<PAGE> 1
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED OCTOBER 3, 1998
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 NUMBER O-13198
MORTON INDUSTRIAL GROUP, INC.
(Exact name of registrant as specified in its charter)
GEORGIA 38-0811650
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
1021 W. BIRCHWOOD, MORTON, ILLINOIS 61550
(Address of principal executive offices)
(309) 266-7176
(Registrant's telephone number, including area code)
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
---
Outstanding as of
November 4, 1998
-----------------
Class A Common Stock, $.01 par value 3,866,944
Class B Common Stock, $.01 par value 200,000
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MORTON INDUSTRIAL GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
For the Quarters and Nine Months Ended October 3, 1998 and September 30, 1997
(Dollars In Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Quarters Ended Nine Months Ended
October 3, 1998 September 30, 1997 October 3, 1998 September 30, 1997
----------------- -------------------- ----------------- --------------------
<S> <C> <C> <C> <C>
Net sales $ 40,989 $ 20,222 $ 111,413 $ 68,026
Cost of sales 35,069 16,848 94,047 58,183
--------------- ------------------- ---------------- ------------------
Gross profit 5,920 3,374 17,366 9,843
--------------- ------------------- ---------------- ------------------
Operating expenses
Selling expenses 1,158 568 3,134 1,597
Administrative expenses 2,280 1,350 8,082 4,746
--------------- ------------------- ---------------- ------------------
Total operating expenses 3,438 1,918 11,216 6,343
--------------- ------------------- ---------------- ------------------
Operating income 2,482 1,456 6,150 3,500
--------------- ------------------- ---------------- ------------------
Other income (expense)
Interest expense (1,610) (847) (3,081) (2,485)
Miscellaneous 132 40 170 69
--------------- ------------------- ---------------- ------------------
Total other income (expense) (1,478) (807) (2,911) (2,416)
--------------- ------------------- ---------------- ------------------
Earnings before income taxes 1,004 649 3,239 1,084
Income taxes 63 259 242 405
--------------- ------------------- ---------------- ------------------
Net earnings $ 941 $ 390 $ 2,997 $ 679
=============== =================== ================ ==================
Earnings per Share
Basic $ 0.23 $ 0.20 $ 0.75 $ 0.35
=============== =================== ================ ==================
Diluted $ 0.21 $ 0.12 $ 0.64 $ 0.20
=============== =================== ================ ==================
Weighted average number of Shares
Basic $ 4,023,168 $ 1,944,444 $ 4,009,480 $ 1,944,444
=============== =================== ================ ==================
Diluted $ 4,535,014 $ 3,327,805 $ 4,664,363 $ 3,327,658
=============== =================== ================ ==================
</TABLE>
These consolidated condensed financial statements should be read only in
connection with the accompanying notes to consolidated condensed financial
statements.
<PAGE> 3
MORTON INDUSTRIAL GROUP, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
October 3, 1998 and December 31, 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
October 3
1998 December 31
(Unaudited) 1997
------------- ------------
<S> <C> <C>
ASSETS
Current Assets
Cash $ 777 $ 138
Accounts, notes and other receivables, less allowance for
doubtful accounts of $115 in 1998 and $100 in 1997 16,574 7,668
Inventories 15,543 7,510
Prepaid expenses 2,782 815
Refundable income taxes 1,039 2,060
Deferred income taxes 1,597 70
------------- -----------
Total current assets 38,312 18,261
------------- -----------
Deferred income taxes 4,266 114
------------- -----------
Property, plant and equipment, net of accumulated depreciation 41,491 18,813
------------- -----------
Intangible assets, primarily goodwill, net of accumulated amortization 14,980 1,950
------------- -----------
Other 1,535 250
------------- -----------
$ 100,584 $ 39,388
============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Note payable to bank $ 12,114 $ 6,740
Current installments of long-term debt, obligations
under capital leases and covenants payable 4,707 2,390
Accounts payable 14,518 11,892
Accrued salaries and wages 1,123 4,615
Other accrued expenses 3,729 3,939
------------- -----------
Total current liabilities 36,191 29,576
------------- -----------
Long-term debt, excluding current installments 54,605 23,000
------------- -----------
Obligations under capital leases, excluding current installment 160 221
------------- -----------
Other 2,047 143
------------- -----------
Total liabilities 93,003 52,940
------------- -----------
Stockholders' Equity (Deficit)
Class A common stock 39 51
Class B common stock 2 1
Additional paid-in capital 19,317 1,203
Retained earnings (deficit) (11,777) (2,037)
Treasury stock --- (12,770)
------------- -----------
Total stockholders' equity (deficit) 7,581 (13,552)
------------- -----------
$ 100,584 $ 39,388
============= ===========
</TABLE>
These consolidated condensed financial statements should be read only in
connection with the accompanying notes to consolidated condensed financial
statements.
<PAGE> 4
MORTON INDUSTRIAL GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW
For the Nine Months Ended October 3, 1998 and September 30, 1997
(Dollars In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---------------- -----------------
<S> <C> <C>
Net cash provided by (used in) operating activities $ (4,975) $ 2,533
--------------- -----------------
Cash flows from investing activities
Capital expenditures (6,585) (6,754)
Increase in intangible assets (1,167) -
Carroll George Inc. acquisition (5,568) -
B&W Metal Fabricators, Inc. acquisition (3,758) -
Mid-Central Plastics, Inc. acquisition (20,310) -
SMP Steel Corporation acquisition (2,160) -
Cash received in merger with MLX Corp. 16,241 -
Other 585 140
--------------- -----------------
Net cash used in investing activities (22,722) (6,614)
--------------- -----------------
Cash flows from financing activities
Net borrowings (repayments) under revolving credit facility (940) 4,411
Cash received on exercised options 368 -
Proceeds from issuance of long-term debt 55,000 -
Principal payments on long-term debt (25,883) (101)
Other (209) (177)
--------------- -----------------
Net cash provided by financing activities 28,336 4,133
--------------- -----------------
Net increase in cash 639 52
Cash at beginning of period 138 58
--------------- -----------------
Cash at end of period $ 777 $ 110
=============== =================
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest $ 4,203 $ 3,206
=============== =================
Income taxes $ 238 $ 993
=============== =================
</TABLE>
Noncash Financial Activities:
As part of the acquisition of B&W Metal Fabricators, Inc., the company issued
subordinated notes payable in the amount of $3,650.
These consolidated condensed financial statements should be read only in
connection with the accompanying notes to consolidated condensed financial
statements.
<PAGE> 5
MORTON INDUSTRIAL GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
For the Quarters and the Nine Months Ended October 3, 1998
and September 30, 1997
(Unaudited)
(1) Background - On January 20, 1998, Morton Metalcraft Holding Co. and
Subsidiaries ("Morton") merged (the "Merger") with MLX Corp. ("MLX"), with
MLX being the surviving corporation. As a result of the Merger, Morton
ceased to exist as a separate corporate entity and MLX amended its Articles
of Incorporation to change the corporate name of MLX to Morton Industrial
Group, Inc. The Merger, for accounting and reporting purposes, was treated
as a purchase in accordance with generally accepted accounting principles
and constituted a reverse acquisition. The historical financial statements
of Morton Metalcraft Holding Co., after the date of the Merger, become the
historical financial statements of Morton Industrial Group, Inc. as the
result of this reverse merger.
(2) Nature of Business -- The Company, operating through its subsidiaries, is a
contract manufacturer and supplier of high-quality fabricated sheet metal
and plastic components and subassemblies for construction, agricultural,
and industrial equipment manufacturers located primarily in the Midwestern
and Southeastern United States.
(3) Interim Financial Data -- The consolidated condensed financial statements
at October 3, 1998, and September 30, 1997, and for the quarters and nine
months then ended are unaudited and reflect all adjustments which are, in
the opinion of management, necessary for a fair presentation of the
financial position, operating results, and cash flows for the interim
periods indicated. The Company's fiscal quarters end on a Saturday (nearest
to a quarter end) except for the fourth quarter which ends on December 31.
For the quarter ended October 3, 1998, there were 63 shipping days,
compared to 57 shipping days in the quarter ended September 30, 1997. For
the nine months ended October 3, 1998, there were 188 shipping days,
compared to 181 shipping days in the nine months ended September 30, 1997.
Results of operations for the interim periods are not necessarily
indicative of the results of operations for the full fiscal year. The
consolidated condensed financial statements should be read in connection
with the consolidated financial statements and notes thereto, together with
management's discussion of financial condition and results of operations of
Morton Metalcraft Holding Co., contained in Exhibit 99.1 of MLX Corp.'s
1997 Form 10-K.
(4) Income Taxes -- The Company has not recorded any provision for federal
income taxes for the quarter or nine months ended October 3, 1998, due to
the utilization of certain net operating loss carryforwards resulting from
the merger with MLX Corp. The Company has provided for state income taxes.
(5) Acquisitions -- On March 30, 1998, the Company acquired all of the
outstanding shares of common stock of Carroll George Inc. The Company paid
a total purchase price of $8.1 million, including payment of all of Carroll
George Inc.'s revolving credit and term loan debt.
<PAGE> 6
On April 8, 1998, the Company acquired all of the outstanding shares of
common stock of B&W Metal Fabricators, Inc. for $ 8.5 million, including
the retirement of B&W indebtedness. This transaction was financed by cash
payments of $ 4.9 million, and the balance in the form of unsecured
subordinated notes. The subordinated notes bear interest at 7.00% per annum
and are payable in 40 equal quarterly installments which began July 8,
1998.
On May 29, 1998, the Company acquired all of the outstanding shares of
common stock of Mid-Central Plastics, Inc. The Company paid a total
purchase price of $ 23.8 million, including payment of all of Mid-Central
Plastic, Inc.'s revolving credit and term loan debt.
On June 1, 1998 the Company acquired substantially all of the assets of SMP
Steel Corporation, a privately held company. The total purchase price was
not material to the Company.
The unaudited proforma consolidated statement of income for the nine months
ended October 3, 1998, has been prepared by consolidating the statements of
income of the Company and:
<TABLE>
<S><C>
Carroll George Inc. For the quarter ended April 4, 1998
B&W Metal Fabricators, Inc. For the period from January 1 through April 8, 1998
Mid-Central Plastics, Inc. For the period from January 1 through May 29, 1998
(dollars in thousands, except per share data)
Proforma revenues $134,261
Proforma net income $ 2,907
Proforma net income per share -- basic $ .73
Proforma net income per share - diluted $ .62
</TABLE>
The above proforma financial data is based on allocations of the purchase
price for the acquisitions. The company has filed the financial statements
of Carroll George Inc., and B&W Metal Fabricators Inc., and additional
proforma information with the Securities and Exchange Commission on June 11,
1998 and June 22, 1998, respectively. The company filed the financial
statements and additional proforma financial information of Mid-Central
Plastics, Inc. with the Securities and Exchange Commission on Form 8-K/A on
August 11, 1998.
(6) The Company's inventory, in thousands of dollars, as of October 3, 1998, and
December 31, 1997, is summarized as follows:
<TABLE>
<CAPTION>
October 3, December 31,
1998 1997
---- ----
<S> <C> <C>
Raw materials, purchased parts
and manufactured components $ 7,609 $ 3,349
Work-in-process 2,990 1,573
Finished goods 4,944 2,588
-------- -------
Total $ 15,543 $ 7,510
======== =======
</TABLE>
<PAGE> 7
(7) Earnings Per Share -- the following reflects the reconciliation of the
numerators and denominators of the earnings per share and the earnings per
share assuming dilution computations:
<TABLE>
<CAPTION>
Quarter Ended October 3, 1998 Nine Months Ended October 3, 1998
---------------------------------------------- ---------------------------------------------
Income Shares Per-Share Income Shares Per-share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
<S> <C> <C> <C> <C> <C> <C>
Basic income $ 941,000 4,023,168 $ .23 $2,997,000 4,009,480 $ .75
per share
Effect of
dilutive securities,
stock options 511,846 654,883
--------- ----------
Diluted income
per share 4,535,014 $ .21 4,664,363 $ .64
========= ==========
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended September 30, 1997 Nine Months Ended September 30, 1997
---------------------------------------------- -----------------------------------------------
Income Shares Per-Share Income Shares Per-share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
<S> <C> <C> <C> <C> <C> <C>
Basic income $390,000 1,944,444 $ .20 $679,000 1,944,444 $ .35
per share
Effect of
dilutive securities:
stock options and
warrants 1,383,361 1,383,219
--------- ---------
Diluted income 3,327,805 $ .12 3,327,658 $ .20
========= =========
per share
</TABLE>
PART II - OTHER INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis describes changes in the
Company's financial condition since December 31, 1997. The analysis of results
of operations compares the quarter and nine months ended October 3, 1998, with
the corresponding periods of 1997.
RESULTS OF OPERATIONS
THIRD QUARTER, 1998 VERSUS THIRD QUARTER, 1997
Revenues for the third quarter, 1998 were $41.0 million compared to
$20.2 million for the third quarter of 1997, an increase of $20.8 million, or
103%. As described in footnote 5 of Part I, the Company made acquisitions during
1998 that have provided incremental revenue during the third quarter, 1998, of
approximately $16.2 million. The additional $4.6 million increase is from those
facilities owned in 1997 and resulted primarily from increased sales of
components and subassemblies used in industrial and agricultural machinery. For
the entities owned during both the third quarters of 1998 and 1997, there were
63 shipping days in the third quarter 1998, while the third quarter of 1997
contained 57 shipping days. The average sales per shipping day were
approximately $393,000 and $355,000 for the third quarters of 1998 and 1997,
respectively. The Company's Apex, North Carolina facility was operational during
the third quarter of 1998; during the third quarter of 1997, it was in its
<PAGE> 8
early stages of operation.
Sales to Deere & Company and Caterpillar Inc., were approximately 78%
and 86% of the Company's revenues for the third quarters, 1998 and 1997,
respectively.
The Company's customers who are original equipment manufacturers
(OEM's) for the agricultural markets have made recent announcements about a
softening demand for their agricultural products. The Company anticipates a
significant revenue decline in 1999 for its agricultural components. In response
to these announcements, the Company is implementing cost management measures,
including manpower reductions, as appropriate. At the same time, the Company has
been selected to manufacture a significant number of additional components for
new projects for both of its major customers. The overall impact of the gain
of revenue from the additional components, net of the loss of some agricultural
revenue, is not expected to have a significant overall impact on the Company's
1999 revenues compared with 1998 revenues.
The Company's gross profits for the third quarter, 1998 increased by
approximately $2.5 million over the same three months in 1997, although the
gross profit percentage declined from 16.7% to 14.5% for the comparable
quarters. The incremental gross profits from acquisitions were approximately
$2.6 million. A decline of approximately $0.1 million, and the gross
profit percentage decline for the quarter, resulted primarily from costs
related to the Apex, North Carolina facility startup. The Company continues to
incur costs, including labor inefficiencies and training, associated with the
start-up and growth of its Apex, North Carolina facility that reduces the
Company's gross profits. The Company's management has introduced a program to
address these costs and continues to implement this program. The Company has
also made progress in establishing relationships with material suppliers
located in the Southeast who meet the Company's requirements, but the Company
continues to incur costs to transfer supplies, including steel, to North
Carolina from suppliers in the Midwest. The Company expects that the Apex,
North Carolina facility will continue to experience higher costs for the
remainder of calendar year 1998, and into 1999. During 1999, significant volume
growth at Apex, and margin improvement later in 1999 related to that volume, is
anticipated.
Selling and administrative expenses for the third quarter, 1998
amounted to $3.4 million, or 8.4% of net sales compared to $1.9 million, or 9.5%
of net sales for the third quarter of 1997. The increase in administrative
expenses is attributable primarily to costs associated with the acquired
entities. Selling and administrative expense for the entities owned in both
third quarters were comparable.
Interest expense for the third quarter, 1998 was $1.6 million, an
increase of $0.8 million compared to the third quarter of 1997. This increase
was due primarily to significantly higher average amounts of outstanding debt
related to the 1998 acquisitions. The interest for the fourth quarter 1998, is
expected to be in the same range as interest expense in the third quarter, 1998.
Income tax expense of approximately $63,000 was provided on pre-tax
income of $1.0 million, for an effective tax rate of 6.3% that reflects the use
of certain net operating loss carryforwards. For the third quarter of 1997,
prior to the availability of net operating loss carryovers, income taxes of
approximately $259,000 were provided on pre-tax income of $649,000, for an
effective tax rate of 40%.
<PAGE> 9
FIRST NINE MONTHS, 1998 VERSUS FIRST NINE MONTHS, 1997
Revenues for the first nine months, 1998 were $111.4 million compared
to $68.0 million for the first nine months of 1997, an increase of $43.4
million, or 63.8%. The Company made acquisitions that provided incremental
revenue for the first nine months of 1998 of approximately $29.4 million. The
additional $14.0 million increase is from those facilities owned in 1997 and
resulted primarily from increased sales of components and subassemblies used in
industrial and agricultural machinery. For the entities owned during both the
first nine months of 1998 and 1997, for the first nine months, 1998, there were
188 shipping days, while the first nine months of 1997 contained 181 shipping
days, and the average sales per shipping day were approximately $436,000 and
$376,000 for the first nine months of 1998 and 1997, respectively. The Company's
Apex, North Carolina facility was operational during the first nine months of
1998; during the first nine months of 1997, it was under construction or just
beginning operations.
Sales to Deere & Company and Caterpillar Inc., were approximately 84%
and 87% of the Company's revenues for the first nine months of 1998 and 1997,
respectively.
The Company's gross profits for the first nine months, 1998 increased
by approximately $7.5 million over the same nine months in 1997. The incremental
gross profits from acquisitions were approximately $4.7 million. The additional
increase of approximately $2.8 million resulted primarily from additional sales
of components and subassemblies used in industrial and agricultural machinery.
For the comparable periods relative to the entities owned during both the first
nine months of 1998 and 1997, the Company's gross profit percentage increased
from 14.5% to 15.4%. This increase was the result of increased productivity at
the Morton and Peoria, Illinois plants, improved labor efficiency and better
material use stemming from investments in production technology, including
laser-cutting technology. For the reasons discussed above, the Company expects
that the Apex, North Carolina facility will continue to experience higher costs
than the Company's Illinois plants for most of calendar year 1998.
Selling and administrative expenses for the first nine months, 1998
amounted to $11.2 million, or 10.1% of net sales compared to $6.3 million, or
9.3% of sales for the first nine months of 1997. This increase in administrative
expenses is attributable primarily to incremental selling and administrative
costs related to acquired companies of $2.7 million, a write-off of over
$600,000 of deferred banking costs due to a refinancing, additional selling
costs for engineering and customer service related to the increase in sales
volume and costs associated with operating as a publicly-traded entity (first
nine months, 1998) versus operating as a non-public entity (first nine months,
1997), including professional and consulting fees.
Interest expense for the first nine months, 1998 was $3.1 million, an
increase of $0.6 million compared to the first nine months of 1997. This
increase was due primarily to additional interest costs incurred during the
second and third quarters from increased debt related to the acquisitions.
Income tax expense of approximately $242,000 was provided on pre-tax
income of
<PAGE> 10
$3.2 million, for an effective tax rate of 7.5% that reflects the use of certain
net operating loss carryforwards. For the first nine months of 1997, prior to
the availability of net operating loss carryovers, income taxes of approximately
$405,000 were provided on pre-tax income of $1,084,000 for an effective tax rate
of 37.4%.
LIQUIDITY AND CAPITAL RESOURCES
The Company's consolidated working capital at October 3, 1998 was $2.1
million compared to $(11.3) million at December 31, 1997, the Company's
preceding fiscal year end. This represents an increase in working capital of
approximately $13.4 million. This change was due primarily to a May 28, 1998
refinancing as described below, and a cash infusion from the merger with MLX
Corp. of approximately $16.2 million. The cash from MLX Corp. was primarily used
in general business operations, for the purchase of equipment and for the
temporary paydown of debt. The resources made available from bank debt have been
used to finance acquisitions and for general business operations.
The Carroll George Inc. acquisition closed on March 30, 1998. The total
purchase price and cash required to retire debt of Carroll George, Inc. amounted
to $8.1 million. This cash requirement was financed by a draw on the Company's
bank line of credit.
The B&W Metal Fabricators, Inc. acquisition, closed on April 8, 1998.
The total purchase price was $8.5 million, including the retirement of B&W
indebtedness. The transaction was financed by cash payments of $4.9 million, and
the balance in the form of unsecured subordinated notes payable to the B&W Metal
Fabricators, Inc. shareholders. This cash requirement was financed by a draw on
the Company's bank line of credit.
On May 28, 1998, the Company entered into a new credit agreement with
Harris Trust and Savings Bank, as Agent. The credit agreement is a $90 million
facility with the following components: (i) a $35 million secured revolving
credit facility with a $10 million sub limit for letters of credit; (ii) a $25
million secured term loan that matures 5 years from the date of the credit
agreement closing; and (iii) a $30 million secured term loan that matures 7
years from the date of the credit agreement closing. Both term loans are fully
amortized over their respective terms with quarterly payments. The interest
rates on the loans, at the Company's option, are (i) Harris Trust and Savings
Bank Rate (which is the greater of the prime rate or the Federal Funds Rate plus
.5%) or (ii) the reserve adjusted LIBOR margin, fixed for 30, 60, 90 or 180 day
period, plus an interest rate margin that is determined by the Company's cash
flow leverage ratio. The proceeds under the facility have been used to refinance
the then existing indebtedness, to finance the acquisitions, and general
corporate purposes
At October 3, 1998, the Company had two fixed interest rate swap
agreements with a commercial bank, (the "counter party"). The first agreement
has a notional principal amount of $12.4 million and a termination date of May
31, 2003. The second agreement has a notional principal amount of $14.9 million
and a termination date of June 30, 2003. The notional principal amount declines
over the term of both agreements based upon a defined amortization schedule. The
counter party has the unilateral right to cancel both agreements as of June 30,
2001.
The Mid-Central Plastics, Inc. acquisition closed on May 29, 1998. The
total purchase price and cash required to retire debt amounted to $23.8 million.
This transaction was financed in connection with the May 28, 1998 credit
agreement described above.
The Company incurred $6.6 million of capital expenditures during the
first nine months, 1998, primarily for purchases of manufacturing equipment.
The Company currently anticipates making approximately $2.5 million of
capital expenditures during the remaining fourth quarter of calendar year 1998.
These expenditures will be funded from the cash flow provided by operations and
funds available under the
<PAGE> 11
Company's line-of-credit facility. Planned expenditures include plant expansion
and the purchase of fabrication equipment, including presses, pressbrakes and
other new equipment. The Company expects to re-evaluate its capital expenditure
budget from time-to-time to respond to changes in sales levels, and the needs of
its operating subsidiaries.
The Company believes that it can meet its current operating liquidity
requirements from cash generated from operations and borrowing under its
existing bank facility. As of October 3, 1998, the Company had additional
availability of approximately $2.2 million under its revolving credit facility.
YEAR 2000 READINESS
The Company and its subsidiaries rely upon computer hardware and
software to maintain financial and business records. All of the subsidiaries use
computer and related technology in the manufacturing processes, including
embedded microprocessor technology. All hardware, software and embedded
technologies are susceptible to the Year 2000 issues. Unresolved Year 2000
issues could make it difficult and costly for the Company and its subsidiaries
to conduct business.
The Company has dedicated its Information Services staff to addressing various
Year 2000 issues at all of its subsidiaries. In 1998 the Company used these
personnel as well as outside consultants to conduct assessments of its
technology and recommend steps to attain Year 2000 readiness. These steps
include establishing project milestones, testing and certifying all
micro-controllers, and upgrading or replacing business system hardware, software
and telephone equipment. Through October 31, 1998, the Company has expended
approximately $40,000 in its Year 2000 readiness effort. The Company believes
that its continuing efforts will achieve an acceptable level of Year 2000
readiness no later than October 31, 1999. Certain minor remedial efforts may
extend into 2000, but the Company does not believe that these efforts will
adversely affect its ability to conduct business in 2000. The Company believes
that its additional Year 2000 expenditures will be approximately $250,000, with
the more significant costs relating to upgrading embedded microprocessor
technology. The Company does not believe that the total costs of Year 2000
readiness will be material to the Company's financial position or results of
operations.
The Company is surveying its customers' and suppliers' Year 2000 readiness.
Based on responses received to date, there is no indication that the Company's
major customers and suppliers will not be Year 2000 ready by the end of 1999.
The Company's major customers are large international corporations, and the
Company is aware of their aggressive efforts to become Year 2000 ready. The
company may choose from a broad range of suppliers of its basic raw materials
and believes that if one supplier proves not to be Year 2000 ready, there will
be others who are. If, however, these major customers and suppliers do not
become Year 2000 ready, or if other third parties such as public utilities or
financial institutions that serve the Company and it subsidiaries fail to
achieve readiness, the Company could experience material and adverse financial
results.
Since the Company believes that it will be Year 2000 ready, and that its major
customers and suppliers will also be Year 2000 ready, the Company has not
developed contingency plans. If the Company's beliefs prove incorrect or it
otherwise becomes evident that contingency plans are advisable, the company
will develop the appropriate plans.
FORWARD LOOKING STATEMENTS
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995. This Form 10-Q contains forward looking statements (within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934), including, but not limited to, statements related to the
Company's beliefs, expectations or intentions. These statements involve risk and
uncertainties that may cause the Company's actual
<PAGE> 12
results to differ significantly from those expected, suggested or projected.
Factors that could contribute to such differences include, but are not limited
to, competition with other fabricators, the risks associated with the Company's
acquisition strategy, including unanticipated problems, difficulties in
integrating acquired businesses, diversion of management's attention from daily
operations, possible increased interest costs, and possible adverse effects on
earnings resulting from increased goodwill amortization, introduction of new
technologies that require significant capital expenditures and general economic
and business conditions.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
2. None.
3. None.
10. None.
11. The computation can be determined from this report.
15. None.
18. None.
19. None.
22. None.
23. None.
24. None.
27. Financial data schedule.
(B) Reports on Form 8-K and Form 8-K/A
1. Filed Form 8-K/A on August 11, 1998 containing the financial
statements of Mid-Central Plastics, Inc.
2. Filed Form 8-K on September 17, 1998 announcing the commencement
of trading on the Nasdaq Small Cap Market, and announcing new
responsibilities of two vice-presidents.
<PAGE> 13
SIGNATURES
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 INDUSTRIAL GROUP, INC.
Dated: November 17, 1998 /s/
------------------- ---------------------------------
Thomas D. Lauerman
Vice President of Finance
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