<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 29, 1998
MORTON INDUSTRIAL GROUP, INC.
(Exact name of registrant as specified in its charter)
Georgia 0-13198 38-0811650
- -----------------------------------------------------------------------------
State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization File Number) Identification No.)
1021 West Birchwood, Morton, Illinois 61550
- -----------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code 309-266-7176
- -----------------------------------------------------------------------------
(Former name or former address, if changed since last report.)
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
MID-CENTRAL PLASTICS, INC. ACQUISITION
As previously reported on a Current Report on Form 8-K filed with the
Securities and Exchange Commission on June 12, 1998, the Company acquired all of
the issued and outstanding capital stock of Mid-Central Plastics, Inc., of West
Des Moines, Iowa, on May 29, 1998. This Current Report on Form 8-K/A amends the
earlier filing by adding the financial statements identified in Item 7.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
The following financial statements are filed as Exhibits to this Form
8-K/A:
<TABLE>
<CAPTION>
Exhibit No. Document
----------- --------
- -----------------------------------------------------------------------------
<S> <C>
99.1 Audited Financial Statements of Mid-Central
Plastics, Inc., for the period ended
May 29, 1998
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
99.2 Audited Financial Statements of Mid-Central
Plastics, Inc., for the years ended
December 31, 1997, 1996, and 1995
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
99.3 Pro Forma Condensed Combined Balance Sheet
and Statement of Earnings
- -----------------------------------------------------------------------------
</TABLE>
2
<PAGE> 3
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 hereunto duly authorized.
MORTON INDUSTRIAL GROUP, INC.
(Registrant)
Date: August 11, 1998 By:
----------------------------------------
Daryl R. Lindemann
Vice President-Finance, Secretary,
And Treasurer
3
<PAGE> 4
EXHIBIT INDEX
<TABLE>
- -----------------------------------------------------------------------------
<S> <C>
99.1 Audited Financial Statements of Mid-Central
Plastics, Inc., for the period ended
May 29, 1998
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
99.2 Audited Financial Statements of Mid-Central
Plastics, Inc., for the years ended
December 31, 1997, 1996, and 1995
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
99.3 Pro Forma Condensed Combined Balance Sheet
and Statement of Earnings
- -----------------------------------------------------------------------------
</TABLE>
4
<PAGE> 1
Exhibit 99.1
MID-CENTRAL PLASTICS, INC.
FINANCIAL STATEMENTS
MAY 29, 1998
<PAGE> 2
MID-CENTRAL PLASTICS, INC.
For the Period January 1, 1998 to May 29, 1998
CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS
Statement of Income 2
Balance Sheet 3
Statement of Retained Earnings 4
Statement of Cash Flows 5
NOTES TO THE FINANCIAL STATEMENTS 6-10
</TABLE>
<PAGE> 3
Board of Directors and Stockholders
Mid-Central Plastics, Inc.
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheet of Mid-Central Plastics, Inc.
as of May 29, 1998, and the related statements of income, retained earnings and
cash flows for the period January 1, 1998 to May 29, 1998. 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 audit.
We conducted our audit 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 audit provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Mid-Central Plastics, Inc.
as of May 29, 1998, and the results of its operations and its cash flows for the
period January 1, 1998 to May 29, 1998, in conformity with generally accepted
accounting principles.
/s/Northup, Haines, Kaduce, Schmid, Macklin, P.C.
June 19, 1998
West Des Moines, Iowa
-1-
<PAGE> 4
MID-CENTRAL PLASTICS, INC.
STATEMENT OF INCOME
For the Period January 1, 1998 to May 29, 1998
<TABLE>
<S> <C>
SALES
Plastic $12,964,323
Molds 606,248
Raw material 92,632
-----------
TOTAL SALES 13,663,203
COST OF SALES 11,405,717
-----------
GROSS PROFIT 2,257,486
-----------
EXPENSES
Selling 295,402
General and administrative 830,219
-----------
TOTAL EXPENSES 1,125,621
-----------
OPERATING INCOME 1,131,865
-----------
OTHER INCOME (EXPENSE)
Interest expense (96,539)
Loss on sale of assets (2,460)
Interest income 8,364
Miscellaneous income 30,465
-----------
OTHER EXPENSE, NET (60,170)
-----------
INCOME BEFORE INCOME TAXES 1,071,695
PROVISION FOR INCOME TAXES - Note 3 427,671
-----------
NET INCOME $ 644,024
===========
EARNINGS PER SHARE - Basic and Diluted $ 25.76
===========
WEIGHTED AVERAGES NUMBER OF COMMON SHARES
OUTSTANDING - Basic and Diluted 24,999
===========
</TABLE>
See Notes to Financial Statements
-2-
<PAGE> 5
MID-CENTRAL PLASTICS, INC.
BALANCE SHEETS
ASSETS
May 29, 1998
<TABLE>
<S> <C>
CURRENT ASSETS
Cash and cash equivalents $ 632,257
Accounts receivable 3,529,316
Inventories - Note 1 2,635,002
Mold deposits - Note 2 222,709
Prepaid expenses 129,335
Deferred income tax benefit - Note 3 23,230
-----------
TOTAL CURRENT ASSETS 7,171,849
-----------
PROPERTY, PLANT AND EQUIPMENT, AT COST - Note 6
Land 30,851
Parking lot improvements 304,627
Buildings 2,215,046
Machinery 9,600,164
Office equipment 1,142,237
Automobiles and trucks 79,247
Equipment under construction 30,511
-----------
13,402,683
Less accumulated depreciation 9,075,164
-----------
PROPERTY, PLANT AND EQUIPMENT, NET 4,327,519
-----------
OTHER ASSETS
Cash surrender value, officer life insurance 59,711
Employee advances 1,569
Notes receivable, stockholders - Note 4 346,316
Prepaid expenses 21,623
Deferred income tax benefit - Note 3 41,764
Non compete agreement, net of $42,149
accumulated amortization 287,715
-----------
TOTAL OTHER ASSETS 758,698
-----------
$12,258,066
===========
</TABLE>
See Notes to Financial Statements
-3-
<PAGE> 6
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C>
CURRENT LIABILITIES
Notes payable, bank - Note 5 $ 1,550,321
Accounts payable 969,582
Other accrued expenses 560,313
Accrued income taxes 176,012
Current maturities of long
term debt - Note 6 240,668
Current maturities of deferred
compensation payable - Note 7 61,132
-----------
TOTAL CURRENT LIABILITIES 3,558,028
-----------
LONG TERM DEBT - Note 6 2,007,880
-----------
DEFERRED COMPENSATION PAYABLE - Note 7 108,937
-----------
COMMITMENTS AND CONTINGENCIES - Note 8 and Note 11
STOCKHOLDERS' EQUITY
Common stock, Class A, $10 par value,
authorized 200,000 shares, issued
15,000 shares 150,000
Common stock, Class B, $10 par value,
authorized 200,000 shares, issued
15,000 shares 150,000
Paid-in capital 1,520
Retained earnings 6,724,173
-----------
7,025,693
LESS TREASURY STOCK, AT COST
Common stock, Class B, 5,001 shares 442,472
-----------
TOTAL STOCKHOLDERS' EQUITY 6,583,221
-----------
$12,258,066
===========
</TABLE>
-3-
<PAGE> 7
MID-CENTRAL PLASTICS, INC.
STATEMENT OF RETAINED EARNINGS
For the Period January 1, 1998 to May 29, 1998
<TABLE>
<CAPTION>
BALANCE
<S> <C>
Beginning of period $6,080,149
NET INCOME FOR PERIOD 644,024
----------
BALANCE
End of period $6,724,173
==========
</TABLE>
See Notes to Financial Statements
-4-
<PAGE> 8
MID-CENTRAL PLASTICS, INC.
STATEMENT OF CASH FLOWS
For the Period January 1, 1998 to May 29, 1998
Increase (Decrease) in Cash
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 644,024
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 275,546
Amortization 9,163
Deferred income taxes 9,012
Imputed interest on deferred compensation 6,579
Loss on sale of assets 2,460
Increase in cash value of life insurance (5,625)
Changes in assets and liabilities:
Accounts receivable (594,654)
Inventories 285,570
Prepaid expenses and mold deposits (200,158)
Accounts payable and accrued expenses (686,958)
Accrued income taxes 108,779
Deferred compensation paid (31,250)
----------
Net Cash Used in Operating Activities (177,512)
----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (691,544)
Advances to stockholder (30,783)
Decrease in employee advances 3,422
Advance payment on auto leases (36,579)
----------
Net Cash Used in Investing Activities (755,484)
----------
CASH FLOWS FROM FINANCING ACTIVITIES
Additions to operating line of credit, net 811,533
Payments on long term debt (94,380)
Proceeds from long term debt 828,000
----------
Net Cash Provided by Financing Activities 1,545,153
----------
NET CHANGE IN CASH 612,157
CASH, BEGINNING OF PERIOD 20,100
----------
CASH, END OF PERIOD $ 632,257
==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 89,059
Income taxes 309,883
</TABLE>
See Notes to Financial Statements
-5-
<PAGE> 9
MID-CENTRAL PLASTICS, INC.
NOTES TO THE FINANCIAL STATEMENTS
For the Period January 1, 1998 to May 29, 1998
DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS - Mid-Central Plastics, Inc., founded in 1960, is a
manufacturer and molder of custom plastic component parts. Most of the
Company's business activity is with customers located within Iowa and
surrounding states.
INVENTORIES - Inventories are stated at the lower of cost or market value.
Cost is determined using the first-in, first-out method. Plant overhead is
allocated to finished goods inventory in direct proportion to the plant
wages included in finished goods.
ACCOUNTS RECEIVABLE - The Company considers accounts receivable to be fully
collectible; accordingly, no allowance for doubtful accounts is required.
If amounts become uncollectible, they will be charged to operations when
that determination is made.
PREPAID AUTO LEASE - The Company is amortizing the cost of advance
automobile lease payments over the twenty-four month term of the related
lease.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The Company considers the recorded
value of its financial assets and liabilities, which consist primarily of
cash, accounts receivable, accounts payable, notes payable and long-term
debt, to approximate the fair value of the respective assets and
liabilities.
EARNINGS PER SHARE - Earning per share is computed under the provisions of
Statement of Financial Accounting Standards No. 128, Earnings Per Share,
which was adopted retroactively by the Company at December 31, 1994.
Amounts reported as earnings per share for the period ended May 29, 1998
reflect the earnings available to stockholders for the period divided by
the weighted average number of common shares outstanding during the period.
The Company has no dilative securities as defined under SFAS No 128,
therefore, a single earnings per share amount is presented in the financial
statements.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are carried
at the lower of depreciated cost or fair market value. Expenditures for
property and those which substantially increase useful lives are
capitalized. Maintenance, repairs and minor renewals are expensed as
incurred. When assets are retired or otherwise disposed of, their costs
and related accumulated depreciation are removed from the accounts and the
resulting gains or losses are included in income.
Depreciation is provided by both the straight-line and declining balance
methods over estimated useful lives ranging from five to ten years on
equipment and fifteen to thirty-three years on buildings and improvements.
ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could vary from
estimates that were used.
-6-
<PAGE> 10
MID-CENTRAL PLASTICS, INC.
NOTES TO THE FINANCIAL STATEMENTS
For the Period January 1, 1998 to May 29, 1998
AMORTIZATION - Covenants not to compete by former shareholders acquired in
1996 are being amortized using the straight line method over a period of
fifteen years. Amortization expense for May 29, 1998 was $9,163.
CONCENTRATION OF CREDIT RISK - In the normal course of business, the
Company extends unsecured credit to customers. The Company has cash in
excess of $100,000 on deposit in individual banks. The Federal Deposit
Insurance Corporation (FDIC) insures only the first $100,000 of funds at
member banks.
1 - INVENTORIES
The components of inventories as of May 29, 1998 consisted of the
following:
<TABLE>
<S> <C>
Raw materials $1,610,361
Finished goods 793,980
Packaging supplies 230,661
----------
$2,635,002
==========
</TABLE>
2 - MOLD DEPOSITS
The Company, for the convenience of its customers, contracted with outside
diemakers for the fabrication of molds required to produce specific
customer orders. Deposits represented amounts paid to diemakers which had
not been billed to customers. Generally, one-half of mold price is billed
at the time mold production commences and the balance upon production of
the first piece of product. The molds are the property of the customers.
Mold deposits at May 29, 1998 totaled $222,769.
3 - INCOME TAXES
Income tax expense for the period ended May 29, 1998 is comprised of the
following:
<TABLE>
<S> <C>
Current
Federal $360,608
State 58,054
--------
Total Current 418,662
Deferred 9,009
--------
Total Provision $427,671
========
</TABLE>
As of May 29, 1998, a deferred tax asset of $64,994 had been recognized for
the taxable temporary difference related to deferred employee compensation.
For financial statement purposes, deferred employee compensation was
deducted as the services were performed. For tax purposes, these costs
were not deductible until paid (see Note 7).
-7-
<PAGE> 11
MID-CENTRAL PLASTICS, INC.
NOTES TO THE FINANCIAL STATEMENTS
For the Period January 1, 1998 to May 29, 1998
The deferred tax asset has been classified in the balance sheet as follows:
<TABLE>
<S> <C>
Current $23,230
Long term 41,764
-------
Total deferred income tax benefit $64,994
=======
</TABLE>
The Company has not recorded a valuation allowance for the deferred tax
asset as they feel that it is more likely then not that it will be
ultimately realized.
4 - NOTE RECEIVABLE, STOCKHOLDERS
The Company had made cumulative advances totaling $346,316 in May 29, 1998
to its stockholders. These notes bear interest equal to the federal short
term applicable rate adjusted monthly (6.3%). These notes were repaid upon
the sale of the shareholders ownership interest after the close of business
on May 29, 1998 (see Note 12).
5 - NOTES PAYABLE, BANK
On May 29, 1998, the Company had available a $2,500,000 line of credit with
Bankers Trust Company. The line of credit bears interest at the bank's
prime rate adjusted daily (8.50%). Interest only is paid monthly until
maturity of the note on May 1, 1999 when any unpaid principal balance plus
accrued interest is due. This loan is secured by all assets of the
Company.
The Company utilized a managed disbursement account in conjunction with
both of the above operating lines of credit. Under the agreement, idle
cash in the operating checking account is applied daily against the
operating line of credit balance. If the checking account balance drops
below zero, cash is advanced from the operating credit line to eliminate
any deficiency. Interest is credited to the Company when the operating
checking account balance exceeds outstanding advances against the credit
line.
At May 29, 1998 the outstanding balances under the operating line of credit
consisted of the following:
<TABLE>
<S> <C>
Direct loans $ 666,926
Outstanding checks awaiting clearing 883,395
----------
Total balance due on credit line $1,550,321
==========
</TABLE>
This line of credit was paid and terminated after the close of business on
May 29, 1998 (see Note 12).
6 - LONG TERM DEBT
Long term debt consisted of the following:
<TABLE>
<S> <C>
Mortgage loan payable to Bankers Trust Company
due in monthly installments of $13,333 plus interest
at the bank's prime rate adjusted daily (8.50%);
this loan is secured by equipment and real estate $1,266,675
</TABLE>
-8-
<PAGE> 12
MID-CENTRAL PLASTICS, INC.
NOTES TO THE FINANCIAL STATEMENTS
For the Period January 1, 1998 to May 29, 1998
<TABLE>
<S> <C>
Equipment loan payable to Bankers Trust Company
due in monthly installments of $2,983 including
interest at 8.47%; this loan is secured by a press 172,992
Equipment loan payable to Bankers Trust Company
due in monthly installment of $10,071 including
interest at 7.94%; this loan is also secured by a press 808,881
----------
2,248,548
Less current maturities 240,668
----------
Total long term debt $2,007,880
==========
</TABLE>
Payments required on long term debt in future years are as follows:
<TABLE>
<S> <C>
1999 $240,668
2000 247,438
2001 254,776
2002 262,730
2003 271,352
Thereafter 971,584
</TABLE>
These notes were paid after the close of business on May 29, 1998 (see
Note 12).
7 - DEFERRED COMPENSATION PAYABLE
The Company has a deferred compensation obligation that originated from an
employment contract with the former chief executive officer who retired in
1991. The compensation agreement provided for a ten year annuity based on
years of service with the Company from the effective date of the agreement
(January 1, 1976) to his retirement on January 1, 1991. Liability for the
ten year annuity, which is being paid in monthly installments of $6,250, had
been accrued at its present value using a discount rate of 9.75% and totaled
$170,069.
The current and long term portion of the deferred compensation payable are
reported in the balance sheet.
8 - COMMITMENTS
The Company, pursuant to a buy-sell agreement with its shareholders, had
agreed to repurchase, at a price to be determined by a formula, all or a
part of the shares of a shareholder who becomes deceased. Payment was to be
10% down with the balance payable over ten years. In addition, the Company
has options to purchase shares of any stockholder desiring to dispose of
shares during their lifetime. After the close of business on May 29, 1998,
these agreements were terminated (see Note 12).
9 - MAJOR CUSTOMERS
Sales to two publicly traded, international customers consisted of
approximately 67% of total sales for 1998. Sales to the one major
customer, a manufacturer of agricultural related machinery and equipment,
totaled 48% for 1998. The second customer, a manufacturer of snowmobiles
and recreational vehicles, purchased 19% of all sales for 1998.
-9-
<PAGE> 13
MID-CENTRAL PLASTICS, INC.
NOTES TO THE FINANCIAL STATEMENTS
For the Period January 1, 1998 to May 29, 1998
Sales to fifteen individual operating entities of the agricultural customer
and the three operating entities for the recreational vehicle manufacturer
have been aggregated for calculation of these percentages.
Total accounts receivable from the agricultural customer and the
recreational vehicle manufacturer at May 29, 1998 amounted to $2,173,027.
10 - EMPLOYEE BENEFIT PLANS
The Company sponsors a profit sharing and 401(k) salary-reduction plan
which covers substantially all employees. Contributions to the profit
sharing plan are at the discretion of the Board of Directors. Profit
sharing plan contributions of $129,083 was approved for 1998. The Company
matches 25% of an employee's voluntary salary-reduction contributions to a
maximum 3% of total compensation. The employer matching expense was
$30,692 May 29, 1998. Fees paid by the Company for plan administration for
May 29, 1998 was $16,478.
11 - CONTINGENCY - PENDING IRS EXAMINATION
Late in 1997, the Internal Revenue Service started an examination of the
Company's federal income tax returns for the years 1995 and 1996. The
examining agent has focused on two issues. First, he is requesting
addition information as to the allocation of overhead to the Company's
finished goods inventory. Second, the agent is considering the possibility
that the costs to obtain International Standards Organization (ISO 9000)
certification may be a capital asset subject to depreciation over seventeen
years. These costs have been previously expensed when incurred.
Management feels the effect of any adjustment proposed by the agent will
not have a material affect to the financial statements.
12 - SUBSEQUENT EVENT
On April 27, 1998, the stockholders of Mid-Central Plastics, Inc.
unanimously entered into an agreement to sell their ownership interest to
Morton Industrial Group, Inc. The contract was consummated after the close
of business on May 29, 1998.
Theses financial statements do not reflect the infusion of cash by the
Morton Industrial Group, Inc. and related payoff and termination of the
operating line of credit, mortgage and equipment acquisition debts to
Bankers Trust Company which was after the closing on May 29, 1998.
-10-
<PAGE> 1
Exhibit 99.2
MID-CENTRAL PLASTICS, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
<PAGE> 2
MID-CENTRAL PLASTICS, INC.
Years Ended December 31, 1997 and 1996
CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS
Statements of Income 2
Balance Sheets 3
Statements of Retained Earnings 4
Statements of Cash Flows 5
NOTES TO THE FINANCIAL STATEMENTS 6-10
</TABLE>
<PAGE> 3
Board of Directors and Stockholders
Mid-Central Plastics, Inc.
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheets of Mid-Central Plastics,
Inc. as of December 31, 1997 and 1996, and the related statements of income,
retained earnings and cash flows for the years then ended. 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 financial position of Mid-Central Plastics, Inc.
as of December 31, 1997 and 1996, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted accounting
principles.
/s/ Northup, Haines, Kaduce, Schmid, Macklin, P.C.
January 29, 1998, except for Note 12, as to which the date is April 27, 1998
West Des Moines, Iowa
-1-
<PAGE> 4
MID-CENTRAL PLASTICS, INC.
STATEMENTS OF INCOME
Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
SALES
Plastic $26,824,239 $19,392,512
Molds 1,533,463 1,797,554
Raw material 109,774 88,871
----------- -----------
TOTAL SALES 28,467,476 21,278,937
COST OF SALES 23,307,521 17,822,660
----------- -----------
GROSS PROFIT 5,159,955 3,456,277
----------- -----------
EXPENSES
Selling 648,642 526,117
General and administrative 1,794,198 1,682,445
----------- -----------
TOTAL EXPENSES 2,442,840 2,208,562
----------- -----------
OPERATING INCOME 2,717,115 1,247,715
----------- -----------
OTHER INCOME (EXPENSE)
Interest expense (184,191) (184,961)
Gain (loss) on sale of assets 1,750 (11,105)
Interest income 9,908 16,961
Miscellaneous income 18,926 134,958
----------- -----------
OTHER EXPENSE, NET (153,607) (44,147)
----------- -----------
INCOME BEFORE INCOME TAXES 2,563,508 1,203,568
PROVISION FOR INCOME TAXES - Note 3 983,074 478,176
----------- -----------
NET INCOME $ 1,580,434 $ 725,392
=========== ===========
EARNINGS PER SHARE - Basic and Diluted $ 63.22 $ 27.06
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING - Basic and Diluted 24,999 26,805
=========== ===========
</TABLE>
See Notes to Financial Statements
-2-
<PAGE> 5
MID-CENTRAL PLASTICS, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
----------- ----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 20,100 $ 12,291
Accounts receivable 2,934,662 2,191,513
Inventories - Note 1 2,920,572 3,116,072
Mold deposits - Note 2 45,099 64,098
Prepaid expenses 76,323 117,215
Deferred income tax benefit - Note 3 22,309 20,241
----------- ----------
TOTAL CURRENT ASSETS 6,019,065 5,521,430
----------- ----------
PROPERTY, PLANT AND EQUIPMENT, AT COST - Note 6
Land 30,851 30,851
Parking lot improvements 304,627 304,627
Buildings 2,174,681 1,935,680
Machinery 8,697,330 8,029,426
Office equipment 982,677 734,192
Automobiles and trucks 105,947 120,247
Equipment under construction 556,690 15,000
----------- ----------
12,852,803 11,170,023
Less accumulated depreciation 8,938,822 8,493,574
----------- ----------
PROPERTY, PLANT AND EQUIPMENT, NET 3,913,981 2,676,449
----------- ----------
OTHER ASSETS
Cash surrender value, officer life insurance 54,086 40,721
Employee advances 4,991 5,629
Note receivable, stockholder - Note 4 315,533 285,008
Prepaid expenses 15,508 22,982
Deferred income tax benefit - Note 3 51,697 74,003
Non compete agreement, net of $32,986
and $10,986 accumulated amortization
in 1997 and 1996, respectively 296,878 318,869
----------- ----------
TOTAL OTHER ASSETS 738,693 747,212
----------- ----------
$10,671,739 $8,945,091
=========== ==========
</TABLE>
See Notes to Financial Statements
<PAGE> 6
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
----------- ----------
<S> <C> <C>
CURRENT LIABILITIES
Notes payable, bank - Note 5 $ 738,788 $1,265,499
Accounts payable 1,619,868 947,765
Other accrued expenses 596,985 352,560
Accrued income taxes 67,233 278,812
Current maturities of long
term debt - Note 6 181,227 159,396
Current maturities of deferred
compensation payable - Note 7 58,709 53,266
----------- ----------
TOTAL CURRENT LIABILITIES 3,262,810 3,057,298
----------- ----------
LONG TERM DEBT - Note 6 1,333,701 1,334,290
----------- ----------
DEFERRED COMPENSATION PAYABLE - Note 7 136,031 194,740
----------- ----------
COMMITMENTS AND CONTINGENCIES - Note 8 and Note 11
STOCKHOLDERS' EQUITY
Common stock, Class A, $10 par value,
authorized 200,000 shares, issued
15,000 shares 150,000 150,000
Common stock, Class B, $10 par value,
authorized 200,000 shares, issued
15,000 shares 150,000 150,000
Paid-in capital 1,520 1,520
Retained earnings 6,080,149 4,499,715
----------- ----------
6,381,669 4,801,235
LESS TREASURY STOCK, AT COST
Common stock, Class B, 5,001 shares 442,472 442,472
----------- ----------
TOTAL STOCKHOLDERS' EQUITY 5,939,197 4,358,763
----------- ----------
$10,671,739 $8,945,091
=========== ==========
</TABLE>
-3-
<PAGE> 7
MID-CENTRAL PLASTICS, INC.
STATEMENTS OF RETAINED EARNINGS
Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
BALANCE
Beginning of year $4,499,715 $3,774,323
NET INCOME FOR YEAR 1,580,434 725,392
---------- ----------
BALANCE
End of year $6,080,149 $4,499,715
========== ==========
</TABLE>
See Notes to Financial Statements
-4-
<PAGE> 8
MID-CENTRAL PLASTICS, INC.
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1997 and 1996
Increase (Decrease) in Cash
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,580,434 $ 725,392
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 525,539 592,823
Amortization 29,465 10,995
Deferred income taxes 20,238 18,364
Imputed interest on deferred compensation 21,734 26,673
(Gain) Loss on sale of assets (1,750) 11,105
Increase in cash value of life insurance (13,365) (15,945)
Changes in assets and liabilities:
Accounts receivable (743,149) 20,057
Inventories 195,500 (1,055,137)
Prepaid expenses and mold deposits 59,891 (117,771)
Accounts payable and accrued expenses 916,528 322,842
Accrued income taxes (211,579) 262,586
Deferred compensation payable (75,000) (75,000)
----------- -----------
Net Cash Provided by Operating Activities 2,304,486 726,984
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (1,763,071) (653,659)
Proceeds from sale of assets 1,750 37,090
Advances to stockholder (30,525) (14,019)
(Increase) decrease in employee advances 638 (2,136)
Advance payment on auto leases -- (12,594)
Acquisition of non compete agreements -- (329,864)
----------- -----------
Net Cash Used in Investing Activities (1,791,208) (975,182)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Additions (reductions) to operating line of
credit, net (526,711) 605,736
Payments on long term debt (163,758) (1,664,391)
Proceeds from long term debt 185,000 1,600,000
Purchase of treasury stock -- (316,397)
----------- -----------
Net Cash Provided by (Used in) Financing Activities (505,469) 224,948
----------- -----------
NET CHANGE IN CASH 7,809 (23,250)
CASH, BEGINNING OF YEAR 12,291 35,541
----------- -----------
CASH, END OF YEAR $ 20,100 $ 12,291
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 161,882 $ 158,293
Income taxes 1,174,412 197,226
</TABLE>
See Notes to Financial Statements
-5-
<PAGE> 9
MID-CENTRAL PLASTICS, INC.
NOTES TO THE FINANCIAL STATEMENTS
Years Ended December 31, 1997 and 1996
DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS - Mid-Central Plastics, Inc., founded in 1960, is a
manufacturer and molder of custom plastic component parts. Most of the
Company's business activity is with customers located within Iowa and
surrounding states.
INVENTORIES - Inventories are stated at the lower of cost or market value.
Cost is determined using the first-in, first-out method. Plant overhead is
allocated to finished goods inventory in direct proportion to the plant
wages included in finished goods.
ACCOUNTS RECEIVABLE - The Company considers accounts receivable to be fully
collectible; accordingly, no allowance for doubtful accounts is required.
If amounts become uncollectible, they will be charged to operations when
that determination is made.
PREPAID AUTO LEASE - The Company is amortizing the cost of advance
automobile lease payments over the twenty-four month term of the related
lease.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The Company considers the recorded
value of its financial assets and liabilities, which consist primarily of
cash, accounts receivable, accounts payable, notes payable and long-term
debt, to approximate the fair value of the respective assets an
liabilities.
EARNINGS PER SHARE - Earning per share is computed under the provisions of
Statement of Financial Accounting Standards No. 128, Earnings Per Share,
which was adopted retroactively by the Company at December 31, 1994.
Amounts reported as earnings per share for the periods ended December 31,
1997 and December 31, 1996, reflect the earnings available to stockholders
for the period divided by the weighted average number of common shares
outstanding during the period. The Company has no dilutive sercurities as
defined under SFAS No. 128, therefore, a single earnings per share amount
is presented in the financial statements.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are carried
at the lower of depreciated cost or fair market value. Expenditures for
property and those which substantially increase useful lives are
capitalized. Maintenance, repairs and minor renewals are expensed as
incurred. When assets are retired or otherwise disposed of, their costs
and related accumulated depreciation are removed from the accounts and the
resulting gains or losses are included in income.
Depreciation is provided by both the straight-line and declining balance
methods over estimated useful lives ranging from five to ten years on
equipment and fifteen to thirty-three years on buildings and improvements.
AMORTIZATION - Covenants not to compete by former shareholders acquired in
1996 are being amortized using the straight line method over a period of
fifteen years. Amortization expense for December 31, 1997 and 1996 was
$21,991 and $10,995, respectively.
ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could vary from
estimates that were used.
CONCENTRATION OF CREDIT RISK - In the normal course of business, the
Company extends unsecured credit to customers. The Company has cash in
excess of $100,000 on deposit in individual banks. The Federal Deposit
Insurance Corporation (FDIC) insures only the first $100,000 of funds at
member banks.
-6-
<PAGE> 10
MID-CENTRAL PLASTICS, INC.
NOTES TO THE FINANCIAL STATEMENTS
Years Ended December 31, 1997 and 1996
1 - INVENTORIES
The components of inventories as of December 31, 1997 and 1996 consisted of
the following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Raw materials $1,581,551 $1,854,979
Finished goods 1,105,870 1,143,344
Packaging supplies 233,151 117,749
---------- ----------
$2,920,572 $3,116,072
========== ==========
</TABLE>
2 - MOLD DEPOSITS
The Company, for the convenience of its customers, contracted with outside
diemakers for the fabrication of molds required to produce specific
customer orders. Deposits at year-end represented amounts paid to
diemakers which had not been billed to customers. Generally, one-half of
mold price is billed at the time mold production commences and the balance
upon production of the first piece of product. The molds were the property
of the customers. Mold deposits at December 31, 1997 and 1996 totaled
$45,099 and $64,098, respectively.
3 - INCOME TAXES
Income tax expense for the years ended December 31, 1997 and 1996 is
comprised of the following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Current
Federal $844,050 $402,339
State 118,783 57,473
-------- --------
Total Current 962,833 459,812
Deferred 20,241 18,364
-------- --------
Total Provision $983,074 $478,176
======== ========
</TABLE>
A reconciliation of income taxes computed using the federal statutory rate
of 34% in 1997 and 1996 to the income tax provision is as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Tax at the federal statutory rate $871,593 $409,213
State income tax, net of federal tax benefit 78,397 36,191
Nondeductible expenses and other 33,084 32,772
-------- --------
$983,074 $478,176
======== ========
</TABLE>
-7-
<PAGE> 11
MID-CENTRAL PLASTICS, INC.
NOTES TO THE FINANCIAL STATEMENTS
Years Ended December 31, 1997 and 1996
As of December 31, 1997, a deferred tax asset of $74,006 ($94,244 at
December 31, 1996) had been recognized for the taxable temporary difference
related to deferred employee compensation. For financial statement
purposes, deferred employee compensation was deducted as the services were
performed. For tax purposes, these costs were not deductible until paid
(see Note 7).
The deferred tax asset has been classified in the balance sheet as follows:
<TABLE>
<S> <C>
Current $22,309
Long term 51,697
-------
Total deferred income tax benefit $74,006
=======
</TABLE>
The Company has not recorded a valuation allowance for the deferred tax
asset as they feel that it is more likely then not that it will be
ultimately realized.
4 - NOTE RECEIVABLE, STOCKHOLDER
The Company had made cumulative advances totaling $315,533 in 1997 and
$285,008 in 1996 to one of its stockholders. These notes bear interest
equal to the federal short term applicable rate adjusted monthly (6.08% at
December 31, 1997 and 5.60% at December 31, 1996) and are due upon demand.
5 - NOTES PAYABLE, BANK
On December 31, 1997, the Company had available a $2,500,000 line of credit
with Bankers Trust Company. The line of credit bears interest at the
bank's prime rate adjusted daily (8.50% in 1997 and 8.25% in 1996).
Interest only is paid monthly until maturity of the note on May 1, 1999
when any unpaid principal balance plus accrued interest is due. This loan
is secured by all assets of the Company.
The Company utilized a managed disbursement account in conjunction with
both of the above operating lines of credit. Under the agreement, idle
cash in the operating checking account is applied daily against the
operating line of credit balance. If the checking account balance drops
below zero, cash is advanced from the operating credit line to eliminate
any deficiency. Interest is credited to the Company when the operating
checking account balance exceeds outstanding advances against the credit
line.
At December 31, 1997 and 1996 the outstanding balances under the operating
line of credit consisted of the following:
<TABLE>
<CAPTION>
1997 1996
-------- ----------
<S> <C> <C>
Direct loans $356,093 $ 868,839
Outstanding checks awaiting clearing 382,695 396,660
-------- ----------
Total balance due on credit line $738,788 $1,265,499
======== ==========
</TABLE>
-8-
<PAGE> 12
MID-CENTRAL PLASTICS, INC.
NOTES TO THE FINANCIAL STATEMENTS
Years Ended December 31, 1997 and 1996
6 - LONG TERM DEBT
Long term debt consisted of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Mortgage loan payable to Bankers Trust Company
due in monthly installments of $13,333 plus
interest at the bank's prime rate adjusted
daily (8.50% at December 31, 1997); this loan
is secured by equipment and real estate $1,333,340 $1,493,686
Equipment loan payable to Bankers Trust Company
due in monthly installments of $2,983 including
interest at 8.47%; this loan is secured by a press 181,588 --
---------- ----------
1,514,928 1,493,686
Less current maturities 181,227 159,396
---------- ----------
Total long term debt $1,333,701 $1,334,290
========== ==========
</TABLE>
Payments required on long term debt in future years are as follows:
<TABLE>
<S> <C>
1998 $181,227
1999 183,097
2000 185,131
2001 187,345
2002 189,754
Thereafter 588,374
</TABLE>
7 - DEFERRED COMPENSATION PAYABLE
The Company has a deferred compensation obligation that originated from an
employment contract with the former chief executive officer who retired in
1991. The compensation agreement provided for a ten year annuity based on
years of service with the Company from the effective date of the agreement
(January 1, 1976) to his retirement on January 1, 1991. Liability for the
ten year annuity, which is being paid in monthly installments of $6,250, had
been accrued at its present value using a discount rate of 9.75% and totaled
$194,740 and $248,006 at December 31, 1997 and 1996, respectively.
The current and long term portion of the deferred compensation payable are
reported in the balance sheet.
8 - COMMITMENTS
The Company, pursuant to a buy-sell agreement with its shareholders, had
agreed to repurchase, at a price to be determined by a formula, all or a
part of the shares of a shareholder who becomes deceased. Payment was to be
10% down with the balance payable over ten years. In addition, the Company
has options to purchase shares of any stockholder desiring to dispose of
shares during their lifetime.
-9-
<PAGE> 13
MID-CENTRAL PLASTICS, INC.
NOTES TO THE FINANCIAL STATEMENTS
Years Ended December 31, 1997 and 1996
9 - MAJOR CUSTOMERS
Sales to two publicly traded, international customers consisted of
approximately 68% of total sales for 1997. Sales to the one major
customer, a manufacturer of agricultural related machinery and equipment,
totaled 50% for 1997. This percentage was approximately 59% of total
sales for 1996.
A second customer grew to become a major customer during 1997. This
manufacturer of snowmobiles and recreational vehicles, purchased 18% of
all sales for 1997.
Sales to fifteen individual operating entities of the agricultural
customer and the three operating entities for the recreational vehicle
manufacturer have been aggregated for calculation of these percentages.
Total accounts receivable from the agricultural customer and the
recreational vehicle manufacturer at December 31, 1997 amounted to
$1,546,004 and $412,304 respectively.
10 - EMPLOYEE BENEFIT PLANS
The Company sponsors a profit sharing and 401(k) salary-reduction plan
which covers substantially all employees. Contributions to the profit
sharing plan are at the discretion of the Board of Directors. Profit
sharing plan contributions of $351,486 and $126,415 was approved for 1997
and 1996 respectively. The Company matches 25% of an employee's voluntary
salary-reduction contributions to a maximum 3% of total compensation. The
employer matching expense was $66,891 for 1997 and $61,131 for 1996. Fees
paid by the Company for plan administration for 1997 and 1996 was $29,120
and $24,293, respectively.
11 - CONTINGENCY - PENDING IRS EXAMINATION
Late in 1997, the Internal Revenue Service started an examination of the
Company's federal income tax returns for the years 1995 and 1996. The
examining agent has focused on two issues. First, he is requesting
addition information as to the allocation of overhead to the Company's
finished goods inventory. Second, the agent is considering the
possibility that the costs to obtain International Standards Organization
(ISO 9000) certification may be a capital asset subject to depreciation
over seventeen years. These costs have been previously expensed when
incurred.
Management feels the effect of any adjustment proposed by the agent will
not have a material affect to the financial statements.
12 - SUBSEQUENT EVENT
On March 6, 1998, the Stockholders of the Company received an offer to
purchase their ownership interest in the Company. This offer was subject
to accomplishment of certain conditions which were being pursued.
-10-
<PAGE> 14
MID-CENTRAL PLASTICS, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
<PAGE> 15
MID-CENTRAL PLASTICS, INC.
Years Ended December 31, 1996 and 1995
CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS
Statements of Income 2
Balance Sheets 3
Statements of Retained Earnings 4
Statements of Cash Flows 5
NOTES TO THE FINANCIAL STATEMENTS 6-11
</TABLE>
<PAGE> 16
Board of Directors and Stockholders
Mid-Central Plastics, Inc.
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheets of Mid-Central Plastics,
Inc. as of December 31, 1996 and 1995, and the related statements of income,
retained earnings and cash flows for the years then ended. 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 financial position of Mid-Central Plastics, Inc.
as of December 31, 1996 and 1995, and the results of its operations and its
cash flows for the years then ended, in conformity with generally accepted
accounting principles.
/s/ Northup, Haines, Kaduce, Schmid, Macklin, P.C.
February 8, 1997
West Des Moines, Iowa
-1-
<PAGE> 17
MID-CENTRAL PLASTICS, INC.
STATEMENTS OF INCOME
Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
SALES
Plastic $19,392,512 $17,076,399
Molds 1,797,554 1,602,796
Raw material 88,871 164,316
----------- -----------
SALES, NET 21,278,937 18,843,511
COST OF SALES 17,822,660 16,383,200
----------- -----------
GROSS PROFIT 3,456,277 2,460,311
----------- -----------
EXPENSES
Selling 526,117 493,342
General and administrative 1,682,445 1,260,737
----------- -----------
TOTAL EXPENSES 2,208,562 1,754,079
----------- -----------
OPERATING INCOME 1,247,715 706,232
----------- -----------
OTHER INCOME (EXPENSE)
Interest expense (184,961) (251,500)
Loss on sale of assets (11,105) (15,578)
Interest income 16,961 8,430
Miscellaneous income 134,958 4,262
----------- -----------
OTHER EXPENSE, NET (44,147) (254,386)
----------- -----------
INCOME BEFORE INCOME TAXES 1,203,568 451,846
PROVISION FOR INCOME TAXES - Note 3 478,176 196,778
----------- -----------
NET INCOME $ 725,392 $ 255,068
=========== ===========
EARNINGS PER SHARE - Basic and Diluted $ 27.06 $ 9.00
=========== ===========
WEIGHTED AVERAGES NUMBER OF COMMON SHARES
OUTSTANDING - Basic and Diluted 26,805 28,333
=========== =============
</TABLE>
See Notes to Financial Statements
-2-
<PAGE> 18
MID-CENTRAL PLASTICS, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995
---------- ----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 12,291 $ 35,541
Accounts receivable 2,191,513 2,211,570
Inventories - Note 1 3,116,072 2,060,935
Mold deposits - Note 2 64,098 44,261
Prepaid expenses 117,215 19,281
Deferred income tax benefit - Note 3 20,241 18,364
---------- ----------
TOTAL CURRENT ASSETS 5,521,430 4,389,952
---------- ----------
PROPERTY, PLANT AND EQUIPMENT, AT COST - Note 6
Land 30,851 30,851
Parking lot improvements 304,627 304,627
Buildings 1,935,680 1,745,779
Machinery 8,029,426 7,794,704
Office equipment 734,192 614,087
Automobiles and trucks 120,247 177,088
Equipment under construction 15,000 ----
---------- ----------
11,170,023 10,667,136
Less accumulated depreciation 8,493,574 8,003,328
---------- ----------
PROPERTY, PLANT AND EQUIPMENT, NET 2,676,449 2,663,808
---------- ----------
OTHER ASSETS
Cash surrender value, officer life insurance 40,721 24,776
Employee advances 5,629 3,493
Note receivable, stockholder - Note 4 285,008 270,989
Prepaid expenses 22,982 10,388
Deferred income tax benefit - Note 3 74,003 92,244
Non compete agreement,
net of $10,995 accumulated amortization 318,869 ----
---------- ----------
TOTAL OTHER ASSETS 747,212 403,890
---------- ----------
$8,945,091 $7,457,650
========== ==========
</TABLE>
See Notes to Financial Statements
<PAGE> 19
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995
---------- ----------
<S> <C> <C>
CURRENT LIABILITIES
Notes payable, bank - Note 5 $1,265,499 $ 659,763
Accounts payable 947,765 801,186
Other accrued expenses 352,560 176,297
Accrued income taxes 278,812 16,226
Current maturities of long
term debt - Note 6 159,266 119,507
Current maturities of deferred
compensation payable - Note 7 53,266 48,327
---------- ----------
TOTAL CURRENT LIABILITIES 3,057,298 1,821,306
---------- ----------
LONG TERM DEBT - Note 6 1,334,290 1,438,570
---------- ----------
DEFERRED COMPENSATION PAYABLE - Note 7 194,740 248,006
---------- ----------
COMMITMENTS AND CONTINGENCIES - Note 8
STOCKHOLDERS' EQUITY
Common stock, Class A, $10 par value,
authorized 200,000 shares, issued
15,000 shares 150,000 150,000
Common stock, Class B, $10 par value,
authorized 200,000 shares, issued
15,000 shares 150,000 150,000
Paid-in capital 1,520 1,520
Retained earnings 4,499,715 3,774,323
---------- ----------
4,801,235 4,075,843
LESS TREASURY STOCK, AT COST
Common stock, Class B, 5,001 shares
in 1996 and 1,667 shares in 1995 442,472 126,075
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 4,358,763 3,949,768
---------- ----------
$8,945,091 $7,457,650
========== ==========
</TABLE>
-3-
<PAGE> 20
MID-CENTRAL PLASTICS, INC.
STATEMENTS OF RETAINED EARNINGS
Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
BALANCE
Beginning of year $3,774,323 $3,519,255
NET INCOME FOR YEAR 725,392 255,068
---------- ----------
BALANCE
End of year $4,499,715 $3,774,323
========== ==========
</TABLE>
See Notes to Financial Statements
-4-
<PAGE> 21
MID-CENTRAL PLASTICS, INC.
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1996 and 1995
Increase (Decrease) in Cash
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 725,392 $ 255,068
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 592,823 617,687
Amortization of non compete agreements 10,995 ---
Deferred income taxes 18,364 16,661
Imputed interest on deferred compensation 26,673 31,154
Loss on sale of assets 11,105 15,578
Increase in cash value of life insurance (15,945) (12,305)
Changes in assets and liabilities:
Accounts receivable 20,057 255,837
Inventories (1,055,137) (65,326)
Prepaid expenses and mold deposits (117,771) (10,798)
Accounts payable and accrued expenses 322,842 (312,168)
Accrued income taxes 262,586 10,610
Deferred compensation payable (75,000) (75,000)
----------- -----------
Net Cash Provided by Operating Activities 726,984 727,007
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (653,659) (224,195)
Proceeds from sale of assets 37,090 28,000
Advances to stockholder (14,019) (109,741)
Employee advance increase (2,136) (1,750)
Advance payment on auto leases (12,594) (21,881)
Acquisition of non compete agreements (329,864) ---
----------- -----------
Net Cash Used in Investing Activities (975,182) (329,567)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Additions (reductions) to operating line of credit, net 605,736 (1,440,237)
Payments on long term debt (1,664,391) (72,453)
Proceeds from long term debt 1,600,000 1,000,000
Purchase of treasury stock (316,397) ---
----------- -----------
Net Cash Provided by (Used in) Financing Activities 224,948 (512,690)
----------- -----------
NET CHANGE IN CASH (23,250) (115,250)
CASH, BEGINNING OF YEAR 35,541 150,791
----------- -----------
CASH, END OF YEAR $ 12,291 $ 35,541
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 158,293 $ 220,044
Income taxes 197,226 189,697
</TABLE>
See Notes to Financial Statements
-5-
<PAGE> 22
MID-CENTRAL PLASTICS, INC.
NOTES TO THE FINANCIAL STATEMENTS
Years Ended December 31, 1996 and 1995
DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS - Mid-Central Plastics, Inc., founded in 1960, is a
manufacturer and molder of custom plastic component parts. Most of the
Company's business activity is with customers located within Iowa and
surrounding states. In the normal course of business, the Company extends
unsecured credit to its customers.
INVENTORIES - Inventories are stated at the lower of cost or market value.
Cost is determined using the first-in, first-out method. Plant overhead is
allocated to finished goods inventory in direct proportion to the plant
wages included in finished goods.
ACCOUNTS RECEIVABLE - The Company considers accounts receivable to be fully
collectible; accordingly, no allowance for doubtful accounts is required.
If amounts become uncollectible, they will be charged to operations when
that determination is made.
PREPAID AUTO LEASE - The Company is amortizing the cost of advance
automobile lease payments over the twenty-four month term of the related
lease.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The Company considers the recorded
value of its financial assets and liabilities, which consist primarily of
cash, accounts receivable, accounts payable, notes payable and
long-term debt, to approximate the fair value of the respective assets an
liabilities.
EARNINGS PER SHARE - Earning per share is computed under the provisions of
Statement of Financial Accounting Standards No. 128, Earnings Per Share,
which was adopted retroactively by the Company at December 31, 1994.
Amounts reported as earnings per share for the periods ended December 31,
1996 and December 31, 1995, reflect the earnings available to stockholders
for the period divided by the weighted average number of common shares
outstanding during the period. The Company has no dilutive securities as
defined under SFAS No. 128, therefore, a single earnings per share amount
is presented in the financial statements.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are carried
at the lower of depreciated cost or fair market value. Expenditures for
property and those which substantially increase useful lives are
capitalized. Maintenance, repairs and minor renewals are expensed as
incurred. When assets are retired or otherwise disposed of, their costs
and related accumulated depreciation are removed from the accounts and the
resulting gains or losses are included in income.
Depreciation is provided by both the straight-line and declining balance
methods over estimated useful lives ranging from five to ten years on
equipment and fifteen to thirty-three years on buildings and improvements.
AMORTIZATION - Covenants not to compete by former shareholders acquired in
1996 are being amortized using the straight line method over a period of
fifteen years. Amortization expense for December 31, 1996 was $10,995.
-6-
<PAGE> 23
ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could vary from
estimates that were used.
RECLASSIFICATION - Certain amounts in the 1995 financial statements have
been reclassified to reflect comparability with account classifications
adopted for 1996. Such reclassification had no effect on previously
reported net income.
-7-
<PAGE> 24
MID-CENTRAL PLASTICS, INC.
NOTES TO THE FINANCIAL STATEMENTS
Years Ended December 31, 1996 and 1995
1 - INVENTORIES
The components of inventories as of December 31 consisted of the following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Raw materials $1,854,979 $1,310,434
Finished goods 1,143,344 681,399
Packaging supplies 117,749 69,102
---------- ----------
$3,116,072 $2,060,935
========== ==========
</TABLE>
2 - MOLD DEPOSITS
The Company, for the convenience of its customers, contracted with outside
diemakers for the fabrication of molds required to produce specific
customer orders. Deposits at year-end represented amounts paid to
diemakers which had not been billed to customers. Generally, one-half of
mold price is billed at the time mold production commences and the balance
upon production of the first piece of product. The molds were the property
of the customers. Mold deposits at December 31, 1996 and 1995 totaled
$64,098 and $44,261, respectively.
3 - INCOME TAXES
Income tax expense for the years ended December 31, 1996 and 1995 is
comprised of the following:
<TABLE>
<CAPTION>
1996 1995 Current
-------- --------
<S> <C> <C> <C>
Federal $402,339 $160,481
State 57,473 19,636
-------- --------
Total Current 459,812 180,117
Deferred 18,364 16,661
-------- --------
Total Provision $478,176 $196,778
======== ========
</TABLE>
A reconciliation of income taxes computed using the federal statutory rate
of 34% in 1996 and 1995 to the income tax provision is as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Tax at the federal statutory rate $409,213 $153,627
State income tax, net of federal
tax benefit 36,191 11,716
Nondeductible expenses and other 32,772 31,435
-------- --------
$478,176 $196,778
======== ========
</TABLE>
-8-
<PAGE> 25
MID-CENTRAL PLASTICS, INC.
NOTES TO THE FINANCIAL STATEMENTS
Years Ended December 31, 1996 and 1995
As of December 31, 1996, a deferred tax asset of $94,244 ($112,608 at
December 31, 1995) had been recognized for the taxable temporary difference
related to deferred employee compensation. For financial statement
purposes, deferred employee compensation was deducted as the services were
performed. For tax purposes, these costs were not deductible until paid
(see Note 7).
The deferred tax asset has been classified in the balance sheet as follows:
<TABLE>
<S> <C>
Current $20,241
Long term 74,003
-------
Total deferred income tax benefit $94,244
=======
</TABLE>
The Company has not recorded a valuation allowance for the deferred tax
asset as they feel that it is more likely then not that it will be
ultimately realized.
4 - NOTE RECEIVABLE, STOCKHOLDER
The Company had made cumulative advances totaling $285,008 in 1996 and
$270,989 in 1995 to two of its stockholders. These notes bear interest
equal to the federal short term applicable rate adjusted monthly (5.60% at
December 31, 1996 and 5.51% at December 31, 1995) and are due upon demand.
5 - NOTES PAYABLE, BANK
On December 31, 1996, the Company had available a $2,000,000 line of credit
with Bankers Trust Company. The line of credit bears interest at the
bank's prime rate adjusted daily (8.25%). Interest only is paid monthly
until maturity of the Note on May 1, 1998 when any unpaid principal balance
plus accrued interest is due. This loan is secured by all assets of the
Company.
At December 31, 1995, the line of credit available from Firstar Bank was
$1,700,000. Interest only was payable monthly at the bank's prime rate
adjusted daily (8.5%), The note, maturing on June 30, 1996, was also
secured by all assets of the Company.
The Company utilized a managed disbursement account in conjunction with
both the above operating lines of credit. Under the agreement, idle cash
in the operating checking account is applied daily against the operating
line of credit balance. If the checking account balance drops below zero,
cash is advanced from the operating credit line to eliminate any
deficiency. Interest is credited to the Company when the operating
checking account balance exceeds outstanding advances again the credit
line.
-9-
<PAGE> 26
MID-CENTRAL PLASTICS, INC.
NOTES TO THE FINANCIAL STATEMENTS
Years Ended December 31, 1996 and 1995
At December 31, 1996 and 1995 the outstanding balances under the operating line
of credit consisted of the following:
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
Direct loans $ 868,839 $ 39,000
Outstanding checks awaiting clearing 396,660 620,763
---------- ---------
Total balance due on credit line $1,265,499 $ 659,763
========== =========
</TABLE>
6 - LONG TERM DEBT
Long term debt consisted of the following:
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
Mortgage loan payable to Bankers Trust Company
due in monthly installments of $13,283 plus
interest at the bank's prime rate adjusted
daily (8.25% at December 31, 1996); this loan
is secured by equipment and real estate $1,493,686 $ --
Mortgage loan payable to payable to Firstar Bank due in
monthly installments of $7,873 including interest at the
bank's prime rate adjusted daily (8.50% at December 31, 1995);
this loan was secured by equipment and real estate. -- 590,591
Mortgage loan payable to Firstar Bank due in
Monthly installments of $12,740 including interest at the
bank's prime rate adjusted daily (8.50% at December 31, 1995);
this loan was secured by equipment and real estate. -- 967,486
---------- ---------
1,493,686 1,558,077
Less current maturities 159,396 119,507
---------- ---------
Total long term debt $1,334,290 $1,438,570
========== ==========
</TABLE>
Payments required on long term debt in future years are as follows:
<TABLE>
<S> <C>
1997 $159,396
1998 159,396
1999 159,396
2000 159,396
2001 159,396
Thereafter 696,706
</TABLE>
-10-
<PAGE> 27
MID-CENTRAL PLASTICS, INC.
NOTES TO THE FINANCIAL STATEMENTS
Years Ended December 31, 1996 and 1995
7 - DEFERRED COMPENSATION PAYABLE
The Company has a deferred compensation obligation that originated from an
employment contract with the former chief executive officer who retired in
1991. The compensation agreement provided for a ten year annuity based on
years of service with the Company from the effective date of the agreement
(January 1, 1976) to his retirement on January 1, 1991. Liability for the
ten year annuity, which is being paid in monthly installments of $6,250,
had been accrued at its present value using a discount rate of 9.75% and
totaled $248,006 and $296,333 at December 31, 1996 and 1995, respectively.
The current and long term portion of the deferred compensation payable are
reported in the balance sheet.
8 - COMMITMENTS
The Company, pursuant to a buy-sell agreement with its shareholders, had
agreed to repurchase, at a price to be determined by a formula, all or a
part of the shares of a shareholder who becomes deceased. Payment was to
be 10% down with the balance payable over ten years. In addition, the
Company has options to purchase shares of any stockholder desiring to
dispose of shares during their lifetime.
9 - MAJOR CUSTOMERS
Sales to one publicly traded, international customer consisted of
approximately 59% of total sales for 1996. Sales to the fourteen
individual operating entities of this major customer have been combined for
calculation of this percentage. Total sales to this same customer in 1995
was 61% of total sales. The aggregate accounts receivable balance for this
major customer was $1,322,423 and $1,196,003 in 1996 and 1995,
respectively.
10 - EMPLOYEE BENEFIT PLANS
The Company sponsors a profit sharing and 401(k) salary-reduction plan
which covers substantially all employees. Contributions to the profit
sharing plan are at the discretion of the Board of Directors. A profit
sharing plan contribution of $126,415 was approved for 1996; whereas no
contribution was made in 1995. The Company matches 25% of employee,
voluntary salary-reduction contributions to a maximum 3% of total
compensation. The employer matching expense was $61,131 for 1996 and
$45,581 for 1995. Fees paid by the Company for plan administration for
1996 and 1995 was $24,293 and $18,609, respectively.
-11-
<PAGE> 1
Exhibit 99.3
PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS
On May 29, 1998, Morton Industrial Group, Inc. (Morton) acquired all of the
outstanding stock of Mid-Central Plastics, Inc. (Mid-Central). The acquisition
was accounted for as a purchase, with the purchase price allocated among the
assets acquired and the liabilities assumed based on their estimated fair
market values. The results of Mid-Central's operations will be included in the
consolidated statement of earnings of the Company from the acquisition date.
The accompanying unaudited pro forma condensed combined statements of earnings
combines the consolidated statement of earnings of Morton for the six months
ended June 27, 1998 and the year ended December 31, 1997 and the statement of
earnings of Carroll George, Inc. (George) for the six months ended June 27,
1998 and the year ended September 30, 1997 and the statement of earnings of B &
W Metal Fabricators, Inc. (B & W) and Mid-Central for the six months ended June
27, 1998 and the year ended December 31, 1997, accounting for the purchases of
George, B & W, and Mid-Central as though the purchase had occurred at the
beginning of the respective period.
A pro forma balance sheet at June 27, 1998 is not required since Morton's
balance sheet in Form 10-Q for the quarter ended June 27, 1998 reflected these
acquisitions.
The pro forma condensed combined statements of earnings may not be indicative
of the actual results of the transactions. In particular, the pro forma
condensed combined statements of earnings are based on management's current
estimate of the allocations of the purchase prices, the actual allocation of
which may differ. Further, the pro forma condensed combined statements of
earnings reflect only those adjustments that are "factually supportable" as
defined in the rules of the Securities and Exchange Commission. Accordingly,
they do not reflect certain changes in the operating cost structure of the
companies acquired which were made in connection with the transactions.
The accompanying unaudited pro forma condensed combined statements of earnings
should be read in conjunction with the historical financial statements of
Morton, George, B & W, and Mid-Central.
<PAGE> 2
PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 27, 1998
--------------------------------------------------------------------------------------------------
HISTORICAL
-----------------------------------------------------------
MID- PRO FORMA
MORTON GEORGE B & W CENTRAL ADJUSTMENTS COMBINED
------------ ----------- ----------- ------------ ------------------ -------------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 57,038 $ 14,915 $ 5,320 $ 16,324 $ (325) (5) $ 93,272
Cost of sales 47,643 13,110 3,903 13,818 (325) (5) 78,415
266 (4)
----------- ----------- ----------- ----------- ----------- -----------
Gross profit 9,395 1,805 1,417 2,506 (266) 14,857
----------- ----------- ----------- ----------- ----------- -----------
Operating expenses:
Selling expenses 1,465 772 161 362 -- 2,760
Administrative expenses 5,032 792 621 724 196 (6) 7,365
----------- ----------- ----------- ----------- ----------- -----------
Total operating
expenses 6,497 1,564 782 1,086 196 10,125
----------- ----------- ----------- ----------- ----------- -----------
Operating income 2,898 241 635 1,420 (462) 4,732
----------- ----------- ----------- ----------- ----------- -----------
Other income (expense):
Interest expense (1,445) (76) (51) (96) (992) (2) (2,660)
Miscellaneous 30 3 12 61 -- 106
----------- ----------- ----------- ----------- ----------- -----------
Total other income
(expense) (1,415) (73) (39) (35) (992) (2,554)
----------- ----------- ----------- ----------- ----------- -----------
Earnings before
income taxes 1,483 168 596 1,385 (1,454) 2,178
Income tax expense (benefit) 97 (24) 158 551 (570) (3) 212
----------- ----------- ----------- ----------- ----------- -----------
NET EARNINGS $ 1,386 $ 192 $ 438 $ 834 $ (884) $ 1,966
=========== =========== =========== =========== =========== ===========
Earnings per share:
Basic $ .35 $ 25.86 $ 7.49 $ 27.80 $ .49
=========== =========== =========== =========== ===========
Diluted $ .29 $ 25.86 $ 7.49 $ 27.80 $ .42
=========== =========== =========== =========== ===========
Weighted average number of
shares:
Basic 4,001,944 7,424 58,501 30,000 4,001,944
=========== =========== =========== =========== ===========
Diluted 4,706,374 7,424 58,501 30,000 4,706,374
=========== =========== =========== =========== ===========
</TABLE>
<PAGE> 3
PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
------------------------------------------------------------------------
HISTORICAL
----------------------------------------
MID- PRO FORMA
MORTON (1) GEORGE B & W CENTRAL ADJUSTMENTS COMBINED
---------- -------- -------- -------- ------------------ ---------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales $94,402 $22,839 $7,699 $28,467 $(16) (5) $153,391
Cost of sales 83,267 19,163 5,725 23,307 (16) (5) 131,828
382 (4)
---------- -------- -------- -------- ------- ---------
Gross profit 11,135 3,676 1,974 5,160 (382) 21,563
---------- -------- -------- -------- ------- ---------
Operating expenses:
Selling expenses 2,231 1,210 281 649 - 4,371
Administrative expenses 13,746 1,223 1,225 1,794 343 (6) 18,331
---------- -------- -------- -------- -------- ---------
Total operating
expenses 15,977 2,433 1,506 2,443 343 22,702
---------- -------- -------- -------- -------- ---------
Operating income
(loss) (4,842) 1,243 468 2,717 (725) (1,139)
---------- -------- -------- -------- -------- ---------
Other income (expense):
Interest expense (3,375) (198) (122) (184) (2,391) (2) (6,270)
Miscellaneous 84 - - 30 - 114
---------- -------- -------- -------- -------- ---------
Total other income
(expense) (3,291) (198) (122) (154) (2,391) (6,156)
---------- -------- -------- -------- -------- ---------
Earnings (loss)
before income
taxes (8,133) 1,045 346 2,563 (3,116) (7,295)
Income tax expense (benefit) (3,224) 375 141 983 (1,499) (3) (3,224)
---------- ------- -------- -------- -------- ---------
NET EARNINGS (LOSS) $ (4,909) $670 $205 $1,580 $(1,617) $(4,071)
========== ======== ======== ======== ======== =========
Earnings (loss) per share:
Basic $(2.52) $90.25 $3.50 $52.68 $(2.09)
========== ======== ======== ======== =========
Diluted $(2.52) $90.25 $3.50 $52.68 $(2.09)
========== ======== ======== ======== =========
Weighted average number
of shares:
Basic 1,944,444 7,424 58,501 30,000 1,944,444
========== ======== ======== ======== =========
Diluted 1,944,444 7,424 58,501 30,000 1,944,444
========== ======== ======== ======== =========
</TABLE>
<PAGE> 4
PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS (CONTINUED)
(1) Amounts for Morton for the twelve month period ended December 31, 1997
were determined by adding results for the six months ended June 30, 1997
and the results for the six months ended December 31, 1997 adjusting the
income tax provision to the estimated effective rate. Subsequent to June
30, 1997, Morton changed its fiscal year end from June 30 to December 31.
(2) Represents incremental interest expense relating to the additional debt
of Morton resulting from the completed acquisition of George, B & W, and
Mid-Central, net of the interest savings resulting from refinancing
existing George, B & W, and Mid-Central debt at a lower interest rate.
(3) Represents adjustment of the income tax provision to the estimated
amount. Morton has net operating loss carryforwards which could be
utilized to offset the taxable income of George, B & W, and Mid-Central.
A deferred tax asset has been recorded as part of the purchase price
allocation.
(4) Represents incremental depreciation expense resulting from adjustments to
asset bases and useful lives relating to the acquisition.
(5) Elimination of sales and purchases between Morton and B & W.
(6) Represents amortization of goodwill and the noncompete agreements.
