<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) March 30, 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.
CARROLL GEORGE, INC., ACQUISITION
As previously reported on Form 8-K filed April 14, 1998, on March 30,
1998, the Company acquired all of the issued and outstanding capital stock of
Carroll George, Inc. ("Carroll George"), an Iowa corporation, from its 30
shareholders. The Company paid a total purchase price of $8,104,000, including
payment of all of Carroll George's revolving credit and term loan debt. The
Company used a draw on its line of credit with Harris Trust and Savings Bank to
fund the purchase price and debt payoff. The purchase price that the Company
paid to the Carroll George shareholders was the result of arm's length
bargaining between the Company and representatives of the shareholders.
Carroll George manufactures components from polyurethane foam plastic and
similar materials for sale to the agricultural equipment, trucking, and off
road vehicle manufacturers. Carroll George's largest selling products are
fully featured headliners and other interior assemblies for vehicle cabs.
These headliners and interior assemblies contain dome lights, HVAC ducts and
hookups, sound system wiring, and other components. Carroll George's largest
customers are Caterpillar, Deere & Company, and J. I. Case.
Carroll George is located in Northwood, Iowa, where it employs
approximately 350 persons. Among the assets that the Company acquired as a
result of its purchase of the stock of Carroll George are ten acres of land
containing a 118,000 square foot manufacturing, warehouse, and office facility;
plastic line bending equipment; hot melt laminating machinery; robotic routers;
multiple cavity and rotary thremoforming machinery, robotic water jet cutting
equipment; vinyl and plastic perforating equipment; digital sheeting equipment;
die cutting and flame laminating machinery; and computer assisted design
equipment.
The Company currently intends to maintain Carroll George as a subsidiary
and to operate its assets in substantially the same manner in which Carroll
George employed them before the acquisition.
In connection with the acquisition, the Company entered into an employment
agreement with Gary L. George with a one year term that is renewable from year
to year. Mr. George also entered into a noncompetition agreement with the
Company that continues for five years after the termination of his employment
by Carroll George. Prior to the closing of the acquisition, there was no
material relationship between Mr. George or any of the other selling
shareholders and the Company or any of its officers, directors, or affiliates
or any associate of any director or officer of the Company.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
The following documents are filed as Exhibits to this Form 8-K/A:
<TABLE>
<CAPTION>
Exhibit No. Document
- ----------- --------
<S> <C>
- --------------------------------------------------------------------------------
Stock Purchase Agreement among the Company and Gary L. George and
Gloria J. George dated March 2, 1998 - incorporated by reference
10.1 to Exhibit 10.1 to the Company's Form 8-K filed April 14, 1998
- --------------------------------------------------------------------------------
99.1 Audited Financial Statements of Carroll George, Inc., for the years
- --------------------------------------------------------------------------------
</TABLE>
2
<PAGE> 3
- --------------------------------------------------------------------------------
ended September 30, 1997, and 1996
- --------------------------------------------------------------------------------
99.2 Pro Forma Condensed Combined Statement of Earnings
- --------------------------------------------------------------------------------
3
<PAGE> 4
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: June 11, 1998 By: /s/ William D. Morton
-------------------------------------
William D. Morton
Chairman, President, and Chief
Executive Officer
4
<PAGE> 5
EXHIBIT INDEX
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
EXHIBIT NO. DESCRIPTION
- --------------------------------------------------------------------------------
Stock Purchase Agreement among the Company and Gary L. George and
Gloria J. George dated March 2, 1998 - incorporated by reference
10.1 to Exhibit 10.1 to the Company's Form 8-K filed April 14, 1998
- --------------------------------------------------------------------------------
Audited Financial Statements of Carroll George for the years ended
99.1 September 30, 1997, and 1996
- --------------------------------------------------------------------------------
99.2 Pro Forma Condensed Combined Statement of Earnings
- --------------------------------------------------------------------------------
</TABLE>
5
<PAGE> 1
EXHIBIT 99.1
CARROLL GEORGE, INC.
FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996
<PAGE> 2
CARROLL GEORGE, INC.
TABLE OF CONTENTS
SEPTEMBER 30, 1997
Page
----
Independent Auditors' Report 1
Financial Statements
Balance Sheet 2-3
Statement of Income and Retained Earnings 4
Statement of Cash Flows 5-6
Notes to Financial Statements 7-13
<PAGE> 3
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Carroll George, Inc.
Northwood, Iowa 50459
We have audited the accompanying balance sheets of Carroll George, Inc. as of
September 30, 1997 and 1996, and the related statements of income and 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 Carroll George, Inc. as of
September 30, 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.
Bertram Cooper & Co, L.L.P.
- -----------------------------------------
Certified Public Accountants
Albert Lea, MN 56007
November 11, 1997
1
<PAGE> 4
CARROLL GEORGE, INC.
BALANCE SHEET
SEPTEMBER 30, 1997 AND 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
---------- ----------
CURRENT ASSETS
<S> <C> <C>
Cash $ 50,616 $ 240,993
Accounts receivable - trade 2,736,132 2,144,414
Other miscellaneous receivables 640 446
Inventories - at lower of cost (FIFO) or market 2,724,092 2,004,203
Prepaid expense 3,278 19,427
Deferred income taxes 69,326 58,246
---------- ----------
Total current assets 5,584,084 4,467,729
---------- ----------
PROPERTY, PLANT AND EQUIPMENT
Land 26,422 26,422
Building 1,790,098 1,664,039
Plant equipment 3,503,373 2,930,085
Computer equipment and software 394,198 303,864
Office furniture and equipment 108,660 90,956
Trucks and trailers 30,904 42,597
---------- ----------
Total property, plant and equipment 5,853,655 5,057,963
Less accumulated depreciation 2,106,898 1,760,348
---------- ----------
Net property, plant and equipment 3,746,757 3,297,615
---------- ----------
OTHER ASSETS
Cash surrender and annuity value of
officers life insurance 80,888 75,558
Patronage equities 1,339 1,339
Investment -- 450
---------- ----------
Total other assets 82,227 77,347
---------- ----------
Total assets $9,413,068 $7,842,691
========== ==========
</TABLE>
2
<PAGE> 5
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1997 1996
---------- ----------
CURRENT LIABILITIES
<S> <C> <C>
Note payable - bank $ 570,500 $ 420,500
Current portion of long-term debt 382,411 278,294
Accounts payable 1,709,876 1,510,927
Accrued wages and commissions 401,304 295,893
Accrued payroll taxes 107,000 77,924
Accrued interest 10,259 3,961
Other liabilities 14,653 12,801
Accrued income taxes 118,701 114,892
---------- ----------
Total current liabilities 3,314,704 2,715,192
---------- ----------
LONG-TERM DEBT - NET OF CURRENT PORTION 1,024,613 781,335
---------- ----------
DEFERRED INCOME TAXES 369,241 311,395
---------- ----------
STOCKHOLDERS' EQUITY
Common stock - no par value - stated value $12.50 per share - 25,000 shares
authorized - 9,062 shares issued of which 1,638 and 1,638 were held in
treasury at September 30, 1997 and 1996, respectfully 113,275 113,275
Paid in surplus 36,420 36,420
Retained earnings 4,597,815 3,928,074
---------- ----------
Total 4,747,510 4,077,769
Less treasury stock - at cost 43,000 43,000
---------- ----------
Total stockholders' equity 4,704,510 4,034,769
---------- ----------
Total liabilities and stockholders' equity $9,413,068 $7,842,691
========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
3
<PAGE> 6
CARROLL GEORGE, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------------------- -------------------------
Percent Percent
Amount to Sales Amount to Sales
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $22,838,649 100.0 % $17,892,853 100.0 %
----------- ----------- ----------- -----------
COST OF GOODS SOLD
Inventories - beginning 2,004,203 8.8 1,920,768 10.7
Purchases 12,289,322 53.8 9,548,481 53.4
----------- ----------- ----------- -----------
Total 14,293,525 62.6 11,469,249 64.1
Less inventory - ending 2,724,092 11.9 2,004,203 11.2
----------- ----------- ----------- -----------
Cost of material 11,569,433 50.7 9,465,046 52.9
Direct labor 3,786,207 16.6 2,682,555 15.0
Indirect labor 1,200,624 5.3 859,355 4.8
Direct manufacturing expense 2,387,422 10.5 1,857,375 10.4
----------- ----------- ----------- -----------
Total cost of goods sold 18,943,686 83.1 14,864,331 83.1
----------- ----------- ----------- -----------
GROSS PROFIT 3,894,963 16.9 3,028,522 16.9
----------- ----------- ----------- -----------
EXPENSES
Material control 163,118 0.7 108,010 0.6
Trucking and shipping 55,770 0.2 72,919 0.4
Engineering 490,702 2.1 398,824 2.2
Executive 838,784 3.7 741,437 4.1
Selling 719,082 3.1 534,586 3.0
Administrative 383,820 1.7 254,529 1.4
Interest expense 198,439 0.9 162,060 0.9
----------- ----------- ----------- -----------
Total expenses 2,849,715 12.4 2,272,365 12.6
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAX 1,045,248 4.5 756,157 4.3
INCOME TAX 375,507 1.6 280,984 1.6
----------- ----------- ----------- -----------
NET INCOME 669,741 2.9 % 475,173 2.7 %
=========== ===========
RETAINED EARNINGS -
Beginning of year 3,928,074 3,452,901
----------- -----------
RETAINED EARNINGS -
End of year $ 4,597,815 $ 3,928,074
=========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
4
<PAGE> 7
CARROLL GEORGE, INC.
STATEMENT OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Cash received from customers $ 22,244,697 $ 17,375,369
Cash paid to suppliers and employees (21,607,045) (16,223,715)
Interest received 14,962 21,424
Interest paid (192,141) (158,098)
Income tax refunds (payments) (324,932) (221,667)
------------ ------------
Net cash provided by operating activities 135,541 793,313
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (819,433) (870,417)
Increase in value of officers life insurance (5,330) (5,074)
Proceeds from sale of equipment 1,450 --
------------ ------------
Net cash used in investing activities (823,313) (875,491)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net loans under line of credit agreement 150,000 20,500
Proceeds from issuance of long-term debt 700,000 169,101
Principal payment on long-term debt (352,605) (230,894)
------------ ------------
Net cash provided by (used in) financing activities 497,395 (41,293)
------------ ------------
NET DECREASE IN CASH (190,377) (123,471)
CASH - Beginning of year 240,993 364,464
------------ ------------
CASH - End of Year $ 50,616 $ 240,993
============ ============
</TABLE>
5
<PAGE> 8
<TABLE>
<CAPTION>
1997 1996
--------- ---------
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
<S> <C> <C>
Net Income $ 669,741 $ 475,173
--------- ---------
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation 367,290 301,980
Loss on disposition of equipment 1,551 --
Increase in accounts receivable (591,718) (517,484)
Increase in other miscellaneous receivables (194) (151)
Increase in inventories (719,889) (83,435)
Decrease in prepaid expenses 16,149 9,662
Increase in deferred income tax asset (11,080) (3,345)
Increase in patronage equities -- (66)
Decrease in investment 450 --
Increase in accounts payable 198,949 475,146
Increase in accrued wages and commissions 105,411 58,326
Increase in accrued payroll taxes 29,076 10,383
Increase in accrued interest 6,298 3,961
Increase in other liabilities 1,852 501
Increase in accrued income taxes 3,809 2,705
Increase in deferred income tax liability 57,846 59,957
--------- ---------
Total adjustments (534,200) 318,140
--------- ---------
NET CASH PROVIDED BY
OPERATING ACTIVITIES $ 135,541 $ 793,313
========= =========
</TABLE>
The accompanying notes are an integral part of this statement.
6
<PAGE> 9
CARROLL GEORGE, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996
A. Summary of Significant Accounting Policies
Nature of Business
The corporation manufactures upholstered parts and other finished
products from polyurethane foam plastic and similar material. It sells
these manufactured products to the farm machinery, industrial equipment
and transportation industries throughout the United States, Canada,
Mexico, Japan and Europe. The Company provides credit in the normal
course of business to customers primarily located within the United
States. The Company performs ongoing credit evaluations of its
customers and maintains allowances for doubtful accounts based on
factors surrounding the credit risk of specific customers, historical
trends, and other information. Credit losses, when realized, have been
within the range of the Company's expectations and, historically, have
not been significant. It is management's opinion that no significant
amounts of uncollectible accounts remain at September 30, 1997 and
1996.
Concentrations of Credit Risk
The Company grants credit to it's customers based on ongoing credit
evaluation of its customers' financial condition and, generally,
requires no collateral from its customers.
The Company has temporary cash investments with a financial institution
in excess of the federally insured limit.
Sales to Major Customers
Sales of 10% or more of total revenue were made to three customers for
1997 and two customers for 1996. They totaled approximately $18,140,000
for 1997 and $11,111,000 for 1996.
7
<PAGE> 10
Property and Equipment
Property and equipment are carried at cost. Depreciation of property
and equipment is provided using straight-line and accelerated methods
for financial reporting purposes at rates based on the following
estimated useful lives:
Years
-----
Building 10-39
Plant equipment 10
Office furniture and equipment 5-10
Trucks and trailers 5-10
For income tax purposes, depreciation is computed using the
straight-line and the accelerated cost recovery system and the modified
accelerated cost recovery system. Expenditures for major renewals and
betterments that extend the useful lives of property and equipment are
capitalized. Expenditures for maintenance and repairs are charged to
expense as incurred.
Income Taxes
The company provides deferred taxes for temporary differences between
tax and financial reporting of depreciation, Internal Revenue Code
Section 263A inventory costs and accrued vacation pay.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
short-term debt securities purchased with a maturity of three months or
less to be cash equivalents. The Company had no cash equivalents as of
September 30, 1997 and 1996.
Reclassifications
Certain amounts for the fiscal year ended September 30, 1996 have been
reclassified to conform with the September 30, 1997 fiscal year
presentation.
8
<PAGE> 11
B. Inventories
Inventories are composed of the following at September 30:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Raw material $2,012,973 $1,415,658
Work in process 546,643 354,119
Finished goods 164,476 234,426
---------- ----------
$2,724,092 $2,004,203
========== ==========
</TABLE>
C. Officer's Life Insurance
The Company is the beneficiary of several life insurance policies on
the life of Gary L. George as follows:
<TABLE>
<CAPTION>
Cash Surrender and
Annuity Value
Name of Face Amount ----------------------
Insurance Company of Policy 1997 1996
- ----------------------------- --------- -------- --------
<S> <C> <C> <C>
Life Investors Insurance
Company of America $ 71,800 $ 32,605 $ 30,117
Connecticut General 100,000 22,499 20,615
New York Life
Insurance Company 50,000 25,784 24,826
-------- -------- --------
$221,800 $ 80,888 $ 75,558
======== ======== ========
</TABLE>
D. Accumulated Depreciation
This amount is detailed as follows at September 30:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Building $ 529,818 $ 483,177
Plant equipment 1,289,858 1,017,325
Computer equipment and software 202,064 164,018
Office furniture and equipment 65,583 58,298
Trucks and trailers 19,575 37,530
---------- ----------
$2,106,898 $1,760,348
========== ==========
</TABLE>
9
<PAGE> 12
E. Note Payable - Bank
The Company has a $1,000,000 revolving line of credit with Norwest Bank under
a note dated January 13, 1997, due on demand. The interest rate is 1.5% over
the base rate at Norwest Bank, adjusted monthly, and is currently 10.0%.
Collateral consists of accounts receivable, inventory, equipment, general
intangibles and a guaranty of the majority stockholder. Amounts outstanding
under this line of credit were $570,500 and $420,500 at September 30, 1997
and 1996, respectively.
G. Long-Term Debt
<TABLE>
<CAPTION>
Long-term debt consists of the following: 1997 1996
----------- ----------------
<S> <C> <C>
Note dated May 25, 1989, payable to Norwest Bank with a variable interest
rate of 1.75% over Norwest National Association prime. The current interest
rate is 10.25%. Payments are $4,100 monthly including interest until October
1, 1999. The note is collateralized by real estate. $ 7,599 $ 53,407
Note dated February 3, 1995, payable to Norwest Bank with a variable interest
rate of 1.5% over Norwest National Association prime. The current interest
rate is 10.0%. Payments are $10,900 monthly including interest until January
15, 2000. The note is collateralized by accounts receivable, inventory,
equipment, general intangibles and a guaranty of the majority stockholder. 267,711 366,247
Note dated February 3, 1995, payable to Norwest Bank with a variable interest
rate of 1.5% over Norwest National Association prime. The current interest
rate is 10.0%. Payments are $12,000 monthly including interest until August
15, 2000. The note is collateralized by accounts receivable, inventory,
equipment, general intangibles and a guaranty of the majority stockholder. 384,779 484,728
Note dated April 23, 1996, payable to Norwest Bank with a variable interest
rate of 1.5% over Norwest National Association prime. The current interest
rate is 10.0%. Payments are $3,170 monthly including interest until March 20,
2001. The note is collateralized by accounts receivable, inventory,
equipment, general intangibles and a guaranty of the majority stockholder. 114,959 140,088
</TABLE>
10
<PAGE> 13
Note dated January 13, 1997, payable to Norwest Bank with a variable interest
rate of 1.5% over Norwest
<TABLE>
<S> <C> <C>
National Association prime. The current interest rate
is 9.75%. Payments are $14,700 monthly including
interest until January 13, 2002. The note is collateralized
by accounts receivable, inventory, equipment, general
intangibles and a guaranty of the majority stockholder. 623,045 -
Capitalized lease payable to IBM Credit Corporation with interest at
6.23% due in monthly installments of $583, including interest until
February, 1999, collateralized by computer equipment and software 8,931 15,159
--------------- ------------
1,407,024 1,059,629
Less current portion (382,411) (278,294)
--------------- ------------
Long-term debt $ 1,024,613 $ 781,335
=============== ============
</TABLE>
The credit agreement with the Norwest Bank places certain restrictions on the
Company. Included is a prohibition on payment of dividends and maintaining a
1.0 to 1.0 ratio of net profit plus depreciation to current maturities of
long term debt and a ratio of 1.2 total liabilities to net worth.
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Year ended September 30,
------------------------
<S> <C>
1998 $ 382,411
1999 408,713
2000 371,478
2001 184,409
2002 60,013
---------------
$ 1,407,024
===============
</TABLE>
H. Capitalized Lease
The Company has acquired computer equipment and software under a lease that
is considered to be financed and thereby capitalized. The following is a
summary of the capitalized lease information at September 30:
<TABLE>
<CAPTION>
1997 1996
--------------- ----------------
<S> <C> <C>
Assets recorded as capitalized leases $ 19,101 $ 19,101
Less accumulated depreciation 4,435 1,705
---------------- ------------------
Leased assets - net $ 14,666 $ 17,396
================ ==================
</TABLE>
11
<PAGE> 14
The charge against income resulting from depreciation of assets
recorded under capitalized leases is included with depreciation expense
on the Company's operating statement.
Future minimum lease payments, stated net of imputed interest costs,
for the balance of the lease term are as follows:
<TABLE>
<CAPTION>
Year ended
September 30,
--------------------------------------------
<S> <C>
1998 $ 6,996
1999 2,333
------------------
9,329
Less imputed interest (398)
------------------
Present value of lease obligations 8,931
Less current portion (6,627)
------------------
Long - term portion $ 2,304
==================
</TABLE>
I. Income Taxes
The components for income tax expense consist of the following at
September 30:
<TABLE>
<CAPTION>
1997 1996
-------------- ---------------
<S> <C> <C>
Taxes currently payable $ 328,741 $ 224,372
Deferred taxes 46,766 56,612
------------------ ------------------
$ 375,507 $ 280,984
================== ===================
</TABLE>
The net deferred tax benefit in the accompanying balance sheet includes
the following amounts of deferred tax assets and liabilities at
September 30:
<TABLE>
<CAPTION>
1997 1996
-------------- ----------------
<S> <C> <C>
Deferred tax liability $ 369,241 $ 311,395
Deferred tax assets 69,326 58,246
------------------ -------------------
$ 299,915 $ 253,149
================== ===================
</TABLE>
The deferred tax liability results from the use of accelerated methods
of depreciation of property and equipment. The deferred tax asset
results from accrued vacation pay for financial reporting but not
deductible for tax purposes until paid.
J. Related Party Transactions
A steel building is leased from a major shareholder and President of
the corporation as explained in Note K.
12
<PAGE> 15
K. Operating Leases
The Company is obligated under the following lease agreements:
Supplies, Inc. - $700 per month on a month-to-month basis for rent of a
steel building used for a warehouse. Supplies, Inc. is owned by Gary
George, a major shareholder and President of this corporation.
Annual rentals paid were $8,400 and $8,400 for the years ended
September 30, 1997 and 1996, respectively.
Worth County Fair Board - $700 per month on a month-to-month basis for
rent of fairground buildings used for warehouse space.
Xerox Corporation - $126 per month for three years through May, 1998,
for lease of a copier.
The following is a schedule by years of minimum future rentals on
noncancelable operating leases as of September 30, 1997:
<TABLE>
<S> <C>
1998 $ 1,008
==================
</TABLE>
L. A ten year comparison of operating results is outlined below:
<TABLE>
<CAPTION>
Earnings
Fiscal Year Percent Per Average Book Value
Ended of Share Per Share
Sept. 30 Net Sales Outstanding Outstanding
-------------------------------------------- ------------- --------------- ----------------
<S> <C> <C> <C>
1997 2.9 % $ 90.21 $ 633.69
1996 2.7 64.00 543.47
1995 2.2 43.29 479.47
1994 0.7 11.73 413.80
1993 2.6 36.19 402.06
1992 4.6 61.14 365.87
1991 3.7 41.07 312.47
1990 6.3 77.08 271.40
1989 7.4 73.50 194.31
1988 7.6 50.75 120.81
</TABLE>
13
<PAGE> 1
PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS
The following unaudited pro forma condensed combined statements of earnings
combines the consolidated statement of earnings of Morton Industrial Group, Inc.
(Morton) for the quarter ended April 4, 1998 and the year ended December 31,
1997 and the statement of earnings of Carroll George, Inc. (George) for the
quarter ended April 4, 1998 and the year ended September 30, 1997, accounting
for the purchase of Carroll George, Inc. as though the purchase had occurred at
the beginning of the respective period. A pro forma balance sheet at April 4,
1998 is not required since Morton's balance sheet in the Form 10-Q for the
quarter ended April 4, 1998 reflected the George acquisition.
<TABLE>
<CAPTION>
QUARTER ENDED APRIL 4, 1998
-------------------------------------------------------------
HISTORICAL
-------------------- PRO FORMA
MORTON GEORGE ADJUSTMENTS COMBINED
------ ------ ----------- --------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Net sales $ 30,672 $ 6,941 $ - $ 37,613
Cost of sales 25,956 6,173 - 32,129
----------- ----------- --------- ------------
Gross profit 4,716 768 - 5,484
----------- ----------- --------- ------------
Operating expenses:
Selling expenses 767 370 - 1,137
Administrative expenses 2,395 428 - 2,823
----------- ----------- --------- ------------
Total operating expenses 3,162 798 - 3,960
----------- ----------- --------- ------------
Operating income (loss) 1,554 (30) - 1,524
----------- ----------- --------- ------------
Other income (expense):
Interest expense (546) (75) (105)(2) (726)
Miscellaneous 22 3 - 25
----------- ----------- --------- ------------
Total other income (expense) (524) (72) (105) (701)
----------- ----------- --------- ------------
Earnings (loss) before
income taxes 1,030 (102) (105) 823
Income taxes 72 (40) - 32
----------- ----------- --------- ------------
NET EARNINGS (LOSS) $ 958 $ (62) $ (105) $ 791
=========== =========== ========= ============
Earnings (loss) per share:
Basic $ 0.24 $ (8.35) $ 0.20
=========== =========== ============
Diluted $ 0.20 $ (8.35) $ 0.17
=========== ============ ============
Weighted average number of shares:
Basic 4,001,944 7,424 4,001,944
=========== =========== ============
Diluted 4,687,917 7,424 4,687,917
=========== =========== ============
</TABLE>
<PAGE> 2
PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-------------------------------------------------------------
HISTORICAL
-------------------- PRO FORMA
MORTON(1) GEORGE ADJUSTMENTS COMBINED
--------- ------ ----------- --------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Net sales $ 94,402 $ 22,839 $ - $ 117,241
Cost of sales 83,267 19,163 - 102,430
----------- ----------- --------- ------------
Gross profit 11,135 3,676 - 14,811
----------- ----------- --------- ------------
Operating expenses:
Selling expenses 2,231 1,210 - 3,441
Administrative expenses 13,746 1,223 - 14,969
----------- ----------- --------- ------------
Total operating expenses 15,977 2,433 - 18,410
----------- ----------- --------- ------------
Operating income (loss) (4,842) 1,243 - (3,599)
----------- ----------- --------- ------------
Other income (expense):
Interest expense (3,375) (198) (354)(2) (3,927)
Miscellaneous 84 - - 84
----------- ----------- --------- ------------
Total other income (expense) (3,291) (198) (354) (3,843)
----------- ----------- --------- ------------
Earnings (loss) before
income taxes (8,133) 1,045 (354) (7,442)
Income taxes (3,224) 375 (375)(3) (3,224)
----------- ----------- --------- ------------
NET EARNINGS (LOSS) $ (4,909) $ 670 $ 21 $ (4,218)
=========== =========== ========= ============
Earnings (loss) per share:
Basic $ (2.52) $ 90.25 $ (2.17)
=========== =========== ============
Diluted $ (2.52) $ 90.25 $ (2.17)
=========== =========== ============
Weighted average number of shares:
Basic 1,944,444 7,424 1,944,444
=========== =========== ============
Diluted 1,944,444 7,424 1,944,444
=========== =========== ============
</TABLE>
(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, net of the
interest savings resulting from refinancing existing George 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. A deferred tax asset
would have been recorded as part of the purchase price allocation.
