,300
<BONDS> 218,500
0
0
<COMMON> 148,400
<OTHER-SE> 1,524,400
<TOTAL-LIABILITY-AND-EQUITY> 2,771,500
<SALES> 3,612,500
<TOTAL-REVENUES> 3,686,200
<CGS> 2,566,300
<TOTAL-COSTS> 3,082,900
<OTHER-EXPENSES> 39,500
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,600
<INCOME-PRETAX> 539,200
<INCOME-TAX> 205,000
<INCOME-CONTINUING> 334,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 334,200
<EPS-PRIMARY> 2.24
<EPS-DILUTED> 2.24
</TABLE>
