UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ____________
Commission File No. 1-12825
MORTON INTERNATIONAL, INC.
--------------------------
(Exact Name of Registrant as Specified in its Charter)
Indiana 36-4140798
- ---------------------------------------- ------------------------------------
(State of Incorporation or Organization) (I.R.S. Employer Identification No.)
100 North Riverside Plaza, Chicago, Illinois 60606-1596
- -------------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number (312) 807-2000
--------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
------- ------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Class Outstanding at December 31, 1997
- ----------------------------- --------------------------------
Common Stock, $1.00 par value 130,358,592 shares
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MORTON INTERNATIONAL, INC.
QUARTERLY REPORT ON FORM 10-Q
INDEX
PAGE
-----
PART I. FINANCIAL INFORMATION:
- ------------------------------
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Income and Retained
Earnings - Three months and Six months ended
December 31, 1997 and 1996 3
Consolidated Balance Sheets - December 31, 1997
and June 30, 1997 4
Consolidated Statements of Cash Flows -
Six months ended December 31, 1997 and 1996 5
Notes to Consolidated Financial Statements -
December 31, 1997 6 - 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7 - 10
PART II. OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security-Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
Exhibit Index 12
SIGNATURE 12
2
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
- -----------------------------------------
MORTON INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (UNAUDITED)
(IN MILLIONS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31 December 31
------------------ --------------------
1997 1996 1997 1996
------- ------- -------- --------
<C> <C> <C> <C>
Net sales $ 664.9 $564.2 $1,266.2 $1,087.2
Interest, royalties and sundry income 8.0 10.8 18.1 20.9
------- ------- -------- --------
672.9 575.0 1,284.3 1,108.1
Deductions from income:
Cost of products sold 451.9 384.7 860.7 734.8
Selling, administrative and general expense 105.5 87.5 200.4 177.2
Research and development expense 15.6 15.0 30.0 29.2
Interest expense 6.0 6.0 11.6 12.0
Amortization of goodwill 3.0 2.6 6.0 5.1
------- ------- -------- --------
582.0 495.8 1,108.7 958.3
------- ------- -------- --------
Income from continuing operations
before income taxes 90.9 79.2 175.6 149.8
Income taxes 32.7 28.6 63.2 54.1
------- ------- -------- --------
Income from continuing operations 58.2 50.6 112.4 95.7
Income from discontinued operations,
net of applicable income taxes - 37.5 - 71.1
------- ------- -------- --------
Net income 58.2 88.1 112.4 166.8
Retained earnings at beginning of period 1,739.3 1,732.8 1,706.0 1,675.5
Cash dividends: $.12 and $.15 per share for the
three months ended December 31, 1997 and 1996,
respectively; $.24 and $.30 per share for the six months
ended December 31, 1997 and 1996, respectively (15.7) (21.4) (32.0) (42.8)
Exercise of stock options (1.4) - (6.0) -
-------- -------- -------- --------
Retained earnings at end of period $1,780.4 $1,799.5 $1,780.4 $1,799.5
======== ======== ======== ========
Basic Earnings Per Share:
Income from continuing operations $ .44 $ .35 $ .84 $ .67
Income from discontinued operations - .27 - .50
-------- -------- -------- --------
Net income $ .44 $ .62 $ .84 $ 1 .17
======== ======== ======== ========
Shares used in computation (in thousands) 133,735 142,528
======== ========
Diluted Earnings Per Share:
Income from continuing operations $ .44 $ .35 $ .83 $ .66
Income from discontinued operations - .26 - .49
-------- -------- -------- --------
Net income $ .44 $ .61 $ .83 $ 1 .15
======== ======== ======== ========
Shares used in computation (in thousands) 135,816 144,484
======== ========
</TABLE>
See notes to consolidated financial statements.
3
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MORTON INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN MILLIONS)
<TABLE>
<CAPTION>
December 31 June 30
1997 1997
----------- -----------
(Note)
<C> <C>
ASSETS
- ------
Current assets
Cash and cash equivalents $ 124.1 $ 430.3
Receivables 516.3 466.4
Deferred income tax benefits 13.8 13.7
Inventories 390.3 351.6
Prepaid expenses 126.2 128.0
----------- -----------
Total current assets 1,170.7 1,390.0
=========== ===========
Other assets
Cost in excess of net assets of businesses
acquired, less amortization 333.1 338.4
Investments in affiliates 94.3 91.5
Miscellaneous 102.1 105.9
----------- -----------
529.5 535.8
=========== ===========
Property, plant and equipment, at cost 1,742.1 1,712.5
Less allowances for depreciation 861.8 833.4
----------- -----------
880.3 879.1
----------- -----------
$ 2,580.5 $ 2,804.9
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities
Notes payable and current portion of long-term debt $ 19.6 $ 32.7
Accounts payable 240.2 255.9
Accrued salaries, wages and other compensation 45.3 58.4
Other accrued expenses 145.5 156.2
Income taxes 4.5 19.9
----------- -----------
Total current liabilities 455.1 523.1
=========== ===========
Long-term debt, less current portion 225.8 224.1
Deferred income taxes 46.0 46.0
Accrued postretirement benefits other than pensions 156.9 156.0
Other noncurrent liabilities 119.0 121.4
----------- -----------
Total noncurrent liabilities 547.7 547.5
=========== ===========
Shareholders' equity
Preferred Stock (par value $1.00 per share)
Authorized - 25.0 shares, none issued
Common Stock (par value $1.00 per share)
Authorized - 500.0 shares
Issued-140.1 shares at December 31 and
June 30, 1997 140.1 140.1
Additional paid-in capital - .3
Retained earnings 1,780.4 1,706.0
Foreign currency translation adjustment and other (24.6) (16.8)
----------- -----------
1,895.9 1,829.6
Less cost of common stock in treasury-9.8 shares
at December 31, 1997 and 3.0 shares at June 30, 1997 318.2 95.3
----------- -----------
Total Shareholders' Equity 1,577.7 1,734.3
----------- -----------
$ 2,580.5 $ 2,804.9
=========== ===========
</TABLE>
Note: The balance sheet at June 30, 1997 has been derived from
the audited consolidated financial statements at that date.
See notes to consolidated financial statements.
4
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MORTON INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN MILLIONS)
<TABLE>
Cash Provided (Used)
Six Months Ended
December 31
-------------------------------
1997 1996
-------------- -------------
<C> <C>
Operating Activities
- --------------------
Income from continuing operations $ 112.4 $ 95.7
Adjustments to reconcile income from continuing operations
to net cash provided by operating activities:
Depreciation and amortization 67.1 54.9
Deferred income taxes .1 .8
Undistributed earnings of affiliates (3.9) (4.0)
Changes in operating assets and liabilities
net of effects of businesses acquired:
Receivables (58.2) (7.2)
Inventories and prepaid expenses (43.6) (34.4)
Accounts payable and accrued expenses (34.3) (35.8)
Accrued income taxes (11.3) 5.6
Other - net 6.0 2.7
-------------- -------------
Net cash provided by operating activities 34.3 78.3
============== =============
Investing Activities
- --------------------
Purchase of property, plant and equipment (71.3) (52.3)
Proceeds from property and other asset disposals 4.9 5.3
Cash invested in businesses acquired ( .6) (65.0)
Investment in affiliates (3.9) -
-------------- -------------
Net cash used for investing activities (70.9) (112.0)
============== =============
Financing Activities
- --------------------
Purchase of common stock for treasury (239.2) (21.6)
Net increase of short-term notes payable (8.7) 71.6
Repayment of long-term debt ( .2) ( .1)
Stock option transactions 6.5 5.3
Dividends paid (32.0) (42.8)
-------------- -------------
Net cash (used for) provided by financing activities (273.6) 12.4
============== =============
Discontinued Operations
- -----------------------
Net transfer from discontinued operations - 33.3
-------------- -------------
Effect of foreign exchange rate changes on cash
and cash equivalents 4.0 1.1
-------------- -------------
(Decrease) increase in cash and cash equivalents (306.2) 13.1
Cash and cash equivalents at beginning of year 430.3 68.9
-------------- -------------
Cash and cash equivalents at end of period $ 124.1 $ 82.0
============== =============
</TABLE>
See notes to consolidated financial statements.
5
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MORTON INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Basis of Presentation
- ---------------------
The interim financial statements have been prepared in accordance with the
instructions to Form 10-Q and Rule 10-01 of Regulation SX and therefore, do
not include all information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the six months ended December 31, 1997 are not necessarily
indicative of the results to be expected for the fiscal year ending June 30,
1998. It is suggested that the financial statements be read in conjunction
with the consolidated financial statements and notes thereto included in the
Company's Annual Report to Shareholders and Annual Report on Form 10-K for
the fiscal year ended June 30, 1997.
Earning Per Share
- -----------------
In 1997, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share."
Statement 128 replaced the calculation of primary and fully diluted earnings
per share with basic and diluted earnings per share. Unlike primary earnings
per share, basic earnings per share excludes any dilutive effects of options,
warrants and convertible securities. Diluted earnings per share is very
similar to the previously reported fully diluted earnings per share. All
earnings per share amounts for all periods have been presented, and where
appropriate restated, to conform to the Statement 128 requirements.
The numerators for the earnings per share disclosures on the accompanying
unaudited Consolidated Statements of Income and Retained Earnings are the same
as income numbers shown on that Statement. Following is the computation of
the denominator for the basic and diluted earnings per share calculations:
Six months ended
December 31
----------------
(in thousands)
1997 1996
---- ----
Denominator for basic earnings per share
-weighted average shares outstanding 133,735 142,528
Dilutive effect of employee stock options 2,081 1,956
------- -------
Denominator for diluted earnings per share 135,816 144,484
======= =======
Accounting Changes
- ------------------
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
The statement requires the addition of comprehensive income and its components
in the primary financial statements. Comprehensive income includes cumulative
foreign currency translation adjustments which are not included in income
under current accounting principles. The statement is effective for the
Company's 1999 fiscal year, and requires comparative amounts in financial
statements for earlier periods presented.
6
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<PAGE>
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." The statement requires the Company to
report financial and descriptive information about its reportable segments,
determined using the management approach (i.e., internal management reporting).
The statement is effective for the Company's 1999 fiscal year.
The Company is evaluating the impact that SFAS No. 130 and SFAS No. 131 will
have on its financial disclosures.
Inventories
- -----------
Inventories are stated at the lower of cost (principally last-in, first-out
method) or market. Components of inventories are as follows:
Dec. 31 June 30
1997 1997
------ ------
Finished products and work-in-process $303.4 $271.8
Materials and supplies 86.9 79.8
------ ------
$390.3 $351.6
====== ======
Item 2. Management's Discussion and Analysis of Financial
- ----------------------------------------------------------
Condition and Results of Operations
-----------------------------------
Results of Operations
- ---------------------
Income from continuing operations for the second quarter of fiscal 1998 was
$58.2 million, a 15 percent increase over income from continuing operations of
$50.6 million for the second quarter of fiscal 1997. Sales of $664.9 in the
second quarter of the current fiscal year showed an increase of 18 percent
over the second quarter of fiscal 1997. Earnings per share from continuing
operations were up 26 percent to 44 cents for the quarter on both a basic and
fully diluted basis.
For the six month period ending December 31, 1997, sales were $1.3 billion, up
16 percent over sales from continuing operations for the same period of the
prior fiscal year. Income from continuing operations for the first six months
of fiscal 1998 was $112.4 million versus $95.7 million for the first six months
of fiscal 1997, a 17 percent increase. Basic earnings per share from
continuing operations were 84 cents for the first six months of fiscal 1998,
compared to 67 cents for the same period of fiscal 1997. Fully diluted
earnings per share from continuing operations increased 26 percent from 66
cents in the first six months of fiscal 1997 to 83 cents in the same period of
fiscal 1998.
Last year, Morton International's results included its airbag operation, which
has been reflected as a discontinued operation. Including the results of
discontinued operations, earnings per share for the second quarter of fiscal
1997 were 62 cents and 61 cents on a basic and fully diluted basis,
respectively. For the first six months of fiscal 1997, earnings per share
including discontinued operations were $1.17 on a basic earnings per share
basis and $1.15 on a fully diluted basis.
Morton's results for the second quarter continued to show strong earnings
improvement and growth in both chemicals and salt. Looking forward, the
Company is watching closely the weather patterns in North America for our ice
control salt business to see whether the El Nino effect negatively impacts
sales results in the third fiscal quarter. There is also concern about the
influence of economic conditions outside of North America on foreign exchange
and overall sales growth.
In the second quarter of fiscal 1998, specialty chemicals sales were up 9
percent to $426.6 million
7
<PAGE>
<PAGE>
versus $392.5 million in the same period of fiscal 1997. The sales increase
was attributed to excellent volume growth and $19.4 million from Pulverlac
S.p.A., the powder coatings acquisition in Italy. Foreign exchange
translation, however, had an unfavorable impact of almost 5 percent, reducing
the top line growth for the second quarter by $18.6 million. Second quarter
operating earnings for specialty chemicals were $60.7 million, up 8 percent
from the second quarter of fiscal 1997. Higher volumes and Pulverlac earnings
of $2.1 million were important factors in the improved profits.
Among those chemical product lines which showed strong sales growth in the
second quarter were industrial activities, performance chemicals, advanced
materials, dyes and organics, industrial coatings, automotive coatings, powder
coatings, and traffic markings. The combined sales of these product lines
contributed 52 percent of the group's total sales and grew 20 percent over the
second quarter of fiscal 1997. Several product lines contributed to the
improvement in chemical group earnings including industrial activities,
advanced materials, performance chemicals, dyes and organics, automotive
coatings, and powder coatings. Earnings for these product lines constituted 61
percent of the group's total earnings and collectively showed a 30 percent
improvement over the second quarter of fiscal 1997.
For the first six months of fiscal 1998, specialty chemicals sales increased 8
percent to $860.3 million versus $799.8 for the first six months of fiscal
1997. The results of the first six months were impacted favorably by 9 percent
volume growth and the acquisition of the Italian powder coatings business which
added $33.5 million to the top line. However, foreign exchange translation had
an unfavorable impact of $39.2 million on the first six months sales.
Operating earnings for the specialty chemicals group for the first six months
of fiscal 1998 were $133.5, up 9 percent from the results of the same period in
fiscal 1997. Higher volumes, Pulverlac earnings of $3.3 million and continuing
cost control were leading factors in the improved earnings for the first six
months; however, the earnings gain was unfavorably impacted by $4.9 million as
a result of foreign exchange translations.
Among the product lines that significantly improved in sales during the first
six months of fiscal 1998 were industrial activities, advanced materials,
plastics additives, powder coatings, traffic markings and electronic
materials. Cumulatively, they contributed 40 percent of chemical group sales
and improved 21 percent from the first six months of fiscal 1997. The product
lines which primarily contributed to the increase in operating earnings over
fiscal 1997 for the first six months included industrial activities,
thermoplastic polyurethanes, advanced materials, dyes and organics, automotive
coatings, powder coatings, and traffic markings. These product lines were 44
percent of total operating earnings and showed a 33 percent improvement from
fiscal 1997 to fiscal 1998 in the first six months.
Salt sales for the second quarter of fiscal 1998 were $238.3 million, up 39
percent from fiscal 1997 second quarter sales of $171.7 million. Included in
second quarter fiscal 1998 was $60.3 million in sales generated by Salins du
Midi, the European salt business Morton acquired in the fourth quarter of
fiscal 1997. Excluding the results of the acquisition, salt sales grew by 4
percent for the second quarter. The sales increase was led by water
conditioning pellets, selected grocery salt offerings, and salt sold to food
processing and chemical customers. Ice control salt sales were also up for
the quarter, due to the Canadian ice control business. Salt operating
earnings were $47.9 million in the second quarter of fiscal 1998, up 20
percent from $39.8 million in the second quarter of fiscal 1997. Excluding
Salins results, operating earnings increased 6 percent in the second quarter.
Operating margins for salt were 20.1 percent in the second quarter of fiscal
1998 versus 23.2 percent for the same period in fiscal 1997, reflecting the
lower operating margins of Salins du Midi, which contributed approximately 10
percent on sales.
For the six month period ending December 31, 1997, salt sales were $405.9
million, a 41 percent improvement over sales of $287.4 million in the first
six months of fiscal 1997. Excluding the
8
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<PAGE>
results of Salins du Midi, sales increased almost 4 percent during the same
period. The same product lines which contributed to the increase in sales in
the second quarter were also responsible for the increase in the first six
months of fiscal 1998. Salt operating earnings for the first six months of
fiscal 1998 were $74.9 million, up 19 percent from $63.1 million for the same
period last year. Excluding the results of Salins du Midi, operating earnings
were up 3 percent when comparing the same periods.
Morton's corporate costs were 3 percent higher in the second quarter of fiscal
1998 versus the same period of last fiscal year. For the first six months of
fiscal 1998, corporate costs were 10 percent lower than the same period of the
prior year. Excluding the impact of $1.4 million included in second quarter
fiscal 1997 resulting from insurance refunds, the Company's corporate costs in
fiscal 1998 were lower than last year by 5 percent and 13 percent for the
second quarter and first six months, respectively. This reduction was due to
lower corporate administrative expenses and higher interest income.
During the second quarter Morton completed a 10 million share repurchase
authorization by its board. An additional 10 million share buyback was
authorized in December 1997. In the second quarter Morton bought back a total
of 2.9 million shares (of which 2.5 million shares were attributable to the
completed authorization), bringing the number of shares outstanding at the
end of the second quarter to 130.4 million shares.
Liquidity and Capital Resources
- -------------------------------
Operating activities were a source of cash in the six month periods ended
December 31, 1997 and 1996, providing $34.3 million and $78.3 million,
respectively.
Income from continuing operations provided cash of $112.4 million during the
first six months of fiscal 1998 versus $95.7 million for the same period of
fiscal 1997. In the first six months of the current fiscal year, depreciation
and amortization provided $12.2 million more funds than during the same period
of the prior year. Changes in operating assets and liabilities resulted in a
use of $141.4 million in the first six months of fiscal 1998 compared to a
$69.1 million use of funds last year. The increased use was primarily due to
higher accounts receivable at December 31, 1997, which included Salins du Midi
acquired in the second half of fiscal 1997.
Investing activities in the first six months of fiscal 1998 were primarily the
result of capital spending, which used $71.3 million of cash compared to $52.3
million in the same period in fiscal 1997. Expansion related to certain
chemical products as well as basic upkeep of the salt and chemical
manufacturing facilities continue to be the major areas of capital spending.
The fiscal 1998 capital spending amounts include $6.4 million related to the
businesses acquired in the second half of fiscal 1997. Cash invested in
businesses acquired was $.6 million in the first six months of fiscal 1998
versus $65.0 million in the first six months of fiscal 1997 which was
primarily related to the second quarter acquisition of a controlling interest
in the Italian powder coatings company.
Financing activities for the six month period ending December 31, 1997 were a
$273.6 million use of funds compared to a $12.4 million source of funds during
the same period in the prior year. The major use of funds during the first
half of fiscal 1998 was the share repurchase program previously mentioned.
The total amount spent to repurchase company stock was $239.2 million in the
first six months of fiscal 1998 compared to $21.6 million for the same period
last year. Dividends paid in the six month period ending December 31, 1997
were $32.0 million versus $42.8 million for the six month period ending
December 31, 1996. This decrease was attributed to both a six cents per share
reduction in dividends paid after discontinuing the airbag business in a
spinoff transaction, and fewer shares outstanding due to the share repurchase
program. Short-term notes payable resulted in a use of funds of $8.7 million
in the first six months of fiscal 1998 compared to a source
9
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of funds of $71.6 million in the same period of the last fiscal year. This
change reflects a reduction in the level of incremental borrowing due to the
cash on hand which was received in fiscal 1997 from discontinued operations.
The Company's current ratio was 2.6 at December 31, 1997, slightly lower than
the 2.7 ratio at June 30, 1997. Total debt as a percentage of total
capitalization at December 31, 1997 was 13.1 percent compared to 12.6 percent
at June 30, 1997.
As of December 31, 1997, the Company had unexpended authorizations for fixed
asset spending of $85.1 million. These authorizations related primarily to
chemical facility expansion, product improvements, and facility upgrades on a
company-wide basis.
Estimated cash flow from operations and current financial resources, including
financing capacity, are expected to be adequate to fund the Company's
anticipated working capital requirements, fixed asset spending, dividend
payments, business acquisitions and share repurchases in the foreseeable
future.
Year 2000 Compliance
- --------------------
Management has initiated a comprehensive study and program to prepare the
Company's computer systems and applications for the Year 2000. The Company is
utilizing both internal and external resources to identify, correct or
reprogram and test the systems for Year 2000 compliance. The Company expects
these efforts to be completed on a timely basis. Maintenance or modification
costs will be expensed as incurred, while the costs of new software will be
capitalized and amortized over the software's useful life. The Company
currently does not expect the amounts required to be incurred to have a
material effect on its results of operations.
The Company has also initiated formal communications with its major suppliers
and large customers to determine the extent and steps they are taking to be
Year 2000 compliant. To date no significant issues have been identified;
however, there can be no guarantee that the systems of other companies on which
the Company's businesses rely will be converted in a timely way and would not
have an adverse effect on the Company's businesses.
The costs of the project and the date on which the Company believes it will
complete the Year 2000 modifications are based on management's current best
estimates, which were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources, third party
modification plans and other factors. However, there can be no guarantee that
these estimates will be achieved and actual results could differ materially
from those anticipated. Specific factors that might cause such material
differences include, but are not limited to, the availability and cost of
personnel trained in this area, the ability to locate and correct all
relevant computer codes, the availability of new software and the ability of
our customers and suppliers to be Year 2000 compliant.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
Reference was made in the Form 10-K for the year ended June 30, 1997 to an EPA
inquiry involving environmental irregularities at the Company's Moss Point,
Mississippi chemicals plant. There still have been no administrative or
judicial enforcement proceedings initiated, but the Company has been served and
is responding to an additional Federal grand jury subpoena related not only to
wastewater discharge reporting, but to other environmental issues at the
plant, including suspected falsification
10
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of data in past groundwater monitoring reports.
Item 4. Submission of Matters to a Vote of Security Holders
The 1997 annual meeting of shareholders of the Registrant occurred on October
23, 1997. The following matters were voted upon at the meeting: the election
as a director of the Registrant of each of Ralph M. Barford, James R.
Cantalupo, William T. Creson and S. Jay Stewart; the approval of the Morton
International Inc. 1997 Incentive Plan (the "Plan"); and the ratification of
the appointment of Ernst & Young LLP as independent auditors of the
Registrant. The Plan makes shares of common stock of Morton International,
Inc. available for stock-based awards for employees of the Registrant. A
summary of the Plan was included in the Registrant's proxy statement in
connection with Registrant's 1997 annual meeting of shareholders.
The results of the voting were as follows:
<TABLE>
<CAPTION>
Votes
Votes Against/ Broker
Matter Voted For Withheld* Abstained Non-Votes
<C> <C> <C> <C> <C>
Election of
Ralph M. Barford 106,826,451 6,465,132
Election of
James R. Cantalupo 106,857,821 6,433,762
Election of
William T. Creson 106,822,874 6,468,709
Election of
S. Jay Stewart 106,859,876 6,431,707
Approval of Plan 87,052,095 13,231,918 1,171,767 11,835,803
Approval of
Ernst & Young LLP 112,590,158 133,664 567,761
</TABLE>
*Numbers shown for Director elections are votes withheld. For other matters
voted upon, numbers shown are votes against.
In addition to the directors elected at the meeting, the directors of the
Registrant whose terms of office continued after the meeting are: W. James
Farrell, Dennis C. Fill, William E. Johnston, Richard L. Keyser, Edward J.
Mooney, George A. Schaefer and Roger W. Stone.
Item 6. Exhibits and Reports on Form 8-K,
(a) Exhibit (numbered in accordance with Item 601 of Regulation S-K)
11
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(10) Morton International, Inc. 1997 Incentive Plan
(Exhibit 4.1 to the Registrant's Form S-8 Registration
Statement No. 333-39487 dated November 4, 1997)
(b) Reports on Form 8-K
During the quarter, the Registrant did not file any current
reports on Form 8-K.
EXHIBIT INDEX
Exhibit No. Description
10 Morton International, Inc. 1997 Incentive Plan
(Exhibit 4.1 to the Registrant's Form S-8
Registration Statement No. 333-39487 dated November 4, 1997)
*************************************
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MORTON INTERNATIONAL, INC.
--------------------------
(Registrant)
Date: BY: /s/ L. N. Liszt
____________________ ______________________
L. N. Liszt
Controller
(Principal Accounting Officer)
12
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<PAGE> Exhibit 10
MORTON INTERNATIONAL, INC.
1997 INCENTIVE PLAN
As approved by shareholders effective October 23, 1997
1. Purpose. The purpose of the Morton International, Inc. 1997
Incentive Plan (the "Plan") is to promote the long term financial interests
and growth of Morton International, Inc. (the "Company") by (a) attracting
and retaining executive personnel, (b) motivating executive personnel by means
of growth-related incentives, (c) providing incentive compensation
opportunities that are competitive with those of other major corporations; and
(d) furthering the identity of interests of participants with those of the
shareholders of the Company.
2. Definitions. The following definitions are applicable to the Plan:
"Affiliate" means any entity in which the Company has a direct or
indirect equity interest.
"Change in Control" has the meaning specified in the 1989 Incentive
Plan, as amended effective June 23, 1994, of the Predecessor.
"Code" means that the Internal Revenue Code of 1986, as amended, and
any successor statute.
"Committee" means the Company's Compensation Committee, consisting of
two or more directors of the Company who are "Non-Employee Directors"
as such term is used in Rule 16b-3 and "outside directors" as such
term is used in Section 162(m) of the Code.
"common stock" means the common stock, $1.00 par value, of the
Company or such other securities as may be substituted therefor
pursuant to paragraph 5(b).
"Distribution" means the distribution of shares of common stock of
the Company to the shareholders of the Predecessor.
the "fair market value" of the common stock means the average of the
highest and lowest reported sale prices of such common stock (on the
New York Stock Exchange-Composite Transactions Table if so reported)
on such date or if there is no sale on such date, then on the last
previous date on which a sale was reported.
"participant" means any key employee of the Company or an Affiliate
selected by the Committee based on the employee's past or anticipated
contributions to the Company's growth and success.
"Predecessor" means the Indiana corporation previously known as
Morton International, Inc. which transferred the Company's initial
business assets to it effective April 30, 1997.
"Rule 16b-3" means such rule adopted under the Securities Exchange
Act of 1934, as amended, or any successor rule.
3. Limitation on Aggregate Shares and Individual Awards. The number of
shares of common stock with respect to which awards may be granted under the
Plan and which may be issued upon the exercise or payment thereof shall not
exceed, in the aggregate, a number of shares equal to 8,000,000 plus the
number of shares subject to options to purchase shares of common stock of the
Predecessor which were exchanged for options to purchase common stock of the
Company in connection with the Distribution; provided, however, that to the
extent any awards expire unexercised or unpaid or are canceled, terminated or
forfeited in any manner without the issuance of shares of common stock
thereunder, or if the Company receives any shares of common stock as the
exercise price of any award such shares shall again be available under the
Plan. Such shares of common stock may be either authorized and unissued
shares, treasury shares, or a combination thereof, as the Committee shall
determine. Awards may not be made to any participant in any fiscal year
covering more than 500,000 shares of common stock.
4. Awards. The Committee may grant to participants, in accordance with
this paragraph 4 and the other provisions of the Plan, stock options, limited
stock appreciation rights ("LSARs"), restricted stock and other awards.
(a) Options.
(i) Options granted under the Plan may be incentive stock options
("ISOs") within the meaning of Section 422 of the Code or any successor
provision, or in such other form, consistent with the Plan, as the Committee
may determine.
<PAGE>
<PAGE>
(ii) the option price per share of common stock shall be fixed by the
Committee at not less than 100% of the fair market value of a share of common
stock on the date of grant.
(iii) Options shall be exercisable at such time or times as the
Committee shall determine at or subsequent to grant.
(iv) Options shall be exercised in whole or in part by written notice to
the Company (to the attention of the Corporate Secretary) and payment in full
of the option price. Payment of the option price may be made, at the
discretion of the optionee, and to the extent permitted by the Committee, (A)
in cash (including check, bank draft, or money order), (B) in common stock
that has been held for at least six months or common stock withheld from the
shares purchased on exercise of the option (in each case valued at the fair
market value thereof on the date of exercise), (C) by a combination of cash
and common stock or (D) with any other consideration.
(b) LSARs.
(i) An LSAR shall entitle its holder to receive from the Company, at
the time of exercise of such right, an amount equal to the excess of the fair
market value (at the date of exercise) of a share of common stock over a
specified price fixed by the Committee multiplied by the number of shares as
to which the holder is exercising the LSAR. LSARs may only be in tandem with
previously or contemporaneously granted options. The specified price of a
tandem LSAR shall be the option price of the related option. The amount
payable may be paid by the Company in common stock (valued at its fair market
value on the date of exercise), cash or a combination thereof, as the
Committee may determine, which determination shall be made after considering
any preference expressed by the holder.
(ii) An LSAR shall be subject to such terms as may be specified by the
Committee at the time of grant or otherwise and may be exercised only in
accordance with such terms by written notice to the Company (to the attention
of the Corporate Secretary) prior to its stated expiration. To the extent an
LSAR is exercised, the related option will be canceled and, to the extent the
related option is exercised, the LSAR will be canceled.
(c) Restricted Stock.
(i) the Committee may award to any participant shares of common stock,
subject to this paragraph 4(c) and such other terms and conditions as the
Committee may prescribe (such shares being called "restricted stock"). Each
certificate for restricted stock shall be registered in the name of the
participant and deposited, together with a stock power endorsed in blank, with
the Company.
(ii) There shall be established for each restricted stock award a
restriction period (the "restriction period") of such length as shall be
determined by the Committee. Shares of restricted stock may not be sold,
assigned, transferred, pledged or otherwise encumbered, except as hereinafter
provided, during the restriction period. Except for such restrictions on
transfer and such other restrictions as the Committee may impose, the partici-
pant shall have all the rights of a holder of common stock as to such
restricted stock. The Committee, in its sole discretion, may permit or
require the payment of cash dividends to be deferred and, if the Committee so
determines, reinvested in additional restricted stock or otherwise invested.
At the expiration of the restriction period, the Company shall redeliver to the
participant (or the participant's legal representative or designated
beneficiary) the certificates deposited pursuant to this paragraph.
(iii) Except as provided by the Committee at the time of grant or
otherwise, upon a termination of employment for any reason during the
restriction period all shares still subject to restriction shall be forfeited
by the participant.
(d) Other Awards; Deferrals.
(i) Other awards, including, without limitation, performance shares,
convertible debentures, other convertible securities and other forms of awards
measured in whole or in part by the value of shares, the performance of the
participant or the performance of the Company, may be granted under the Plan.
Such awards may be payable in common stock, cash or both, and shall be subject
to such terms as the Committee shall determine. At the time of such an award,
the Committee shall, if applicable, determine a performance period and
performance goals to be achieved during the performance period, subject to
such later revisions as the Committee shall deem appropriate to reflect
significant unanticipated events such as changes in laws, regulations or
accounting practices, unusual or nonrecurring items or occurrences.
Following the conclusion of each performance period, the Committee shall
determine the extent to which performance goals have been attained or a degree
of achievement between maximum and minimum levels during the performance
period in order to evaluate the level of payment to be made, if any.
2
<PAGE>
<PAGE>
(ii) A participant may elect to defer all or a portion of any award in
accordance with procedures established by the Committee. Deferred amounts
will be subject to such terms and conditions and shall accrue such yield
thereon (which may be measured by the fair market value of the common stock
and dividends thereon) as the Committee may determine. Payment of deferred
amounts may be in cash, common stock or a combination thereof, as the
Committee may determine. Deferred amounts shall be considered an award under
the Plan. The Committee may establish a trust to hold deferred amounts or any
portion thereof for the benefit of participants.
(e) Performance-Based Awards. The Committee may specify with respect to
any award granted under paragraphs 4(c) and 4(d) that such award is intended
to qualify as "performance-based compensation" within the meaning of Section
162(m) of the Code (a "performance-based award"). With respect to any
performance-based award, the following conditions shall apply:
(i) The amount of the payment (including, in the case of a restricted
stock award, the number of shares that become vested) with respect to the
performance-based award shall be determined solely by applying an objective
formula or standard to a performance measure; provided, however, that the
Committee may, in its discretion, reduce or eliminate the amount that would
otherwise be payable with respect to any performance-based award;
(ii) such formula or standard and performance measure shall both be
established in writing by the Committee at the time the performance-based
award to which they relate is granted, which grant shall be made not later
than the earlier of (A) 90 days after the commencement of the measurement
period to which such award relates or (B) the date that 25% of the measurement
period to which the award relates has elapsed;
(iii) such formula or standard includes a minimum target that must be
attained for any amount to be paid to the recipient with respect to such
performance-based award (or, in the case of any restricted stock award, the
terms of such award shall provide that all of the restricted stock granted
under the award shall be forfeited if the minimum target is not met);
(iv) such performance measure shall be based on one or more of the
following performance criteria: earnings per share, operating income, profit
margins, return on net assets, increased inventory and/or receivable turns,
cash flow, stock price, total shareholder return, and any other objective
measure approved by the Committee;
(v) the maximum amount paid to any participant in any fiscal year of the
Company pursuant to performance-based awards (A) in the form of cash and
unrestricted stock or other securities shall not exceed $5,000,000 (measured,
in the case of unrestricted stock or other securities, on the basis of the
fair market value of such stock or securities on the date such property is
received by the participant) and (B) in the form of restricted stock shall not
exceed 500,000 shares (measured by the number of shares of restricted stock
that become vested in such taxable year); and
(vi) prior to any payment (including the vesting of any restricted
stock) with respect to a performance-based award, the Committee shall certify
in writing that the performance targets were met with respect to such award
(as determined by applying the objective formula or standard set forth in the
award grant) and that all other material terms of the award have been
satisfied by the recipient.
(f) Foreign Alternatives. Without amending and notwithstanding the
other provisions of the Plan, in the case of any award to be held by any
participant who is employed outside the United States or who is a foreign
national, the Committee may specify that such award shall be made on such
terms and conditions different from those specified in the Plan, as may, in
the judgment of the Committee, be necessary or desirable to further the
purposes of the Plan.
5. Miscellaneous Provisions.
(a) Administration. The Plan shall be administered by the Committee.
Subject to the limitations of the Plan, the Committee shall have the sole and
complete authority: (i) to select participants in the Plan, (ii) to make
awards in such forms and amounts as it shall determine, (iii) to impose such
limitations, restrictions and conditions upon such awards as it shall deem
appropriate, (iv) to interpret the Plan and to adopt, amend and rescind
administrative guidelines and other rules and regulations relating to the
Plan, (v) to correct any defect or omission or to reconcile any inconsistency
in the Plan or in any award granted hereunder, and (vi) to make all other
determinations and to take all other actions necessary or advisable for the
implementation and administration of the Plan. The Committee's determinations
on matters within its authority shall be conclusive and binding upon the
Company and all other persons. All expenses associated with the Plan shall be
borne by the Company,
3
<PAGE>
<PAGE>
subject to such allocation to its Affiliates and operating units as it deems
appropriate. The Committee may delegate any of its authority under (i), (ii)
and (iii) above to the Chief Executive Officer of the Company.
(b) Adjustments Upon Certain Changes. In the event of a reorganization,
recapitalization, spinoff, stock dividend or stock split, or combination or
other increase or reduction in the number of issued shares of common stock,
the Board of Directors or the Committee shall, in order to prevent the
dilution or enlargement of rights under awards, make such adjustments in the
number and type of shares authorized by the Plan, the number and type of shares
covered by, or with respect-to which payments are measured tinder, outstanding
awards and the exercise prices specified therein as may be determined to be
appropriate and equitable. The Committee may provide for adjustments to an
award in the agreement evidencing the award in order to prevent the dilution
or enlargement of rights thereunder or to provide for acceleration of benefits
thereunder in the event of a change in control, merger, consolidation,
reorganization, recapitalization, sale or exchange of substantially all assets
or dissolution of, or spinoff or similar transaction by, the Company.
Notwithstanding any other provision of the Plan to the contrary, in the
event of a Change in Control: (i) any LSARs and options outstanding as of the
date such Change in Control is determined to have occurred and not then
exercisable and vested shall become fully exercisable and vested to the full
extent of the original grant, and (ii) the restrictions applicable to any
restricted stock shall lapse, and such restricted stock shall become free of
all restrictions and become fully vested and transferable to the full extent
of the original grant.
(c) Tax Withholding. The Company shall have the power to withheld, or
require a participant to remit to the Company, an amount sufficient to satisfy
any withholding or other tax due with respect to any amount payable and/or
shares issuable under the Plan, and the Company may defer such payment or
issuance unless indemnified to its satisfaction. Subject to the consent of the
Company, a participant may make an irrevocable election to have shares of
common stock otherwise issuable under an award withheld or tender back to the
Company shares of common stock received pursuant to an award having a fair
market value sufficient to satisfy all or part of the participant's estimated
tax obligations associated with the transaction. Such election must be made by
a participant prior to the date on which the relevant tax obligation arises.
The Company may disapprove of any election and may limit, suspend or terminate
the right to make such elections.
(d) Listing and Legal Compliance. The Company may suspend the exercise
or payment of any award so long as it determines that securities exchange
listing or registration or qualification under any securities laws is required
in connection therewith and has not been completed on terms acceptable to the
Committee.
(e) Beneficiary Designation and Transferability. Subject to any
limitations on transferability imposed by the Company, participants may name,
from time to time, beneficiaries (who may be named contingently or
successively) to whom benefits under the Plan are to be paid in the event of
their death before they receive any or all of such benefit. Each designation
will revoke all prior designations by the same participant and will be
effective only when filed by the participant in writing with the Company during
the participant's lifetime. In the absence of any such designation, benefits
remaining unpaid at the participant's death shall be paid to the participant's
estate.
(f) Rights of Participants. Nothing in the Plan shall interfere with or
limit in any way the right of the Company to terminate any participant's
employment at any time, nor confer upon any participant any right to continue
in the employ of the Company for any period of time or to continue his or her
present rate of compensation or in any other rate or benefit. No employee
shall have a right to be selected as a participant, or, having been so
selected, to be selected again as a participant.
(g) Amendment and Termination of Plan. The Board of Directors may
terminate the Plan at any time and may amend it from time to time in such
respects as the Board of Directors may deem advisable; provided, however, that
no such amendment shall be made without shareholder approval to the extent
that such approval is required by law, agreement or the rules of any exchange
upon which the common stock is listed. No such amendment or termination shall
impair the rights of participants under outstanding awards without the consent
of the participants affected thereby.
The Committee may amend or modify any award in any manner to the extent
that the Committee would have had the authority under the Plan to initially
grant such award. No such amendment or modification shall impair the rights
of any participant under any award without the consent of such participant.
4
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