<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to ______________
Commission File No. 1-12825
MORTON INTERNATIONAL, INC.
----------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Indiana 36-4140798
-------------------------------------- ----------------------------------
(State of Incorporation or Organization) (I.R.S. Employer Identification No.)
100 North Riverside Plaza, Chicago, Illinois 60606-1596
- -------------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number (312) 807-2000
--------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Class Outstanding at September 30, 1997
----------------------------- ---------------------------------
Common Stock, $1.00 par value 133,132,173 shares
<PAGE>
MORTON INTERNATIONAL, INC.
QUARTERLY REPORT ON FORM 10-Q
INDEX
PAGE
-----
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Income and Retained
Earnings - Three months ended
September 30, 1997 and 1996 3
Consolidated Balance Sheets - September 30, 1997
and June 30, 1997 4
Consolidated Statements of Cash Flows -
Three months ended September 30, 1997 and 1996 5
Notes to Consolidated Financial Statements -
September 30, 1997 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6 - 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 8
SIGNATURE 8
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
MORTON INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (UNAUDITED)
(IN MILLIONS EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
SEPTEMBER 30
--------------------
1997 1996
-------- --------
Net sales $ 601.3 $ 523.0
Interest, royalties and sundry income 10.1 10.1
-------- --------
611.4 533.1
Deductions from income:
Cost of products sold 408.8 350.1
Selling, administrative and general expense 94.9 89.7
Research and development expense 14.4 14.2
Interest expense 5.6 6.0
Amortization of goodwill 3.0 2.5
-------- --------
526.7 462.5
-------- --------
Income from continuing operations
before income taxes 84.7 70.6
Income taxes 30.5 25.5
-------- --------
Income from continuing operations 54.2 45.1
Income from discontinued operations,
net of applicable income taxes - 33.6
-------- --------
Net income 54.2 78.7
Retained earnings at beginning of period 1,706.0 1,675.5
Cash dividends: $.12 per share for the
three months ended September 30, 1997 and
$.15 per share for the three months ended
September 30, 1996 (16.3) (21.4)
Exercise of stock options (4.6) -
-------- --------
Retained earnings at end of period $1,739.3 $1,732.8
======== ========
Income per common and common equivalent share:
Income from continuing operations $ .39 $ .31
Income from discontinued operations - .23
-------- --------
Net income $ .39 $ .54
======== ========
Shares used in computation (in thousands) 138,571 144,878
======== ========
See notes to consolidated financial statements.
- 3 -
<PAGE>
MORTON INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN MILLIONS)
SEPTEMBER 30 JUNE 30
1997 1996
------------ -------
(NOTE)
ASSETS
Current assets
Cash and cash equivalents $ 289.1 $ 430.3
Receivables 468.0 466.4
Deferred income tax benefits 13.7 13.7
Inventories 383.5 351.6
Prepaid expenses 134.1 128.0
-------- --------
Total current assets 1,288.4 1,390.0
-------- --------
Other assets
Cost in excess of net assets of businesses
acquired, less amortization 336.6 338.4
Investments in affiliates 86.6 91.5
Miscellaneous 111.2 105.9
-------- --------
534.4 535.8
-------- --------
Property, plant and equipment, at cost 1,727.9 1,712.5
Less allowances for depreciation 850.7 833.4
-------- --------
877.2 879.1
-------- --------
$2,700.0 $2,804.9
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable and current portion of long-term debt $ 43.2 $ 32.7
Accounts payable 253.4 255.9
Accrued salaries, wages and other compensation 60.9 58.4
Other accrued expenses 140.9 156.2
Income taxes 23.1 19.9
-------- --------
Total current liabilities 521.5 523.1
-------- --------
Long-term debt, less current portion 221.0 224.1
Deferred income taxes 46.2 46.0
Accrued postretirement benefits other than pensions 156.7 156.0
Other noncurrent liabilities 118.9 121.4
-------- --------
Total noncurrent liabilities 542.8 547.5
-------- --------
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 - 500.0 shares
Issued-140.1 shares at September 30 and
June 30, 1997 140.1 140.1
Additional paid-in capital - .3
Retained earnings 1,739.3 1,706.0
Foreign currency translation adjustment and other (19.0) (16.8)
-------- --------
1,860.4 1,829.6
Less cost of common stock in treasury-7.0 shares
at September 30, 1997 and 3.0 shares at
June 30, 1997 224.7 95.3
-------- --------
Total Shareholders' Equity 1,635.7 1,734.3
-------- --------
$2,700.0 $2,804.9
======== ========
Note: The balance sheet at June 30, 1997 has been derived from the audited
consolidated financial statements at that date. See notes to consolidated
financial statements.
- 4 -
<PAGE>
MORTON INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN MILLIONS)
CASH PROVIDED (USED)
THREE MONTHS ENDED
SEPTEMBER 30
--------------------
1997 1996
-------- --------
OPERATING ACTIVITIES
Income from continuing operations $ 54.2 $ 45.1
Adjustments to reconcile income from
continuing operations to net cash
provided by operating activities:
Depreciation and amortization 33.8 27.3
Deferred income taxes .1 .2
Undistributed earnings of affiliates (2.0) (2.3)
Changes in operating assets and liabilities:
Receivables (4.2) 2.1
Inventories and prepaid expenses (40.6) (34.3)
Accounts payable and accrued expenses (13.3) (5.9)
Accrued income taxes 6.6 16.2
Other - net 1.3 (2.3)
-------- ---------
Net cash provided by operating activities 35.9 46.1
-------- ---------
INVESTING ACTIVITIES
Purchase of property, plant and equipment (35.1) (26.6)
Proceeds from property and other asset disposals 4.5 4.7
Investment in affiliates (2.9) -
-------- ---------
Net cash used for investing activities (33.5) (21.9)
-------- ---------
FINANCING ACTIVITIES
Purchase of common stock for treasury (141.4) ( .2)
Net increase of short-term notes payable 7.3 10.8
Repayment of long-term debt ( .1) ( .1)
Stock option transactions 4.4 2.2
Dividends paid (16.3) (21.4)
-------- ---------
Net cash used for financing activities (146.1) (8.7)
-------- ---------
DISCONTINUED OPERATIONS
Net transfer from discontinued operations - 16.6
-------- ---------
Effect of foreign exchange rate changes on cash
and cash equivalents 2.5 -
-------- ---------
(Decrease) increase in cash and cash equivalents (141.2) 32.1
Cash and cash equivalents at beginning of year 430.3 68.9
-------- ---------
Cash and cash equivalents at end of period $ 289.1 $ 101.0
======== =========
See notes to consolidated financial statements.
- 5 -
<PAGE>
MORTON INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
BASIS OF PRESENTATION
The interim financial statements have been prepared in accordance with the
instructions to Form 10-Q and Rule 10-01 of Regulation SX and therefore, do
not include all information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three months ended September 30, 1997 are not necessarily
indicative of the results to be expected for the fiscal year ending June 30,
1998. It is suggested that the financial statements be read in conjunction
with the consolidated financial statements and notes thereto included in the
Company's Annual Report to Shareholders and Annual Report on Form 10-K for
the fiscal year ended June 30, 1997.
INVENTORIES
Inventories are stated at the lower of cost (principally last-in, first-out
method) or market. Components of inventories are as follows:
SEPT. 30 JUNE 30
1997 1997
-------- -------
Finished products and work-in-process $299.7 $271.8
Materials and supplies 83.8 79.8
------ ------
$383.5 $351.6
====== ======
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Income from continuing operations for the first quarter of fiscal 1998 was
$54.2 million, a 20 percent increase over income from continuing operations
for the same period last year. Sales for the first quarter were $601.3
million versus $523.0 million for the same quarter last year, an increase of
15 percent. Earnings per share were 39 cents, up 26 percent over earnings per
share from continuing operations in the first quarter of fiscal year 1997.
Last year, Morton International's results included its airbag operation,
which has been reflected as a discontinued operation. Including the results
of discontinued operations, earnings per share were 54 cents in the first
quarter of fiscal year 1997.
Specialty chemicals sales in the first quarter were up 6 percent to $433.7
million versus $407.3 million in the first quarter of fiscal year 1997. The
sales increase can be attributed to unit volume growth in the quarter, up 8
percent, and the acquisition of Pulverlac, the Italian powder coatings
company, which contributed another 3.5 percent. Partially offsetting these
favorable items was the negative impact of foreign exchange translation
which penalized overall chemicals sales by 5 percent in the quarter.
Specialty chemicals earnings in the first quarter of fiscal 1998 were up 9
percent to $72.8 million from $66.5 million last year. Successful cost
control programs, Pulverlac's earnings and generally stable raw material
prices were important factors in the improved earnings and operating
margins. In the first quarter of fiscal 1997 the Company had a
6
<PAGE>
$2.4 million gain on the sale of its Lytron product line. Exchange rate
movements had an unfavorable impact on the translation of foreign units sales
and earnings for the quarter. Sales and earnings were $20.7 million and $2.7
million lower, respectively, due to the change in exchange rates from the
first quarter of last year.
Among those chemical product lines which showed good sales growth were powder
coatings, thermoplastic polyurethanes, electronic materials, plastics
additives, industrial activities and advanced materials. The combined sales
for these businesses contributed 42 percent of the group's sales in the first
quarter of the current fiscal year and grew 19 percent from last year's first
quarter. Several product lines contributed to the improvement in chemical
group earnings including packaging adhesives, industrial activities,
thermoplastic polyurethanes, advanced materials, dyes, powder coatings and
automotive coatings. Earnings for these businesses increased 23 percent from
last year and accounted for 57 percent of the group's fiscal 1998 first
quarter earnings.
Salt sales in the first quarter were up by 45 percent to $167.6 million, with
Salins du Midi, which was acquired in the third quarter last year,
contributing $48.5 million. Product lines which did well included food
processing, chemical and water softening. Ice control salt sales were below
last year's first quarter, which reflected the early filling of depleted
inventories following the strong prior year winter season in the United
States. Operating earnings in the quarter were up by 16 percent to
$27.0 million. Operating margins as a percent of sales slipped to
16.1 percent from 20.1 percent due to Salins du Midi's lower operating
margins. However, operating margins for Salins du Midi improved over the
prior quarter to 9 percent.
Morton's corporate costs were sharply lower in the first quarter versus last
year's first quarter primarily due to lower corporate administrative expenses
and higher interest income. The company continued its aggressive stock
buyback program, acquiring 4.3 million shares in the quarter, and bringing
the total shares purchased under the current 10 million share authorization
to 7.5 million at an average per share cost of $32.17.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities were the main source of cash in the three month periods
ended September 30, 1997 and 1996, providing $35.9 million and $46.1 million,
respectively.
Income from continuing operations provided cash of $54.2 million in the first
quarter of fiscal 1998 compared to $45.1 million last year. Depreciation and
amortization was $6.5 higher in the current period. Changes in operating
assets and liabilities resulted in a use of funds in fiscal 1998 of
$50.2 million versus a $24.2 million use of funds last year.
Investing activities for the first quarters ended September 30, 1997 and 1996
were primarily the result of capital spending, which used $35.1 million of
cash this year compared to $26.6 million last year. Expansion related to
certain chemical products as well as basic upkeep of the salt and chemical
facilities continue to be the major areas of capital spending. The fiscal
1998 capital spending amounts include $3.6 million related to the
acquisitions made in the second half of fiscal 1997.
Financing activities for the first quarter of fiscal year 1998 were a
$146.1 million use of funds compared to an $8.7 million use of funds during
the same period in the prior year. The major use of funds during the first
quarter of fiscal 1998 was the common stock repurchase mentioned above. The
total amount spent to repurchase company stock was $141.4 million in the
first quarter of the current fiscal year versus $.2 million in the prior
year. Dividends paid in the quarter ended September 30, 1997 were
$16.3 million compared to $21.4 million last year. This
7
<PAGE>
decrease is primarily due to a three cent reduction in dividends paid after
discontinuing the airbag business in a spinoff transaction coupled with fewer
shares outstanding due to the share repurchase program.
The Company's current ratio at September 30, 1997 was 2.5, a slight decrease
from the 2.7 ratio at June 30, 1997. Total debt as a percentage of total
capitalization at September 30, 1997 was 13.6 compared to 12.6 at June 30,
1997.
As of September 30, 1997, the Company had unexpended authorizations for fixed
asset spending of $100.4 million. These authorizations related primarily to
chemical facility expansion, product improvements and facility upgrades 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, business acquisitions and share repurchases in the
foreseeable future.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The Company did not file any 8-K Reports during the fiscal quarter ended
September 30, 1997.
*************************************
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MORTON INTERNATIONAL, INC.
--------------------------------------
(Registrant)
Date: November 10, 1997 BY: /s/ L. N. Liszt
----------------------------- -----------------------------------
L. N. Liszt
Controller
(Principal Accounting Officer)
8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> SEP-30-1997
<CASH> 48,900
<SECURITIES> 240,200
<RECEIVABLES> 479,700
<ALLOWANCES> (11,700)
<INVENTORY> 383,500
<CURRENT-ASSETS> 1,288,400
<PP&E> 1,727,900
<DEPRECIATION> (850,700)
<TOTAL-ASSETS> 2,700,000
<CURRENT-LIABILITIES> 521,500
<BONDS> 221,000
0
0
<COMMON> 140,100
<OTHER-SE> 1,495,600
<TOTAL-LIABILITY-AND-EQUITY> 2,700,000
<SALES> 601,300
<TOTAL-REVENUES> 611,400
<CGS> 408,800
<TOTAL-COSTS> 518,100
<OTHER-EXPENSES> 3,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,600
<INCOME-PRETAX> 84,700
<INCOME-TAX> 30,500
<INCOME-CONTINUING> 54,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 54,200
<EPS-PRIMARY> 0.39
<EPS-DILUTED> 0.39
</TABLE>
