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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, 1997
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 1-12825
MORTON INTERNATIONAL, INC.
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Incorporated in the State of Indiana IRS Employer Identification
No. 36-4140798
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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:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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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 29, 1997 ($33.25 per share):
$4,484,412,338.
Number of shares of Common Stock outstanding as of August 29, 1997:
135,547,313
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of Annual Report to Shareholders for the fiscal year ended June
30, 1997: Parts I, II and IV.
2. Portions of definitive Proxy Statement dated September 11, 1997: Parts
III and IV.
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PART I
ITEM 1. BUSINESS*
DEVELOPMENTS DURING FISCAL 1997
Effective April 30, 1997, Morton International, Inc. ("Old Morton")
contributed its salt and specialty chemicals businesses to a newly created
subsidiary, New Morton International, Inc. ("New Morton"), all the outstanding
common stock of which was then spun off on a share-for-share basis to the
shareholders of Old Morton. Immediately thereafter, New Morton's corporate name
was changed to Morton International, Inc. ("the Company"), and Old Morton's
automotive safety products business was combined with the businesses of Autoliv
AB, a Swedish corporation, through the formation of a new Delaware holding
corporation, Autoliv, Inc.
Since the foregoing transactions, the Company and Autoliv, Inc. have been
independent publicly owned companies. Refer to the Spinoff and Basis of
Presentation footnote in the Company's Annual Report to Shareholders for fiscal
1997 for a more detailed discussion of these transactions and the basis of
accounting for continuing and discontinued operations.
Also during fiscal 1997, the Company acquired French-based Salins du Midi,
the largest merchant salt producer in Europe (see "Salt"); 90% of Italian-based
Pulverlac S.p.A., a leader in the European powder coatings industry (see
"Coatings"); and a manufacturing plant in Singapore purchased from Zeneca Resins
(see "Adhesives & Chemical Specialties").
BUSINESS SEGMENTS
The Company operates in two business segments: Specialty Chemicals and Salt,
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 and North America are
the major geographic markets served, activity in other parts of the world is
growing. The three Specialty Chemicals groups are described below.
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* THIS FORM 10-K CONTAINS STATEMENTS WHICH ARE NOT HISTORICAL FACTS BUT
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES THAT COULD CAUSE
THE COMPANY'S RESULTS TO DIFFER MATERIALLY FROM WHAT IS PROJECTED, INCLUDING THE
FOLLOWING: HIGHER RAW MATERIAL COSTS OR OTHER EXPENSES; A MAJOR LOSS OF
CUSTOMERS; INCREASED COMPETITIVE PRICING PRESSURE ON THE COMPANY'S BUSINESSES;
FAILURE TO DEVELOP OR COMMERCIALIZE SUCCESSFULLY NEW PRODUCTS OR TECHNOLOGIES;
THE OUTCOME OF PENDING AND FUTURE LITIGATION AND GOVERNMENTAL PROCEEDINGS;
CHANGES IN LAWS AND REGULATIONS, INCLUDING ENVIRONMENTAL; PLANT DISRUPTIONS OR
SHUTDOWNS DUE TO ACCIDENTS, NATURAL ACTS OR GOVERNMENTAL ACTION; UNANTICIPATED
WEATHER CONDITIONS; PRODUCT SPILLS OR LIABILITY ISSUES; AND OTHER DIFFICULTIES
IN IMPROVING MARGINS OR FINANCIAL PERFORMANCE. IN ADDITION, THE COMPANY'S
FORWARD-LOOKING STATEMENTS COULD BE AFFECTED BY GENERAL INDUSTRY AND MARKET
CONDITIONS AND GROWTH RATES, GENERAL DOMESTIC AND INTERNATIONAL ECONOMIC
CONDITIONS INCLUDING CURRENCY EXCHANGE RATE FLUCTUATIONS AND OTHER FACTORS. THE
COMPANY UNDERTAKES NO OBLIGATION TO UPDATE PUBLICLY ANY FORWARD- LOOKING
STATEMENTS WHETHER AS A RESULT OF NEW INFORMATION OR FUTURE EVENTS.
1
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ITEM 1. BUSINESS*--(Continued)
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 solar
cells of satellites, high-speed chips for cellular phones and light-emitting
diodes for commercial lighting.
Other major product lines manufactured by this group include thermoplastic
polyurethanes, water-based 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.
The purchase of a manufacturing plant in Singapore is intended to expand the
Company's water-based polymers and flexible packaging adhesives businesses in
Southeast Asia.
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 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.
The acquisition of Pulverlac S.p.A. provides the Company an opportunity to
expand its powder coatings business worldwide. Headquartered in Desenzano del
Garda, Italy, Pulverlac manufactures powder coatings at its facility in Romano
d'Ezzelino, Italy. The company operates twenty-five sales offices exporting to
countries in Europe, the Middle East, South America and Southeast Asia.
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 Company's 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 control, 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.
2
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ITEM 1. BUSINESS*--(Continued)
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 control on streets and
highways is sold primarily to government agencies, with some being sold for
domestic use under the SAFE-T-SALT brand.
With the acquisition of Salins du Midi, Morton now has a strong presence in
Europe. Salins du Midi's LA BALEINE consumer salt brand has a recognition and
reputation in France comparable to Morton in the United States and Windsor in
Canada. Salins du Midi also has strong market positions in Italy and Spain.
Headquartered in Paris, Salins du Midi supplies salt for food and
agricultural products, water treatment, de-icing and industrial applications. It
produces and processes solar, rock and vacuum-processed salt at sites in France
and Spain, and processes salt in Italy.
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.
All areas in which the Salt segment operates are highly competitive.
Although the Company 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.
RESEARCH AND DEVELOPMENT
Expenses incurred for research and development activities related to Company
businesses were $58.8 million, $60.2 million and $58.1 million for fiscal 1997,
1996 and 1995, 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 a 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 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.
3
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ITEM 1. BUSINESS*--(Continued)
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 $3.1 million in fiscal
1997. 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, taken as a whole, in multiparty
situations.
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 $5.5 million for fiscal 1997
and are estimated at $9.9 million for fiscal 1998.
EMPLOYEES
The number of employees for continuing operations of the Company at June 30,
1997 was approximately 10,500, compared to 8,700 at June 30, 1996.
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 segment 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 1,740 U.S. and foreign patents, which expire on varying dates
through the year 2017.
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. 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.
The Company has about 1,900 U.S. and foreign trademarks and trademark
applications which are generally renewable while the marks remain in use.
4
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ITEM 1. BUSINESS*--(Continued)
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.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Financial information about industry segments for the three fiscal years in
the period ended June 30, 1997 is included on page 38 of the Company's Annual
Report to Shareholders for fiscal 1997, and is incorporated herein by reference.
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:
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UNITED WESTERN
STATES EUROPE CANADA JAPAN OTHER TOTAL
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SPECIALTY CHEMICALS
ADHESIVES & CHEMICAL SPECIALTIES GROUP.......... 17 14 1 2 3 37
COATINGS GROUP.................................. 17 4 1 1 2 25
ELECTRONIC MATERIALS GROUP...................... 3 5 -- 1 4 13
SALT.............................................. 14 9 7 -- 3 33
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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 1997 was
approximately 12.2 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 trial in 1979 and unsuccessful appeals to the Appellate Division and to the
Supreme Court of New Jersey, Ventron Corporation (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, NJDEP
authorized the Company and Velsicol to perform a remedial
investigation\feasibility study ("RI\FS") of the Wood-Ridge plant site with a
separate and coordinated basin-wide, multi-party approach to be taken to address
the
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ITEM 3. LEGAL PROCEEDINGS--(Continued)
multiple sources of contamination in Berry's Creek. The Wood-Ridge plant site
RI\FS began 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 were additionally responsible at least in part for the costs of
technical studies and any remedial actions that may be required. Defendants
currently number more than 80 and 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
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
Wood-Ridge 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, to misrepresent the
results of testing performed by an outside laboratory on samples of effluent
discharged by the plant pursuant to its NPDES permit. Similar falsifications
were discovered that occurred both before and after that period. Other possible
environmental violations at Moss Point were discovered during the review
process, each of which has been investigated through an expansion of the
original investigation. The Company is cooperating with the EPA and the
Mississippi state agency, both of 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 but the Company has been served with federal
grand jury subpoenas seeking documents related to wastewater discharge at Moss
Point and has furnished the requested documents.
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. Certain
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On March 11, 1997, New Morton was incorporated as a wholly-owned subsidiary
of Old Morton, and on the following dates thereafter took the indicated actions
by means of Consents of its sole shareholder, acting through its duly authorized
Vice President and Secretary:
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April 24, Election of twelve directors for staggered terms ending at the
1997: Company's annual meetings of shareholders in 1997, 1998 and 1999.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS--(Continued)
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April 24, Amendment of Articles of Incorporation effective May 1, 1997, to
1997: change the Company's corporate name from "New Morton International,
Inc." to "Morton International, Inc."
April 29, Approval of a restatement of the Company's Articles of Incorporation
1997: to reflect the above name change.
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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 23, 1997.
Listed below are the executive officers of the Company as of the date
hereof:
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NAME AND AGE *POSITION
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S. Jay Stewart (58)................ Chairman of the Board, Chief Executive
Officer and Director
William E. Johnston (56)........... President, Chief Operating Officer and
Director
Walter W. Becky II (54)............ Group Vice President and President, Salt
Group
Daniel D. Feinberg (54)............ Group Vice President and President,
Electronic Materials Group
James J. Fuerholzer (61)........... Group Vice President and President,
Adhesives and Chemical Specialties Group
Stephen A. Gerow (54).............. Group Vice President and President,
Coatings Group
Raymond P. Buschmann (53).......... Vice President for Legal Affairs and
General Counsel
Nancy A. Hobor (51)................ Vice President, Communications and Investor
Relations
Christopher K. Julsrud (49)........ Vice President, Human Resources
Thomas F. McDevitt (57)............ Vice President Finance and Chief Financial
Officer
P. Michael Phelps (63)............. Vice President and Secretary
Lewis N. Liszt (55)................ Controller
Bruce G. Wolfe (54)................ Treasurer
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* All Company executive officers were also employees of Old Morton; their
positions held prior to April 24, 1997, were with Old Morton and, where
indicated, groups and divisions thereof.
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 rear cover of the
Company's Annual Report to Shareholders for fiscal 1997, and is incorporated
herein by reference.
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ITEM 6. SELECTED FINANCIAL DATA
Selected financial data for the ten fiscal years in the period ended June
30, 1997 are included on page 8 of the Company's Annual Report to Shareholders
for fiscal 1997, 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, 1997, is
included on pages 20-24 of the Company's Annual Report to Shareholders for
fiscal 1997, and is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated balance sheets of the Company as of June 30, 1997 and 1996,
and the consolidated statements of income and cash flows for each of the three
years in the period ended June 30, 1997, and notes to consolidated financial
statements which are included on pages 25-38 of the Company's Annual Report to
Shareholders for fiscal 1997 are incorporated herein by reference. Quarterly
results of operations on page 2 of the Annual Report to Shareholders for fiscal
1997 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 11, 1997, and is incorporated herein by reference.
Information concerning the executive officers of the Company is included on
page 7, Part I hereof.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning executive compensation for fiscal 1997 is included on
pages 8-18 of the Company's definitive Proxy Statement dated September 11, 1997,
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 of the Company's definitive Proxy Statement dated September
11, 1997, and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relationships and related transactions is
included on page 7 of the Company's definitive Proxy Statement dated September
11, 1997, under the caption "Compensation Committee Interlocks and Insider
Participation," and is incorporated herein by reference.
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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 25-38 of the Company's Annual Report to
Shareholders for the fiscal year ended June 30, 1997, are incorporated herein by
reference:
Consolidated Statements of Income--Years ended June 30, 1997, 1996 and 1995
Consolidated Balance Sheets--June 30, 1997 and 1996
Consolidated Statements of Cash Flows--Years ended June 30, 1997, 1996 and
1995
Notes to Consolidated Financial Statements
2. FINANCIAL STATEMENT SCHEDULES
The following consolidated financial information for the fiscal years 1997,
1996 and 1995 is submitted herewith:
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Report of Independent Auditors............................................................ F-1
Schedule II--Valuation and Qualifying Accounts............................................ F-2
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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
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EXHIBIT
NUMBER DESCRIPTION METHOD OF FILING
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(3) Articles of incorporation and by-laws
(a) Amended and Restated Articles of Incorporation of the Filed herewith electronically
Company
(b) By-laws of the Company amended through May 1, 1997 Filed herewith electronically
(4) Instruments defining the rights of security holders, including
indentures
(a) Rights Agreement dated as of April 24, 1997 between Incorporated by reference to Exhibit 4.1 to
the Company and The First National Bank of Chicago Registration Statement on Form 10 dated as of March
24, 1997
(b) See Exhibits (3)(a) and (3)(b) above
(10) Material contracts
(a) * Key Executive Long-Term Incentive Program effective Filed herewith electronically
for fiscal 1998-2000
(b) * Key Executive Annual Bonus Program (Program 1) Filed herewith electronically
effective for fiscal 1998
(c) Staff Executive Annual Bonus Program (Program 2) Filed herewith electronically
effective for fiscal 1998
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EXHIBIT
NUMBER DESCRIPTION METHOD OF FILING
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(d) * 1989 Incentive Plan, renamed by amendment effective Incorporated by reference to Exhibit (10)(d) to the
June 23, 1994, assumed by the Company Old Morton's Report on Form 10-K for fiscal 1994
(e) * Form of Nonqualified Stock Option Notice and Grant Filed herewith electronically
Agreement
(f) * 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
(g) * Morton International, Inc. Executive Post-Retirement Incorporated by reference to Exhibit (10)(f) to the
Life Insurance Plan, assumed by the Company Old Morton's Report on Form 10-K for fiscal 1992
(h) * 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
(i) * Form of Employment Agreement between the Company and Incorporated by reference to Exhibit (10)(g) to the
certain of its executive officers, assumed by the Old Morton's Report on Form 10-K for fiscal 1990
Company
(j) ** Executive Employment Agreement, dated April 1, 1994, Incorporated by reference to Exhibit (10)(i) to the
between the Company and S. J. Stewart, assumed by the Old Morton's Report on Form 10-K for fiscal 1994
Company
(k) * Supplemental Executive Retirement Program, assumed by Incorporated by reference to Exhibits 10.15 and 10.16
the Company to Registration Statement No. 33-28803
(l) 1994 Non-Employee Directors Stock Plan, assumed by the Incorporated by reference to Exhibit (10)(k) to the
Company Old Morton's Report on Form 10-K for fiscal 1995
(m) Non-Employee Directors Deferred Compen- Incorporated by reference to Exhibit (10)(l) to the
sation Plan, assumed by the Company Old Morton'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, 1997, 1996 and 1995
(13) Annual report to security holders
(a) Annual Report to Shareholders of the Company for Filed herewith electronically
fiscal 1997 (financial information only: pages 2, 8
and 20-39)
(21) Subsidiaries of the registrant
(a) Subsidiaries of the Company Filed herewith electronically
(23) Consents of experts and counsel
(a) Consent of Independent Auditors Filed herewith electronically
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION METHOD OF FILING
- --------- ------------------------------------------------------ ------------------------------------------------------
<S> <C> <C> <C> <C>
(27) (a) Financial data schedule for year ended June 30, 1997 Filed herewith electronically
(b) Restated financial data schedules for the years ended Filed herewith electronically
June 30, 1996 and 1995
(c) Restated financial data schedule for the quarters for Filed herewith electronically
the year ended June 30, 1997
(d) Restated financial data schedule for the quarters for Filed herewith electronically
the year ended June 30, 1996
</TABLE>
- ------------------------
*Exhibits 10(a), (b), (d), (e), (f), (g), (h), (i), and (k) consist of
compensation plans or arrangements in which all of the Company's five most
highly compensated executive officers currently participate, except that only
S. J. Stewart does not participate in Exhibit 10(i) and only W. E. Johnston
participates in Exhibit 10(k). These plans and, where applicable, the
foregoing individuals' current benefits under each (except Exhibit 10(h)) are
described in the section captioned "Executive Compensation" beginning on page
8 of the Company's definitive Proxy Statement dated September 11, 1997, which
descriptions are incorporated herein by reference.
**Description of this employment agreement is set forth on page 16 of the
Company's definitive Proxy Statement dated September 11, 1997, which
descriptions are incorporated herein by reference.
(b) REPORTS ON FORM 8-K
During the quarter ended June 30, 1997, three 8-K reports were filed as
follows:
1. Date of report: April 22, 1997; items reported: Item 2--Other Events; Item
7--Financial Statements, Pro Forma Financial Information and Exhibits.
2. Date of report: April 24, 1997; items reported: Item 2--Other Events; Item
7--Financial Statements, Pro Forma Financial Information and Exhibits.
3. Date of report: May 2, 1997; items reported: Item 1--Changes in Control of
Registrant; Item 2-- Acquisition or Disposition of Assets; Item 5--Other
Events; Item 7--Financial Statements, Pro Forma Financial Information and
Exhibits.
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 28TH DAY OF
AUGUST, 1997.
MORTON INTERNATIONAL, INC.
(REGISTRANT)
<TABLE>
<S> <C> <C>
By /s/ T. F. MCDEVITT
-----------------------------------------
T. F. MCDEVITT
VICE PRESIDENT FINANCE AND
CHIEF FINANCIAL OFFICER
</TABLE>
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 28TH DAY OF AUGUST, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- -------------------------------------------------- ----------------------------------------------------------
<S> <C>
/s/ S. J. STEWART Chairman of the Board, Chief Executive Officer
-------------------------------------- and Director (Principal Executive Officer)
S. J. STEWART
/s/ T. F. MCDEVITT Vice President Finance and Chief Financial Officer
-------------------------------------- (Principal Financial Officer)
T. F. MCDEVITT
/s/ L. N. LISZT Controller
-------------------------------------- (Principal Accounting Officer)
L. N. LISZT
/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
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
- -------------------------------------------------- ----------------------------------------------------------
<S> <C>
/s/ D. C. FILL Director
--------------------------------------
D. C. FILL
/s/ W. E. JOHNSTON Director
--------------------------------------
W. E. JOHNSTON
/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,
1997. 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, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended June 30, 1997, 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 29, 1997
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, 1997.................. $10,316 $4,683 $-- $3,587(A) $11,739
(327)(B)
Year ended June 30, 1996.................. 11,034 2,325 -- 2,818(A) 10,316
225(B)
Year ended June 30, 1995.................. 10,539 2,674 -- 2,577(A) 11,034
(398)(B)
</TABLE>
- ------------------------
Note A-- Represents write-offs less recoveries.
Note B-- Foreign currency translation adjustments.
F-2
<PAGE>
Exhibit (3)(a)
RESTATED ARTICLES OF INCORPORATION
of
MORTON INTERNATIONAL, INC.
(originally incorporated on March 11, 1997)
FIRST: The name of the Corporation is Morton International, Inc.
SECOND: The address of the Corporation's registered office in the
State of Indiana is 1 North Capitol Avenue in the City of Indianapolis,
County of Marion. The name of the Corporation's registered agent at such
address is CT Corporation System.
THIRD: The purpose of the Corporation shall be to engage in any
lawful act or activity for which corporations may be organized under the
Business Corporation Law of the State of Indiana.
FOURTH: The total number of shares of all classes of capital stock
which the Corporation shall have authority to issue is 525,000,000 of which
25,000,000 shares shall be Preferred Stock of the par value of $1.00 per
share and 500,000,000 shares shall be Common Stock of the par value of $1.00
per share.
A. PREFERRED STOCK. The Board of Directors is expressly
authorized to provide for the issue of all or any shares of the Preferred
Stock, in one or more series, and to fix for each such series such voting
powers, full or limited, or no voting powers, and such designations,
preferences and relative, participating, optional or other special rights and
such qualifications, limitations or restrictions thereof, as shall be stated
and expressed in the resolution or resolutions adopted by the Board of
Directors providing for the issue of such series (a "Preferred Stock
Designation") and as may be permitted by the Indiana Business Corporation
Law. The number of authorized shares of Preferred Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by
the affirmative vote of the holders of a majority of the voting power of all
of the then outstanding shares of the capital stock of the Corporation
entitled to vote generally in the election of directors (the "Voting Stock"),
voting together as a single class, without a separate vote of the holders of
the Preferred Stock, or any series thereof, unless a vote of any such holders
is required pursuant to any Preferred Stock Designation or applicable law.
Series A Junior Participating Preferred Stock:
(1) DESIGNATION AND AMOUNT. A series of preferred stock, par
value $1.00 per share is hereby created and shall be designated as "Series A
Junior Participating Preferred Stock" (the "Series A Preferred Stock") and
the number of shares constituting the Series A Preferred Stock shall be
1,600,000. Such number of shares may be increased or decreased by resolution
of the Board of Directors, except as otherwise required by law; PROVIDED,
that no decrease shall reduce the number of shares of Series A Preferred
Stock to a number less than the number of shares then outstanding plus the
number of shares reserved for issuance upon the exercise of outstanding
options, rights or warrants or upon the conversion of any outstanding
securities issued by the Corporation convertible into Series A Preferred
Stock.
<PAGE>
(2) DIVIDENDS AND DISTRIBUTIONS.
(A) Subject to the rights of the holders of any shares of any series
of Preferred Stock (or any similar stock) ranking prior and superior to
the Series A Preferred Stock with respect to dividends, the holders
of shares of Series A Preferred Stock, in preference to the holders of
Common Stock, par value $1.00 per share (the "Common Stock"), of the
Corporation, and of any other junior stock, shall be entitled to receive,
when, as and if declared by the Board of Directors out of funds legally
available for the purpose, quarterly dividends payable in cash on the
second Monday of March, June, September and December in each year (each
such date being referred to herein as a "Quarterly Dividend Payment
Date"), commencing on the first Quarterly Dividend Payment Date after the
first issuance of a share or fraction of a share of Series A Preferred
Stock, in an amount per share (rounded to the nearest cent) equal to the
greater of (a) $1 or (b) subject to the provision for adjustment
hereinafter set forth, 100 times the aggregate per share amount of all
cash dividends, and 100 times the aggregate per share amount (payable in
kind) of all non-cash dividends or other distributions, other than a
dividend payable in shares of Common Stock or a subdivision of the
outstanding shares of Common Stock (by reclassification or otherwise),
declared on the Common Stock since the immediately preceding
Quarterly Dividend Payment Date or, with respect to the first Quarterly
Dividend Payment Date, since the first issuance of any share or fraction
of a share of Series A Preferred Stock. In the event the Corporation
shall at any time declare or pay any dividend on the Common Stock payable
in shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of
Common Stock) into a greater or lesser number of shares of Common Stock,
then in each such case the amount to which holders of shares of
Series A Preferred Stock were entitled immediately prior to such event
under clause (b) of the preceding sentence shall be adjusted by multiplying
such amount by a fraction, the numerator of which is the number of shares
of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on the
Series A Preferred Stock as provided in paragraph (A) of this Section
immediately after it declares a dividend or distribution on the Common
Stock (other than a dividend payable in shares of Common Stock);
provided that, in the event no dividend or distribution shall have been
declared on the Common Stock during the period between any Quarterly
Dividend Payment Date and the next subsequent Quarterly Dividend Payment
Date, a dividend of $1 per share on the Series A Preferred Stock shall
nevertheless be payable on such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Preferred Stock from the Quarterly Dividend Payment
Date next preceding the date of issue of such shares, unless the date of
issue of such shares is prior to the record date for the first Quarterly
Dividend Payment Date, in which case dividends on such shares shall begin
to accrue from the date of issue of such shares, or unless the date of
issue is a Quarterly Dividend Payment Date or is a date after the record
date for the determination of holders of shares of Series A Preferred
Stock entitled to receive a quarterly dividend and before such
Quarterly Dividend
-2-
<PAGE>
Payment Date, in either of which events such dividends shall begin to
accrue and be cumulative from such Quarterly Dividend Payment Date.
Accrued but unpaid dividends shall not bear interest. Dividends paid
on the shares of Series A Preferred Stock in an amount less than the
total amount of such dividends at the time accrued and payable on such
shares shall be allocated pro rata on a share-by-share basis among all
such shares at the time outstanding. The Board of Directors may fix a
record date for the determination of holders of shares of Series A
Preferred Stock entitled to receive payment of a dividend or distribution
declared thereon, which record date shall be not more than 60 days prior
to the date fixed for the payment thereof.
(3) VOTING RIGHTS. The holders of shares of Series A Preferred
Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth,
each share of Series A Preferred Stock shall entitle the holder thereof
to 100 votes on all matters submitted to a vote of the stockholders of
the Corporation. In the event the Corporation shall at any time declare
or pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise
than by payment of a dividend in shares of Common Stock) into a greater
or lesser number of shares of Common Stock, then in each such case the
number of votes per share to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such event shall be
adjusted by multiplying such number by a fraction, the numerator of which
is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of Common
Stock that were outstanding immediately prior to such event.
(B) Except as otherwise provided herein, in any other Articles of
Amendment creating a series of Preferred Stock or any similar stock, or
by law, the holders of shares of Series A Preferred Stock and the holders
of shares of Common Stock and any other capital stock of the Corporation
having general voting rights shall vote together as one class on all
matters submitted to a vote of stockholders of the Corporation.
(C) Except as set forth herein, or as otherwise provided by law,
holders of Series A Preferred Stock shall have no special voting rights
and their consent shall not be required (except to the extent they are
entitled to vote with holders of Common Stock as set forth herein) for
taking any corporate action.
(4) CERTAIN RESTRICTIONS.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock as provided in Section 2 are in
arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A Preferred
Stock outstanding shall have been paid in full, the Corporation shall not:
-3-
<PAGE>
(i) declare or pay dividends, or make any other distributions,
on any shares of stock ranking junior (either as to dividends or
upon liquidation, dissolution or winding up) to the Series A
Preferred Stock;
(ii) declare or pay dividends, or make any other distributions,
on any shares of stock ranking on a parity (either as to dividends
or upon liquidation, dissolution or winding up) with the Series A
Preferred Stock, except dividends paid ratably on the Series A
Preferred Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which
the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred
Stock, provided that the Corporation may at any time redeem,
purchase or otherwise acquire shares of any such junior stock in
exchange for shares of any stock of the Corporation ranking junior
(either as to dividends or upon dissolution, liquidation or winding
up) to the Series A Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for consideration
any shares of Series A Preferred Stock, or any shares of stock
ranking on a parity with the Series A Preferred Stock, except in
accordance with a purchase offer made in writing or by publication
(as determined by the Board of Directors) to all holders of such
shares upon such terms as the Board of Directors, after consideration
of the respective annual dividend rates and other relative rights
and preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable treatment
among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares
of stock of the Corporation unless the Corporation could, under
paragraph (A) of this Section 4, purchase or otherwise acquire such
shares at such time and in such manner.
(5) REACQUIRED SHARES. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof. All
such shares shall upon their cancellation become authorized but unissued
shares of Preferred Stock and may be reissued as part of a new series of
Preferred Stock subject to the conditions and restrictions on issuance set
forth herein, in the Articles of Incorporation, or in any other Articles of
Amendment creating a series of Preferred Stock or any similar stock or as
otherwise required by law.
(6) LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any liquidation,
dissolution or winding up of the Corporation, no distribution shall be made
(1) to the holders of shares of stock ranking junior (either as to dividends
or upon liquidation, dissolution or winding up) to the Series A Preferred
Stock unless, prior thereto, the holders of shares of Series A Preferred
Stock shall have received $100 per share, plus an amount equal to accrued and
unpaid dividends and distributions thereon, whether or not declared, to the
date of such payment, provided that the holders of shares of Series A
-4-
<PAGE>
Preferred Stock shall be entitled to receive an aggregate amount per share,
subject to the provision for adjustment hereinafter set forth, equal to 100
times the aggregate amount to be distributed per share to holders of shares
of Common Stock, or (2) to the holders of shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or winding up) with
the Series A Preferred Stock, except distributions made ratably on the Series
A Preferred Stock and all such parity stock in proportion to the total
amounts to which the holders of all such shares are entitled upon such
liquidation, dissolution or winding up. In the event the Corporation shall
at any time declare or pay any dividend on the Common Stock payable in shares
of Common Stock, or effect a subdivision or combination or consolidation of
the outstanding shares of Common Stock (by reclassification or otherwise than
by payment of a dividend in shares of Common Stock) into a greater or lesser
number of shares of Common Stock, then in each such case the aggregate amount
to which holders of shares of Series A Preferred Stock were entitled
immediately prior to such event under the proviso in clause (1) of the
preceding sentence shall be adjusted by multiplying such amount by a fraction
the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(7) CONSOLIDATION, MERGER, ETC. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in
which the shares of Common Stock are exchanged for or changed into other
stock or securities, cash and/or any other property, then in any such case
each share of Series A Preferred Stock shall at the same time be similarly
exchanged or changed into an amount per share, subject to the provision for
adjustment hereinafter set forth, equal to 100 times the aggregate amount of
stock, securities, cash and/or any other property (payable in kind), as the
case may be, into which or for which each share of Common Stock is changed or
exchanged. In the event the Corporation shall at any time declare or pay any
dividend on the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of
Common Stock (by reclassification or otherwise than by payment of a dividend
in shares of Common Stock) into a greater or lesser number of shares of
Common Stock, then in each such case the amount set forth in the preceding
sentence with respect to the exchange or change of shares of Series A
Preferred Stock shall be adjusted by multiplying such amount by a fraction,
the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(8) NO REDEMPTION. The shares of Series A Preferred Stock shall
not be redeemable.
(9) RANK. The Series A Preferred Stock shall rank, with respect
to the payment of dividends and the distribution of assets, junior to all
series of any other class of the Corporation's Preferred Stock.
(10) AMENDMENT. The Articles of Incorporation of the Corporation
shall not be amended in any manner which would materially alter or change the
powers, preferences or special rights of the Series A Preferred Stock so as
to affect them adversely without the affirmative vote of the holders of at
least two-thirds of the outstanding shares of Series A Preferred Stock,
voting together as a single class.
-5-
<PAGE>
B. COMMON STOCK. Except as otherwise required by law or as
otherwise provided in any Preferred Stock Designation, the holders of the
Common Stock shall exclusively possess all voting power and each share of
Common Stock shall have one vote.
FIFTH: A. NUMBER, ELECTION AND TERMS OF DIRECTORS. Subject to the
rights of the holders of any class or series of Preferred Stock to elect
additional directors under specified circumstances, the number of directors
shall be fixed from time to time exclusively by the Board of Directors
pursuant to a resolution adopted by a majority of the Whole Board (as
defined in Article EIGHTH, paragraph C (10)). The directors, other than
those who may be elected by the holders of any series of Preferred Stock
under specified circumstances, shall be divided, with respect to the time for
which they severally hold office, into three classes, with the term of office
of the first class to expire at the 1997 annual meeting of shareholders, the
term of office of the second class to expire at the 1998 annual meeting of
shareholders and the term of office of the third class to expire at the 1999
annual meeting of shareholders, with each director to hold office until his
or her successor shall have been duly elected and qualified. At each annual
meeting of shareholders, commencing with the 1997 annual meeting, (i)
directors elected to succeed those directors whose terms then expire shall be
elected for a term of office to expire at the third succeeding annual meeting
of shareholders after their election, with each director to hold office until
his or her successor shall have been duly elected and qualified, and (ii) if
authorized by a resolution of the Board of Directors, directors may be
elected to fill any vacancy on the Board of Directors, regardless of how such
vacancy was created.
B. SHAREHOLDER NOMINATION OF DIRECTOR CANDIDATES AND INTRODUCTION
OF BUSINESS. Advance notice of shareholder nominations for the election of
directors and of business to be brought by shareholders before any meeting of
the shareholders of the Corporation shall be given in the manner provided in
the By-Laws of the Corporation.
C. NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Subject to the
rights of the holders of any class or series of Preferred Stock, and unless
the Board of Directors otherwise determines, newly created directorships
resulting from any increase in the authorized number of directors or any
vacancies of the Board of Directors resulting from death, resignation,
retirement, disqualification, removal from office or other cause may be
filled only by a majority vote of the directors then in office, though less
than a quorum, and directors so chosen shall hold office for a term expiring
at the annual meeting of shareholders at which the term of office of the
class to which they have been elected expires and until such director's
successor shall have been duly elected and qualified. No decrease in the
number of authorized directors constituting the Whole Board shall shorten the
term of any incumbent director.
D. REMOVAL. Subject to the rights of the holders of any class or
series of Preferred Stock, any director, or the entire Board of Directors,
may be removed from office at any time, but only for cause and only by the
affirmative vote of the holders of at least 80 percent of the voting power of
all of the then outstanding shares of the Voting Stock, voting together as a
single class.
E. AMENDMENT, REPEAL OR ALTERATION. Notwithstanding any other
provisions of these Articles of Incorporation or any provision of law which
might otherwise permit a lesser vote or no vote, but in addition to any
affirmative vote of the holders of any particular class
-6-
<PAGE>
or series of the capital stock required by law, these Articles of
Incorporation or any Preferred Stock Designation, the affirmative vote of the
holders of at least 80 percent of the voting power of all of the
then-outstanding shares of the Voting Stock, voting together as a single
class, shall be required to alter, amend or repeal this, Article FIFTH.
SIXTH: In furtherance and not in limitation of the powers
conferred by law, only the Board of Directors is expressly authorized to
make, alter, amend and repeal the By-Laws of the Corporation.
SEVENTH: Subject to the rights of the holders of any series of
Preferred Stock, (A) any action required or permitted to be taken by the
shareholders of the Corporation may be effected at an annual or special
meeting of shareholders of the Corporation and also may be effected by
written consent of all shareholders entitled to vote on the action and
delivered to the Corporation and (B) special meetings of shareholders of the
Corporation may be called only by the Chairman of the Board or by the Board
of Directors pursuant to a resolution adopted by a majority of the Whole
Board. Notwithstanding any other provisions of these Articles of
Incorporation or any provision of law which might otherwise permit a lesser
vote or no vote, but in addition to any affirmative vote of the holders of
any particular class or series of the capital stock of the Corporation
required by law, these Articles of Incorporation or any Preferred Stock
Designation, the affirmative vote of the holders of at least 80 percent of
the voting power of all of the then-outstanding shares of the Voting Stock,
voting together as a single class, shall be required to alter, amend or
repeal this Article SEVENTH.
EIGHTH: A. (1) In addition to any affirmative vote required by
law, by these Articles of Incorporation or by any Preferred Stock
Designation, and except as otherwise expressly provided in Section B of this
Article EIGHTH:
(i) any merger or consolidation of the Corporation or any
Subsidiary (as hereinafter defined) with (a) any Interested
Shareholder (as hereinafter defined) or (b) any other corporation
(whether or not itself an Interested Shareholder) which is, or
after such merger or consolidation would be, an Affiliate (as
hereinafter defined) of an Interested Shareholder; or
(ii) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of transactions)
to or with any Interested Shareholder or any Affiliate of any
Interested Shareholder of any assets of the Corporation or any
Subsidiary having an aggregate Fair Market Value (as hereinafter
defined) of $10 million or more; or
(iii) the issuance or transfer by the Corporation or any
Subsidiary (in one transaction or a series of transactions) of any
securities of the Corporation or any Subsidiary to any Interested
Shareholder or any Affiliate of any Interested Shareholder in
exchange for cash, securities or other property (or a combination
thereof) having an aggregate Fair Market Value of $10 million or
more; or
(iv) the adoption of any plan or proposal for the liquidation
or dissolution of the Corporation proposed by or on behalf of any
Interested Shareholder or any Affiliate of any Interested
Shareholder; or
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(v) any reclassification of securities (including any reverse
stock split), or recapitalization of the Corporation, or any merger
or consolidation of the Corporation with any of its Subsidiaries or
any other transaction (whether or not with or into or otherwise
involving any Interested Shareholder) which has the effect, directly
or indirectly, of increasing the proportionate share of the
outstanding shares of any class of equity or convertible securities
of the Corporation or any Subsidiary which is Beneficially Owned
(as hereinafter defined) by any Interested Shareholder or any
Affiliate of any Interested Shareholder;
shall require the affirmative vote of the holders of at least 80 percent of
the voting power of all of the then-outstanding shares of the Voting Stock,
voting together as a single class. Such affirmative vote shall be required
notwithstanding any other provisions of these Articles of Incorporation or
any provision of law or of any agreement with any national securities
exchange or otherwise which might otherwise permit a lesser vote or no vote.
(2) The term "Business Combination" as used in this Article EIGHTH
shall mean any transaction which is referred to in any one or more of
subparagraphs (i) through (v) of paragraph (1) of this Section A.
B. The provisions of Section A of this Article EIGHTH shall not be
applicable to any particular Business Combination, and such Business
Combination shall require only such affirmative vote as is required by
law, any other provision of these Articles of Incorporation and any
Preferred Stock Designation, if, in the case of a Business
Combination that does not involve any cash or other consideration being
received by the shareholders of the Corporation, solely in their
respective capacities as shareholders of the Corporation, the condition
specified in the following paragraph (1) is met or, in the case of any
other Business Combination, the conditions specified in either of the
following paragraph (1) or paragraph (2) are met:
(1) The Business Combination shall have been approved by a majority
of the Continuing Directors (as hereinafter defined); provided, however,
that this condition shall not be capable of satisfaction unless there
are at least three Continuing Directors.
(2) All of the following conditions shall have been met:
(i) The consideration to be received by holders of shares of a
particular class (or series) of outstanding capital stock (including
Common Stock and other than Excluded Preferred Stock (as hereinafter
defined)) shall be in cash or in the same form as the Interested
Shareholder or any of its Affiliates has previously paid for shares
of such class (or series) of capital stock. If the Interested
Shareholder or any of its Affiliates have paid for shares of any
class (or series) of capital stock with varying forms of
consideration, the form of consideration to be received per share
by holders of shares of such class (or series) of capital stock
shall be either cash or the form used to acquire the largest number
of shares of such class (or series) of capital stock previously
acquired by the Interested Shareholder.
(ii) The aggregate amount of (x) the cash and (y) the Fair
Market Value, as of the date (the "Consummation Date") of the
consummation of the Business Combination, of the consideration
other than cash to be received per share by
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holders of Common Stock in such Business Combination shall be at
least equal to the higher of the following (in each case
appropriately adjusted in the event of any stock dividend, stock
split, combination of shares or similar event):
(a) (if applicable) the highest per share price (including
any brokerage commissions, transfer taxes and soliciting
dealers' fees) paid by the Interested Shareholder or any of its
Affiliates for any shares of Common Stock acquired by them
within the two-year period immediately prior to the date of the
first public announcement of the proposal of the Business
Combination (the "Announcement Date") or in any transaction in
which the Interested Shareholder became an Interested
Shareholder, whichever is higher, PLUS interest compounded
annually from the first date on which the Interested Shareholder
became an Interested Shareholder (the "Determination Date")
through the Consummation Date at the publicly announced base
rate of interest of The First National Bank of Chicago (or
such other major bank headquartered in the City of Chicago as
may be selected by the Continuing Directors) from time to
time in effect in the City of Chicago, LESS the aggregate amount
of any cash dividends paid, and the Fair Market Value of any
dividends paid in other than cash, on each share of Common
Stock from the Determination Date through the Consummation Date
in an amount up to but not exceeding the amount of interest so
payable per share of Common Stock; and
(b) The Fair Market Value per share of Common Stock on
the Announcement Date or the Determination Date, whichever is
higher.
(iii) The aggregate amount of (x) the cash and (y) the
Fair Market Value, as of the Consummation Date, of the consideration
other than cash to be received per share by holders of shares of any
class (or series), other than Common Stock or Excluded Preferred
Stock, of outstanding capital stock shall be at least equal to the
highest of the following (in each case appropriately adjusted in the
event of any stock dividend, stock split, combination of shares or
similar event), it being intended that the requirements of this
paragraph (2)(iii) shall be required to be met with respect to every
such class (or series) of outstanding capital stock whether or not
the Interested Shareholder or any of its Affiliates have previously
acquired any shares of a particular class (or series) of capital
stock:
(a) (if applicable) the highest per share price (including
any brokerage commissions, transfer taxes and soliciting
dealers' fees) paid by the Interested Shareholder or any of its
Affiliates for any shares of such class (or series) of capital
stock acquired by them within the two-year period immediately
prior to the Announcement Date or in any transaction in which
it became an Interested Shareholder, whichever is higher, PLUS
interest compounded annually from the Determination Date through
the Consummation Date at the publicly announced base rate of
interest of The First National Bank of Chicago (or such other
major bank headquartered in the City of Chicago as may be
selected by the Continuing Directors) from time to time in
effect in the City of Chicago, LESS the aggregate amount of any
cash dividends paid, and the Fair Market Value of any dividends
paid in other than
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cash, on each share of such class (or series) of capital
stock from the Determination Date through the Consummation
Date in an amount up to but not exceeding the amount of
interest so payable per share of such class (or series) of
capital stock;
(b) the Fair Market Value per share of such class (or
series) of capital stock on the Announcement Date or on the
Determination Date, whichever is higher; and
(c) the highest preferential amount per share, if any,
to which the holders of shares of such class (or series) of
capital stock would be entitled in the event of any voluntary
or involuntary liquidation, dissolution or winding up of
the Corporation.
(iv) After such Interested Shareholder has become an Interested
Shareholder and prior to the consummation of such Business
Combination: (a) except as approved by a majority of the Continuing
Directors, there shall have been no failure to declare and pay at
the regular date therefor any full quarterly dividends (whether or
not cumulative) on any outstanding Preferred Stock; (b) there shall
have been (I) no reduction in the annual rate of dividends paid on
the Common Stock (except as necessary to reflect any subdivision of
the Common Stock), except as approved by a majority of the
Continuing Directors, and (II) an increase in such annual rate of
dividends as necessary to reflect any reclassification (including
any reverse stock split), recapitalization, reorganization or any
similar transaction which has the effect of reducing the number
of outstanding shares of the Common Stock, unless the failure so to
increase such annual rate is approved by a majority of the
Continuing Directors; and (c) neither such Interested Shareholder
nor any of its Affiliates shall have become the beneficial owner
of any additional shares of Voting Stock except as part of the
transaction which results in such Interested Shareholder becoming
an Interested Shareholder; provided, however, that no approval by
Continuing Directors shall satisfy the requirements of this
subparagraph (iv) unless at the time of such approval there are at
least three Continuing Directors.
(v) After such Interested Shareholder has become an Interested
Shareholder, such Interested Shareholder and any of its Affiliates
shall not have received the benefit, directly or indirectly (except
proportionately, solely in such Interested Shareholder's or
Affiliate's capacity as a shareholder of the Corporation), of any
loans, advances, guarantees, pledges or other financial assistance
or any tax credits or other tax advantages provided by the
Corporation, whether in anticipation of or in connection with such
Business Combination or otherwise.
(vi) A proxy or information statement describing the proposed
Business Combination and complying with the requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and the rules and regulations thereunder (or any subsequent
provisions replacing such Act, rules or regulations) shall be mailed
to all shareholders of the Corporation at least 30 days prior to the
consummation of such Business Combination (whether or not such proxy
or information statement is required to be mailed pursuant to such
Act or subsequent provisions).
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(vii) Such Interested Shareholder shall have supplied the
Corporation with such information as shall have been requested
pursuant to Section E of this Article EIGHTH within the time period
set forth therein.
C. For the purposes of this Article EIGHTH:
(1) A "person" means any individual, limited partnership, general
partnership, corporation or other firm or entity.
(2) "Interested Shareholder" means any person (other than Morton
International, Inc., an Indiana corporation, the Corporation or any
Subsidiary) who or which:
(i) is the beneficial owner (as hereinafter defined),
directly or indirectly, of 10 percent or more fo the voting power
of the outstanding Voting Stock; or
(ii) is an Affiliate or an Associate of the Corporation and
at any time within the two-year period immediately prior to the
date in question was the beneficial owner, directly or indirectly,
of ten percent or more of the voting power of the then
outstanding Voting Stock; or
(iii) is an assignee of or has otherwise succeeded to any
shares of Voting Stock which were at any time within the two-year
period immediately prior to the date in question beneficially owned
by any Interested Shareholder, if such assignment or succession
shall have occurred in the course of a transaction or series of
transactions not involving a public offering within the meaning of
the Securities Act of 1933, as amended.
(3) A person shall be a "beneficial owner" of, or shall
"Beneficially Own", any Voting Stock:
(i) which such person or any of its Affiliates or Associates
(as hereinafter defined) beneficially owns, directly or indirectly
within the meaning of Rule 13d-3 under the Exchange Act, as in
effect on March 1, 1997; or
(ii) which such person or any of its Affiliates or Associates
has (a) the right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant to any
agreement, arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants or options, or
otherwise, or (b) the right to vote pursuant to any agreement,
arrangement or understanding (but neither such person nor any such
Affiliate or Associate shall be deemed to be the beneficial owner
of any shares of Voting Stock solely by reason of a revocable proxy
granted for a particular meeting of shareholders, pursuant to a
public solicitation of proxies for such meeting, and with respect
to which shares neither such person nor any such Affiliate or
Associate is otherwise deemed the beneficial owner); or
(iii) which are beneficially owned, directly or
indirectly, within the meaning of Rule 13d-3 under the Exchange
Act, as in effect on March 1, 1997, by
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any other person with which such person or any of its Affiliates or
Associates has any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting (other than solely by reason
of a revocable proxy as described in subparagraph (ii) of this
paragraph (3)) or disposing of any shares of Voting Stock;
PROVIDED, HOWEVER, that in the case of any employee stock ownership
or similar plan of the Corporation or of any Subsidiary in which
the beneficiaries thereof possess the right to vote any shares of
Voting Stock held by such plan, no such plan nor any trustee with
respect thereto (nor any Affiliate of such trustee), solely by
reason of such capacity of such trustee, shall be deemed, for any
purposes hereof, to beneficially own any shares of Voting Stock
held under any such plan.
(4) For the purposes of determining whether a person is an
Interested Shareholder pursuant to paragraph (2) of this Section C, the
number of shares of Voting Stock deemed to be outstanding shall include shares
deemed owned through application of paragraph (3) of this Section C but shall
not include any other unissued shares of Voting Stock which may be issuable
pursuant to any agreement, arrangement or understanding, or upon exercise of
conversion rights, warrants or options, or otherwise.
(5) "Affiliate" or "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 under the Exchange Act, as in effect on
March 1, 1997.
(6) "Subsidiary" means any corporation of which a majority of any
class of equity security is owned, directly or indirectly, by the Corporation;
PROVIDED, HOWEVER, that for the purposes of the definition of Interested
Shareholder set forth in paragraph (2) of this Section C, the term "Subsidiary"
shall mean only a corporation of which a majority of each class of equity
security is owned, directly or indirectly, by the Corporation.
(7) "Continuing Director" means any member of the Board of
Directors of the Corporation who is unaffiliated with the Interested
Shareholder and was a member of the Board prior to the time that the
Interested Shareholder became an Interested Shareholder, and any director who
is thereafter chosen to fill any vacancy on the Board of Directors or who is
elected and who, in either event, is unaffiliated with the Interested
Shareholder and in connection with his or her initial assumption of office is
recommended for appointment or election by a majority of Continuing Directors
then on the Board.
(8) "Fair Market Value" means: (i) in the case of stock, the
highest closing sale price during the 30-day period immediately preceding the
date in question of a share of such stock on the Composite Tape for New York
Stock Exchange-Listed Stocks, or, if such stock is not quoted on the
Composite Tape, on the New York Stock Exchange, or, if such stock is not
listed on such Exchange, on the principal United States securities exchange
registered under the Securities Exchange Act of 1934 on which such stock is
listed, or, if such stock is not listed on any such exchange, the highest
closing bid quotation with respect to a share of such stock during the 30-day
period preceding the date in question on the National Association of
Securities Dealers, Inc. Automated Quotations System or any system then in
use, or if no such quotations are available, the fair market value on the
date in question of a
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share of such stock as determined by the Board in accordance with Section D
of this Article EIGHTH; and (ii) in the case of property other than cash or
stock, the fair market value of such property on the date in question as
determined by the Board in accordance with Section D of this Article EIGHTH.
(9) In the event of any Business Combination in which the
Corporation survives, the phrase "consideration other than cash to be
received" as used in paragraphs (2)(ii) and (2)(iii) of Section B of this
Article EIGHTH shall include the shares of Common Stock and/or the shares of
any other class (or series) of outstanding capital stock retained by the
holders of such shares.
(10) "Whole Board" means the total number of directors which this
Corporation would have if there were no vacancies.
(11) "Excluded Preferred Stock" means any series of Preferred
Stock with respect to which the Preferred Stock Designation creating such
series expressly provides that the provisions of this Article EIGHTH shall
not apply.
D. A majority of the Whole Board, but only if a majority of the
Whole Board shall then consist of Continuing Directors or, if a majority of
the Whole Board shall not then consist of Continuing Directors, a majority of
the then Continuing Directors, shall have the power and duty to determine, on
the basis of information known to them after reasonable inquiry, all facts
necessary to determine compliance with this Article EIGHTH, including,
without limitation, (i) whether a person is an Interested Shareholder, (ii)
the number of shares of Voting Stock beneficially owned by any person, (iii)
whether a person is an Affiliate or Associate of another, (iv) whether the
applicable conditions set forth in paragraph (2) of Section B have been met
with respect to any Business Combination, (v) the Fair Market Value of stock
or other property in accordance with paragraph (8) of Section C of this
Article EIGHTH, and (vi) whether the assets which are the subject of any
Business Combination referred to in paragraph (1)(ii) of Section A have, or
the consideration to be received for the issuance or transfer of securities
by the Corporation or any Subsidiary in any Business Combination referred to
in paragraph (1)(iii) of Section A has, an aggregate Fair Market Value of $10
million or more.
E. A majority of the Whole Board shall have the right to demand,
but only if a majority of the Whole Board shall then consist of Continuing
Directors, or, if a majority of the Whole Board shall not then consist of
Continuing Directors, a majority of the then Continuing Directors shall have
the right to demand, that any person who it is reasonably believed is an
Interested Shareholder (or holds of record shares of Voting Stock
Beneficially Owned by any Interested Shareholder) supply the Corporation with
complete information as to (i) the record owner(s) of all shares Beneficially
Owned by such person who it is reasonably believed is an Interested
Shareholder, (ii) the number of, and class or series of, shares Beneficially
Owned by such person who it is reasonably believed is an Interested
Shareholder and held of record by each such record owner and the number(s)
of the stock certificate(s) evidencing such shares, and (iii) any other
factual matter relating to the applicability or effect of this Article
EIGHTH, as may be reasonably requested of such person, and such person shall
furnish such information within 10 days after receipt of such demand.
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F. Nothing contained in this Article EIGHTH shall be construed to
relieve any Interested Shareholder from any fiduciary obligation imposed by
law.
G. Notwithstanding any other provisions of these Articles of
Incorporation or any provision of law which might otherwise permit a lesser
vote or no vote, but in addition to any affirmative vote of the holders of
any particular class or series of the Voting Stock required by law, these
Articles of Incorporation or any Preferred Stock Designation, the affirmative
vote of the holders of at least 80 percent of the voting power of all of the
then-outstanding shares of the Voting Stock, voting together as a single
class, shall be required to alter, amend or repeal this Article EIGHTH.
NINTH: A. The following provisions apply with respect to
liability on the part of a director, a member of any committee of the Board
of Directors, officer, employee or agent of the Corporation (collectively,
"Corporate Persons," and individually, a "Corporate Person") for any loss or
damage suffered on account of any action taken or omitted to be taken by a
Corporate Person:
(1) No Corporate Person shall be liable for any loss or
damage if, in taking or omitting to take any action causing such
loss or damage, either (i) such Corporate Person acted (X) in good
faith, (Y) with the care an ordinarily prudent person in a like
position would have exercised under similar circumstances, and (Z)
in a manner such Corporate Person reasonably believed was in the
best interests of the Corporation, or (ii) such Corporate Person's
breach of or failure to act in accordance with the standards of
conduct set forth in clause (A)(1)(i) above (the "Standards of
Conduct") did not constitute willful misconduct or recklessness.
(2) Any Corporate Person shall be fully protected, and shall
be deemed to have complied with the Standards of Conduct, in
relying in good faith, with respect to any information contained
therein, upon (i) corporate records, or (ii) information, opinions,
reports or statements (including financial statements and other
financial data) prepared or presented by (W) one or more other
Corporate Persons whom such Corporate Person reasonably believes to
be competent in the matters presented, (X) legal counsel, public
accountants or other persons as to matters that such Corporate
Person reasonably believes are within such person's professional or
expert competence, (Y) a committee of the Board of Directors, of
which such Corporate Person is not a member, if such Corporate
Person reasonably believes such committee of the Board of Directors
merits confidence, or (Z) the Board of Directors, if such Corporate
Person is not a Director and reasonably believes that the Board of
Directors merits confidence.
B. The following provisions apply to the indemnification by the
Corporation of Corporate Persons and matters related thereto:
(1) The Corporation shall indemnify any person who was or is
a party to any threatened, pending or completed action, suit or
proceeding, whether civil or criminal, administrative or
investigative, formal or informal (an "Action"), by reason of the
fact that he is or was a Corporate Person of the Corporation or is
or was serving at the request of the Corporation as a Corporate
Person, partner, trustee or member in another authorized
capacity (collectively, an "Authorized Capacity") of or for
another corporation, unincorporated association, business trust,
estate, partnership,
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trust, joint venture, individual or other legal entity, whether or
not organized or formed for profit (collectively, "Another
Entity"), against expenses (including attorneys' fees) ("Expenses")
and judgments, penalties, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such
Action, if such person (i) acted in good faith, (ii) acted in a
manner he reasonably believed (X) with respect to actions as a
Corporate Person of the Corporation, to be in the best interests of
the Corporation, or (Y) with respect to actions in an Authorized
Capacity of or for Another Entity, was not opposed to the best
interests of the Corporation, and (iii) with respect to any
criminal Action, either (X) had reasonable cause to believe his
conduct was lawful, or (Y) had no reasonable cause to believe his
conduct was unlawful. The termination of any Action by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, be determinative that the
person did not meet the standards for indemnification set forth in
this subparagraph (B)(1) (the "Indemnification Standards").
(2) To the extent that a person who is or was a Corporate
Person of the Corporation, or is or was serving at the request of
the Corporation in an Authorized Capacity of or for Another Entity,
has been successful on the merits or otherwise in the defense of
any Action referred to in subparagraph (B)(1) of this ARTICLE
NINTH, or in the defense of any claim, issue or matter in any such
Action, the Corporation shall indemnify him against Expenses
actually and reasonably incurred by him in connection therewith.
(3) Unless ordered by a court, any indemnification of any
person under subparagraph (B)(1) of this Article NINTH shall be
made by the Corporation only as authorized in the specific case
upon a determination that indemnification of such person is proper
in the circumstances because he met the Indemnification Standards.
Such determination shall be made (i) by the Board of Directors, by
a majority vote of a quorum consisting of directors who are not at
the time parties to the Action involved ("Parties"); or (ii) if a
quorum cannot be obtained under the preceding clause (i), by a
majority vote of a committee duly designated by the Board of
Directors (in which designation directors who are Parties may
participate), consisting solely of two or more directors who are
not at the time Parties; or (iii) by written opinion of independent
legal counsel (X) selected by the Board of Directors or committee
in the manner prescribed in Subparagraphs (i) or (ii),
respectively, or (Y) if a quorum cannot be obtained and a committee
cannot be designated under the preceding clauses (i) and (ii),
respectively, selected by a majority of the full Board of
Directors, in which selection directors who are Parties may
participate; or (iv) by the shareholders who are not at the time
Parties, voting together as a single class.
(4) Expenses reasonably incurred in defending an Action by
any person who may be entitled to indemnification under
subparagraph (B)(1) of this ARTICLE NINTH may be paid by the
Corporation in advance of the final disposition of such Action if
(i) such person furnishes the Corporation with (X) a written
affirmation of his good faith belief that he has met, and (Y) a
written undertaking, executed personally or on his behalf, to repay
the advance (an "Undertaking") if it is ultimately determined that
he did not meet the Indemnification Standards; and (ii) a
determination is made, under the procedure set forth in
subparagraph (B)(3) of this ARTICLE NINTH, that the facts then
known to those making the determination would not preclude
indemnification under subparagraph (B)(1) of this ARTICLE NINTH
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above. An Undertaking must be an unlimited general obligation
of the person making it, but need not be secured and may be
accepted by the Corporation without reference to such person's
financial ability to make repayment.
(5) The indemnification provided in these Articles (i) shall
not be deemed exclusive of any other rights to which a person
seeking indemnification may be entitled under (V) any law, (W) the
By-Laws, (X) any resolution of the Board of Directors or of the
shareholders, (Y) any other authorization, whenever adopted, after
notice, by a majority vote of all Voting Stock, or (Z) the articles
of incorporation, code of by-laws or other governing documents, or
any resolution of or other authorization by the directors,
shareholders, partners, trustees, members, owners or governing
body, of Another Entity; (ii) shall inure to the benefit of the
heirs, executors and administrators of such person; and (iii) shall
continue as to any such person who has ceased to be a Corporate
Person of the Corporation or to be serving in an Authorized
Capacity for Another Entity.
(6) The Corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a Corporate Person
of the Corporation, or is or was serving at the request of the
Corporation in an Authorized Capacity of or for Another Entity,
against any liability asserted against and incurred by him in any
such capacity, or arising out of his status as such, whether or not
the Corporation would have the power to indemnify him against such
liability under the provisions of this paragraph (B).
(7) For the purposes of this paragraph (B), references to
"the Corporation" include any constituent corporation absorbed in a
consolidation or merger (a "Constituent") as well as the resulting
or surviving corporation (the "Survivor"), such that any person who
is or was a Corporate Person of such a Constituent, or is or was
serving at the request of such Constituent in an Authorized
Capacity of or for Another Entity, shall stand in the same position
under the provisions of this paragraph (B) with respect to the
Survivor as he would if he had served the Survivor, or at its
request, in the same capacity.
TENTH: In addition to any other considerations which the Board of
Directors may lawfully take into account, in determining whether to take or
to refrain from taking corporate action on any matter, including making or
declining to make any recommendation to the shareholders of the Corporation,
the Board of Directors may in its discretion consider the long-term as well
as short-term best interests of the Corporation (including the possibility
that these interests may be best served by the continued independence of the
Corporation), taking into account, and weighing as the directors deem
appropriate, the effects of such action on employees, suppliers and customers
of the Corporation and its subsidiaries and the effect upon communities in
which offices or other facilities of the Corporation are located, and any
other factors the directors consider pertinent.
ELEVENTH: In furtherance and not in limitation of the powers
conferred by law or in these Articles of Incorporation, the Board of
Directors (and any committee of the Board of Directors) is expressly
authorized, to the extent permitted by law, to take such action or actions as
the Board or such committee may determine to be reasonably necessary or
desirable to (A) encourage any person (as defined in Article EIGHTH of these
Articles of Incorporation) to enter into negotiations with the Board of
Directors and management of the
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Corporation with respect to any transaction which may result in a change in
control of the Corporation which is proposed or initiated by such person or
(B) contest or oppose any such transaction which the Board of Directors or
such committee determines to be unfair, abusive or otherwise undesirable with
respect to the Corporation and its business, assets or properties or the
shareholders of the Corporation, including, without limitation, the adoption
of such plans or the issuance of such rights, options, capital stock, notes,
debentures or other evidences of indebtedness or other securities of the
Corporation (which issuance may be with or without consideration, and may
(but need not) be issued pro rata), which rights, options, capital stock,
notes, evidences of indebtedness and other securities (i) may be exchangeable
for or convertible into cash or other securities on such terms and conditions
as may be determined by the Board or such committee and (ii) may provide for
the treatment of any holder or class of holders thereof designated by the
Board of Directors or any such committee in respect of the terms, conditions,
provisions and rights of such securities which is different from, and unequal
to, the terms, conditions, provisions and rights applicable to all other
holders thereof.
TWELFTH: The Corporation reserves the right to amend, alter,
change or repeal any provision contained in these Articles of Incorporation,
and any other provisions authorized by the laws of the State of Indiana at
the time in force may be added or inserted, in the manner now or hereafter
provided herein or by statute, and all rights, preferences and privileges of
whatsoever nature conferred upon shareholders, directors or any other persons
whomsoever by and pursuant to these Articles of Incorporation in its present
form or as amended are granted subject to the rights reserved in this Article.
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Exhibit (3)(b)
BY-LAWS
of
MORTON INTERNATIONAL, INC.
(formerly named New Morton International, Inc.)
Incorporated under the Laws of the State of Indiana
(The "Corporation")
ARTICLE I
Offices and Records
Section 1.1 INDIANA OFFICE. The principal office of the
Corporation in the State of Indiana shall be located in the City of
Indianapolis, County of Marion, and the name and address of its registered
agent is CT Corporation System, 1 North Capitol Avenue, Indianapolis, Indiana
46204.
Section 1.2 OTHER OFFICES. The Corporation may have such other
offices, either within or without the State of Indiana, as the Board of
Directors may designate or as the business of the Corporation may from time
to time require.
Section 1.3 BOOKS AND RECORDS. The books and records of the
Corporation may be kept outside the State of Indiana at the Corporation's
principal executive office in Chicago, Illinois or at such other place or
places as may from time to time be designated by the Board of Directors.
ARTICLE II
Shareholders
Section 2.1 ANNUAL MEETING. The annual meeting of the
shareholders of the Corporation shall be held on such date and at such place
and time as may be fixed by resolution of the Board of Directors, for the
purpose of electing directors and for the transaction of such other business
as may properly come before the meeting. Any previously scheduled annual
meeting of the shareholders may be postponed by resolution of the Board of
Directors upon public notice given prior to the date previously scheduled for
such annual meeting of shareholders. Subject to the rights of the holders of
any class or series of stock having a preference over the Common Stock of the
Corporation as to dividends or upon liquidation ("Preferred Stock"), any
action required or permitted to be taken by the shareholders of the
Corporation must be effected at an annual or special meeting of shareholders
of the Corporation or may be effected by a unanimous consent in writing by
such shareholders.
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Section 2.2 SPECIAL MEETING. Subject to the rights of the
holders of any class of Preferred Stock, special meetings of the shareholders
may be called only by the Chairman of the Board or by the Board of Directors
pursuant to a resolution adopted by a majority of the Whole Board (as such
term is defined in paragraph C(10) of Article EIGHTH of the Corporation's
Articles of Incorporation (the "Articles of Incorporation")). Any previously
scheduled special meeting of the shareholders may be postponed by resolution
of the Board of Directors upon public notice given prior to the date
previously scheduled for such special meeting of the shareholders.
Section 2.3 PLACE OF MEETING. The Board of Directors may
designate the place of meeting for any annual meeting or for any special
meeting of the shareholders called by the Board of Directors. If no
designation is made by the Board of Directors, or if a special meeting be
otherwise called, the place of meeting shall be the principal executive
office of the Corporation in Chicago, Illinois.
Section 2.4 NOTICE OF MEETING. Written or printed notice,
stating the place, day and hour of the meeting and the purpose or purposes
for which the meeting is called, shall be prepared and delivered by the
Corporation not less than ten (10) days nor more than sixty (60) days before
the date of the meeting, either personally or by mail, to each shareholder of
record entitled to vote at such meeting. If mailed, such notice shall be
deemed to be delivered when deposited in the United States mail with postage
thereon prepaid, addressed to the shareholder at his address as it appears on
the stock transfer books of the Corporation. Such further notice shall be
given as may be required by law. Business transacted at any special meeting
shall be confined to the purpose or purposes stated in the notice of such
special meeting. Meetings may be held without notice if all shareholders
entitled to vote are present, or if notice is waived by those not present.
Section 2.5 QUORUM. Except as otherwise provided by law or by
the Articles of Incorporation, a majority of the outstanding shares of the
Corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of shareholders, except that when specified
business is to be voted on by a class or series voting as a class, the
holders of a majority of the shares of such class or series shall constitute
a quorum of such class or series for the transaction of such business. The
chairman of the meeting or a majority of the shares so represented may
adjourn the meeting from time to time, whether or not there is such a quorum.
No notice of the time and place of adjourned meetings need be given except
as required by law. The shareholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the
withdrawal of enough shareholders to leave less than a quorum.
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Section 2.6 PROXIES. At all meetings of shareholders, a
shareholder may vote by proxy executed in writing by the shareholder, or by
his duly authorized attorney in fact. Such proxy must be filed with the
Secretary of the Corporation or his representative at or before the time of
the meeting. No proxy shall be valid after eleven (11) months from the date
of its execution, unless the proxy shall otherwise provide.
Section 2.7 JUDGES OF ELECTION. The Board of Directors shall,
in advance of each meeting of shareholders, elect three (3) judges of
election to serve with respect to such meeting of shareholders, and if any
judge so elected shall refuse to serve or shall not be present at such
shareholders' meeting, he shall be replaced by the Board of Directors in
advance of such meeting or by the Chairman of such meeting in advance of any
voting at such meeting. All voting at shareholders' meetings shall be
conducted solely under the direction of the judges, and the decision of a
majority of the judges as to the outcome of all voting at such meetings shall
be binding upon the Corporation and its shareholders in the absence of actual
fraud in the decision of a majority of the judges. Any competent person over
the age of twenty-one (21) may be appointed as a judge of election, other
than any director or candidate for the office of director.
Section 2.8 NOTICE OF SHAREHOLDER BUSINESS AND NOMINATIONS.
(a) ANNUAL MEETINGS OF SHAREHOLDERS. (1) Nominations of persons
for election to the Board of Directors of the Corporation and the proposal of
business to be considered by the shareholders may be made at an annual
meeting of shareholders (A) pursuant to the Corporation's notice of meeting,
(B) by or at the direction of the Board of Directors or (C) by any
shareholder of the Corporation who was a shareholder of record at the time of
giving of notice provided for in this By-Law, who is entitled to vote at the
meeting and who complied with the notice procedures set forth in this By-Law.
(2) For nominations or other business to be properly brought
before an annual meeting by a shareholder pursuant to clause (C) of paragraph
(a)(1) of this By-Law, the shareholder must have given timely notice thereof
in writing to the Secretary of the Corporation. To be timely, a
shareholder's notice shall be delivered to the Secretary at the principal
executive offices of the Corporation not less than 60 days nor more than 90
days prior to the first anniversary of the preceding year's annual meeting;
provided, however, that in the event that the date of the annual meeting is
advanced by more than 30 days or delayed by more than 60 days from such
anniversary date, notice by the shareholder to be timely must be so delivered
not earlier than the
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90th day prior to such annual meeting and not later than the close of
business on the later of the 60th day prior to such annual meeting or the
10th day following the day on which public announcement of the date of such
meeting is first made. Such shareholder's notice shall set forth (A) as to
each person whom the shareholder proposes to nominate for election or
reelection as a director, all information relating to such person that is
required to be disclosed in solicitations of proxies for election of
directors, or is otherwise required, in each case pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")
(including such person's written consent to being named in the proxy
statement as a nominee and to serving as a director if elected); (B) as to
any other business that the shareholder proposes to bring before the meeting,
a brief description of the business desired to be brought before the meeting,
the reasons for conducting such business at the meeting and any material
interest in such business of such shareholder and the beneficial owner, if
any, on whose behalf the proposal is made; and (C) as to the shareholder
giving the notice and the beneficial owner, if any, on whose behalf the
nomination or proposal is made (i) the name and address of such shareholder,
as they appear on the Corporation's books, and of such beneficial owner and
(ii) the class and number of shares of the Corporation which are owned
beneficially and of record by such shareholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of
paragraph (a)(2) of this By-Law to the contrary, in the event that the number
of directors to be elected by the shareholders to the Board of Directors of
the Corporation is increased and there is no public announcement naming all
of the nominees for director or specifying the size of the increased Board of
Directors made by the Corporation at least 70 days prior to the first
anniversary of the preceding year's annual meeting, a shareholder's notice
required by this By-Law shall also be considered timely, but only with
respect to nominees for any new positions created by such increase, if it
shall be delivered to the Secretary at the principal executive offices of the
Corporation not later than the close of business on the 10th day following
the day on which such public announcement is first made by the Corporation.
(b) SPECIAL MEETINGS OF SHAREHOLDERS. Only such business shall be
conducted at a special meeting of shareholders as shall have been brought
before the meeting pursuant to the Corporation's notice of meeting.
Nominations of persons for election to the Board of Directors may be made at
a special meeting of shareholders at which directors are to be elected
pursuant to the Corporation's notice of meeting (1) by or at the direction of
the Board of Directors or (2) provided that the Board of Directors has
determined that directors are to be elected at such special meetings by any
shareholder of the Cor-poration who is a shareholder of record at the time of
giving of notice provided for in this By-Law, who shall be entitled to vote
at
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the meeting and who complies with the notice procedures set forth in this
By-Law. In the event the Board calls a special meeting of shareholders for
the purpose of electing one or more directors, any such shareholder may
nominate a person or persons (as the case may be) for election to such
position(s) as specified in the Corporation's notice of meeting, if the
shareholder's notice required by paragraph (a)(2) of this By-Law shall be
delivered to the Secretary at the principal executive offices of the
Corporation not earlier than the 90th day prior to such special meeting and
not later than the close of business on the later of the 60th day prior to
such special meeting or the 10th day following the day on which public
announcement is first made of the date of the special meeting and of the
nominees proposed by the Board of Directors to be elected at such meeting.
(c) GENERAL. (1) Only such persons who are nominated in
accordance with the procedures set forth in this By-Law shall be eligible to
serve as directors and only such business shall be conducted at a meeting of
shareholders as shall have been brought before the meeting in accordance with
the procedures set forth in this By-Law. The chairman of the meeting shall
have the power and duty to determine whether a nomination or any business
proposed to be brought before the meeting was made in accordance with the
procedures set forth in this By-Law and, if any proposed nomination or
business is not in compliance with this By-Law, to declare that such
defective proposal or nomination shall be disregarded.
(2) For purposes of this By-Law, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document
publicly filed by the Corporation with the Securities and Exchange Commission
pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this By-Law,
a shareholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this By-Law. Nothing in this By-Law shall be deemed to
affect any rights of shareholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act.
(4) Nothing in this Section 2.8 shall be deemed to diminish
or detract from the power of the Board of Directors to fix the number of
directors pursuant to Section 3.2 or to fill vacancies pursuant to Section
3.7 of these By-Laws.
(5) For purposes of this By-Law, for the first annual meeting
of shareholders, the first anniversay of the preceding year's annual meeting
of shareholders shall be deemed to be October 24 in the year that such first
annual meeting is held.
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Section 2.9 PROCEDURE FOR ELECTION OF DIRECTORS. Election of
directors at all meetings of the shareholders at which directors are to be
elected shall be by ballot, and, except as otherwise set forth in any
Preferred Stock Designation (as defined in Article FOURTH of the Articles of
Incorporation) with respect to the right of the holders of any class or
series of Preferred Stock to elect additional directors under specified
circumstances, a plurality of the votes cast thereat shall elect. Except as
otherwise provided by law, the Articles of Incorporation, any Preferred Stock
Designation, the By-Laws of the Corporation or resolution adopted by the
Whole Board, action on all matters other than the election of directors
submitted to the shareholders at any meeting shall be approved if the votes
cast favoring the action exceed the votes cast opposing the action.
ARTICLE III
Board of Directors
Section 3.1 GENERAL POWERS. The business and affairs of the
Corporation shall be managed by or under the direction of its Board of
Directors. In addition to the powers and authorities by these By-Laws
expressly conferred upon them, the Board of Directors may exercise all such
powers of the Corporation and do all such lawful acts and things as are not
by statute or by the Articles of Incorporation or by these By-Laws required
to be exercised or done by the shareholders.
Section 3.2 NUMBER, TENURE AND QUALIFICATIONS. Subject to the rights of
the holders of any class or series of Preferred Stock to elect directors
under specified circumstances, the number of directors shall be fixed from
time to time exclusively pursuant to a resolution adopted by a majority of
the Whole Board. The directors, other than those who may be elected by the
holders of any series of Preferred Stock under specified circumstances, shall
be divided, with respect to the time for which they severally hold office,
into three classes, with the term of office of the first class to expire at
the 1997 annual meeting of shareholders, the term of office of the second
class to expire at the 1998 annual meeting of shareholders and the term of
office of the third class to expire at the 1999 annual meeting of
shareholders, with each director to hold office until his or her successor
shall have been duly elected and qualified. At each annual meeting of
shareholders, commencing with the 1997 annual meeting, directors elected to
succeed those directors whose terms then expire shall be elected for a term
of office to expire at the third succeeding annual meeting of shareholders
after their election, with each director to hold office until his or her
successor shall have been duly elected and qualified, except that, if
authorized by a resolution of the Board of Directors, directors may be
elected to terms expiring prior to the third succeeding annual meeting of
shareholders in order to fill any vacancy, preserve or create
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equality as near as may be in the numbers of directors in each class, or in
anticipation of a director's ceasing to be qualified to serve as such. In
order to be qualified to serve as a director, a person must (a) not have
attained the age of seventy (70) years and (b) either (i) be an officer or
employee of the Corporation and not (A) have voluntarily resigned from the
position or office he held at the time of his election as a director, (B)
have retired or been retired pursuant to the requirements of a pension,
profit sharing, or similar plan or (C) have, at the time of his election as a
director, held a position or office in the Corporation which has been
changed, other than by an upward or expanded promotion or (ii) in the case of
any person who is not an officer or employee of the Corporation, not (A) have
retired from or severed his connection with the organization with which he
was affiliated at the time of his election as a director or (B) have held a
position or office with an organization with which he was affiliated at the
time of his election as a director which has been changed, other than by an
upward or expanded promotion. Whenever any director shall cease to be
qualified to serve as a director his term shall expire, but such director
shall continue to serve until his successor is elected and qualified;
provided, however, that no director's term shall so expire if the Board of
Directors shall have waived such qualification.
Section 3.3 REGULAR MEETINGS. A regular meeting of the Board of
Directors shall be held without other notice than this By-Law immediately
after, and at the same place as, the Annual Meeting of Shareholders. The
Board of Directors or any committee thereof may, by resolution, provide the
time and place for the holding of additional regular meetings without other
notice than such resolution.
Section 3.4 SPECIAL MEETINGS. Special meetings of the Board of
Directors shall be called at the request of the Chairman of the Board, the
President or a majority of the Board of Directors; the person or persons
authorized to call special meetings of the Board of Directors may fix the
place and time of the meetings. Special meetings of any committee of the
Board of Directors shall be called at the request of the chairman of the
committee or the Secretary of the Corporation; the person authorized to call
special meetings of a committee of the Board of Directors may fix the place
and time of the meetings.
Section 3.5 NOTICE. Notice of any special meeting of the Board
of Directors or any committee thereof shall be given to each member director
at the appropriate business or residence address in writing or by telegram,
by facsimile transmission or by telephone communication. If mailed, such
notice shall be deemed adequately delivered when deposited in the United
States mails so addressed, with postage thereon prepaid, at least five (5)
days before such meeting. If by telegram, such notice shall be deemed
adequately delivered when the telegram is
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delivered to the telegraph company at least twenty-four (24) hours before
such meeting. If by facsimile transmission, such notice shall be deemed
adequately delivered when the notice is transmitted at least twenty-four (24)
hours before such meeting. If by telephone, the notice shall be given at
least twelve (12) hours prior to the time set for the meeting. Neither the
business to be transacted at, nor the purpose of, any regular or special
meeting of the Board of Directors or committee thereof need be specified in
the notice of such meeting, except for amendments to these By-Laws, as
provided under Article VII, Section 7.1. A meeting may be held at any time
without notice if all the directors or committee members are present or if
those not present waive notice of the meeting in writing, either before or
after such meeting.
Section 3.6 MEETINGS BY CONFERENCE TELEPHONE. Members of the
Board of Directors or any committee thereof may participate in a meeting of
the Board of Directors or such committee by telephonic means or similar
communications equipment whereby all persons participating in the meeting can
hear and be heard by each other. Participation in a meeting pursuant to this
Section 3.6 shall constitute presence at such meeting for determining quorum
and all other purposes under these By-Laws.
Section 3.7 QUORUM. A whole number of directors equal to at
least a majority of the Whole Board shall constitute a quorum for the
transaction of business, but if at any meeting of the Board of Directors
there shall be less than a quorum present, a majority of the directors
present may adjourn the meeting from time to time without further notice.
The act of the majority of the directors present at a meeting at which a
quorum is present shall be the act of the Board of Directors. The directors
present at a duly organized meeting may continue to transact business until
adjournment, notwithstanding the withdrawal of enough directors to leave less
than a quorum.
Section 3.8 QUORUM REQUIRED FOR COMMITTEES OF THE BOARD OF
DIRECTORS. A whole number of directors on a committee of the Board of
Directors equal to at least 50% of the number of members of such committee
shall constitute a quorum for the transaction of business by such committee.
The act of a majority of the members present at a meeting of a committee at
which a quorum is present shall be the act of such committee.
Section 3.9 NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Subject
to the rights of the holders of any class or series of Preferred Stock, and
unless the Board of Directors otherwise determines, newly created
directorships resulting from any increase in the authorized number of
directors or vacancies resulting from death, resignation, retirement,
disqualification, removal from office or other cause may be filled only by
the affirmative vote of a majority of the remaining directors, though less
than a quorum of the Board of Directors, and directors so chosen
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shall hold office for a term expiring at the annual meeting of shareholders
at which the term of office of the class to which they have been elected
expires and until such director's successor shall have been duly elected and
qualified. No decrease in the number of authorized directors constituting
the Whole Board shall shorten the term of any incumbent director.
Section 3.10 EXECUTIVE COMMITTEE. The Board of Directors,
immediately following each annual meeting of shareholders or a special
meeting of the same held for the election of a majority of directors, shall
immediately meet and shall appoint from its number by a majority vote of the
Whole Board an Executive Committee of such number of members as from time to
time may be selected by the Board, to serve until the next annual or special
meeting at which a majority of directors is elected or until the respective
successor of each is duly appointed. The Executive Committee shall possess
and may exercise all the powers and authority of the Board of Directors in
the management and direction of the business and affairs of the Corporation,
except as limited by law and except for the power to change the membership or
to fill vacancies in the Board or said Committee. The Board shall have the
power at any time to change the membership of said Committee, to fill
vacancies in it, to make rules for the conduct of its business, or to
dissolve it.
Section 3.11 REMOVAL. Subject to the rights of the holders of
any class or series of Preferred Stock, any director, or the entire Board of
Directors, may be removed from office at any time, but only for cause and
only by the affirmative vote of the holders of at least 80 percent of the
voting power of all of the then-outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors (the
"Voting Stock"), voting together as a single class.
ARTICLE IV
Officers
Section 4.1 ELECTED OFFICERS. The elected officers of the
Corporation shall be a Chairman of the Board of Directors, a Secretary, a
Treasurer, and such other officers (including, without limitation, a
President) as the Board of Directors from time to time may deem proper. The
Chairman of the Board of Directors shall be chosen from the directors. All
officers chosen by the Board of Directors shall each have such powers and
duties as generally pertain to their respective offices, subject to the
specific provisions of this ARTICLE IV. Such officers shall also have such
powers and duties as from time to time may be properly assigned by the Board
of Directors or by any Committee thereof.
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Section 4.2 ELECTION AND TERM OF OFFICE. The elected officers of the
Corporation shall be elected annually by the Board of Directors at the
regular meeting of the Board of Directors held after each annual meeting of
the shareholders. If the election of officers shall not be held at such
meeting, such election shall be held as soon thereafter as convenient. Each
elected officer shall hold office until his successor shall have been duly
elected and shall have qualified or until his death or until he shall resign,
but any such officer may be removed from office at any time by the
affirmative vote of a majority of the members of the Whole Board.
Section 4.3 CHAIRMAN OF THE BOARD. The Chairman of the Board
shall preside at all meetings of the shareholders and of the Board of
Directors and shall have general management of the affairs of the
Corporation. Except where by law the signature of the President (if any) is
required, the Chairman of the Board shall possess the same power as the
President to sign all certificates, contracts, and other instruments of the
Corporation which may be authorized by the Board of Directors.
Section 4.4 PRESIDENT. The President (if one shall have been
chosen by the Board of Directors) shall act in a general executive capacity
and shall assist the Chairman of the Board in the administration and
operation of the Corporation's business and general supervision of its
policies and affairs. The President shall, in the absence of or because of
the inability to act of the Chairman of the Board, perform all duties of the
Chairman of the Board and preside at all meetings of shareholders and of the
Board of Directors. The President may sign certificates, contracts, and
other instruments of the Corporation as authorized by the Board of Directors.
Section 4.5 TREASURER. The Treasurer shall exercise general
supervision over the receipt, custody and disbursement of corporate funds.
The Treasurer shall cause the funds of the Corporation to be deposited in
such banks as may be designated as depositaries in the manner provided by
resolution of the Board of Directors. The Treasurer shall have such further
powers and duties and shall be subject to such directions as may be granted
or imposed from time to time by the Board of Directors, the Chairman of the
Board or the President.
Section 4.6 SECRETARY. The Secretary shall keep or cause to be
kept in one or more books provided for that purpose, the minutes of all
meetings of the Board, the committees of the Board and the stockholders;
shall see that all notices are duly given in accordance with the provisions
of these By-Laws and as required by law; shall be custodian of the records
and the seal of the Corporation and affix and attest the seal to all stock
certificates of the Corporation (unless the seal of the Corporation on such
certificates shall be a facsimile, as hereinafter provided) and affix and
attest the seal to all other documents to be executed on behalf of the
Corporation under its seal; shall see that the books, reports, statements,
certificates and other
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documents and records required by law to be kept and filed are properly kept
and filed; and in general shall perform all the duties incident to the office
of Secretary and such other duties as from time to time may be assigned by
the Board of Directors, the Chairman of the Board or the President.
Section 4.7 REMOVAL. Any officer elected by the Board of
Directors may be removed by a majority of the members of the Whole Board
whenever, in their judgment, the best interests of the Corporation would be
served thereby. No elected officer shall have any contractual rights against
the Corporation for compensation by virtue of such action subsequent to the
effective date thereof, except as otherwise provided in an employment
contract or under an employee deferred compensation plan.
Section 4.8 VACANCIES. A newly created office and a vacancy in
any office because of death, resignation, or removal may be filled by the
Board of Directors for the unexpired portion of any term.
ARTICLE V
Stock Transfers
Section 5.1 STOCK TRANSFERS. The interest of each shareholder
of the Corporation shall be evidenced by stock certificates or by
registration in book-entry accounts without certificates for shares of stock
in such form as the appropriate officers of the Corporation may from time to
time prescribe. The shares of the stock of the Corporation shall be
transferred on the books of the Corporation by the holder thereof in person
or by his attorney, upon cancellation of certificates or debits to book-entry
accounts, as the case may be, for the same number of shares, with such proof
of the authenticity of the transfer as the Corporation or its agents may
reasonably require.
Stock certificates shall be signed, countersigned and registered in
such manner as the Board of Directors may by resolution prescribe, which
resolution may permit all or any of the signatures on such certificates to be
in facsimile. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate has
ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same
effect as if he were such officer, transfer agent or registrar at the date of
issue.
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ARTICLE VI
Miscellaneous Provisions
Section 6.1 FISCAL YEAR. The fiscal year of the Corporation
shall begin on the first day of July and end on the thirtieth day of June of
each year.
Section 6.2 DIVIDENDS. The Board of Directors may from time to
time declare, and the Corporation may pay dividends on its outstanding shares
in the manner and upon the terms and conditions provided by law and the
Articles of Incorporation.
Section 6.3 SEAL. The corporate seal may bear in the center the
emblem of some object, and shall have inscribed thereunder the words
"Corporate Seal" and around the margin thereof the words "New Morton
International, Inc. -- Indiana 1997."
Section 6.4 WAIVER OF NOTICE. Whenever any notice is required
to be given to any shareholder or director of the Corporation under the
provisions of the Indiana Business Corporation Law, a waiver thereof in
writing, signed by the person or persons entitled to such notice, whether
before or after the time stated therein, shall be deemed equivalent to the
giving of such notice. Neither the business to be transacted at, nor the
purpose of, any annual or special meeting of the shareholders or the Board of
Directors need be specified in any waiver of notice of such meeting.
Section 6.5 AUDITS. The accounts, books and records of the
Corporation shall be audited upon the conclusion of each fiscal
year by an independent certified public accountant selected by
the Board of Directors, and it shall be the duty of the Board of
Directors to cause such audit to be made annually.
Section 6.6 RESIGNATIONS. Any director or any officer, whether
elected or appointed, may resign at any time by serving written notice of
such resignation on the Chairman of the Board, the President, or the
Secretary, and such resignation shall be deemed to be effective as of the
close of business on the date said notice is received by the Chairman of the
Board, the President, or the Secretary. No formal action shall be required
of the Board of Directors or the shareholders to make any such resignation
effective.
Section 6.7 INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES
AND AGENTS. The Corporation shall provide indemnification as set
forth in Article NINTH of the Articles of Incorporation.
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ARTICLE VII
Amendments
Section 7.1 AMENDMENTS. These By-Laws may be amended, added to,
rescinded or repealed at any meeting of the Board of Directors, provided
notice of the proposed change was given in the notice of the meeting, given
not less than two days prior to the meeting.
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EXHIBIT (10)(a)
July 1, 1997
MORTON INTERNATIONAL, INC.
FISCAL 1998-00
KEY EXECUTIVE LONG-TERM INCENTIVE PROGRAM
This Program, which has been adopted pursuant to paragraph 4(d)(i)
of the Company's 1997 Incentive 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 1998, 1999 and 2000.
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 1998-00
Key Executive Long-Term Incentive Program
Page 2
E. PERFORMANCE CRITERIA
Criteria used to measure performance for the performance period are:
PARTICIPANT GROUP APPLICABLE PERFORMANCE CRITERIA
----------------- -------------------------------
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
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:
EPS or Pre Tax Profit Growth Average RONA
---------------------------- ------------
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)
G. ADJUSTMENTS TO PERFORMANCE OBJECTIVES/ACTUAL RESULTS
To the extent any of the following occur after performance objectives are
initially established, the actual results will be adjusted by action of the
Compensation Committee by the same dollar effect any such occurrence has
had on actual results so that the degree to which objectives are achieved
will not be affected by any of the following: changes in (or in the
application of) accounting principles; changes in tax laws; extraordinary
items as defined under generally accepted accounting principles; and any
other significant 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 Group or Business Unit's financial results would have been on a
comparable basis from period to period.
In addition, with respect to acquisitions and divestitures the following
adjustments will apply:
ACQUISITIONS
1. Group and Business Unit PTI. Results will be adjusted by subtracting
from actual Group and Business Unit PTI the "cost of funds" of such
acquisition for the same period that pre-tax income or
<PAGE>
Fiscal 1998-00
Key Executive Long-Term Incentive Program
Page 3
loss from the acquisition are included in such measure. ("Cost of
funds" means the inputed interest for the net acquisition cost
calculated by using the Company s current borrowing rate under its
credit lines during the period or, if there is no borrowing, the rate
the Company is receiving on invested cash during the period.)
2. Return on Net Assets. RONA objectives will be adjusted for
acquisitions that occur during the performance period to the extent
the financial standards used in justifying the acquisition for
authorization impacts the RONA objectives.
DIVESTITURES
1. EPS and Group and Business Unit PTI. EPS and Group and Business Unit
performance objectives will be adjusted to remove the effect of the
profit or loss attributable to the divested business for the time
period post-divestment.
2. Return on Net Assets. RONA objectives will be adjusted to remove the
effect a divested business had on RONA for the time period
post-divestment, provided such RONA effect is greater than 0.5%.
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:
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
<PAGE>
Fiscal 1998-00
Key Executive Long-Term Incentive Program
Page 4
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.
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:
<PAGE>
Fiscal 1998-00
Key Executive Long-Term Incentive Program
Page 5
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 in Section 5(c)
of the 1989 Incentive Plan, as amended effective June 23, 1994 of the
Indiana corporation previously known as Morton International, Inc.), 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 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>
EXHIBIT (10)(b)
July 1, 1997 PROGRAM ONE
MORTON INTERNATIONAL, INC.
FISCAL 1998
KEY EXECUTIVE ANNUAL BONUS PROGRAM
This Program, which has been adopted pursuant to paragraph 4(d) (i) of the
Company's 1997 Incentive 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 1998 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, 1997 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 1998
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/ACTUAL RESULTS
To the extent any of the following occur after profit objectives are
initially established, the actual results will be adjusted by action of
the Compensation Committee by the same dollar effect any such occurrence
has had on actual profit results so that the degree to which objectives
are achieved will not be affected by any of the following: changes in (or
in the application of) accounting principles; changes in tax laws;
extraordinary items as defined under generally accepted accounting
principles; and any other significant 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 Group or Business Unit's financial
results would have been on a comparable basis from period to period.
<PAGE>
Fiscal 1998
Key Executive Annual Bonus Program
Page 3
In addition, with respect to acquisitions and divestitures the following
adjustments will apply:
ACQUISITIONS
1. Corporate EPS. The Company's overall EPS results will be adjusted to
eliminate the earnings or loss from "material" acquisitions
("material" means that an acquisition increases or decreases actual EPS
results by 5.0% or more).
2. Group and Business Unit PTI. If the acquisition income or loss is
material from an EPS standpoint as defined under 1. above, the
acquisition income or loss will be eliminated from the actual results.
Otherwise, Group and Business Unit results will be adjusted by
subtracting from actual PTI the "cost of funds" of the acquisition for
the same period that pre-tax income or loss from the acquisition are
included in such measure. ("Cost of funds" means the inputed interest
for the net acquisition cost calculated by using the Company's current
borrowing rate under its credit lines during the period or, if there is
no borrowing, the rate the Company is receiving on invested cash during
the period.)
DIVESTITURES
EPS and Group and Business Unit profit objectives will be adjusted to remove
the budgeted profit or loss associated with the divested business for the
same period that actual profit or loss are no longer recognized for that
business.
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 30, 1997. The percentage to be applied will vary depending
on the participant's assigned salary grade as follows:
---------------------------------------------------------------------
---------------------------------------------------------------------
Assigned Percentage Applied To Salary
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%
---------------------------------------------------------------------
---------------------------------------------------------------------
<PAGE>
Fiscal 1998
Key Executive Annual Bonus Program
Page 4
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%.
-----------------------------------------------------------------
-----------------------------------------------------------------
EPS Percent Of Target Bonus
Attainment 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.
<PAGE>
Fiscal 1998
Key Executive Annual Bonus Program
Page 5
The specific payout schedule based on EPS and the applicable Group
Profit is as follows:
------------------------------- -------------------------------------
------------------------------- -------------------------------------
EPS GROUP PROFIT
------------------------------- -------------------------------------
------------------------------- -------------------------------------
EPS Percent of Actual Profit Percent Of Target
Attainment Target As Percent Bonus Which
Bonus Which Of Budget May Be Earned
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.
The bonus award schedule based on the applicable Group Profit and the
applicable Business Unit Profit is as follows:
<PAGE>
Fiscal 1998
Key Executive Annual Bonus Program
Page 6
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Percent Of Target Which May Be Earned
Based On Unit Measurement:
Actual Profit ---------------------------------------------------------
As Percent Group Business
Of Budget Profit OR Group AND Unit
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 eligible plan participants. Such
awards must be recommended by the Chief Executive Officer and approved by
the Compensation Committee of the Board. The Chief Executive Officer and
any other participating executive who the Committee determines may
reasonably be expected to be one of the four most highly compensated
executive officers (as defined under Section 162(m) of the Internal Revenue
Code) 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 1998
Key Executive Annual Bonus Program
Page 7
If the Company reasonably anticipates that all or any portion of a bonus
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 a bonus
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.
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.
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>
EXHIBIT (10)(c)
July 1, 1997 PROGRAM TWO
MORTON INTERNATIONAL, INC.
FISCAL 1998
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 1998 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, 1998
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 1998
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/ACTUAL RESULTS
To the extent any of the following occur after profit objectives are
initially established, the actual results will be adjusted by the same
dollar effect any such occurrence has had on actual profit results so that
the degree to which objectives are achieved will not be affected by any of
the following: changes in (or in the application of) accounting
principles; changes in tax laws; extraordinary items as defined under
generally accepted accounting principles; and any other
<PAGE>
Fiscal 1998
Corporate Staff Executive Annual Bonus Program
Page 3
significant non-recurring items which the Company's press releases or SEC
filings note and take into account in explaining what the Company's
financial results would have been on a comparable basis from period to
period.
In addition, with respect to acquisitions and divestitures the following
adjustments will apply:
ACQUISITIONS
The Company's overall EPS results will be adjusted to eliminate the
earnings or loss from "material" acquisitions ("material" means that an
acquisition increases or decreases actual EPS results by 5.0% or more).
DIVESTITURES
EPS objectives will be adjusted to remove the budgeted profit or loss
associated with the divested business for the same period that actual
profit or loss are no longer recognized for that business.
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 1, 1998. The
percentage to be applied will vary depending on the participant's assigned
salary grade as follows:
------------------------------------------------------------------
------------------------------------------------------------------
Assigned Salary Grade Percentage Applied To Salary
Earnings To Determine 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.
<PAGE>
Fiscal 1998
Corporate Staff Executive Annual Bonus Program
Page 4
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 Attainment Percent Of Target 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.
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:
----------------------------------------------------------
----------------------------------------------------------
Achievement Percent Of Target Bonus
Which May Be Earned
----------------------------------------------------------
----------------------------------------------------------
Not Met 0%
----------------------------------------------------------
Minimum Achievement 1% - 14%
----------------------------------------------------------
Substantially Met 15%
----------------------------------------------------------
All Met 25%
----------------------------------------------------------
----------------------------------------------------------
<PAGE>
Fiscal 1998
Corporate Staff Executive Annual Bonus Program
Page 5
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
Rating Percentages To Be
Applied To 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.
L. 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
has reviewed the CEO's approval of such payment.
<PAGE>
Fiscal 1998
Corporate Staff Executive Annual Bonus Program
Page 6
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
Involuntary Termination occurs 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 00000
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
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. This 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 this option.
b. No part of this 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 this option will be exercisable in full, provided
that your employment shall not have terminated prior to the Date of
Exercisability.
c. This 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 granted to you in the amount specified
in the Notice ("Option Shares") at any time during the term of this option
from and after the Date of Exercisability 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 this 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"):
This 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, as amended effective June 23, 1994 (the "Plan"), you
have the right, whether or not this 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 this 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 this 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
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, this 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. This option and LSAR shall be
exercisable after the Expiration Date only if you should die less than three
months prior to the Expiration Date, in which case they will remain
exercisable for a period of three months after the date of your death.
-2-
<PAGE>
b. If your employment with the Company is terminated for cause, this 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) this LSAR will expire and become nonexercisable on the
date your employment terminates, and (ii) if this 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:
This 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:
This option and LSAR are intended to conform in all respects with the Plan,
including any future amendments thereto. A copy of the Plan 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.
-3-
<PAGE>
EXHIBIT(11)(A)
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
MORTON INTERNATIONAL, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Income per common and common equivalent share:
Average number of shares of Common Stock
outstanding......................................... 141,406,296 146,943,682 147,917,384
Add:
Additional shares assuming exercise of dilutive
stock options--based on treasury stock method
using average market prices....................... 2,538,790 2,447,302 2,222,708
----------- ----------- -----------
Total shares...................................... 143,945,086 149,390,984 150,140,092
----------- ----------- -----------
----------- ----------- -----------
Income from continuing operations (000 omitted)....... $ 213,613 $ 178,626 $ 152,714
Income from discontinued operations, (000 omitted).... 129,356 155,562 141,344
----------- ----------- -----------
Net income (000 omitted).......................... $ 342,969 $ 334,188 $ 294,058
----------- ----------- -----------
----------- ----------- -----------
Per share:
Income from continuing operations................... $1.48 $1.20 $1.02
Income from discontinued operations................. .90 1.04 .94
----------- ----------- -----------
Net income........................................ $2.38 $2.24 $1.96
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
S-1
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
1997 1996
---------------------- ---------- ----------
dollars in millions, except per share data Amount Per share Amount Per share
- -------------------------------------------------------------------------------------------- ----------
<S> <C> <C> <C> <C>
Net sales $2,340.6 $2,215.0
Income from continuing operations $ 213.6 $ 1.48 $ 178.7 $ 1.20
Net income $ 343.0 $ 2.38 $ 334.2 $ 2.24
Book value at end of year $1,734.3 $12.65 $1,672.8 $11.75
Total debt to capitalization 12.6% 13.0%
- -------------------------------------------------------------------------------------------- ----------
</TABLE>
QUARTERLY FINANCIAL HIGHLIGHTS (UNAUDITED)
<TABLE>
<CAPTION>
Fiscal year 1997
-----------------------------------------------
Three months ended
-----------------------------------------------
in millions, except per share data June 30 March 31 Dec. 31 Sept. 30
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 614.9 $ 638.5 $ 564.2 $ 523.0
Gross profit 199.9 208.0 179.5 172.9
Income from continuing operations
before income taxes 83.4 100.6 79.2 70.6
Income from continuing operations $ 53.5 $ 64.4 $ 50.6 $ 45.1
Income from discontinued operations,
net of income taxes 13.4 44.9 37.5 33.6
------- -------- ------- --------
Net income $ 66.9 $ 109.3 $ 88.1 $ 78.7
------- -------- ------- --------
Per share(1):
Income from continuing operations $ .37 $ .45 $ .35 $ .31
Income from discontinued operations .10 .31 .26 .23
------- -------- ------- --------
Net income $ .47 $ .76 $ .61 $ .54
------- -------- ------- --------
Cash dividends per share(2) $ .12 $ .15 $ .15 $ .15
Market price of common stock(3)
High $42 7/8 $ 44 5/8 $ 43 $ 39 3/4
Low 29 7/8 40 38 1/8 33 1/4
<CAPTION>
Fiscal year 1996
---------------------------------------------
Three months ended
--------------------------------------------- -----------
June 30 (4) March 31 (5) Dec. 31 (6) Sept. 30
--------------------------------------------- -----------
<S> <C> <C> <C>
Net sales $ 519.1 $ 629.8 $ 559.5 $ 506.6
Gross profit 166.0 196.9 174.9 159.5
Income from continuing operations
before income taxes 37.4 102.9 88.2 56.8
Income from continuing operations $ 21.4 $ 65.2 $ 56.0 $ 36.1
Income from discontinued operations,
net of income taxes 38.3 42.5 43.5 31.2
-------- -------- -------- --------
Net income $ 59.7 $ 107.7 $ 99.5 $ 67.3
-------- -------- -------- --------
Per share(1):
Income from continuing operations $ .15 $ .44 $ .37 $ .24
Income from discontinued operations .26 .28 .29 .21
-------- -------- -------- --------
Net income $ .41 $ .72 $ .66 $ .45
-------- -------- -------- --------
Cash dividends per share(2) $ .13 $ .13 $ .13 $ .13
Market price of common stock(3)
High $ 39 3/4 $ 40 1/4 $ 36 1/8 $ 34
Low 34 3/8 34 29 5/8 28 1/8
</TABLE>
(1) Per share income has been calculated based on the average number of
common and common equivalent shares outstanding for the company and the
predecessor corporation (Old Morton).
(2) Cash dividends reflect total payments made by Old Morton through April
30, 1997, and by the company thereafter. Refer to Spinoff and Basis of
Presentation footnote.
(3) The principal market is the New York Stock Exchange and prices are based
on the Composite Tape (Ticker symbol MII). Stock prices after April 30,
1997 reflect the result of the Spinoff described in the Spinoff and
Basis of Presentation footnote.
(4) Includes special charges of $29.2 million pretax ($23.9 million after
tax or $.16 per share). Refer to Special Charges footnote.
(5) Includes $15.0 million proceeds ($9.4 million after tax or $.06 per
share) related to the formation of a joint venture.
(6) Includes $24.1 million pretax income ($15.1 million after tax or $.10
per share) related to the settlement of several environmental insurance
issues.
2
<PAGE>
SELECTED FINANCIAL DATA (1)
<TABLE>
<CAPTION>
dollars in millions, except per share data 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------
OPERATIONS
<S> <C> <C> <C> <C> <C>
Net sales $2,340.6 $2,215.0 $2,099.6 $1,911.1 $1,785.8
Cost of products sold 1,580.3 1,517.7 1,424.1 1,277.8 1,201.9
Selling, administrative and
general expense 378.5 361.1 361.4 373.0 356.2
Research and development expense 58.8 60.2 58.1 53.8 54.6
Interest expense 25.6 24.4 28.4 27.8 33.5
Amortization of goodwill 11.2 10.3 10.3 10.4 10.7
Special charges (income) -- 29.2 -- -- 30.0
Income from continuing operations before
other charges, net of income taxes(2) 213.6 178.7 152.7 123.3 77.2
Other charges to income(3) -- -- -- -- 90.7
Income (loss) from continuing operations 213.6 178.7 152.7 123.3 (13.5)
Income (loss) from discontinued operations 129.4 155.5 141.4 103.2 46.0
Net income 343.0 334.2 294.1 226.5 32.5
Provision for depreciation(4) 100.3 88.8 83.1 77.6 75.5
- ---------------------------------------------------------------------------------------------------
FINANCIAL
Total assets $2,804.9 $2,629.1 $2,652.0 $2,352.3 $2,154.5
Working capital 866.9 415.5 398.9 286.2 228.8
Current ratio 2.7 1.9 1.8 1.6 1.5
Long-term debt $ 224.1 $ 218.5 $ 218.5 $ 198.6 $ 217.8
Total debt to capitalization 12.6% 13.0% 13.3% 15.6% 20.7%
Shareholders' equity $1,734.3 $1,672.8 $1,663.5 $1,399.6 $1,200.2
Shareholders' equity per share $ 12.65 $ 11.75 $ 11.22 $ 9.48 $ 8.20
Return on shareholders' equity(5) 20.5% 20.1% 21.0% 18.9% 10.4%
Capital expenditures(4) $ 117.4 $ 124.4 $ 126.4 $ 125.0 $ 97.9
Cash dividends paid(6) 80.7 76.3 65.1 54.9 46.6
- ---------------------------------------------------------------------------------------------------
PER SHARE DATA(8)
Income from continuing operations before
other charges, net of income taxes(2) $ 1.48 $ 1.20 $ 1.02 $ .82 $ .52
Other charges to income(3) -- -- -- -- (.61)
-------- -------- -------- -------- --------
Income (loss) from continuing operations 1.48 1.20 1.02 .82 (.09)
Income (loss) from discontinued operations .90 1.04 .94 .69 .31
-------- -------- -------- -------- --------
Net income $ 2.38 $ 2.24 $ 1.96 $ 1.51 $ .22
-------- -------- -------- -------- --------
Cash dividends paid(6) $ .570 $ .520 $ .440 $ .373 $ .320
- ---------------------------------------------------------------------------------------------------
GENERAL
Average number of common shares
outstanding (in thousands)(8) 143,945 149,391 150,140 150,090 148,113
Approximate number of shareholders 10,500 10,625 9,900 8,860 9,370
Approximate number of employees(4) 10,500 8,700 8,800 8,800 8,700
- ---------------------------------------------------------------------------------------------------
<CAPTION>
1992 1991 1990 1989 (7) 1988 (7)
- ----------------------------------------------------------------------------------------------------
OPERATIONS
<S> <C> <C> <C> <C> <C>
Net sales $1,715.0 $1,680.7 $1,475.7 $1,356.3 $1,231.0
Cost of products sold 1,152.7 1,146.4 990.1 910.1 807.7
Selling, administrative and
general expense 317.3 273.7 249.8 216.5 211.7
Research and development expense 52.1 54.3 44.3 36.7 34.9
Interest expense 33.8 36.4 17.3 9.1 4.1
Amortization of goodwill 10.8 10.6 7.0 5.7 5.1
Special charges (income) -- -- (14.3 37.1 --
Income from continuing operations before
other charges, net of income taxes(2) 113.3 117.9 124.5 100.0 117.4
Other charges to income(3) -- -- -- -- 3.8
Income (loss) from continuing operations 113.3 117.9 124.5 100.0 113.6
Income (loss) from discontinued operations 31.2 20.4 10.3 (2.9) (1.0)
Net income 144.5 138.3 134.8 97.1 112.6
Provision for depreciation(4) 73.9 69.5 61.6 54.7 51.8
- ----------------------------------------------------------------------------------------------------
FINANCIAL
Total assets $2,056.7 $1,886.6 $1,781.7 $1,347.8 $1,173.3
Working capital 251.7 288.0 281.4 238.9 214.6
Current ratio 1.6 1.8 1.7 1.8 1.9
Long-term debt $ 222.6 $ 255.7 $ 261.4 $ 43.9 $ 45.6
Total debt to capitalization 20.3% 22.2% 24.1% 9.4% 8.4%
Shareholders' equity $1,222.9 $1,103.4 $1,008.1 $ 900.7 $ 790.1
Shareholders' equity per share $ 8.40 $ 7.61 $ 7.00 $ 6.27 $ 5.53
Return on shareholders' equity(5) 13.1% 13.7% 15.0% 12.3% 17.2%
Capital expenditures(4) $ 92.0 $ 98.0 $ 82.8 $ 92.0 $ 76.8
Cash dividends paid(6) 46.5 45.2 41.4 -- --
- ----------------------------------------------------------------------------------------------------
PER SHARE DATA(8)
Income from continuing operations before
other charges, net of income taxes(2) $ .77 $ .81 $ .86 $ .70 $ .81
Other charges to income(3) -- -- -- -- (.02)
-------- -------- -------- -------- --------
Income (loss) from continuing operations .77 .81 .86 .70 .79
Income (loss) from discontinued operations .21 .14 .07 (.02) --
-------- -------- -------- -------- --------
Net income $ .98 $ .95 $ .93 $ .68 $ .79
-------- -------- -------- -------- --------
Cash dividends paid(6) $ .320 $ .313 $ .287 -- --
- ----------------------------------------------------------------------------------------------------
GENERAL
Average number of common shares
outstanding (in thousands)(8) 147,140 145,583 144,458 143,678 143,558
Approximate number of shareholders 9,870 10,190 10,600 11,280 11,930
Approximate number of employees(4) 8,600 8,800 8,800 7,900 7,500
- ----------------------------------------------------------------------------------------------------
</TABLE>
(1) The Selected Financial Data primarily reflect the continuing operations
of the company's specialty chemicals, salt and corporate operations
which were spun-off to shareholders of Old Morton in a tax free
distribution in the U.S. effective April 30, 1997. The operations of
the Automotive Safety Products business have been accounted for as
discontinued operations in all periods prior to the Spinoff. Refer to
Spinoff and Basis of Presentation footnote.
(2) 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 $9.4 million or $.06 per share
related to proceeds received for the formation of a joint venture.
Fiscal 1993 included special accruals related to the restructuring 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 percent interest in a foreign
affiliate 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 Spinoff from
Thiokol Corporation. Fiscal 1989 included reorganization and other
unusual charges of $25.0 million or $.17 per share.
(3) 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.
(4) Continuing operations only.
(5) Based on net income before other charges including those related to
discontinued operations and calculated on beginning-of-year
shareholders' equity.
(6) Cash dividends reflect total payments made by Old Morton through April
30, 1997 and by the company thereafter. Refer to Spinoff and Basis of
Presentation footnote.
(7) Effective July 1, 1989, Morton Thiokol, Inc. (MTI) transferred its
commercial businesses and certain corporate assets and certain
liabilities to Old Morton. 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.
(8) For fiscal 1990 through 1997, per share amounts were calculated based on
the average number of common and common equivalent shares outstanding
for the company and Old Morton described in note (1) above. 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.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ON APRIL 30, 1997, MORTON INTERNATIONAL, INC. COMPLETED THE SPINOFF OF ITS
SPECIALTY CHEMICALS AND SALT BUSINESSES INTO A NEW COMPANY, REFERRED TO AS
"NEW" MORTON INTERNATIONAL, INC. SEE PAGE 20 OF THE NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS FOR A MORE DETAILED DESCRIPTION OF THE SPINOFF.
"NEW" MORTON INTERNATIONAL, INC. (THE COMPANY) MANUFACTURES AND MARKETS
QUALITY PRODUCTS TO MEET THE NEEDS OF ITS SALT AND SPECIALTY CHEMICALS
CUSTOMERS. FOR REPORTING PURPOSES, THE COMPANY SEPARATES REVENUES AND COSTS
INTO TWO BUSINESS SEGMENTS -- SPECIALTY CHEMICALS AND SALT.
THE FOLLOWING IS A DISCUSSION OF OPERATING RESULTS COMPARING FISCAL
YEARS 1997 TO 1996 AND 1996 TO 1995; LIQUIDITY AND CAPITAL RESOURCES; AND THE
IMPACT OF INFLATION AND ENVIRONMENTAL MATTERS.
COMPARISON: FISCAL 1997 TO FISCAL 1996
Boosted by strong fourth quarter volumes in chemicals and the recent
acquisitions of Salins du Midi and Pulverlac, the company generated sales of
$2.34 billion, an increase of 6 percent from fiscal 1996 sales of $2.22
billion. Income from continuing operations increased 20 percent to $213.6
million. Fiscal 1996 income from continuing operations included special
charges of $23.9 million ($29.2 million pretax), offset by $15.1 million
($24.1 million pretax) related to the settlement of several environmental
insurance issues and $9.4 million ($15.0 million pretax) related to proceeds
received for the formation of a joint venture. Income from discontinued
operations, net of applicable income taxes, was $129.4 million in fiscal 1997
versus $155.5 million in 1996. Fiscal 1997 discontinued operations included
10 months of Morton Automotive Safety Products results versus a full year in
1996. On an earnings per share basis, continuing operations increased from
$1.20 in fiscal 1996 to $1.48 in the current year. Total earnings per share
in fiscal 1997, including the results of Morton's Automotive Safety Products
business for 10 months, was $2.38 versus $2.24 in fiscal 1996, an increase of
6 percent.
SPECIALTY CHEMICALS
For the full year 1997, Morton's specialty chemicals sales were up 4 percent
to $1.68 billion from $1.61 billion in 1996. The increase in sales was
mainly attributed to higher volumes and the Pulverlac acquisition which
contributed $35.4 million to 1997 sales.
Those product lines contributing most to the increase were industrial
adhesives, thermoplastic polyurethanes, advanced materials, plastics
additives, industrial coatings and powder coatings. These product lines
contributed $588.7 million or 35 percent of specialty chemicals full year
sales. Year-over-year growth of the combined sales of these product lines
was 10 percent, contributing approximately 76 percent of the year-over- year
sales increase.
Operating earnings rose 21 percent to $268.6 million during the year or
8 percent excluding the prior year $27.1 million pretax special charge.
Strong profit contributors included packaging adhesives, advanced materials,
performance chemicals, plastics additives, industrial coatings and powder
coatings. Automotive coatings results, excluding the impact of the creation
of the joint venture in January 1996, were also up in fiscal 1997. Operating
earnings of these product lines contributed $188.4 million or 70 percent of
specialty chemicals earnings in fiscal 1997. Combined, these product lines
grew 20 percent from fiscal 1996 and contributed 51 percent to the
year-over-year increase. Packaging adhesives achieved its 10 percent
earnings growth despite a 4 percent decrease in sales from 1996. Improved
manufacturing processes, tight cost controls and lower raw material costs
were the main reasons for the year-to-year earnings increase.
The electronic materials, dyes and polymer systems product lines showed
unfavorable year-to-year comparisons for both sales and earnings. Sales
decreased 3 percent while earnings dropped 21 percent. All three of these
product lines have experienced strong competitive pricing pressures which
have led to decreased earnings. These product lines contributed 20 percent of
specialty chemicals sales and 19 percent of fiscal 1997 earnings.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Morton's specialty chemicals improved their return on net sales to 16
percent in fiscal 1997 from 15.5 percent in fiscal 1996, before special
charges. This improvement can be attributed to lower raw material costs as
well as tight cost controls and some benefit from the restructuring in fiscal
1996. The translation of foreign exchange negatively impacted sales by $29.4
million and pretax earnings by $3.6 million in fiscal 1997.
SALT
For the full year ended June 30, 1997, Morton's salt business had sales
of $659.7 million, a 9 percent increase, and operating earnings of $137.5
million, up 10 percent. Except for sales of ice control salt, all North
American salt product lines were up for the full year, and without the
benefit of Salins du Midi, salt sales would have increased by 1 percent.
Although Canadian ice control salt demand was high, salt sales for deicing in
the United States could not compare to the extraordinary winter of 1995-96.
Sales of non-ice control products in North America increased 4 percent
over fiscal 1996. The sales increase was primarily due to improved results
for water conditioning, evaporated and solar products. Evaporated products
increased $6.9 million or 7 percent to $103.0 million. Solar products
increased 6 percent in fiscal 1997 with sales of $52.1 million while water
conditioning products increased $3.2 million from sales of $124.2 million in
fiscal 1996.
Morton salt's business recorded sales of $156.4 million in the fourth
quarter, up 54 percent over fourth quarter 1996; operating earnings increased
21 percent to $20.0 million in the same period. The fourth quarter increase
was primarily due to the addition of $48.1 million of sales and $3.8 million
of operating earnings from Salins du Midi, as this was the first quarter of
inclusion of its results.
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 was suspended at this mine with corresponding
increased production at the company's remaining ice control mines.
Operations at the mine resumed in August of fiscal 1998. Costs related to
the efforts to save the mine have been deferred. The company expects such
costs to be recovered from insurance proceeds.
CORPORATE
In the fourth quarter of fiscal 1997, Morton sold its former
headquarters building and recorded a pretax gain of $4.4 million. At the end
of April, the company received $750 million as part of its tax free Spinoff
from Automotive Safety Products. Some of this cash was used to pay down
short-term debt, mainly incurred with the acquisitions of Pulverlac and
Salins du Midi. Additionally, $99.9 million was used to purchase 3.2 million
shares of stock under the April 1997 board authorization of a 10 million
share buyback. At June 30, 1997, the company's cash and short-term
investments position was $430.3 million.
For the full fiscal year 1997, Morton acquired 6.5 million of its shares
outstanding for $234.9 million. Between July 1, 1996 and April 30, 1997, the
company bought 3.3 million shares at an average price of $41.24 completing an
earlier repurchase authorization before the April 30 spinoff. Average shares
outstanding for the fiscal year were 143.9 million versus 149.4 million in
fiscal 1996. Fewer shares outstanding and a lower tax rate added 8 cents to
earnings per share for the full year.
Total corporate expenses increased 18 percent in fiscal 1997. This
increase was due to the receipt of $24.1 million in the second quarter of
fiscal 1996 related to the settlement of several environmental insurance
issues. Excluding this income from fiscal 1996, corporate costs decreased 16
percent year-to-year. Tight control of administrative expenses, the gain on
the sale of the former headquarters site and lower net interest expense were
the main reasons for the decrease in fiscal 1997.
The company's effective tax rate decreased to 36.0 percent in fiscal
1997 from 37.4 percent in fiscal 1996. The main reason for the decrease in
the effective tax rate was the fact that fiscal 1996 included an impairment
loss on long-lived assets with no tax benefit.
- -------------------------------------------------------------------
COMPARISON: FISCAL 1996 TO FISCAL 1995
The company continued its trend of sales and earnings growth in fiscal 1996.
Sales grew 5 percent during fiscal 1996 to $2.22 billion from $2.10 billion
in fiscal 1995. Net income from continuing operations in fiscal 1996 of
$178.7 million, after special charges, was up 17 percent from fiscal 1995 net
income. Before the special charges, fiscal 1996 earnings from continuing
operations of $202.6 million were up 33 percent over fiscal 1995. Included in
fiscal 1996 earnings from continuing operations were $24.1 million pretax
income ($15.1 million after tax) related to the settlement of several
environmental insurance issues and $15.0 million pretax income ($9.4 million
after tax) related to proceeds received from the formation of a joint
venture. Income from discontinued operations, net of applicable income taxes,
of $155.5 million grew 10 percent from fiscal 1995. Total net income
increased 14 percent in fiscal 1996 to $334.2 million, after special charges.
Earnings per share from continuing operations of $1.20, after special
charges, were up 18 percent from fiscal 1995 earnings per share from
continuing operations of $1.02. Before special charges, earnings per share
from continuing operations were $1.36, up 33 percent over fiscal 1995.
Earnings per share from discontinued operations were $1.04 and $.94 in fiscal
1996 and 1995.
Fiscal 1996 included special charges of $29.2 million pretax ($23.9
million after tax) recorded in the fourth quarter. A portion of these charges
was for costs related to the closure of three chemical manufacturing
facilities -- an initial phase of a broader facility consolidation and
product line rationalization program, and certain organizational changes.
These actions, when completed,
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
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 chemicals 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 18 months, the
production at these facilities will be moved to other Morton locations,
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 chemicals 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 chemicals 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 that 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 chemicals 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
for fiscal 1996, operating profits for these businesses were 10 percent lower
than 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 1 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 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.
CORPORATE
In October 1995, the Board of Directors of "Old" 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 37 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 the 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 remained relatively flat between fiscal
1996 and 1995.
- -------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES
Cash provided by continuing operating activities was $291.3 million, $270.3
million and $210.2 million in the three fiscal periods ended June 30, 1997.
Net cash from operations in fiscal 1997 increased $21.0 million as income
from continuing operations increased $34.9 million. Depreciation and
amortization expense increased
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
$13.1 million in fiscal 1997. Changes in operating assets and liabilities
were a use of funds in 1997, 1996 and 1995 of $36.6 million, $38.4 million
and $38.3 million, respectively.
Net cash from operations in fiscal 1996 increased $60.1 million over
fiscal 1995 as income from continuing operations increased $26.0 million. In
addition, the special charges of $29.2 million discussed above did not
adversely impact cash in fiscal 1996. Depreciation and amortization expense
increased $5.5 million in fiscal 1996.
INVESTING ACTIVITIES
Net investing activities for fiscal 1997 required $420.2 million of cash
compared with $122.4 million and $138.3 million in fiscal 1996 and 1995. Net
investing activities included capital spending of $117.4 million in fiscal
1997 compared to $124.4 million in 1996 and $126.4 million in 1995. Expansion
related to certain chemical products as well as basic upkeep of the salt and
chemical facilities were the major areas of capital spending.
Cash invested in businesses acquired was the main reason for the
increase of cash used in investing activities. In fiscal 1997, the
company acquired all of the outstanding stock of a French salt company,
Salins du Midi, for $231.2 million, net of cash acquired. During fiscal 1997,
the company also acquired 90 percent of the outstanding stock of Pulverlac
S.p.A., an Italian powder coatings manufacturer, for $64.2 million, net of
cash acquired, and a manufacturing plant in Singapore from Zeneca Resins for
$14.1 million.
Investing activities in fiscal 1997 also reflected $8.9 million of
proceeds from property and other asset disposals compared to $4.3 million in
fiscal 1996 and $2.2 million in fiscal 1995.
FINANCING ACTIVITIES
Financing activities were a net use of funds representing $323.6 million,
$307.8 million and $72.4 million for fiscal 1997, 1996 and 1995,
respectively. Dividend payments for the three years were $80.7 million, $76.3
million and $65.1 million. Improved operating earnings and cash generation
opportunities allowed the company to increase dividends paid year-over-year.
During the second quarter of fiscal 1996, the "Old" Morton
International, Inc. Board of Directors authorized a 10 million share buyback
of the company's common stock. This buyback was completed during fiscal 1997
and the Board of Directors, in April 1997, authorized the company to
repurchase an additional 10 million shares of the company's common stock.
During fiscal 1997, the company repurchased 6.5 million shares of its common
stock for $234.9 million. In fiscal 1996, the company repurchased 6.7
million shares at a cost of $242.3 million. At June 30, 1997, the company
was authorized to repurchase up to 6.8 million additional shares.
Short-term notes payable decreased $23.1 million, $1.1 million and $10.4
million in 1997, 1996 and 1995. This reflected the lower level of short-term
borrowing required as cash generated from operations increased, including the
funds transferred from the Spinoff transactions described in the Notes to
Consolidated Financial Statements.
DISCONTINUED OPERATIONS
Net transfers from discontinued operations were a source of cash of
$806.8 million in fiscal 1997, $141.8 million in 1996 and $22.4
million in 1995. Fiscal 1997 included the $750.0 million tax-free
capital contribution to "New" Morton as part of the Spinoff
agreement.
OTHER
The company's current ratio was 2.7 at June 30, 1997 and 1.9 at
June 30, 1996. Total debt as a percentage of total capitalization
was 12.6 percent at June 30, 1997, compared to 13.0 percent at June
30, 1996.
As of June 30, 1997, the company had unexpended authorizations
for fixed asset and maintenance projects totaling $103.4 million.
The authorizations related primarily to 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, business
acquisitions and share repurchases 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. 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.
24
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year ended June 30
---------------------------------------
in millions, except per share data 1997 1996 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $2,340.6 $2,215.0 $2,099.6
Interest, royalties and sundry income 47.6 73.2 26.3
--------- --------- ---------
2,388.2 2,288.2 2,125.9
Deductions from income
Cost of products sold 1,580.3 1,517.7 1,424.1
Selling, administrative and general expense 378.5 361.1 361.4
Research and development expense 58.8 60.2 58.1
Interest expense 25.6 24.4 28.4
Amortization of goodwill 11.2 10.3 10.3
Special charges - 29.2 -
--------- --------- ---------
2,054.4 2,002.9 1,882.3
--------- --------- ---------
Income from continuing operations
before income taxes 333.8 285.3 243.6
Income taxes 120.2 106.6 90.9
--------- --------- ---------
Income from continuing operations 213.6 178.7 152.7
Income from discontinued operations,
net of applicable income taxes 129.4 155.5 141.4
--------- --------- ---------
Net income $ 343.0 $ 334.2 $ 294.1
--------- --------- ---------
Income per common and common equivalent share:
Income from continuing operations $ 1.48 $ 1.20 $ 1.02
Income from discontinued operations .90 1.04 .94
--------- --------- ---------
Net income $ 2.38 $ 2.24 $ 1.96
--------- --------- ---------
</TABLE>
See notes to consolidated financial statements.
25
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30
----------------------------
in millions 1997 1996
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 430.3 $ 68.9
Receivables, less allowances of $11.7 and $10.3 466.4 367.8
Deferred income tax benefits 13.7 14.8
Inventories 351.6 294.8
Prepaid expenses 128.0 112.7
--------- ---------
Total Current Assets 1,390.0 859.0
--------- ---------
OTHER ASSETS
Cost in excess of net assets of businesses acquired,
less amortization 338.4 296.3
Investments in affiliates 91.5 66.9
Miscellaneous 105.9 61.3
Net assets of discontinued Automotive Safety Products
operations - 635.1
--------- ---------
535.8 1,059.6
--------- ---------
PROPERTY, PLANT AND EQUIPMENT
Land 102.5 32.4
Buildings and improvements 461.3 434.9
Machinery and equipment 1,061.7 920.3
Construction in progress 87.0 89.0
--------- ---------
1,712.5 1,476.6
Less allowances for depreciation 833.4 766.1
--------- ---------
879.1 710.5
--------- ---------
$2,804.9 $2,629.1
- ---------------------------------------------------------------------- --------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable and current portion of long-term debt $ 32.7 $ 37.2
Accounts payable 255.9 202.8
Accrued salaries, wages and other compensation 58.4 53.5
Other accrued expenses 156.2 120.9
Income taxes 19.9 29.1
--------- ---------
Total Current Liabilities 523.1 443.5
--------- ---------
NONCURRENT LIABILITIES
Long-term debt, less current portion 224.1 218.5
Deferred income taxes 46.0 36.6
Accrued postretirement benefits other than pensions 156.0 149.1
Other noncurrent liabilities 121.4 108.6
--------- ---------
Total Noncurrent Liabilities 547.5 512.8
--------- ---------
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 and 300.0 shares in 1997 and 1996
Issued-140.1 shares and 148.4 shares in 1997 and 1996 140.1 148.4
Additional paid-in capital .3 55.9
Retained earnings 1,706.0 1,675.5
Foreign currency translation adjustment and other (16.8) 11.0
--------- ---------
1,829.6 1,890.8
Less cost of common stock in treasury-3.0 shares and 6.0 shares
in 1997 and 1996 95.3 218.0
--------- ---------
Total Shareholders' Equity 1,734.3 1,672.8
--------- ---------
$2,804.9 $2,629.1
- ------------------------------------------------------------------------ --------- ---------
</TABLE>
See notes to consolidated financial statements.
26
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Cash provided (used)
Year ended June 30
--------------------------------------------
in millions 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Income from continuing operations $ 213.6 $ 178.7 $ 152.7
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 116.0 102.9 97.4
Deferred income taxes 5.8 2.7 2.4
Undistributed earnings of affiliates (7.5) (4.8) (4.0)
Special charges - 29.2 -
Changes in operating assets and liabilities
net of effects of businesses acquired:
Receivables (7.9) (16.0) (20.6)
Inventories and prepaid expenses (15.6) - (47.7)
Accounts payable and accrued expenses 10.2 (27.0) 25.7
Income taxes (15.7) 10.4 2.2
Other-net (7.6) (5.8) 2.1
--------- --------- ---------
Net cash provided by operating activities 291.3 270.3 210.2
--------- --------- ---------
INVESTING ACTIVITIES
Purchase of property, plant and equipment (117.4) (124.4) (126.4)
Proceeds from property and other asset disposals 8.9 4.3 2.2
Net cash invested in businesses acquired (309.5) (.6) (12.7)
Other (2.2) (1.7) (1.4)
--------- --------- ---------
Net cash used for investing activities (420.2) (122.4) (138.3)
--------- --------- ---------
FINANCING ACTIVITIES
Purchase of common stock for treasury (234.9) (242.3) -
Net repayment of short-term borrowings (23.1) (1.1) (10.4)
Repayment of long-term debt (.1) - (22.2)
Long-term borrowings - - 19.9
Stock option transactions 15.2 11.9 5.4
Dividends paid (80.7) (76.3) (65.1)
--------- --------- ---------
Net cash used for financing activities (323.6) (307.8) (72.4)
--------- --------- ---------
DISCONTINUED OPERATIONS
Net transfer from discontinued operations 806.8 141.8 22.4
--------- --------- ---------
Effect of foreign exchange rate changes on cash
and cash equivalents 7.1 (1.3) 7.7
--------- --------- ---------
Increase (decrease) in cash and cash equivalents 361.4 (19.4) 29.6
Cash and cash equivalents at beginning of year 68.9 88.3 58.7
--------- --------- ---------
Cash and cash equivalents at end of year $ 430.3 $ 68.9 $ 88.3
- --------------------------------------------------------------- --------- --------- ---------
</TABLE>
See notes to consolidated financial statements.
27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SPINOFF AND BASIS OF PRESENTATION
On April 24, 1997, the shareholders of the current Morton International,
Inc.'s predecessor ("Old Morton") approved the Spinoff of its specialty
chemicals and salt businesses (the "Spinoff") and the combination of Old
Morton's automotive safety products business ("ASP") with the businesses of
Autoliv AB (the "Combination"), pursuant to the Combination Agreement, dated
as of November 25, 1996, by and among Old Morton, Autoliv AB, Autoliv, Inc.,
a newly formed corporation ("Autoliv"), and ASP Merger Sub, Inc. In
connection with the Spinoff, Old Morton contributed its specialty chemicals
and salt businesses and corporate operations, together with $750 million of
cash, to New Morton International, Inc. ("New Morton"), a newly formed
subsidiary of Old Morton.
On April 30, 1997, all of the outstanding shares of New Morton were
distributed to Old Morton shareholders on a basis of one New Morton share for
each Old Morton share held by such shareholders. On May 1, 1997, the
Combination became effective, and each outstanding Old Morton share was
converted into the right to receive .341 of a share of Autoliv, a holding
company which now holds ASP and in excess of 90 percent of the outstanding
capital stock of Autoliv AB. The Spinoff and the Combination were tax free
under United States law to Old Morton and its shareholders (other than with
respect to cash received in lieu of fractional shares of Autoliv, Inc.).
Immediately after the Combination, New Morton was renamed Morton
International, Inc. ("the company").
Consolidated results of continuing operations, financial position and
cash flows in the accompanying financial statements and the disclosures in
these notes refer to the continuing salt, specialty chemicals and corporate
operations of the company. The net assets and results of operations of the
ASP business are reflected in the accompanying financial statements as
discontinued operations.
For the purposes of governing certain relationships among Old Morton, the
company and Autoliv, as well as to help in the orderly separation and
transition of the ASP business, the company, Old Morton and Autoliv have
entered into certain agreements relating to, among other things, (a) the
separation of ASP from the remaining businesses of Old Morton; (b)
transitional services to be provided by the company to ASP after the
Combination; (c) the sharing of certain facilities for a limited time by ASP
and the company; and (d) the allocation of certain tax, employee benefits and
other liabilities among Old Morton, Autoliv and the company.
NATURE OF OPERATIONS
The company is an international organization engaged in the manufacture and
marketing of specialty chemicals and salt. Specialty Chemicals is the largest
segment, accounting for 72 percent of fiscal 1997 sales. Its major markets
include general industrial, packaging, construction, automotive, electronics,
paper and printing, textiles and petroleum. Chemical products are sold
primarily in North America and Europe but with growing activity in Japan and
Southeast Asia. The Salt segment contributed 28 percent of 1997 sales. It
serves major North American and European salt markets with a complete line of
products.
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 (56 percent and 66 percent of consolidated inventories at June
30, 1997 and 1996) is determined by the last-in, first-out (LIFO) method,
while the cost of foreign 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 $34.8 million and $36.8 million at June 30, 1997
and 1996.
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, 1997 and 1996, was $145.6 million and
$131.9 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
primarily under the straight-line method.
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
28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 that hedge an
identifiable foreign currency commitment or exposure are deferred and
recognized as the related transactions are settled. Gains or losses on all
other forward foreign exchange contracts are recognized as incurred in
determining net income. Exchange gains (losses) recorded on these forward
contracts in 1997, 1996 and 1995 were $1.2 million, $1.6 million and $(2.2)
million. Outstanding forward foreign exchange contracts at June 30, 1997,
were valued 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 page 2 of the annual report.
DISCONTINUED OPERATIONS
As a result of the Spinoff, results for prior years have been restated to
reflect ASP as a discontinued operation for all years presented. The results
reported below include allocations of certain company assets (including
pension assets), liabilities (including pension and postretirement benefits)
and expenses relating to ASP that were transferred to ASP. The company also
provided certain general administrative services including legal management,
tax compliance, risk management and other corporate services to ASP. The
costs of these services is not material and has not been included in the cost
and expenses of discontinued operations.
The operating results of the discontinued ASP business are as follows:
<TABLE>
<CAPTION>
Ten months
ended Year ended June 30
April 30, ------------------------
in millions 1997 1996 1995
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $1,249.2 $1,397.5 $1,226.3
Interest, royalties and sundry
income (loss) (.9) 2.2 2.7
--------- --------- ---------
1,248.3 1,399.7 1,229.0
Cost of products sold 946.3 1,048.6 924.7
Selling, administrative and
general expense 77.8 75.3 63.0
Research and development 12.5 20.0 14.4
Interest expense 2.3 1.9 -
--------- --------- ---------
1,038.9 1,145.8 1,002.1
--------- --------- ---------
Income before income taxes 209.4 253.9 226.9
Income taxes 80.0 98.4 85.5
--------- --------- ---------
Net income $ 129.4 $ 155.5 $ 141.4
--------- --------- ---------
--------- --------- ---------
</TABLE>
Summarized balance sheet data at June 30, 1996, for the discontinued ASP
business is as follows:
in millions
- --------------------------------------------------------
Receivables, less allowances $199.9
Recoverable design and
preproduction costs 56.9
Inventories 69.7
Refundable and deferred tax
benefits 8.8
Property, plant and equipment, net 435.3
Accounts payable (93.8)
Other (41.7)
-------
Net assets $635.1
-------
-------
ACQUISITIONS
In December 1996, Morton signed a definitive agreement to acquire
approximately two-thirds of the stock of Compagnie des Salins du Midi et des
Salines de l'Est ("Salins du Midi"). A subsidiary of Morton acquired
two-thirds of the stock in March 1997, made a public cash tender offer in
France for the remaining shares, and as of June 30, 1997, owned 100 percent
of Salins du Midi for a total cost of $268.9 million. Salins du Midi is the
leading independent salt producer in France. Based in Paris, Salins du Midi
supplies salt for food and agricultural products, water treatment and
ice/snow and industrial applications, and markets its products under the "La
Baleine" label. Salins du Midi produces solar, rock and vacuum-processed salt
at nine sites in France and at four sites in Spain as well as other locations.
In December 1996, rights to acquire 90 percent of the outstanding stock
of Pulverlac S.p.A. ("Pulverlac"), an Italian powder coatings maker, was
purchased for $66.3 million with rights to later acquire the remaining 10
percent. Pulverlac is a leader in the European powder coatings industry.
These acquisitions consisted principally of values for property, plant
and equipment of $153.0 million, working capital of $50.5 million, and
intangibles of $63.7 million (primarily goodwill). Since the acquisitions
were recently completed, finalization of the allocation of the purchase price
of certain assets and liabilities is subject to completion. The accounts and
results of operations since acquisition of the companies have been included
in the accompanying consolidated balance sheet at June 30, 1997, and the
statement of income for the year then ended. Assuming the acquisitions had
been effective as of July 1, 1995, unaudited pro forma data for the years
ended June 30, 1997 and 1996 would not be materially different in relation to
consolidated results presented herein.
29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 are being transferred to other existing facilities.
Components of the one-time charge included $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 be finalized in fiscal year 1998 and, when completed, are
expected to generate estimated annual savings of $8.5 million.
In addition, in the fourth quarter of fiscal 1996 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 1997 1996
- ------------------------------------------------------------------------
Finished products and work-in-process $271.8 $221.7
Materials and supplies 79.8 73.1
------- -------
$351.6 $294.8
------- -------
------- -------
FINANCING ARRANGEMENTS
The company has committed credit agreements with banks that will expire in
April 1998 and April 2002. In addition, lines of credit are available from
domestic and foreign banks that 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, 1997, such credit facilities amounted to
approximately $512.6 million, and the unused portions thereof were
approximately $482.8 million.
Long-term debt consisted of the following:
June 30
------------------------------
in millions 1997 1996
- -------------------------------------------------------------------------------
Credit Sensitive Debentures (net of
unamortized discount of $1.3 and $1.4) $198.7 $198.6
Other 28.3 20.0
------- -------
227.0 218.6
Less current portion 2.9 .1
------- -------
$224.1 $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, 2002, total
$8.2 million. Interest paid on borrowings in 1997, 1996 and 1995 was $26.6
million, $24.0 million and $28.2 million.
Notes payable at June 30, 1997 and 1996, reflected borrowings from banks
at average interest rates of 5.5 percent and 3.8 percent.
30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
NOTES PAYABLE 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 that 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, 1997, were as follows:
Carrying or
notional Fair
in millions amount value
- --------------------------------------------------------------------------
Notes payable $ 29.8 $ 29.8
Long-term debt 227.0 269.9
Forward foreign exchange contracts 103.9 108.5
INCOME TAXES
The provisions for income taxes for continuing operations, were as follows:
in millions 1997 1996 1995
- -------------------------------------------------------------------------
Current:
Federal $ 55.3 $ 55.2 $ 39.3
State 12.0 11.6 8.4
Foreign 47.1 37.1 40.8
------- ------- -------
114.4 103.9 88.5
------- ------- -------
------- ------- -------
Deferred:
Federal 2.9 1.5 1.8
State 1.4 .9 .5
Foreign 1.5 .3 .1
------- ------- -------
5.8 2.7 2.4
------- ------- -------
$120.2 $106.6 $ 90.9
------- ------- -------
------- ------- -------
A reconciliation of the United States statutory rate to the effective
income tax rate for continuing operations follows:
1997 1996 1995
- --------------------------------------------------------------------------
Statutory rate 35.0% 35.0% 35.0%
Effect of:
State tax, net of federal
tax benefit 2.6 2.8 2.4
Impairment loss on long-lived
assets - 1.9 -
Depletion (1.9) (2.1) (2.3)
Net foreign items .1 (1.4) .6
Other .2 1.2 1.6
------- ------- -------
Effective rate 36.0% 37.4% 37.3%
------- ------- -------
------- ------- -------
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 1997 1996
- --------------------------------------------------------------------------------
Deferred tax benefits related to:
Postretirement and postemployment benefits $ 65.5 $ 60.8
Accrual for environmental liabilities 15.0 14.9
Other 67.1 74.0
------- -------
147.6 149.7
------- -------
------- -------
Deferred tax liabilities related to:
Tax over book depreciation 90.5 77.1
Pension 34.4 34.8
Other 59.7 65.8
------- -------
184.6 177.7
------- -------
Net deferred tax liability $ 37.0 $ 28.0
------- -------
------- -------
No individual item included in other deferred tax benefits or deferred
tax liabilities above is material. Deferred income tax benefits at June 30,
1997 and 1996, included $4.7 million and $6.2 million of refundable income
taxes.
Total income tax payments related to the company (including ASP) during
fiscal 1997, 1996 and 1995 were $167.4 million, $189.2 million and $165.0
million.
Components of the company's income from continuing operations before
income taxes were as follows:
in millions 1997 1996 1995
- -----------------------------------------------------------------
Domestic $213.2 $176.8 $139.4
Foreign 120.6 108.5 104.2
------- ------- -------
$333.8 $285.3 $243.6
------- ------- -------
------- ------- -------
The Internal Revenue Service has completed its examination of Old
Morton's consolidated federal income tax returns through fiscal 1992, and all
issues, which were not significant individually or in the aggregate, have
been settled.
31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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, 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)
Net income - - - 343.0 - -
Cash dividends paid, $.57 per share - - - (80.7) - -
Exercise of stock options and related
income tax benefits .1 .1 (11.5) - (.3) 36.1
Translation adjustment - - - - (26.4) -
Purchase of common stock for treasury - - - - - (234.9)
Elimination of treasury stock(1) (8.4) (8.4) (44.1) (269.0) - 321.5
Disposal of business operations(2) - - - 37.2 (1.1) -
------ --------- ---------- ---------- ---------- --------
Balance June 30, 1997 140.1 $ 140.1 $ .3 $ 1,706.0 $ (16.8) $ (95.3)
------ --------- ---------- ---------- ---------- --------
------ --------- ---------- ---------- ---------- --------
</TABLE>
(1) In connection with the Spinoff, 8.4 million shares of treasury stock
were canceled without payment of consideration therefor, resulting in
reductions of common stock, additional paid-in capital and retained
earnings, and the elimination of treasury stock.
(2) Retained earnings were decreased to reflect the divestiture of the
net assets of ASP, increased by the cash received by the company as part
of the Spinoff, and decreased to reflect the elimination of intercompany
indebtedness of the ASP business and the liability for the company's
portion of expenses in connection with the Spinoff.
In October 1995, Old Morton's Board of Directors authorized the
repurchase of up to 10 million shares of Old Morton's common stock on the
open market. During fiscal 1997 and 1996, 3.3 million shares and 6.7 million
shares were repurchased. In April 1997, the company's Board of Directors
authorized the repurchase of up to 10 million additional shares of the
company's common stock. During fiscal 1997, 3.2 million shares were
repurchased on the open market.
In March 1997, the company declared a dividend distribution of one
preferred share purchase right (the "Rights") for each outstanding common
share, paid in connection with the Spinoff. Until exercisable, the Rights
will not be transferable apart from the company's common stock. Each Right
entitles its holder to buy one one-hundredth of a share of the company's
Series A Junior Participating Preferred Stock at an exercise price of $105
per one one-hundredth of a share of preferred stock. 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 (which the company's Board of Directors
may reduce to 10 percent), 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 one cent per Right prior to the acquisition of 20
percent of the outstanding shares of the company's common stock. At June 30,
1997, 1.6 million shares of preferred stock were reserved for future
exercises of the Rights.
32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 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 actuarially computed portion of net pension expense for Old Morton's
sponsored pension plans allocated to the company consisted of the following
components:
<TABLE>
<CAPTION>
in millions 1997 1996 1995
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost-benefits earned
during the year $15.4 $15.0 $13.8
Interest cost on projected
benefit obligation 38.3 35.8 33.2
Return on plan assets:
Actual $(103.9) $(79.9) $(58.1)
Deferred portion 57.7 38.6 19.9
-------- ------- -------
Expected return (46.2) (41.3) (38.2)
Net amortization 1.1 2.9 1.5
------ ------ ------
Net pension expense $ 8.6 $12.4 $10.3
------ ------ ------
------ ------ ------
</TABLE>
The reconciliation of the funded status of pension plans was as follows:
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996
------------------------------------ --------------------------------------
Plans in which Plans in which Plans in which Plans in which
assets exceed accumulated assets exceed accumulated
accumulated benefit accumulated benefit
benefit obligation benefit obligation
in millions obligation exceeds assets obligation exceeds assets
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Plan assets at fair value $620.1 $11.4 $523.4 $ -
------- ------ ------- -------
Actuarial present value of projected
benefit obligations:
Accumulated benefit obligation
Vested 416.3 46.4 382.2 20.5
Non-vested 24.6 .1 21.2 .1
Provision for future salary increases 85.3 7.2 71.5 6.2
------- ------ ------- -------
526.2 53.7 474.9 26.8
------- ------ ------- -------
Plan assets in excess of (less than)
projected benefit obligation 93.9 (42.3) 48.5 (26.8)
Unrecognized net experience loss
since July 1, 1986 24.0 11.0 56.4 11.5
Prior service cost not yet recognized
in net pension cost (.3) 1.9 (.6) 2.3
Unrecognized net (asset) obligation
at July 1, 1986 (19.5) .6 (23.4) .8
Adjustment to recognize minimum liability - (7.8) - (8.4)
------- ------ ------- -------
Net pension asset (liability) recognized
in the consolidated balance sheets $ 98.1 $(36.6) $ 80.9 $(20.6)
------- ------ ------- -------
------- ------ ------- -------
</TABLE>
33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The weighted averages of assumptions used in the determination of the
projected benefit obligation were:
1997 1996 1995
- ------------------------------------------------------------------------------
Discount rate 7.4% 7.8% 7.6%
Rate of increases in compensation level 4.8% 4.9% 4.9%
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., Canadian and French retirees. In general, the terms
of the plans provide that 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, a provision was adopted which caps the level of 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. In France, the company pays a portion of retiree
insurance premiums to cover health care costs in excess of those reimbursed
by social security.
Net periodic postretirement benefit cost included the following components:
in millions 1997 1996 1995
- ---------------------------------------------------------------------------
Service cost-benefits earned during the year $ 1.8 $ 1.9 $ 1.8
Interest cost on accumulated postretirement
benefit obligation 10.4 10.6 10.8
Net amortization (1.2) (.8) (.8)
------ ------ ------
Net periodic postretirement benefit cost $11.0 $11.7 $11.8
------ ------ ------
------ ------ ------
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 sheet for the company's postretirement benefits:
June 30
in millions 1997 1996
- --------------------------------------------------------------------------
Accumulated postretirement
benefit obligation:
Retirees and dependents $ 97.2 $ 94.2
Fully eligible active plan participants 11.5 10.9
Other active plan participants 36.9 35.5
------- -------
145.6 140.6
Unrecognized prior period gain 7.6 4.8
Unamortized plan amendment 11.5 12.3
------- -------
Postretirement benefit liability recognized
in the consolidated balance sheet $164.7 $157.7
------- -------
------- -------
For measurement purposes, the assumed weighted average annual rate of
increase per capita cost of health care benefits was 8.5 percent for 1998 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 7.4
percent at June 30, 1997, and 7.8 percent at June 30, 1996. The rate of
increase on compensation levels assumed was 4.8 percent at June 30, 1997 and
1996.
A one percent increase in the annual health care cost trend rates would
have increased the accumulated postretirement benefit obligation at June 30,
1997, by approximately $8.6 million and increased postretirement benefit
expense for fiscal 1997 by approximately $.8 million.
OTHER
The company contributes to savings plans for eligible domestic employees.
The company contributions to the savings plans were $6.1 million in 1997, and
$5.3 million in 1996 and 1995.
34
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INCENTIVE PLAN
In connection with the Spinoff, 5,583,465 options to purchase shares of Old
Morton's common stock held by current and former employees of Old Morton's
specialty chemicals and salt businesses and corporate operations were
exchanged for 7,225,524 options to purchase shares of the company's common
stock. The adjustment of the number of shares subject to the new options and
the exercise price of such options was made pursuant to a formula designed to
maintain the relationship between the exercise price of the new options and
the market price of the underlying shares as well as the aggregate unrealized
value of such options.
Under Old Morton's 1989 Incentive 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 the result of such exercises. All
options granted have an option price equal to the fair value of the company's
stock's at date of grant and the number of options is fixed. Options expire
ten years after date of grant.
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 consolidated equity and subsequently
amortized against earnings over the vesting period. At June 30, 1997, 15,000
shares of the company's common stock were outstanding under restricted stock
awards.
At June 30, 1997 limited appreciation rights were outstanding covering
3,402,458 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, 1997,
supplemental cash payment rights were outstanding with respect to 645,270
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.
At June 30, 1997, 8,396,456 shares of the company's common stock were
reserved for both outstanding and future grants of options and payment of
appreciation rights and other stock-based awards.
Due to the Spinoff, the number of option shares and the related exercise
prices in the following summary have been adjusted to maintain both the total
fair market value of common stock underlying the options, and the
relationship between the market value of the company's common stock and the
option's exercise price in all years presented. Options previously granted
to ASP employees are excluded from the summary.
Weighted average
Shares exercise price
- --------------------------------------------------------------------------
Options outstanding
at June 30, 1994 7,719,010 $13.18
Granted 1,057,900 22.66
Cancellations (33,043) 22.55
Exercised (984,606) 10.38
-----------
Options outstanding
at June 30, 1995 7,759,261 14.78
Granted 1,010,505 24.40
Cancellations (78,974) 24.23
Exercised (1,294,751) 12.31
-----------
Options outstanding
at June 30, 1996 7,396,041 16.40
Granted 855,428 29.10
Cancellations (39,327) 28.99
Exercised (1,480,056) 12.65
-----------
Options outstanding
at June 30, 1997 6,732,086 18.70
-----------
Options exercisable at:
June 30, 1995 6,730,850 13.58
June 30, 1996 6,453,851 15.23
June 30, 1997 5,915,328 17.27
The range of exercise prices for options outstanding at June 30, 1997,
was $7.93 to $32.84. The range of exercise prices for options is wide due
primarily to the increasing price of Old Morton's stock over the period of
the grants.
The following table summarizes information about options outstanding at
June 30, 1997:
Range of exercise prices
- --------------------------------------------------------------------------------
$7.93-$13.78 $21.63-$32.84
Outstanding options
Number of shares 3,222,507 3,509,579
Weighted average
remaining contractual life (in years) 3.65 7.64
Weighted average exercise price $12.40 $24.49
Exercisable options
Number of shares 3,222,507 2,692,821
Weighted average exercise price $12.40 $23.09
35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The company has elected to follow APB Opinion No. 25, "Accounting for
Stock Issued to Employees," to account for its employee stock options
because, as discussed below, the alternative fair value accounting provided
for under Financial Accounting Standards Board Statement No. 123, "Accounting
for Stock-Based Compensation," requires the use of option valuation models
that were not developed for use in valuing employee stock options. Under APB
No. 25, because the exercise price of the company's employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized in the company's financial statements.
Pro forma information regarding income from continuing operations and
income per share is required by Statement No. 123. This information is
required to be determined as if the company had accounted for its employee
stock options granted in fiscal years 1997 and 1996 under the fair value
method. The fair value of options granted in these years as reported below
has been estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted average assumptions for 1997 and 1996:
- -----------------------------------------------------------------
Expected life (in years) 7
Risk-free interest rate 6.5%
Expected volatility 34%
Expected dividend yield 2%
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions, including the expected stock price
volatility. Because the company's options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its employee stock options. The
weighted average estimated fair value of employee stock options granted
during 1997 and 1996 was $14.86 and $12.34 per share.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
company's pro forma information from continuing operations follows (in
millions, except per share information):
1997 1996
- -----------------------------------------------------------------
Pro forma income $202.5 $172.3
Pro forma income per share 1.41 1.15
Pro forma net income from continuing operations was reduced by $3.4
million ($.02 per share) in 1997 due to additional pro forma compensation
resulting from adjustments to options made in connection with the Spinoff.
The effects on pro forma disclosures of applying Statement No. 123 are
not likely to be representative of the effects of such disclosures in future
years. Because Statement No. 123 is applicable only to options granted
subsequent to June 30, 1995, the pro forma effect is not fully reflected in
fiscal 1996.
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 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
36
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
possible until technical studies are sufficiently completed to permit such a
determination. The Wood-Ridge plant site study commenced 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 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 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 1940s through the
mid 1980s. 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 environmental
problems at the plant were also identified, and the investigation has been
expanded to address the additional issues. During the first quarter of
fiscal 1997, two federal grand jury subpoenas were served on the company
seeking documents related to waste water discharges at this plant. The
company has furnished the requested documents. As a result of these
irregularities and possible violations, the company may be exposed to fines,
penalties and remedial expenses. Since the matter is still being
investigated, the company is unable to determine its ultimate resolution.
The company is cooperating with the environmental authorities and is keeping
them informed on a continuing basis.
The company's cleanup expenditures totaled approximately $3.1 million,
$6.8 million and $3.0 million for 1997, 1996 and 1995. Amounts accrued as of
June 30, 1997, 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 management, it 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 noted 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
1997, 1996 and 1995 was $35.2 million, $36.1 million and $34.0 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, 1997,
were as follows (in millions): 1998 -$23.4; 1999 - $15.6; 2000 - $13.6;
2001 - $11.0; 2002 - $8.6; thereafter - $301.3.
NEW ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share". Statement
No. 128 specifies the computation, presentation, and disclosure requirements
for earnings per share and is effective for financial statements issued for
years ending after December 15, 1997, including interim periods. The company
will adopt Statement No. 128 for the year ended June 30, 1998. The
difference between basic and diluted earnings per share, as defined by
Statement No. 128, would not be material for fiscal years 1997, 1996 and 1995.
37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
BUSINESS SEGMENT INFORMATION
<TABLE>
<CAPTION>
OPERATIONS IN DIFFERENT BUSINESSES Profit as a percent
of average
SALES AND PROFIT Sales(1) Profit(2) identifiable assets
-------------------------------- -------------------------------- -----------------------
in millions 1997 1996 1995 1997 1996 1995 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Specialty Chemicals(3) $1,680.9 $1,611.7 $1,564.7 $ 268.6 $ 222.0 $ 223.5 18.1% 15.4% 15.8%
Salt 659.7 603.3 534.9 137.5 124.7 117.4 23.2 32.9 34.0
--------- --------- -------- --------- --------- --------
Business totals 2,340.6 2,215.0 2,099.6 406.1 346.7 340.9 19.5 19.0 19.4
General Corporate
expense--net(4) -- -- -- (72.3) (61.4) (97.3)
--------- --------- -------- --------- --------- --------
Consolidated totals $2,340.6 $2,215.0 $2,099.6 $ 333.8 $ 285.3 $ 243.6
--------- --------- -------- --------- --------- --------
--------- --------- -------- --------- --------- --------
</TABLE>
<TABLE>
<CAPTION>
ASSETS, CAPITAL EXPENDITURES,
DEPRECIATION AND AMORTIZATION
Year end Capital Depreciation and
identifiable assets expenditures amortization
-------------------------------- -------------------------------- ------------------------
in millions 1997 1996 1995 1997 1996 1995 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Specialty Chemicals $1,540.0 $1,427.8 $1,459.2 $ 75.2 $ 86.8 $ 83.0 $ 71.9 $ 66.8 $ 63.1
Salt(5) 802.2 385.3 371.9 40.7 35.8 42.1 40.2 32.6 30.8
--------- --------- -------- --------- --------- -------- ------ ------ ------
Business totals 2,342.2 1,813.1 1,831.1 115.9 122.6 125.1 112.1 99.4 93.9
General Corporate(6) 462.7 180.9 199.2 1.5 1.8 1.3 3.9 3.5 3.5
Net assets of
discontinued business -- 635.1 621.7 -- -- -- -- -- --
--------- --------- -------- --------- --------- -------- ------ ------ ------
Consolidated totals $2,804.9 $2,629.1 $2,652.0 $ 117.4 $ 124.4 $ 126.4 $116.0 $102.9 $ 97.4
--------- --------- -------- --------- --------- -------- ------ ------ ------
--------- --------- -------- --------- --------- -------- ------ ------ ------
</TABLE>
<TABLE>
<CAPTION>
OPERATIONS IN DIFFERENT GEOGRAPHIC AREAS Year end
Sales(1) Profit(2) identifiable assets
------------------------------ ----------------------------- ----------------------------
in millions 1997 1996 1995 1997 1996 1995 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
United States $1,519.1 $1,491.9 $1,424.9 $ 283.7 $ 237.4 $ 235.2 $1,260.2 $1,240.9 $1,260.1
Foreign Areas--
Canada and Bahamas 218.0 194.1 185.3 50.5 41.0 35.1 196.1 161.5 153.4
Europe 572.8 498.0 459.5 68.9 64.7 67.2 849.0 388.1 392.3
Others 30.7 31.0 29.9 3.0 3.6 3.4 36.9 22.6 25.3
--------- --------- -------- --------- --------- --------- --------- --------- ---------
$2,340.6 $2,215.0 $2,099.6 $ 406.1 $ 346.7 $ 340.9 $2,342.2 $1,813.1 $1,831.1
--------- --------- -------- --------- --------- --------- --------- --------- ---------
--------- --------- -------- --------- --------- --------- --------- --------- ---------
</TABLE>
(1) Export sales from the United States in fiscal 1997, 1996 and 1995 were
7% of sales to unaffiliated customers in each year, primarily to Canada,
Europe and Japan. 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 (except $381.7 million of identifiable assets in France in 1997).
(2) Business segment profit is from continuing operations and is before
income taxes, interest income, interest expense and allocation of
certain corporate administrative expenses, but included foreign exchange
losses of $(2.7) million, $(.7) million and $(1.8) million in 1997, 1996
and 1995.
(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) Fiscal 1997 year end identifiable assets include the acquisition of
Salins du Midi.
(6) 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, 1997 and 1996, and the related
consolidated statements of income and cash flows for each of the three years
in the period ended June 30, 1997. 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 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, 1997 and 1996, and the consolidated
results of its operations and its cash flows for each of the three years in
the period ended June 30, 1997, 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 29, 1997
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, Ernst & 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 29, 1997
39
<PAGE>
EXHIBIT (21)(a)
SUBSIDIARIES OF MORTON INTERNATIONAL, INC.
The following is a list of the subsidiaries of the Company as of June 30,
1997. Other 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, 1997, 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
Compagnie des Salins du Midi et des Salines de l'Est........ France
Inagua Transports, Incorporated............................. Liberia
Morton Bahamas Limited...................................... Bahamas
Inagua General Store, Limited........................... Bahamas
Morton International B.V.................................... The Netherlands
Morton International Co., Ltd............................... Japan
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 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)
Pulverlac S.p.A............................................. Italy
(90% owned by Morton International, Inc.)
Toray Thiokol Company, Ltd.................................. Japan
(5% owned by Morton International, Inc.)
Toyo-Morton, Limited........................................ Japan
(50% owned by Morton International, Inc.)
</TABLE>
S-2
<PAGE>
Exhibit (23)(a)
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
Number 333-26279 on Form S-8, Registration Statement Number 333-26275 on Form
S-8, Registration Statement Number 333-26277 on Form S-8, Registration
Statement Number 333-26273 on Form S-8, and Registration Statement Number
333-26281 on Form S-8 of our report dated July 29, 1997, 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, 1997.
ERNST & YOUNG LLP
Chicago, Illinois
September 19, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 56,800
<SECURITIES> 373,500
<RECEIVABLES> 478,100
<ALLOWANCES> (11,700)
<INVENTORY> 351,600
<CURRENT-ASSETS> 1,390,000
<PP&E> 1,712,500
<DEPRECIATION> (833,400)
<TOTAL-ASSETS> 2,804,900
<CURRENT-LIABILITIES> 523,100
<BONDS> 224,100
0
0
<COMMON> 140,100
<OTHER-SE> 1,594,200
<TOTAL-LIABILITY-AND-EQUITY> 2,804,900
<SALES> 2,340,600
<TOTAL-REVENUES> 2,388,200
<CGS> 1,580,300
<TOTAL-COSTS> 2,017,600
<OTHER-EXPENSES> 11,200
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,600
<INCOME-PRETAX> 333,800
<INCOME-TAX> 120,200
<INCOME-CONTINUING> 213,600
<DISCONTINUED> 129,400
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 343,000
<EPS-PRIMARY> 2.38
<EPS-DILUTED> 2.38
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> JUN-30-1996 JUN-30-1995
<PERIOD-END> JUN-30-1996 JUN-30-1995
<CASH> 40,800 61,800
<SECURITIES> 28,100 26,500
<RECEIVABLES> 378,100 368,900
<ALLOWANCES> (10,300) (11,000)
<INVENTORY> 294,800 315,500
<CURRENT-ASSETS> 859,000 875,700
<PP&E> 1,476,600 1,408,900
<DEPRECIATION> (766,100) (711,700)
<TOTAL-ASSETS> 2,629,100 2,652,000
<CURRENT-LIABILITIES> 443,500 476,800
<BONDS> 218,500 218,500
0 0
0 0
<COMMON> 148,400 148,300
<OTHER-SE> 1,524,400 1,515,200
<TOTAL-LIABILITY-AND-EQUITY> 2,629,100 2,652,000
<SALES> 2,215,000 2,099,600
<TOTAL-REVENUES> 2,288,200 2,125,900
<CGS> 1,517,700 1,424,100
<TOTAL-COSTS> 1,939,000 1,843,600
<OTHER-EXPENSES> 39,500 10,300
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 24,400 28,400
<INCOME-PRETAX> 285,300 243,600
<INCOME-TAX> 106,600 90,900
<INCOME-CONTINUING> 178,700 152,700
<DISCONTINUED> 155,500 141,400
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 334,200 294,100
<EPS-PRIMARY> 2.24 1.96
<EPS-DILUTED> 2.24 1.96
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> JUN-30-1997 JUN-30-1997 JUN-30-1997
<PERIOD-END> SEP-30-1996 DEC-31-1996 MAR-31-1997
<CASH> 14,200 68,400 82,100
<SECURITIES> 86,800 13,600 43,900
<RECEIVABLES> 375,800 386,200 501,200
<ALLOWANCES> (10,300) (10,300) (10,300)
<INVENTORY> 320,500 311,300 340,200
<CURRENT-ASSETS> 923,000 911,600 1,093,600
<PP&E> 1,496,300 1,518,700 1,676,400
<DEPRECIATION> (784,200) (803,500) (812,600)
<TOTAL-ASSETS> 2,711,600 2,784,200 3,207,100
<CURRENT-LIABILITIES> 464,100 478,800 855,300
<BONDS> 218,500 218,500 226,400
0 0 0
0 0 0
<COMMON> 148,400 148,400 148,400
<OTHER-SE> 1,584,600 1,640,500 1,619,200
<TOTAL-LIABILITY-AND-EQUITY> 2,711,600 2,784,200 3,207,100
<SALES> 523,000 1,087,200 1,725,700
<TOTAL-REVENUES> 533,100 1,108,100 1,753,500
<CGS> 350,100 734,800 1,165,300
<TOTAL-COSTS> 454,000 941,200 1,476,400
<OTHER-EXPENSES> 2,500 5,100 8,100
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 6,000 12,000 18,600
<INCOME-PRETAX> 70,600 149,800 250,400
<INCOME-TAX> 25,500 54,100 90,300
<INCOME-CONTINUING> 45,100 95,700 160,100
<DISCONTINUED> 33,600 71,100 116,000
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 78,700 166,800 276,100
<EPS-PRIMARY> .54 1.15 1.91
<EPS-DILUTED> .54 1.15 1.91
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> JUN-30-1996 JUN-30-1996 JUN-30-1996
<PERIOD-END> SEP-30-1995 DEC-31-1995 MAR-31-1996
<CASH> 50,500 48,900 46,200
<SECURITIES> 25,700 6,500 76,300
<RECEIVABLES> 377,900 412,300 408,800
<ALLOWANCES> (11,000) (11,000) (11,000)
<INVENTORY> 348,600 341,900 276,400
<CURRENT-ASSETS> 916,700 923,800 925,800
<PP&E> 1,436,000 1,460,200 1,481,300
<DEPRECIATION> (732,700) (749,700) (764,200)
<TOTAL-ASSETS> 2,688,600 2,723,700 2,780,300
<CURRENT-LIABILITIES> 457,200 468,800 446,900
<BONDS> 218,500 218,500 218,500
0 0 0
0 0 0
<COMMON> 148,400 148,400 148,400
<OTHER-SE> 1,569,400 1,591,600 1,668,700
<TOTAL-LIABILITY-AND-EQUITY> 2,688,600 2,723,700 2,780,300
<SALES> 506,600 1,066,100 1,695,900
<TOTAL-REVENUES> 513,000 1,103,800 1,755,500
<CGS> 347,100 731,700 1,164,600
<TOTAL-COSTS> 447,600 941,300 1,481,200
<OTHER-EXPENSES> 2,500 5,100 7,700
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 6,100 12,400 18,700
<INCOME-PRETAX> 56,800 145,000 247,900
<INCOME-TAX> 20,700 52,900 90,600
<INCOME-CONTINUING> 36,100 92,100 157,300
<DISCONTINUED> 31,200 74,700 117,200
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 67,300 166,800 274,500
<EPS-PRIMARY> .45 1.11 1.83
<EPS-DILUTED> .45 1.11 1.83
</TABLE>
